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Good day, and thank you for standing by. Welcome to the U.S. Physical Therapy, Inc. second quarter 2025 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. In order to ask a question during the session, please press star followed by the number one on your telephone keypad. Please be advised that today's conference call is being recorded. If you require any further assistance, please press star 0. I would now like to turn the call over to Christopher J. Reading, Chairman and CEO. Please go ahead, sir.

Thank you. Good morning, everyone, and welcome to U.S. Physical Therapy, Inc.’s second quarter 2025 Earnings Call. With me on the call are Carey P. Hendrickson, our Chief Financial Officer; Eric Joseph Williams, our President and Chief Operating Officer in the East; Graham Reeve, Chief Operating Officer in the West; Rick Benstein, our Executive Vice President and General Counsel; and Jason Curtis, our Senior Vice President, Accounting and Finance. Before we begin today’s call, we need to cover a brief disclosure, which I will ask Jason to go ahead and read.

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 the related reconciliations can be found in the company's earnings release, and the company presentations on our website.

Thanks, Jason. So, I am going to do this, I think, a lot like I did it last time—more of a candid overview—which allows me to tell the story a little bit better. I want to start out by thanking our partners, our staff, and our home office support around the country for just doing an excellent job. I am going to share with you some statistics that we do not normally share, we have not shared before. That relates to patient sentiment around our care. So the clinical staff, our partners, they are doing a wonderful job. We have had good strong focus and execution in a number of areas this quarter. We will talk about that. I also want to mention our industrial injury prevention partnerships. Both are really firing on all cylinders at this point. We have added a number of very large opportunities, some of which have not even started yet. And we continue to be very, very bullish about that part of our business. As we go through the stats, you will understand why. So for the second quarter—talk about physical therapy first and volumes—record second quarter for us. As you all know, the second quarter is typically our busiest quarter in terms of peak volume. And so every second quarter, pretty much—you know, last year the same was a record quarter for us a year ago. This year, our visits per clinic per day jumped to 32.7, up really nicely from, again, last year's second quarter record of 30.6. The drivers around this I think, more than anything, are happy patients who love us at the end of their care, who refer their family and friends and neighbors to us, and when pickleball happens, you know, a year or two down the road, they come back and see us. This is the stat I want to share with you that we really have not talked about before. Not a new stat for us. We measure every quarter. We have an outside company tabulate our surveys. This is company-wide. Our Net Promoter Score is 93.5. Now, just to give you some perspective, before this call, I googled what a good Net Promoter Score for a health care company is, and I got two answers. Good was 30, and excellent was 50. And so the way that we get these results tabulated, we are able to see what percentage of patients are active promoters of our business, and we are at 95%. Only 1% of our patients is a negative or detractor. So that puts us in amazingly good standing and an amazing category. Part of the reason for our success, obviously, is what we try to do every day. On the injury prevention side, again, I cannot say enough good things about our teams. Both partnerships are doing really well. Revenue is up 22.6%. Gross profit up 25.8% compared to the prior year quarter. And again, we are working on some really large contracts—one new in the auto industry, actually several new, many. One really large one and one very large one to come later in the year. Revenues in PT were up 17.3%. We added over 50 net clinics compared to the prior year period. And for the first time through this first six months, we exceeded 3,000,000 visits on a year-to-date basis so far. We were also able to drive a slight increase in our net rate, despite the Medicare headwinds, which you all know all too well about. And I just want to point out that if you go back to the period before these Medicare cuts started—which have been sequential layered cuts for a number of years—the impact in this year on those stacked cuts is right around $25,000,000. That is straight off the profit line. It has been a huge impact. It has been a major headwind. On a year-over-year basis, I cannot remember exactly—Carey can tell us—but between $5,000,000 and $6,000,000 compared to last year and this year. 8%–8.5% of our earnings on last year's number, maybe even a little bit more than that. And so to grow over 20% with that kind of a headwind consistently, we are really happy about right now. Things are coming together. Our salaries and related cost was up on a per-visit basis ever so slightly, less than 1%. But our overall cost per visit was down slightly. And really, I think beginning in March and continuing forward, we are beginning to get traction on a number of the initiatives that we have been working on that will help us impact cost, that will help us continue to drive more volume. And we are feeling better about things right now than we have in some time. When you look at PT, our gross profit margin—and we are going to say adjusted very, very slightly, I think around a couple of hundred thousand dollars only relating to an incentive payment that Metro had as a result of closing that deal—our gross profit margin came in at 21.1% for the quarter. So that is a nice move forward as well. On the development front, we have added home care business, a couple of physical therapy acquisitions. We have more to come for the remainder of the year. We intend to focus hard on our injury prevention business, given the organic and the overall growth elements in that business, the margins, just the performance of both those teams. We widened our industry verticals in that space. We widened our service offerings in that space. We are competing and winning large contracts. We are able to do that with some margin improvement as well. And so that business is very strong for us and has continued to be strong, really, for a very long time. The combination of these positive factors has caused us to look out over the remainder of the year and increase guidance, which is now between $93,000,000 and $97,000,000 adjusted EBITDA. And then before I turn it over to Carey—because I skipped through a lot of things, I wanted to tell the story—Carey is going to go through the numbers with a little bit more granularity. Again, I just want to thank our teams. At times, we endeavor every day to try to make a difference, to try to make a positive impact in patients' lives, or within the injury prevention space, in the lives of the workers who are working at our nation's largest companies, most prestigious companies, and we are having an impact. We are making the world in our little way better. And we feel really good about that. And so I want to thank everybody that is involved in that. It is making a difference, and we appreciate it very much. Carey, if you would, go ahead.

