USPH - NYSE

Good day, and thank you for standing by. Welcome to the U.S. Physical Therapy Third Quarter 2025 and Full Year Earnings Conference Call. [Operator Instructions] Please be advised that today's call is being recorded. [Operator Instructions] I'd now like to turn the call over to Chris Reading, Chairman and CEO. Please go ahead, sir.

Thank you. Good morning, and welcome, everyone, to U.S. Physical Therapy's third quarter 2025 earnings call. We've got a few of our executive team on the line with me this morning, including Carey Hendrickson, our Chief Financial Officer; Eric Williams, our President and COO of East; Rick Binstein, our Executive VP and General Counsel; Jason Curtis, our Senior Vice President of Accounting and Treasury. Before we begin to discuss our quarter and our year-to-date performance, I know we need to cover a brief disclosure. So Jason, if you would, please.

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 includes certain non-GAAP measures as defined in Regulation G and the related reconciliations can be found on the company's earnings release and the company's presentations on our website.

Thanks, Jason. So I'm going to start out, provide a little color on the quarter, also talk about some things that we're working on and how we kind of are looking into next year. I have some prepared comments that I'm going to touch on. I'm also going to go off script a little bit. I came out to my office this morning. I hadn't really thought about it before this morning. And I think if I'm right, this is my 84th earnings call. So this week on my 22nd anniversary with the company, 21 years since I took over in November of 2004. So a bunch of these. I looked at our stock as the market opened. I was a little bit surprised at the reaction, frankly. I want to hit some highlights. I want to talk about what we're working on and how we look at things going forward. So I think we're looking at things maybe a little bit differently. But -- so volume has continued to be strong for us. For the quarter, we're up 18%. But certainly, a bunch of that is Metro, which you know we completed that acquisition in November. I believe it was November of last year. They're doing great. But what I want to point out is we've added a total of 84 PT facilities. So a lot more than just Metro in this last year. And that's 84 net. So we've added actually more than that and that number is net of closures. So this last quarter, visits per clinic per day produced a new record for us for Q3 of 32.2, underscoring our ability to continue to grow. What's driving all that is the care and the service and the amazing connections that our clinical people are making every day, not just the clinical people, the people who greet our patients as they come in the door, patients come in, they're in pain, they're frightened in some cases. They're worried about the ability to do the things they've always done. As I mentioned last earnings call, last quarter, our net promoter score over 90, almost mid-90s with a 95% active promoter score for our -- across our entire company for our patients in our outpatient facilities, just incredible. So look, none of this is perfect at any given point, but we are making a difference in a lot of patients' lives. Those patients recognize the value and the service they're getting from us. They pay their bills, collect their money and then we get them back later when pickleball happens or there's something else that causes their function to be impacted. This quarter, again, maybe it's against the soft quarter a year ago a bit, but gross profit grew 30%. I haven't said those numbers in a long time. Even if you adjust out some of the noise from a year ago, still mid-teens gross profit increase number for PT. And that's in the middle of an inflationary period in a period where staff is more expensive. We impacted our salary and related cost per visit. On a year-over-year basis, it actually went down some. We're working on a number of initiatives, including AI-driven documentation, including what I refer to as the semi-virtualization of our front desk operations and that's rolling out. We have a target for that by year-end of 200 facilities, about halfway there, but we're beginning to see some impact from both of those things. And we've got more to come. We're just on the front end of the number of these things, which take some time. As we look at the year, one of the big headwinds we've been faced with quite honestly now for 5 years is this Medicare headwind. CMS produced a final rule on Friday. It came out as it often does, there were some incorrect tables in our part and that we had to contact CMS about and took them a couple of days. They looked at it. In fact, they were incorrect. They updated those tables. It's gotten a