Q2 2026 US Physical Therapy Inc Earnings Call

August 6, 2026

Speaker #1: Please stand by. Your meeting will begin shortly. Please stand by. Your meeting is about to begin. Good day. And thank you for standing by.

Operator: Good day, thank you for standing by. Welcome to the U.S. Physical Therapy Q2 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode.

Speaker #1: Welcome to the U S PHYSICAL THERAPY second quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session.

Operator 2: After the speaker's presentation, there will be a question and answer session. In order to ask a question during the session, please press the star key followed by the number one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star then zero. I'd now like to turn the call over to Chris Reading, Chairman and CEO. Please go ahead, sir.

Operator: After the speaker's presentation, there will be a question and answer session. In order to ask a question during the session, please press the star key followed by the number one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star then zero. I'd now like to turn the call over to Chris Reading, Chairman and CEO. Please go ahead, sir.

Speaker #1: In order to ask a question during the session, please press the star key followed by the number one on your telephone. Please be advised that today's conference is being recorded.

Speaker #1: If you require any further assistance, please press star, then zero. I'd now like to turn the call over to Chris Redding, Chairman and CEO.

Speaker #1: Please go ahead, sir.

Speaker #2: Thank you. Good morning and welcome, everyone, to our U S PHYSICAL THERAPY second quarter 2026 earnings call. With me on the line include Eric Williams, our president and chief operating officer East; Jason Curtis, our interim CFO, also serving as our senior vice president of finance and accounting; Rick Benstein, our executive vice president, general counsel; Bram Reeve, our chief operating officer West; and Kate Venturini, our vice president of accounting and our controller.

Chris Reading: Thank you. Good morning, welcome everyone to our U.S. Physical Therapy Q2 2026 earnings call. With me on the line include Eric Williams, our President and Chief Operating Officer, East, Jason Curtis, our Interim CFO, also serving as our Senior Vice President of Finance and Accounting, Rick Binstein, our Executive Vice President and General Counsel, Graham Reeve, our Chief Operating Officer, West, and Kate Venturini, our Vice President of Accounting and our Controller. Before we make some prepared remarks on the quarter as well as the year, we need to cover a brief disclosure statement. Kate, if you would please.

Speaker #2: Before we make some prepared remarks on the quarter as well as the year, we need to cover a brief disclosure statement. Kate, if you would, please.

Speaker #3: Thank you, Chris. This presentation includes forward-looking statements which involve certain risks and uncertainties. This forward-looking statements are based on the company's current views and assumptions.

Kate Venturini: Thank you, Chris. This 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's presentations on its website. Back to you, Chris.

Speaker #3: 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 on the company's earnings release and the company's presentations on its website.

Speaker #3: Back to you, Chris.

Speaker #2: Thanks, Kate. So this morning, I'm going to spend a little time talking about where we are going with a heavy concentration around these hospital affiliation arrangements.

Chris Reading: Thanks, Kate. This morning I am going to spend a little time talking about where we are going with a heavy concentration around these hospital affiliation arrangements and then try to dovetail that into our results for the quarter as well as look forward because it is all intertwined. For starters, volumes across the company are and have been very strong. This includes our Metro partnership, now part of our long-term NYU Langone affiliation. For some perspective, visits per clinic per day were at an all-time high this quarter at 33.5 per day. For the past 24 consecutive months, and 37 out of the last 42 months, we have set visit per clinic per day record volumes, including those at our hospital-affiliated clinics. They are all very strong.

Speaker #2: I'm going to try to dovetail that into our results for the quarter. As well as look forward because it's all intertwined. For starters, volumes across the company are and have been very strong.

Speaker #2: This includes our metro partnership, now part of our long-term NYU Langone affiliation. For some perspective, visits per clinic per day were at an all-time high this quarter at 33.5 per day.

Speaker #2: For the past 24 consecutive months, and in 37 out of the last 42 months, we have set visit-per-clinic-per-day record volumes, including those at our hospital-affiliated clinics.

Speaker #2: They're all very strong. This is important because part of our cost equation in Q2 is related to upfront hiring with the expectation of referral in volume translation within these partnerships.

Chris Reading: This is important because part of our cost equation in Q2 is related to upfront hiring with the expectation of referral and volume translation within these partnerships. In short, the transition of our NYU affiliated clinics has gone very well. By the end of this month, we will have transitioned all 60 of our Metro clinics and will benefit from approximately 50 clinicians hired in advance, which will drive the opportunity for growth going forward. That was at the expense of some short-term cost absorption. However, once those facilities are transitioned, that creates nothing but upside opportunity with no cost downside based on how these agreements work with our hospital partners. Just another point of perspective, I talked with Michael earlier this morning.

Speaker #2: In short, the transition of our NYU-affiliated clinics has gone very well. By the end of this month, we will have transitioned all 60 of our metro clinics and will benefit from approximately 50 clinicians hired in advance, which will drive the opportunity for growth going forward.