Great. Thank you, Chris, and good morning, everyone. As Chris mentioned, we are very pleased with our second quarter results. A few performance metrics that stood out to me: we achieved a new company record—32.7 average visits per clinic per day. That was the highest in our history. Our salaries and related costs, as Chris mentioned, increased slightly—just 0.7% compared to the prior year. That is the smallest increase in that metric we have had since 2023. Our total operating cost per visit actually decreased year over year. Our PT margin, as Chris noted, improved to 21.1%, up from 20.1% in the second quarter of last year. Our IIP revenue, excluding acquisitions—so on an organic basis—grew 18.4%. Our IIP gross profit increased 21.8% on an organic basis. Our adjusted EBITDA increased to $26,900,000 in the second quarter of 2025, which was up $4,700,000 from the second quarter of last year. And then our adjusted EBITDA margin expanded to 17.5%, up from 16.4% in the second quarter of last year. So all of those metrics I was really pleased with. Turning to patient visit volumes, our average visits per day were 33 in April, 32.9 in May, and 32.3 in June. That slight taper in June is consistent with our historical summer patterns, when volumes dip slightly in the summer months before rebounding again in mid-August. We recorded 1,532,263 clinic visits in the second quarter and then also had 28,493 home care visits. This is the first time we have reported home care visits separately from our in-clinic visits. They stem from the home care business that we acquired through the Metro PT transaction in New York in the fourth quarter of last year. We will continue to report those separately going forward. For reference, we had 22,943 in-home visits in the first quarter of this year. And that number—the year-to-date number—is in the release too, just so you will have that for going forward. Our net rate per patient visit was $105.33. That is ahead of the $105.05 we achieved in the second quarter of last year, but it is slightly less than what we had in the first quarter at $105.66. As a reminder, we absorbed a 2.9% Medicare rate reduction that took effect at the beginning of the year. And also our largest payer in Michigan, which is our third-largest state with 56 clinics, implemented a policy change on April 1 that negatively impacted our net rate a little bit in that state. So that was a bit of a headwind too. Even with those headwinds though, our net rate held up well in the second quarter, and we expect it to grow from there. We continue our efforts to have a strategic focus on increasing reimbursement rates through targeted contract negotiations, as well as efforts to grow our higher net rate workers’ comp business. Workers’ comp represented 10.4% of our net patient revenues in the second quarter, with visits increasing 8.4% year over year. We remain fully committed to all of our rate-enhancing initiatives, and we are working on those every day. Physical therapy revenues were $168,300,000 in the second quarter of 2025, which represented a $24,800,000, or 17.3%, increase compared to the same period last year. The majority of that growth was driven by acquisitions completed since the second quarter of last year—most notably that Metro acquisition that we made in New York last November—that was $19,600,000 of the $24,800,000. Physical therapy operating costs were $133,100,000. That was an increase of $18,400,000, or 16%, over the prior-year quarter. Importantly, we managed costs effectively. Our salaries and related costs, as I mentioned, were just up 0.7%, at $60.08 per visit. And our total operating costs, as I also mentioned, were actually down year over year per visit. Our physical therapy profit margin, I noted already, is 21.1%. That is our highest quarterly margin since 2023. And that, of course, reflects solid revenue growth and the cost management. Our IIP delivered another strong performance in the second quarter. Our IIP net revenues increased $5,300,000, or 22.6%, compared to the second quarter of 2024, and income rose $1,300,000, or 25.8%, over the prior-year quarter. Then I gave the organic numbers earlier: IIP revenues increased 18.4% and gross profit up 21.8%. The IIP margin for the second quarter was 22%, which is up from 21.4% in the same quarter last year, reflecting strong top-line growth and continued focus on operational execution. Our corporate costs remained in line with expectations. They were 8.7% of net revenue in the second quarter compared to 8.5% in the second quarter of last year. We are in the early stages of implementing a new enterprise-wide financial and human resources system. Implementation costs related to that project will continue through 2026. And consistent with our practice for similar nonrecurring costs, we will add those costs back in our adjusted EBITDA calculation. Year to date, we have incurred $221,000 in implementation costs. That was really related to the selection part of our implementation. And we will start full-bore on our implementation in the third quarter. And that will always be itemized on our non-GAAP reconciliation page. Operating results were $12,400,000, up from $11,000,000 in the second quarter last year. And on a per-share basis, we were $0.81 versus $0.73 in the prior-year quarter. Our balance sheet remains in excellent shape. We currently have $135,000,000 in our term loan. A swap agreement in place fixes that interest rate at 4.7%. That extends through mid-2027. In addition, we have a $175,000,000 revolving credit facility that had $245,000,000 drawn on it at 06/30/2025. We ended the quarter with $34,100,000 in cash. As disclosed in our earnings release, the Board of Directors authorized a share repurchase program this week providing us the flexibility to repurchase up to $25,000,000 of our shares through 12/31/2026, if market conditions are appropriate. We view this as a prudent tool to have at our disposal. However, acquisitions will continue to be our primary capital allocation priority consistent with our strategic growth strategy. Our performance in the first half of the year has been strong, exceeding our expectations coming into the year. And we believe we are well positioned for a solid second half as well. And as a result, we have raised our full year 2025 adjusted EBITDA guidance from a range of $88,000,000 to $93,000,000 to the new range of $93,000,000 to $97,000,000. In effect, the high end of our prior range becomes the low end of our new range, with a $4,000,000 increase at the top. So with that, I will turn the call back over to Chris.