little bit better than last time we talked. I think last time -- and we're not done with our analysis. Last time, we said it was going to be about a 1.5% increase, probably a little better than that right now. This year is more complicated than most because of the significance and the change in the geographic index factors that kind of shuffled all around the country. One of the things that swung for us, it's a net positive manual therapy, which is when we put our hands on our patients, when we mobilize joints, when we restore motion again through that very upfront and close personal contact, very precise ways. We do that on almost every patient that comes in the door. Manual therapy was slated to go down. We challenged their assumptions. And in this final rule, manual therapy will go up slightly. So it reversed from a negative to a slight positive. So that's positive for us as we re-sort the impact of this final rule. The other thing that I think will be meaningfully positive is that in 2024, we went and began to roll out remote therapeutic monitoring, which was a new code for us. And the rules around that code, I'm not going to go through all of it, but it required a lot of visits and a lot of monitoring, which we did with the partner, Limber, great guys and has done a great job. And -- but it was clunky. It took a little while. We had to integrate Limber's tool into our EMR system. That took some considerable time, wasn't within our control, frankly. And by the end of the year, we hadn't gotten the traction with our partnerships that we had hoped. Now what CMS has appreciated, which is what we've appreciated, the patients who go through and have as part of their care remote therapeutic monitoring actually get better outcomes, they're more engaged with their home program and they're more adherent to their total program, which helps in their exiting function. And so CMS, again, with encouragement from groups like APTQI and others, they've reduced significantly the number of visits that it takes in order to get to a billable code. We now have a fully integrated working model through an app, which integrates well with our EMR. And so beginning 2026, this will be kind of a reinitiation of that opportunity for us, which we're just right now scanning the surface of. So for the first time in a while, we're going to see some blue sky in 2026 in terms of -- particularly in terms of Medicare reimbursement. We see additional opportunity around remote therapeutic monitoring. And then we've got these internal initiatives to help with our efficiency and our patient flow and our cost overall. So that's very encouraging. I want to shift gear a minute and talk a little bit about our injury prevention. Both of those teams are doing really well this year. I read a report that one of the reports that injury prevention for the quarter was disappointing. Look, this quarter, we've lapped an acquisition that we had in the last quarter still as part of those numbers, which gave us mid-20s revenue growth. If I remember right, it's 14%, 15%. That's purely organic. Still strong revenue growth. That's where we've been. We've got other injury prevention opportunities in the pipeline. We continue to love this business. Deals happen when we get them done. We don't talk about them and we don't put information out ahead of time. But you're going to continue to see us grow this business because we have high confidence in our teams in both injury prevention partnerships. We have other things in the market that we like that we think are going to be impactful, help us to grow our industry verticals and help us to grow our service opportunities. And we started this in 2017 and we had a great team, but we had a very small company, very narrow service line. That service -- those service lines have broadened significantly over the years. Teams got even stronger and our industry verticals have gotten wider and wider as we've added more programs and services. So you're going to see that continue to be a strong focus for us. So let me just say this in closing. I touched on a number of things. This is a team that doesn't give up. We've had a lot of headwinds over the year. We always find a way. If you look at the Medicare cuts that we've absorbed in these last few years, they aggregate to over 11%. If you look at the impact just in this year, it's $25 million profit impact. And yet we found a way throughout all those years to continue and it's going to be gone. We have some good things in the mix. We still have a great capital structure and we have a very, very strong resolve to take this company forward and do the things that we've said we're going to do. So with that, I'm going to turn it over to Carey to cover the details, and we look forward to your questions. Thank you.