Speaker #2: That was at the expense of some short-term cost absorption. However, once those facilities are transitioned, that creates nothing but upside opportunity with no cost downside based on how these agreements work with our hospital partners.

Speaker #2: And just another point of perspective. I talked with Michael earlier this morning. Our year-over-year growth at Metro from a volume perspective significantly exceeds 100,000 visits and that was before we had the support of our NYU Langone affiliated partners.

Chris Reading: Our year-over-year growth at Metro from a volume perspective significantly exceeds 100,000 visits, and that was before we had the support of our NYU Langone affiliated partners. We are looking forward to a great year ahead. We had an opportunity to hire clinicians coming out of school who were available, and we know we are going to be in a position to grow this business, so we jumped on that. Another indicator of building strength was demonstrated in our best ever net rate this quarter, finishing the quarter at $107.59, up $2.26 from the year ago quarter and trending solidly within the quarter itself. Once these hospital clinics are fully onboarded, that will provide additional lift as we finish the year and head into 2027.

Speaker #2: So we're looking forward to a great year ahead. We had an opportunity to hire clinicians coming out of school who were available and we know we're going to be in a position to grow this business.

Speaker #2: So we jumped on that. Another indicator of building strength was demonstrated in our best-ever net rate this quarter, finishing the quarter at $107.59, up $2.26 from the year-ago quarter.

Speaker #2: And trending solidly within the quarter itself. Once these hospital clinics are fully onboarded, that will provide additional lift as we finish the year and head into 2027.

Speaker #2: Embedded in that rate lift are increases across commercial, Medicare, and workers' comp. In addition to the lift provided by the limited number of clinics transitioned inside of the quarter into our hospital affiliations.

Chris Reading: Embedded in that rate lift are increases across commercial, Medicare, and workers' comp, in addition to the lift provided by the limited number of clinics transitioned inside of the quarter into our hospital affiliations. That clinic number will grow significantly in Q3 with approximately half of the busiest Metro clinics transitioning in the current period as well as the Gulf Coast partnership which is expected to go forward by the end of this month. One of the areas dragging against us a bit so far this year has to do with our self-insured healthcare costs. Due to a small number of very significant claims across our employee base, we're running well ahead of our usual cost on our claims experience this year. It's against a much better than average experience in 2025 when claim volume was lighter than normal.

Speaker #2: That clinic number will grow significantly in quarter three with approximately half of the busiest metro clinics transitioning in the current period as well as the Gulf Coast partnership which is expected to go forward by the end of this month.

Speaker #2: One of the areas dragging against us a bit so far this year has to do with our self-insured healthcare costs. Due to a small number of very significant claims, across our employee base, we're running well ahead of our usual costs on our claims experience this year.

Speaker #2: And it's against a much better-than-average experience in 2025 when claim volume was lighter than normal. That swing from last year to this year above the average is in approximately 3.2 million dollar difference between years so far.

Chris Reading: That swing from last year to this year above the average is an approximately $3.2 million difference between the years so far. That we have factored into our decision to guide as we have for the remainder of the year. PT revenue growth supported by visit strength and record net rate grew by 8.4%, with industrial injury prevention revenue growing by over 9% year-over-year. Same-store revenue growth for PT was north of 3% for the quarter, with a nice progression since early last year back to a historically strong average. Margins for our IIP business were steady, slightly above 20%, while PT margins were pressured on a combination of our internal benefits related healthcare costs and some front loading of those hospital implementation costs that I just mentioned.

Speaker #2: And that we have factored into our decision to guide as we have for the remainder of the year. PT revenue growth, supported by visit strength and record net rate, grew by 8.4%, with industrial injury prevention revenue growing by over 9% year over year.

Speaker #2: Same store revenue growth for PT was north of 3% for the quarter with a nice progression since early last year back to a historically strong average.

Speaker #2: Margins for our IIP business were steady slightly above 20% while PT margins were pressured on a combination of our internal benefits related healthcare costs and some front-loading of those hospital implementation costs that I just mentioned.

Speaker #2: With continued welcome wear rollout and expected takeouts there, and strong performance from our hospital affiliated clinics, we expect that we can influence or offset some of these headwinds between now and year-end.

Chris Reading: With continued WelcomeWare rollout and expected take our share and strong performance from our hospital affiliated clinics, we expect that we can influence or offset some of these headwinds between now and year end. On the development front, we have just very recently announced a 12-clinic partnership acquisition in a great new state with some young hungry partners who know how to deliver great care. That follows several earlier announced acquisitions in the PT as well as IIP areas. We continue to pursue good accretive opportunities where care is superior and the forward trajectory looks good in both the PT and the injury prevention spaces. On the hospital development front, our pipeline of opportunities continues to grow. We expect further relationships like the one with NYU, which will positively impact 2027 or 2027 outlook in a meaningful way.

Speaker #2: On the development front, we have just very recently announced 12 clinic partnership acquisition and a great new state with some young hungry partners who know how to deliver great care.