I want to mention one more thing. We are happy with where we are this quarter and the progress—still have plenty of things to work on, which to me is also encouraging because we are not there yet. We have room for improvement. One of those things I want to point out, as a matter of perspective, relates to our same-store growth in mature facilities, which this quarter was a little bit lighter than maybe everybody expected. It was over 1%, but not in what I would call our normal range. Still a few markets where staffing is a little tight, and with cost control, it probably put a little bit of a damper on us. I want to point out one thing, though. Back in the spring, we initiated a staged rollout of cash-based programs. We have not spent a lot of time talking about it. As with anything, it takes a little time to get traction. We are getting real traction with that now. And so in our other income line—this does not show up as additional visits, although some are patients who are coming in for these cash-based services—we have generated about $900,000 worth of additional revenue, a lot of that coming from our cash-based services, which are continuing to ramp up as we go forward. And so that is an added benefit that we really have not had before. We are seeing some of our partnerships do extraordinarily well with that. So with that, that concludes our prepared and our candid comments, and we would like to go ahead and open it up for questions.

Thank you. You may remove yourself from the queue at any time by pressing star 2. We will now open for questions. Our first question will come from Brian Gil Tanquilut with Jefferies. Your line is open.

Hey, good morning, guys, and congrats on a solid quarter. Maybe I will start with a follow-up or a question around your last comment. So as I think about your same-store outlook, how would you characterize demand for your services or just broadly in the market versus, like you were saying, kind of pulling back and managing the cost because of the clinician, the labor situation? And then maybe how do I think about your capacity versus thinking about maybe de novo builds in the future as you start bumping up against capacity constraints potentially?

Yeah. Well, demand is really, Brian—demand is really solid pretty much everywhere. Now, there is a little push-pull we have to manage always when trying to get costs under control, and so you are trying not to be fat, to use that term—to have too many slack resources—yet you are still trying to meet demand. And we certainly—it is not perfect—have some markets where the market is still a little tight, where we have additional FTEs we need to hire where the demand is strong and yet, you know, we need some more resources. Other places are being dialed in where they need to be. So, that is a work in progress. The cash-based programs are helping us to generate additional revenue. And so that has been kind of a net add for us that we have not had before. And I am trying to remember the second part of your question.

Just as you think about capital deployment into maybe de novos as you start bumping up against capacity constraints.

Yeah. On the de novo side, look, we are going to—We have had this market where we have had some headwinds, and we have had to deal with that. This is going to be probably the strongest de novo year that we have had since I have been with the company, so de novos are going to be good this year. They are on a really good pace. We are making adjustments and have made adjustments on the recruiting side of the house, on the residency side, which gets more students into our programs. So we think we will be able to continue to ramp into the demand. We just have to keep it dialed in right now, but I do not see it impacting our de novo openings. Frankly, in markets like New York, where net rate is considerably higher than most of our competition, particularly our small competition, we are able to do these small “AquaNovos,” which frankly we do not even announce. But we are able to do those at very, very nice multiples and get a nice rate lift as a result and a lot more resources to help them grow and scale. And so that is going to continue to be strong as well.

Chris, to follow up on that, I mean, as we think about capital deployment—obviously, the announcement of the dividend is positive—so just curious how you and the Board thought about that decision to introduce a dividend just when it sounds like this is going to be one of your best de novo years. Just thinking about the balance sheet, the cash generation, and then, yeah, just the decision to do the buyback.

Yeah. So you mentioned dividend. The dividend is ongoing. And so we have been paying the dividend for a long time.

Sorry, sorry, my bad. I meant the buyback.

The buyback is new. Look, we feel like the stock has been undervalued for some time. We understand health care services and having a little bit of a tough year, and we have had some Medicare headwinds, and we are making progress and continuing to grow the company. We wanted to be in a position to have flexibility at, you know, at a certain level where we could go in and demonstrate our belief that we are going to continue to grow this company and do well over time. So it gives us flexibility. As Carey mentioned, it is not our first preference for capital deployment. I would say our first preference right now, frankly, is directed toward injury prevention, where the embedded organic elements of that business are really, really strong. The next would be PT, and then, you know, on from there. We will be disciplined about any share buyback, and it is going to be dependent on other capital demands and really where the stock is at any given time.