Great. Thank you, Chris. Appreciate it, and good morning, everyone. Let me highlight a few performance metrics that drove our strong results in the third quarter, some of which Chris has covered, but just to emphasize them. Our average visits per clinic per day was 32.2 and that's the highest third quarter volume per clinic per day in our company's history. Our total patient visits increased 18% year-over-year, supported by the 84 net owned clinic additions Chris mentioned, since the third quarter, 2.2% increase in visits in our mature clinics. Our PT salaries and related costs per visit actually decreased this quarter. They decreased $0.40 per visit compared to the prior year. That's the first time we've seen a decline in our salaries and related costs since the fourth quarter of 2023. And then our IIP revenue grew almost 15% and our IIP gross profit was up nearly 11%, which is all organic growth. And then finally, our adjusted EBITDA increased $2.8 million or 13.2% to $23.9 million. Turning to patient visit volumes. We recorded 1,524,070 clinic visits in the third quarter, along with 30,137 home-care visits. Our average visits per clinic per day, as I mentioned, was 32.2. That -- and it was 32.2 in July. It was 31.9 in August and then 32.7 in September, which follows our normal seasonal pattern with volumes typically picking up in September after the summer months. Our home-care visits continue to build nicely. They moved from just under 23,000 in the first quarter to a little above 28,000 in the third quarter and now a little above 30,000 in the third quarter. So those continuing to build. Our net rate per patient visit for the third quarter was $105.54. That was up modestly from the second quarter of this year, down slightly from the third quarter of last year. September was our highest monthly net rate of the year, highest month of the quarter and certainly, the highest month of the year and that exceeded $106 per visit. So the trajectory there is good. As a reminder, we absorbed a 2.9% Medicare rate reduction that took effect at the start of the year and we saw some rate mix shifts a little bit in the third quarter. Most of our year-over-year visit growth came in the commercial and Medicare categories. So by payer category, commercial visits year-over-year and which are about $106 a visit, though slightly above our average rate, were up about 20% in the third quarter compared with last year. Medicare visits, which averaged approximately $94 per visit, so that's below our average rate, increased 18%. And then workers' compensation visits at roughly $145 per visit increased at a lesser rate of 5%, partly because we're cycling some significant increases in our workers' comp business in the prior year. And we're continuing to focus on expanding our higher rate workers' comp business and expect to add several new workers' comp network relationships before the end of this year. Our physical therapy revenues were $168.1 million in the third quarter of 2025, which was an increase of $25.4 million or 17.8% from a year ago. Most of that growth came from acquisitions we completed since last year with Metro and PT in New York, which we acquired last November, contributing $19.5 million to our third quarter revenue. Our PT operating costs totaled $136.9 million. That was an increase of $18.2 million or 15.3% compared to the same quarter last year. Importantly, as I mentioned, we managed cost effectively. As I noted earlier, salaries and related costs per visit decreased year-over-year from $62.47 in the third quarter of '24 to $60.07 in the third quarter of '25. Total operating cost per visit increased just 1%, moving from $86 per visit last year to $86.88 this year, which we view as a strong result given the inflationary environment. Our physical therapy operating margin was 18.6%. As a reference point, we made a small reallocation of amortization between our PT and IIP segments in the third quarter and then we adjusted the prior year amounts to align with the current year presentation. And we'll continue that approach going forward, making a prospective change on that. The change results in a slight increase of about 20 to 30 basis points in our PT margin across all periods and then a decrease of about 170 to 200 basis points in the IIP margin. Speaking of IIP, as Chris mentioned, our IIP delivered another strong performance. In the third quarter IIP net revenues increased $3.7 million or 14.6%, while IIP income rose $546,000 or 10.7%. And again, emphasizing this growth is all organic. We have not made any IIP acquisitions since the third quarter of last year and our IIP margin for the third quarter was 19.6%. Turning to corporate costs. They remained in line with expectations. Our corporate expenses were 8.5% of net revenue compared with 8.6% in the third quarter of 2024. As I mentioned last quarter, we're in the early stages of implementing a new enterprise-wide financial and human resources system. During the third quarter, we incurred about $700,000 in implementation costs related to that project. And consistent with our practice for similar nonrecurring items, we add those costs back to our adjusted EBITDA calculation. Operating results for the third quarter were $10.1 million, down slightly from $10.4 million a year ago. That small decline was mostly due to lower interest income of $1 million. We had excess cash on our balance sheet in the third quarter of last year, but that's now all been deployed into acquisitions. So we didn't get the interest income associated with that. And then we also had higher interest expense of $400,000. That's associated with the higher debt balance this year because we made acquisitions and put a small amount on a revolver, which we didn't have anything on our revolver last year in the third quarter. On a per share basis, operating results were $0.66 compared with $0.69 in the same quarter last year. Our balance sheet remains in excellent shape. We currently have $132 million on our term loan with a swap agreement in place that fixes the interest rate at 4.7% through mid-2027. In addition, we have a $175 million revolving credit facility with $26.5 million drawn on it at September 30, 2025. We ended the quarter with $31.1 million in working capital cash. We've not yet repurchased any shares under the share repurchase program we established in August. We view that as a prudent tool to have at our disposal, but acquisitions will continue to be our primary capital allocation priority, consistent with our long-term growth strategy. Finally, as noted in our release, we reaffirmed our adjusted EBITDA guidance to be in the range of $93 million to $97 million for full year 2025, reflecting our third quarter results and then our current expectations for the remainder of the year. And with that, I'll turn the call back over to Chris.