Got it. Chris, if I may throw one more question. As I think about just the efficiency of your physical therapists, we hear about AI tools in the market aimed at physical therapists. I mean, is that something that you are throwing in the mix that is helping you out? And then maybe kind of related tangentially, you talked about your home PT business. Just if there is anything out there that you can share with us in terms of the dynamics there because, obviously, it is new to us investors, on what that business looks like. Thank you.

Yeah. There are some cool AI tools right now. We are deploying AI-backed technologies for clinical documentation, which is helping people get through their least favorite thing of the day if you are a clinician, which is to document all the cool stuff that you did with somebody in physical therapy. You have to document a lot of things—sets and reps and weight, and motions and, you know, joint-related movements. And so it is tedious and it takes time. And so this ambient listening AI-driven assist is helping our clinicians get through that much quicker, much more efficiently. We are just on the front end of rolling that out, but that has been well received. We are rolling out what I would call, broadly, you know, a semi-virtualization of the front desk, which enables us not to go completely virtual, because I do not think we are ready for that yet—not in order; I do not think patients are ready—but an augmented situation, where we are able to focus efforts from across multiple clinics through one individual that may be on-site or remote somewhere and be much, much more efficient and save the number of front desk FTEs, which continue to be a labor challenge for us just in terms of longevity. Unlike our PT group, which, frankly, right now, is having the least amount of turnover that we have seen in maybe my recollection—really good right now. These tools are helping us get some margin and efficiencies in areas where we just have not been able to do that in the past. And we are early, but it is directionally encouraging. Thank you.

Thanks, Brian.

Thank you. Our next question will come from Joanna Sylvia Gajuk with Bank of America. Your line is open.

Hi. So maybe first on the metric that really stood out besides the visits per clinic, but the cost per visit by a decline at all costs, right? So maybe in that context, can you walk us through or give us some update on your labor management strategies, the wage—maybe talk about turnover and other metrics you can share? Because it sounds like you are doing a pretty good job there.

Yeah. Eric, you want to go ahead and take that, talk about turnover and some of the things we are working on and what we are seeing?

Yeah. This is—you know, again, you will recall from our quarterly conversations here, we made a lot of investments in systems and resources in 2024 that are really starting to pay dividends for us in 2025 as it relates to recruiting and retention. We have seen a 25% increase in student clinical rotations across our partnerships in 2025. Part of that was participating in a student rotation matching program with software—the exact software that is being used by all of the PT schools out there. So we have seen almost a 200-student pickup this year. We put in a new applicant tracking system in 2024 that has also given us better company-wide visibility across our partnerships to all the applicants who are applying for jobs. It gives us a better opportunity to follow up with these applicants, track them pre-hire, post-hire. And then for the ones, of course, that do not take jobs with us, we have this huge database that we are building of people that we can go back to when we do have job openings. So systems have made a big difference. Putting in some additional resources to help us on the recruiting front made a big difference for us. And the mentorship piece has been a major focus for us, and we really push that hard with our partners to make sure that we are connecting and spending time with the younger therapists that we bring on board in order to reduce turnover rates. As Chris mentioned, these are the lowest turnover rates we have seen for the six months this year—January through June—the lowest numbers we have seen in the last seven years. So it is absolutely making an impact for us. The pieces that we are really excited about—and Chris referenced one of them; I will touch base on that in a second—this mentorship piece, while we are really focusing it on a partnership level, which is where our clinical staff goes to work, we are in the process of building out a software platform that is going to allow us to expand our mentorship programs beyond the four walls of the clinic and beyond the existing partnership. It is going to give us the ability to connect clinicians across our company with each other, let people that have particular interests or specialties have an opportunity to connect with people that might not have that specialty within the partnership but have that expertise, and we can take advantage of that across our entire company. So we are excited about that. We think that will pay dividends for us as it relates to our ability to retain and staff. Those are the big ones. Chris, you mentioned AI—I will talk about that as well. We are in the early innings of using that voice recognition technology that Chris talked about. I think we have that in the hands of 200 or 250 PTs right now. It has been really, really well received. And I think that is going to have an impact for us over time with retention as well. I mean, you can reduce documentation as to things that clinicians hate to do the most. And right now, there are a lot of people dabbling in it. I think we are farther ahead than most. I think we are farther ahead than most large platforms experimenting with that right now. And I think that is going to help us attract and retain staff going forward. So I hope that gives some context.

Are you willing to share the actual turnover number that you track?

We actually will—we post that. We will report that publicly at the end of the year, and you will find that in our ESG.

Yeah. Joanna, I do not want to be in a position quarter to quarter to add to our already exhaustive list of metrics, but we are in a good spot right now. In a really good spot.