Thanks, Carey. Okay, operator, I know we have some questions. So let's go ahead and open up the lines and happy to take those questions.

[Operator Instructions] Our first question comes from Brian Tanquilut with Jefferies.

Maybe, Chris, I'll ask first. I mean, what are you seeing in the demand environment for physiotherapy? And then kind of like the other side of that, how are you seeing or what are you seeing in terms of clinician recruitment and retention? I mean, I know you guys called out the decline in salary per visit. So just curious what are the dynamics that you're seeing there?

Yes. Demand has, for us, pretty much all year continued to be strong. I would say in the quarter, we had a little bit of a shift between July and August. July was better -- much better than we expected. It actually was very similar to June, which doesn't normally happen. And then August was a little bit softer, concerned us a little bit and then we popped right back up in September. And so I think what happened was we just -- we were busier in July than normal. We probably shifted some summer vacations into August, which impacted us a little bit. These are slight number shifts. Demand pretty much been good everywhere. On the supply side, on the labor side, we made a number of investments over the last year plus in terms of our recruiting, new tracking, applicant tracking platform, new people and resources devoted toward developing more robust school relationships and services and programs, content actually for students that are still in school. And that, we think, is paying dividends. Our time to fill down. Our turnover has been really good, really across all parts of the company. But we're definitely not paying people less. The market is not soft by any stretch. Young therapists still have a lot of debt when they come out of school and plenty of opportunity in terms of employment where they can go. And so it's competitive in that regard. But I think we made some incremental positive strides over the last 12 to 15 months in terms of our infrastructure, our ability and our capability and we're seeing that pay off.

Got it. That makes sense. And then Carey, as I think about your cash generation, I mean, decently good cash flows in the quarter. I know you announced the buyback last quarter, but did not have that. So just curious how you're thinking about opportunities on the M&A side versus weighing share buybacks. And also, I know you and I have had conversations about how IIP is a focus area for M&A. So maybe if you can just touch on that in terms of why that is.

Yes. Sure. On the repurchase side, as I mentioned in my remarks, I mean, we think that's a good tool to have at our disposal and we weigh that versus acquisitions, but certainly acquisitions at this point. We've got a number of them that are in process that we hope to get across the finish line in the relatively near term. But it's just a much better use of our capital at this point or acquisitions because that's their -- the acquisitions we're looking at, to your point, are IIP acquisitions for the most part. We're going to continue to do PT acquisitions, but we are focused on IIP because of the return dynamics. I mean, the growth prospects in that side of the business are just -- are better. And so that's where we're really focusing a lot of our IIP. Our acquisition attention is on that side of the business with better revenue growth, better profit growth there. So -- and we need that segment to get larger. So that's what we're really looking at. Yes.

Our next question comes from Benjamin Rossi with JPMorgan.

So I was hoping you could discuss some of the competitive dynamics that you may be seeing across your markets and physical therapy, just given some of your commentary about the strong demand backdrop. I guess just when we think about existing market competition, your primary end markets in Medicare, commercial and workers' comp, can you just kind of walk through competitive dynamics this year? And maybe if you're seeing any pressure from newer offerings or coverage [ models ] that have kind of changed some of your inbound demand?

Yes, Ben, it's hard to quantify. And particularly, it's hard to say, well, this year is different than prior years. I can tell you, and again, I'm going to speak in some generalities. I'm not going to call anybody out. But across our market, we typically compete with small practices, mom-and-pops. We compete with hospital-based practices, where PT is often primarily not their top of the list in terms of product lines. And then we compete with other large providers and other consolidators in the market. And really, since, I would say, since the latter part of 2022, some of the larger PE-backed companies have been balance sheet-constrained. And so we're seeing multiples on the acquisition side come down a little bit. That wasn't specifically your question, but we have seen an impact there. In terms of boots on the ground and who gets which patient, really hard to measure. We all have relationships. We're all out there looking to try to get and keep the relationships that we have and expand into new relationships. It's a competitive market, but we're in as good a position as anybody just because our balance sheet is so good. So we have the ability to deploy resources. We have the ability to make long-term investments and make decisions that aren't based upon acuity or crisis or other balance sheet-pressured things. And so I think over time, it's to our benefit, which is one of the reasons our visits per clinic per day continue to move up in spite of the general market challenges overall.

Got it. Okay. Appreciate the comments there. I guess, just thinking about the broader backdrop across your maybe mature cohort and the volume growth there, can you kind of just parse out core growth figures and maybe how that core growth looked across those main segments like Medicare, commercial and workers' comp or at least maybe like directionally, what was up or what was down year-over-year?

Yes. Sure. So within the mature clinic mix, commercial and Medicare were both up. Commercial was up in visits about 2.5% -- 2.5% to 3%. Medicare was up about 4.5%. So those visits both increases on -- to take those 2 together, it was about a 3.5% increase in commercial and Medicare. Similar to our overall business, workers' comp dipped a little bit in their number of visits year-over-year in the third quarter. So that kind of affected the rate a little bit for the mature clinics there in the quarter. So our visit growth was 2.2% and then our rate growth in mature clinics because of that -- a little bit of that mix shift I just talked about and the fact that commercial and Medicare are -- commercial is right at our rate. Medicare is a little bit low rate and that's where we saw the growth, but then workers' comp dipped a little bit, which is a high rate payer category. That rate decreased 2% for -- it was 2.0% for the third quarter in mature clinics. So 2.2% visit growth, 2% revenue growth. So it was up just slightly from a revenue standpoint year-over-year. And that's my category that I'll see. Yes.

Our next question comes from Joanna Gajuk with Bank of America.

So just a very quick follow-up on the final Medicare rate being based on the proposal, you kind of estimated it will be, call it, $1.5 million to $2.5 million to adjusted EBITDA. So based on your, I guess, updated estimate of that impact, it sounds like it's not finally, but where do you land right now in terms of adjusted EBITDA tailwind?

So...

I don't think we're there yet.

Yes. We're not there yet.

It doesn't come out until Tuesday. So...

Yes. And it's a pretty complicated calculation. We have to go through by market. But I would say the increase we expect to be, I think, really more of a floor of 1.5% now, whereas we thought that may be kind of right where we ended up, I think that's kind of a floor of 1.5% and there could be -- it could be greater than that. And we'll certainly give more color on that on our next call. But the fact that it's a positive going into 2026 is really, really good.

All right. So I guess, yes, it's going to be a little bit better than that number. So that's, call it, 2% adjusted EBITDA growth next year just for that. I know you're not giving guidance and you said you're finalizing a lot of different things. But anything else we should be thinking about in terms of tailwinds and headwinds into next year?

Other than what we've talked about, we're working on some cost things. Obviously, those are beginning to come through AI-driven documentation, virtualization at the front desk. We talked about remote therapeutic monitoring being now an update to our high priority work list for 2026, where there's some reimbursement that we're not tapping into right now just because of the complexities historically around how the government set up and funded this program. It's gotten much more logical and much more doable. And so we'll focus on that. And then we got some things that we haven't talked about yet that we're not quite ready to talk about that will be very positive next year that we expect to give an update when we give guidance and talk about our year-end numbers. We think we'll be far enough along then to lay it all out.

Yes. And on the headwinds side, to give anything significant on the headwinds, we've had -- obviously, the big major headwind we've had the last 5 years has been the Medicare rate and we thankfully don't have that headwind going into 2026. So that's why at this point, we'll give the guidance later, but we feel good about kind of how things are shaping up for 2026.

Okay. And if I may, a different topic, different question. I noticed in the release, there's some additional reversals of the payouts from acquisitions. I think you had this in a couple of quarters in a row. So anything in particular? Like what's causing that reversal?