Yes, sounds like no. Thank you. And if I may, another topic—Medicare rates—right? Been a headwind for a couple of years now, but it sounds like for 2026 there is going to be rate updates. So the overall physician fee schedule is going up between 0.5% or more—3.6%, 2.8%. And then we had an estimated like 2.5% or so for physical therapy codes. Can you talk about your estimate for your company in terms of how the rate increase would translate for your portfolio into next year? Thank you.

Yes. Let me make a quick comment, and then I am going to kick it to Carey and help get you through the specifics. This year—and this is the proposed rule, so there is going to be a lot of commentary and certainly a lot from the PT industry—this year was the most complicated of any year that I can remember literally in my career. They changed kind of metaphorically a lot of knobs. The thing about turning knobs—they turned a lot of different knobs for RVUs, for work values, for geographic index factors. And there were particularly large swings on the geography side—so much that both us and the APTA thought that some of the tables were not correct. And so our overall assessment is—Carey can get into the specifics—but we think there is more work to be done, obviously, with CMS.

Yes. Thank you. So, Joanna, we have looked at it, looking at the various geographies and what the changes were in those geographies based on where we are and the rate increases in those geographies. I think we are probably going to see somewhere between a 1% and a 1.75% increase—something like that. For us, again, positive. We are just happy to have a positive increase and not be looking at negative numbers for next year. So we are really pleased about that. If it is in that 1% to 1.75% range, that would be somewhere between $2,000,000 and $3,000,000 of a positive for us next year on the top line. And then from an EBITDA standpoint, it would translate to somewhere between $1,500,000 and $2,500,000. Again, this is a preliminary ruling. We will know the final ruling in December, and we will see if anything changes. But that is kind of where we see it today.

Yeah. We certainly hope that it will be positive, no longer a headwind. The irony is, unfortunately, when you get under the hood and see how the sausage is made, the specialties that have the most extraordinary increases in the cost of equipment—so very expensive equipment—and have the most highly litigated areas where there are exposures to litigation and other things, which you just heard, you know, the number of patients that love us on a percentage basis. So physical therapy in general does not have that problem. And so we are making a decided push where we know that we save the system a lot of money. In fact, in the state of Maryland, where physical therapy, on a pilot program of CMS, is in the position as kind of a primary care for musculoskeletal, they determine—the physical therapists do—what happens. There is a massive annual aggregate savings. We think we should be front and center on that. So yes, we are pushing. We hope it gets better. We think there are some flaws in the existing methodology, and beyond the state of Maryland—which could be a big pay-for with CMS—to extend that to a reasonable, rational cost-of-living increase for the fee schedule. We are going to be working on that between now and year-end, and we are hoping to use those results.

Great. Appreciate the color. Thank you so much.

Thanks, Joanna.

Thank you. Our next question will come from Benjamin Michael Rossi with JPMorgan. Your line is open.

Hi, good morning. Thanks for taking my question here.

Good morning, Ben.

So turning to the IIP segment performance. You mentioned adding some services here over the course of the year. Certainly seems to be off to a strong start to the first half with margins expanding year over year. Is it fair to say that that segment is coming in ahead of your initial expectations as we head into the seasonally stronger 3Q?

Yes. I do not have in front of me exactly what our budget was, but we are definitely ahead of budget. There is a little different seasonal pattern with injury prevention. We tend to be a little light in January like everywhere else, and a little light in December where, in some of the big auto manufacturers and some of the nation's biggest manufacturers, there is an early shutdown in December. So that impacts our earnings a little bit. But if you go back, not just for this first half or this quarter, but on a year-over-year-over-year basis, injury prevention has really done well for us and had really strong organic growth. We continue to be bullish. We are spending more time in development in that area. And we are identifying good companies. And, of course, like anything else, we have got to get things done. But we expect to continue to deploy capital directionally there.

Got it. And I guess this is a follow-up to your comments on Medicare PFS rates. Obviously, it seems like the change for 2026 is kind of amounting to more of like a one-time fix, and it does not necessarily address anything in 2027 and does not obviously take you out of that $25,000,000 hole you described after decreases in recent years. Can you just walk us through where your conversations stand with your counterparts at the federal level and maybe how they are framing the decision to include that one-time fix for 2026 in the OPBBA?

Yeah. I think it depends on who you talk to, but nobody in Congress is happy that this is an annual issue. It seems like that is how we fund the government each year—through this crisis management process that eventually ultimately gets done. A lot of chicken on both sides. And so it is certainly not the optimal way to do anything. It is certainly not fair to providers to have a one-month runway, basically, where you are notified in December what the final decision is, and then you have until all of January—through the holiday—to get things ready to go. We should have a multiyear plan. It should be locked. All of the lawmakers believe that is the way it should be. And yet, you know, let us call it a ten-year kind of permanent fix on the physician fee schedule—about a $100,000,000,000 event. And so they need savings to be able to do that. One of the big areas that we think is a saver—and we are going to use an outside Beltway analytics group to take the results that we have seen from the EQUIP study in Maryland and extrapolate those real results over the nation and create what we think is a massive savings for the system—with physical therapists in that key role, as kind of the primary care director of the musculoskeletal case. And so that is a possible pay-for—a physician fee schedule fix. It has gotten a lot of very positive attention among our lawmakers, our Congress, on both sides. CMS, I would tell you, is kind of a difficult place to be because it is so siloed. And so people have one small fraction of what amounts to a very complicated series of areas and rules and responsibilities. So we will see. But we need more than a one-year fix for sure. Each year, we hear about tariffs and all the revenue that is created. We have AMA and the hospital association—everybody else wants more than a year-to-year fix. It is unsustainable.