I'm sorry, that's on what, Joanna?

On the payouts from acquisitions. So you said, I think, $11 million this quarter.

Yes. That's really just -- it's a -- it's -- every quarter, we reproject kind of where we think they're going to end up for whatever the earn-out period is and we have to make adjustments based on the Monte Carlo simulation. I just -- so it's really just based on actual performance. But we put lofty targets out there for our acquisitions to achieve and we expect them to achieve that. And if they don't quite get there, then we have to back it off a little bit. Chris, would you -- anything else you'd say about that?

No. I mean, it's just a quarter-to-quarter adjustment that predicts -- attempts to predict where we'll end up at the end of another period. It's -- to be honest, it's an exercise that I don't think is particularly meaningful, but we have to do it. And so it goes up and down every quarter. Not actually what we're spending at any given time.

[Operator Instructions] We'll go next to Larry Solow with CJS Securities.

Congrats on your 84th call. I think if I do the math, this is my 73rd one listening in. It's been a fun ride. I guess just first question, I appreciate all the color on the volumes. Just in terms of the mature clinics, I know they were a little bit flat to last quarter and pretty flat this quarter on both the price and a volume, I guess. So net, just -- and you've discussed the pricing pretty well. You parsed that out pretty well. Just any thoughts on the flatter volumes and how you can maybe -- is that just a timing thing, staffing issue? Any color there?

Yes. I mean, my sense is that any time you're focused on trying to wring out cost, you probably wring out a little bit of volume. And so you kind of have to pick your poison and we're trying to obviously get it right in each and every situation and there are literally thousands upon thousands of those situations when you look at daily schedules and how many therapists we have and all of it. And I don't look at 2.2% as flat, although it's -- I would rather it have been 3%, let's say, more on our average. And on the flip side, we made a little bit of an impact on the cost side. So I think there's probably some impact there from trying to be as efficient as you can and not have slack resources. Slack resources allows you to take a walk up and have people just show up and be able to deal with them. And when you don't have slack resources, it makes it a little bit harder to do that. And so I think that's part of it probably.

And I know, appreciate that. In terms of the ERP, the new ERP system, which is, I guess, a modest headwind in terms of cost today, does that become a benefit, a lot of your other -- your AI virtual notes taking stuff like that, too. So maybe hard to isolate that by itself, but does that end up being an efficiency benefit at some point?

Certainly, Larry.

Go ahead, Carey.

It'll be a big efficiency positive for us in the finance and accounting area. And with the human resource side, too, so it'll be a really good tool for all of our employees to use for. It'll be a kind of one-stop place they can go and get all their HR information and their financial information too if they have financials that they need to view. So everything will be viewed there is the same. And I think what it does is just provide us more -- provides us quicker and probably more information to manage our business. But that -- from that perspective, it's going to create some efficiencies and positives for sure.

Great. If I could just switch gears from one last quickly on the injury prevention. It sounds like really knocking out of the park on the top line, mid-teens growth. I don't know, is that number hard to say sustainable over a multiyear period, but it does feel like you do expect that business to certainly grow faster than the PT business. I guess any color there? And then the follow-up would be, there was a little bit of a gross margin came in a little bit, I guess, year-over-year. Anything we should be concerned about on the IIP side?

Carey, you take the gross margin one because you touched on that, so maybe reclarify that.

Yes. So gross margin, but when you look at it year-over-year, it did for IIP come down a little bit. It was 20.3% on the properly adjusted basis in 2024 and was 19.6% in the third quarter of this year. So a little bit of dip there, but that margin continues to be really, really strong and near that 20% mark. Part of it is we have added some auto clients, which -- over the last year, which have a little bit lower margin, but that's good business. That's why you see that top line growing at 15%, but not quite as much on the bottom line growth, 11% because it kind of depends on the mix of the business there and what the margins are for those. But nothing really notable to point out related to the margin difference quarter-over-quarter.