Great. Thanks for the additional commentary here.

Thank you. Our next question will come from Lawrence Scott Solow with CJS Securities. Your line is open.

Good morning, guys. Thanks for taking the question. Most of my questions have been actually answered. Just a couple. I am just curious—so the 7%, or nearly 7%, year-over-year increase in visits per day per clinic, and then the modest growth in labor and then overall operating expenses per visit—how much of that just relates to the acceleration in closures last year? I know you closed like 30 clinics, I think back in Q3. So it feels like a lot of that is just more efficiencies driving these gains. Is that fair to say? And then second part of the question is, I know you sort of discussed last year some cost-cutting initiatives. You never really put a number on it, but you thought you could add up to maybe even double-digit millions over time. I am curious how that has played into the good performance this quarter.

There are relative pieces and parts of every one of those that go together and, you know, at the end of the day, it is like baking a cake. There are a lot of ingredients, and you hope it tastes good. I do not have in front of me the exact ingredients. In fact, some blend together, so it is a little bit hard to measure. Cost efficiencies, you know, on one hand, create both challenges and opportunities sometimes in terms of volume-related aspects. And so we are trying to do the best we can to balance technology efficiency, appropriate levels of labor—which minute to minute are never perfect—perceived demand, expansion. It is pretty complicated. It is running a business, and there are a lot of moving parts. And so all those things are coming together. What you are hearing is we are feeling more confident that the things that we have done, which again, as you point out, are multifaceted—they are coming together in the right way. But as I pointed out earlier, it is not perfect. We still have plenty to work on. There is still plenty of opportunity. The team is focused on it. But where we are feels a little better than where we have been for maybe a while now.

Right. And in terms of factors in the visits-per-day growth, one of the drivers is the addition of Metro in November. And so it has been higher since that point. We were probably running at about 31 before, and then that has kicked up a little bit because Metro averages about 45 visits per clinic per day. So that does a little bit, but there is still really good growth in that overall visits per clinic per day.

Well, that is a good segue then, Carey, into Metro. So curious—it sounds like that is progressing really well. And I know when you acquired—at the time of the acquisition—you spoke about a lot of opportunities, and I guess these Aqua de novo openings sound like that is happening at Metro. And I assume since New York has one of the better rates, that probably benefits you guys disproportionately too.

Yeah. We have a strong team there. Michael and his team are strong. Clinically, they are strong operators. They are strong in development. And so we have plenty of opportunities to chew on and work our way through for what should be a long period of time. So they are doing well. AquaNovos being just one of those.

And one of the things that has been really positive there—and we have talked about this before—is the net rate increase we have seen at Metro since we acquired them. That is one of the things we do with acquisitions. We look at trying to improve their contracts as we bring them over. When we first acquired Metro, the first month for Metro was around a $101 net rate. That averaged $104.50 in the first quarter, and that was $107.50 in the second quarter. So we have really seen some nice rate improvement there. That does not show up in the majority clinics line; instead, it shows up in the clinic additions line. But I just wanted to point out that we are seeing really good net rate increases there at Metro. So that is helpful as well.

And could you just walk through the pricing breakout in the quarter? I guess, do you discuss that? Usually, you give us kind of what commercial pricing was in the quarter. I know I heard you discuss the workers’ comp piece. Did you give any more detail on the commercial side?

Sure. Happy to. So the $105.33 overall—commercial rates were around $105.50, so that was a nice increase in commercial rates. Workers’ comp was still a little bit north of $150. Medicare is a little north of $92 per visit, which is really good. Those are the three primary categories. The others were relatively stable as well—Medicaid, personal injury, self-pay.

Great. Okay. Appreciate it. Thanks, guys.

Thank you. Our next question will come from Jared Phillip Haase with William Blair. Your line is open.

Hey, good morning. Thanks for taking all the questions. And nice to see the continued momentum there. I think you mentioned a number of larger opportunities that have not started yet. So I am wondering if there is any way that you can contextualize what that backlog looks like or any way to frame up what the incremental revenue opportunity is and how that might compare to prior years?

Yeah. I do not have it in front of me. And my preference—and maybe I need to be a little bit careful—my preference is to not constitute revenue ahead of when we have generated it, either in development or otherwise. And so we are definitely making progress. We are having a good year. I am not prepared to get into the potential because, frankly, it is all about staffing, and the team has done a fantastic job both with the auto industry major contract that we got where we needed to hire 50 FTEs to staff that. If we had not hired 50—if we had only hired 20 or 30—the revenue generation would have been different. So I really cannot afford to be that far out on a limb, and I do not want to be in that position, so we are not going to do that. But as that comes about and we are realizing it, I am happy to talk more about it—once it actually happens.

Yeah. That is fair. That totally makes sense. Maybe I will ask a follow-up. And I think you all have made some public comments in the past about some of the virtual PT applications that are out there. And I think recently, one of the larger ones announced they are building out sort of a network of in-person providers as a way to kind of supplement their digital offering. So I am wondering if you have any more that you can say about that. Would you consider participating in a network like that with a virtual partner? You know, how are you thinking about maybe the potential opportunity in terms of, call it, patient acquisition or opening up any referral channel?

Yeah. Again, I do not want to speculate too much in hypothetical situations. And I say that because a lot of the virtual providers have sold a very low-cost, per-member, generic, “PT service-level” solution—not delivered by therapists. It is delivered either through an app or backed up by call center employees who, for the most part, are not licensed clinical folks. They follow the script. And so what has been sold is they can take all comers and any diagnosis and very complicated things—post-op reconstructions and rotator cuff repairs—and, frankly, I will tell you my opinion is that cannot be done efficiently or effectively. So I think they are in a tough spot where they have to figure out whether it is the bricks-and-mortar solution to add to a virtual offering. Have we had discussions with one or more providers about that? Yes. It remains to be seen whether that is something that the industry is accepting of or not. Reciprocally, we are now using technology—an augmented solution—that we use with our patients through companies like Limber, who has been a nice partner for us, that has objective measures of motion and activity and other things which help us be better informed to guide that care. And there will be a point in time—and we are not there yet because we are working on some really important things—there will be a time when we focus more on a broader digital solution and, in some cases, that I think will help to augment what we do for our patients, make us a little bit more geographically flexible. But we are going to approach it very differently than groups that have done it so far. I think they have tried to do too much, and I think they are finding out it is not possible to deliver it that way.

Okay. That is great. Thank you. I appreciate all the color.

Thank you. Our next question will come from Jiten Sanghai with Quarry Partners. Your line is open.

Hey, guys. Congrats on a great quarter and appreciate the questions and answers. Maybe two for me. You know, clearly, the volume growth—the record Q2—is great, but one is, is there a theoretical capacity we should think about? Because is the system operating at 90% or some x percent? And then related point, if you think about the de novos, what is the staffing environment like? How will you recruit x number of FTEs? I think, Chris, you mentioned maybe a record year for opening de novos. So how will you attract the number of FTEs? And, you know, finding them is hard, but the question is not just finding them. It is what you pay them and how the economics work. So I think two parts to this. If you could address both, that would be super helpful. Thank you.

Yeah. So on the capacity side, think of it this way—our capacity really is not limited by physical footprint. Generally speaking, a typical clinic may be open from 7 to 6, but we have the ability in that same physical footprint—which has peak times and also has slower times—to fill in certainly some of the slower times. Then we have the ability to extend hours and do other things. So our visits-per-clinic-per-day number can continue to grow. It is not constrained by our physical footprint, so our constraint correlates with our staffing. And so we have to have the staff available. As you mentioned, it may be a little bit over time—as we have shown—ultimately getting that number up the next five or ten visits per day. That will not happen overnight, but there really is the possibility to move forward as long as we can continue, as you mentioned, to find staff. And I would point you back to Eric’s comments around the investments that we have made in recruiting and retention, and school affiliations, residency programs, mentorship, and other things to try to have a stable bench from which to draw to backfill a clinic with a lot of people with tenure so they can grow and learn. And it is easier to absorb that way. The more senior therapists are the ones that go and open the next adjacent clinic—not the new grad, but the more senior person—and that more senior person then gets backed up maybe by somebody more junior. So again, it is not perfect. The market is competitive and in some cases it is tight. But we are finding people, and we are growing, and we expect to continue to be able to do that, particularly with the investments that we have made over the last six to nine months.

And, Chris, that is super helpful because what it sounds like is there is no theoretical capacity. So whatever your margin guide suggests for this year using your updated EBITDA range, as we think about next year or beyond, there should be some flow-through or increase in EBITDA. So your margins should expand over time as you have incremental volumes. Is that the right general lens? I do not know if you can quantify that or if that is just a good sound bite to end on from my perspective.

No, I think it is a reasonable sound bite. There are certainly points of inflection where when you have to level up, you may go back a little bit before you can go forward again. But generally, you are right. The last few patients of the day are incrementally more profitable. Your fixed costs are covered. That is one of the reasons why you see our total cost per visit come down a bit this quarter—because of the jump in visits per clinic per day. Hopefully—with particularly continued commercial rate wins, continued war comp and other payers—we get more than enough to offset what might be a little bit of wage pressure year to year. That wage pressure for us—preferably getting that with some efficiencies. And again, I would point to some of the initiatives around AI and virtualization at the front desk, which are really just now getting started, but should give us some additional lift as we go forward. And Metro, with wins like we are seeing in rate growth—we are well below right now the $7 more a visit, but that combination gives us more than enough to offset the average increase that people got at the end of the year—five, six, seven dollars a visit. You have to deliver it. You have to make it happen, but I am hopeful at this point that we can continue to execute on that.