Yes. And Larry, in terms of growth, I don't know if -- I don't pretend to have a perfect crystal ball, but in terms of [ 17% ] -- we've been growing at a pretty good clip. In the early first couple of years, year-over-year growth was more like 30% or 40% for a while. As we get bigger, it gets a little bit harder and I think mid-teens is a pretty good number right now. But as we add these other companies and we pick up more services, it gives us a bigger opportunity to cross-sell. So in that regard, I do think there's a sustainability element, particularly as we've added programs over the years that -- and our team has gotten better at cross-selling. And so I think we can grow certainly at an outsized rate compared to PT when you look at organic growth.

Our next question comes from Constantine Davides with Citizens.

Chris, just on the home-care visits, can you just talk about directionally how you think that's heading? Are these still largely confined to the Metro asset? Or have you expanded the model out to any of the other logos at this point?

Yes. Eric, do you want to take -- I'm going to let Eric speak to that. But yes, it's primarily Metro.

Yes. And it's really regional. So it's outside of New York. I mean, we've expanded into the New Jersey market. Michael had the biggest footprint, obviously, in home-care operating out of New York. It's easy to expand as we go to city over and a state over. And so I still think that's going to be the area where we have the biggest expansion opportunity. But we are looking elsewhere within the portfolio around where we can replicate that and make an impact. So we still believe that it can generate growth for us as we continue to grow forward. But right now, most of it will be in the Northeast.

And can you maybe speak to the relative margin differential between a home-based visit and just kind of historical level of margins on the core PT business?

I'll speak little specifically to New York, New Jersey. I mean, obviously, so it's -- they're -- we're treating Medicare. The Medicare reimbursement up in the Northeast is very, very favorable as compared to other parts of the country. And doing home-care, you do generate pretty decent margins because your only real overhead associated with home-care is labor rates. And you pay a little bit more for home-care staff, but margins are held back and get you a number for you. I don't have that in front of me. It won't be the case everywhere. I mean, there's markets where just based on cost of labor and Medicare rates it won't make as much sense for us. But right now, the Northeast is very, very healthy rate. We're able to find labor and generate economies of scale, which is another big part of the program. I mean, when you bring home-care people on, while they're typically paid on a per visit basis, your ability to attract staff is really based on having the ability to give them a full schedule. And so for us, it's easier to grow off of an existing program and expand as we move into different

No, it does. That's great. And then Chris, in your prepared remarks, you highlighted just the really strong growth in the number of facilities. And I guess I'm more focused on de novos here, but it looks like you're going to be pushing probably in the 35 to 40 range this year. So I'm wondering what's the limiting factor on that? And is this kind of a new normal in terms of what you're targeting year in, year out? Or is this just -- is 2025 just a year of just more pronounced de novo growth?

No. No. So limiting factor first. Limiting factor, really not our ability to get de novos out of the ground. We could do more than we're doing. It's having the right person ready to take over that facility in a leadership position and then being able to backfill that person in the existing clinic. And so that's part of it. And our partners have to be willing to take a near-term dip in distributions and other things, again, to fund that facility and get it up and out of the ground. Having said that, we've got some things that we're working on behind the scenes. Again, this falls into the category of haven't fully lifted the curtain yet that will help us in certain markets accelerate our de novo opportunity and that's something we'll spend some time on, I think, in February when we release our year-end earnings and talk about what we expect to do going forward. That's a general time frame when we're going to be ready to kind of talk about some of these other things. But I think in that 30 to 50 range is likely where we'll be.

[Operator Instructions] We'll go next to Mike Petusky with Barrington Research.

Okay. Carey, I know that you talked to the year-over-year decline in gross margin in IIP, but I'm actually more confused and you may have addressed this and I missed it, but confused by the sequential decline in that gross margin. Did you talk about that? Or could you talk about that?

Yes. So I mentioned it on the call that we had some amortization that was -- that had been being allocated to the PT segment that really should have been allocated to the IIP segment. So we made that adjustment and we're going to make that on a prospective basis. And so it increased our PT margin a little bit by about 20% [Audio Gap] decreases our IIP margin by 170 to 200 basis points. So when you look -- so there -- so the last quarter that we actually reported is not apples to this third quarter. But as we go along, we'll just prospectively present that in the same manner going forward with that IIP amortization actually squarely placed in IIP. So yes, but if you look at any of that, like the second quarter last -- of this year would have been 170 to 200 basis points less than what we showed in our report.