Great. Thank you for your time, guys. Appreciate it.

Thank you.

Thank you.

Our next question will come from Michael John Petusky with Barrington Research. Your line is open.

Hey, Mike.

Hey, good morning.

Hey, good morning.

You gave sort of the hard numbers on the rate per visit. I am just curious—commercial pricing—I am assuming that was up a little bit in the quarter. Do you have a percentage that was up versus the comparable period a year ago?

Carey.

Sure. It was up about 1% to 1.5% versus last year’s second quarter. The second quarter of last year is actually the strongest quarter for commercial rates last year. It is up 2.2% from the first quarter. So we had a nice bump in the second quarter versus the first quarter in that commercial rate.

Okay. And the issue in Michigan with the large payer—how much impact did that have on the commercial pricing overall? I mean, did that take it down 20 basis points—more than that?

Yes. It was a payer rule change. Let me calculate just a second. I know the impact is about a $0.30 per-visit impact or so. So it would have been—we would have been kind of right at the first quarter number had it not been for that Michigan rule change.

Okay. So is there anything to suggest that what is going on in terms of that payer in Michigan could be an issue elsewhere? Or do you really feel like this is sort of an isolated situation?

Mike, I mean, I wish it was uniform. Maybe I should not wish that. I mean, we have got—each year—people are going to try different things. Michigan has had some ebb and flow with this payer. On a number of different fronts, utilization caps and other things have been challenged and even litigated. So it has bounced around a bit at different points in time, and we do not see it, as Carey said, as a contagion kind of thing at all. I do not see a contagion problem necessarily. And it is really no different this year than prior years. But that is one that we have called out this year, which is a little bit of a headwind—where in 48 or 49 other states it is not an issue.

Yeah. And, Mike, as Chris said, there are always puts and takes on the net rate. And, you know, you will have things like that. But then we have got other things that are overcoming it in others.

Okay. Great. That is what I was trying to get at. So, Chris, earlier, you said that IIP felt like it was a top priority in terms of capital allocation. When you were talking about that, were you sort of talking about it in terms of internal investment—hiring trainers and such? Or are we talking about more in terms of external assets that you may try to sort of build on the base of business—or both? Thanks.

Yeah. Well, it is always internal, but that is really not a problem, and I really do not think about that. Maybe I should, but when I talk about capital allocation, that is just a matter of course. What I am talking about is investing in additional companies to continue to fill in our service complement, to build on what we have, give us more opportunities for cross-sell, and to continue to grow as we have the last few years. It will be ongoing, but we are actively involved, and we spent more time this year, I think, probably than ever before, attending conferences and getting face-to-face meetings and being active in the space. People now kind of know who we are. And while it is a much smaller space in aggregate than the PT world, we are making some progress. And so do not be surprised if we are active and continue to be in that area. The team is doing a really good job, and we like the embedded growth elements in this business—particularly, I think—not to make any kind of a political statement—but if manufacturing is going to increase in this country, and I think just with the announcement yesterday on Apple and others, there is going to be a push to onshore manufacturing, and we are positioned pretty well to benefit from that.

Absolutely. Hey, let me just sneak one last one in, and then I will let the next person ask questions. Because you mentioned on the last conference call that you guys had been involved in sort of a deep operational review with your top 40 partnerships. I am just wondering—anything interesting, surprising—anything come out of that that you would be willing to share that might matter?

Yeah. The only thing that I will share is that those calls have been important. What partners have appreciated—it is a couple of things. One, beginning with COVID and the year after COVID, we were both lean and busy. And it was kind of a good year to benchmark against. But, you know, I use the analogy—it is like your weight may fluctuate since college days. If you use your college days as the yardstick to see change, this is a great comparative point—or maybe a difficult comparative point. As you go forward, the change over time—you lose track of where you were, and pretty soon your belt does not fit the same way anymore. And you lose where you are in space a little bit. And, you know, that is one measure where it is kind of pretty easy to keep track of, but we are measuring a bunch of different things in this business—visible, tangible tools that our partners get every month that compare where they are now to where they were at the most efficient point and how things stack against that. There have been a lot of influences that have caused certain things to happen that are just part of the reality. But I think having now a really good yardstick to see change has been kind of a really good tool. And so we have used that, and we are making progress. And I think our partners have been very understanding and appreciative, and we are seeing change as a result.

Thank you.

Sure.

Thank you. It appears we have no further questions at this time. I will now turn the program back over to management for any additional or closing remarks.

Look, it has been a good call. Thank you all for your questions—a lot of really good questions. Carey and I are available for the rest of the day. And whenever you need us, we appreciate your time and attention, and particularly your support. We hope you have a great day. Thanks.

Thank you.