Got you. Okay. Perfect. And then in terms of workers' comp, what percentage of overall revenue was workers' comp in this quarter?

Yes, hold on one second. I believe it was -- it's right at 9.6%, I believe is what it was. 9.7%. It was 9.7%. And we did -- overall, we did see workers' comp growth just in visits. It was about a 5% increase in workers' comp visits for our total book of business, just mature clinics. When I was speaking of mature clinics, it was down a little bit in mature clinics, but it is up overall 5%. It just didn't see as big a growth as commercial and Medicare, which were at 20% and about 18%, respectively. So we did see increase in workers' comp visits.

I'm happy to throw a little bit more color on the work comp side here. To Carey's point, the growth wasn't as robust as what we've been seeing over really 2024 and first couple of quarters this year, it was around 5% on the visit side. It was around 5% year-over-year growth on the rate side. And Q3 revenues were up just under 10%, Q3 '25 compared to Q3 '24. On a year-to-date basis, revenues are up 19% in work comp, visits are up about 9% and rate has been up about 9.4%. We signed 11 new contracts in 2025 with work comp, 2 of which came online in Q1, 4 of them Q2, 2 of them late Q3 and 3 of them are coming online in late Q4. So we still have growth opportunity that we're going to see on the work comp side. There's also a concerted effort around volume pull-through and a focus on our PPO contracts which pay a higher rate than some of the work comp specialty networks. So we still foresee good growth on the work comp visit side as we move forward here into 2026.

Okay. Great. And just a couple more quick ones. The 1.5% is what you guys are calling probably a floor on the Medicare update for '26. I mean, could the ceiling be as high as 2%? Or are we really talking it's 1.5% or it's 1.6% or 1.7%, like pretty close?

My gut tells me it's going to be pretty close to 1.5%, 1.6%, 1.7% probably. I don't know that it gets to 2%. What could take it to 2% is if we can ramp up remote therapeutic monitoring and get that a meaningful percentage of our Medicare patients, that would pick us up a few dollars per visit over the course of the case. And so that would be a nice lift. That would be a difference maker. But we think on the base -- the reason this is so complicated right now, so many of the geographic index factors, which normally don't move very much, moves a lot. And so we have to model not only kind of the historic look at what the changes would have done, but a prospective look. We have to estimate what we think the migration will be from Medicare Advantage to Medicare. And frankly, it's not entirely precise. It requires some guesstimation. And so that's why we're being a little less precise around this because it's not quite easy to pin the tail on it as it has been in the past.

Okay. Fantastic. And then just the last thing and I may -- again, I may have missed this as well. July, August, September, did you give the visits per month there?

Yes. So I'll repeat them. Let me get that in front of me here. I know July was 32.2, yes, 32.2 July, 31.9 in August and then 32.7 in September.

And then just the last sort of second part of that question. As your -- there's a lot of talk in news media and around the elections about sort of affordability, people are getting squeezed by persisting inflation and all the rest of it. Are you guys seeing any evidence of that impacting sort of people later in therapy? Are you hearing anything? Are you picking up anything on that?

I mean, what we have to look at is our duration of care, right? I mean, that's the one objective measure that we have to look at. And so duration of care hasn't dropped. It's not going backwards. It's been very steady. Eric, I don't know if you want to provide any other color on that.

No, Chris. That's spot on. I mean, even when we went through some of those difficult periods 2 years ago with rapidly rising inflation and a concern that people are going to kind of hang on to the dollars, we saw absolutely no variation in our durations and they continue to be strong and consistent throughout 2025 as well.

And our volumes in October have been really, really good. So that's -- we haven't seen a dip there.

And I'm showing no further questions at this time. I will now turn the program back over to our presenters for any additional or closing remarks.

Okay. Well, thank you, everybody. We appreciate your time this morning. We always appreciate your questions. Carey and I are available later today, through the week and into next week, of course, for any follow-up. So I hope you have a great day. Thanks again. Bye-bye.