Speaker #2: And that follows several earlier announced acquisitions in the PT as well as IIP areas. We continue to pursue good, accretive opportunities where care is superior and the forward trajectory looks good in both the PT and the injury prevention spaces.

Speaker #2: On the hospital development front, our pipeline of opportunities continues to grow and we expect further relationships like the one with NYU which will positively impact 2027 or 2027 outlook in a meaningful way.

Speaker #2: Finally, we are working on our own digital and hybrid opportunities for 2027 and have recently hired a very accomplished well-known to us senior leader to work with our team to identify the right partners around which to make that happen.

Chris Reading: Finally, we are working on our own digital and hybrid opportunities for 2027 and have recently hired a very accomplished, well known to us, senior leader to work with our team to identify the right partners around which to make that happen. Our primary focus at this time is to build the foundation that we need in order to accelerate our opportunity later this year and into 2027 and forward. With the help of an increased Medicare rate projected for 2027, in combination with continued commercial rate lift, and the extraordinary lift associated with our hospital affiliations, we expect very good things in the coming year and beyond. That concludes my prepared comments. I'll ask Jason to cover the financials in a little bit more granular detail before we open things up for questions. Jason, go ahead.

Speaker #2: Our primary focus at this time is to build the foundation that we need in order to accelerate our opportunity later this year and into 2027 and forward.

Speaker #2: With the help of an increased Medicare rate projected for 2027 in combination with continued commercial rate lift and the extraordinary lift associated with our hospital affiliations, we expect very good things in the coming year and beyond.

Speaker #2: So that concludes my prepared comments. I'll ask Jason to cover the financials in a little bit more granular detail before we open things up for questions.

Speaker #2: Jason, go ahead.

Speaker #1: Thanks, Chris. And good morning, everyone. Total revenue for Q2 2026 was $214 million, an 8.5% increase over last year. Physical therapy revenue for Q2 2026 was $182 million.

Jason Curtis: Thanks, Chris, and good morning, everyone. Total revenue for Q2 2026 was $214 million, an 8.5% increase over last year. Physical therapy revenue for Q2 2026 was $182 million, an 8.4% increase over last year, including a nice 3.5% increase in mature clinics. Q2 2026 physical therapy revenue includes $5.6 million from the initial phases of our hospital affiliation rollout. Q2 2026 visits were 1,662,000, a 6.6% increase inclusive of hospital affiliation visits. Average daily visits per clinic was 33.5 in Q2 2026, compared to 32.7 in Q2 2025. Q2 2026 physical therapy revenue per visit, inclusive of hospital affiliation revenue and visits, was $107.59, a $2.26 increase versus last year. Medicare revenue per visit increased 3.7% in Q2 2026.

Speaker #1: An 8.4% increase over last year, including a nice 3.5% increase in mature clinics. Q2 2026 physical therapy revenue includes $5.6 million from the initial phases of our hospital affiliation rollout.

Speaker #1: Q2 2026 visits were 1,662,000. A 6.6% increase inclusive of hospital affiliation visits. Average daily visits per clinic was 33.5 in Q2 2026 compared to 32.7 in Q2 2025.

Speaker #1: Q2 2026 physical therapy revenue per visit inclusive of hospital affiliation revenue and visits was $107.59. A $2.26 increase versus last year. Medicare revenue per visit increased 3.7% in Q2 2026.

Speaker #1: Year-to-date 2026 Medicare revenue per visit compared to full year 2025, which provides for a longer measurement period to smooth quarterly variability, is approximately in line with our expectations.

Jason Curtis: Year to date 2026 Medicare revenue per visit compared to full year 2025, which provides for a longer measurement period to smooth quarterly variability, is approximately in line with our expectations. As a reminder, the 2026 guidance includes a 1.75% increase in Medicare, which equates to a 1.1% increase after taking into account the mix of Medicare Advantage plans. The expected revenue lift for Medicare increases in full year 2026 is $2.5 million, equating to a $0.35 in revenue per visit lift. Commercial payers and workers compensation revenue per visit also delivered healthy increases in Q2 2026 of 1.2% and 2.0% respectively. Q2 2026 adjusted salaries and related costs as a percent to revenue was 57.5%, compared to 56.4% in Q2 2025. This increase is largely attributable to higher than average medical costs in the current quarter compared to lower than average medical costs in Q2 2025.

Speaker #1: As a reminder, the 2026 guidance includes a 1.75% increase in Medicare which equates to a 1.1% increase after taking into account the mix of Medicare Advantage plans.

Speaker #1: The expected revenue lift for Medicare increases in full year 2026 is 2.5 million dollars equating to a 35 cent in revenue per visit lift.

Speaker #1: Commercial payers and workers' compensation revenue per visit also delivered healthy increases in Q2 2026 of 1.2% and 2.0% respectively. Q2 2026 adjusted salaries and related costs as a percent to revenue was 57.5% compared to 56.4% in Q2 2025.

Speaker #1: This increase is largely attributable to higher-than-average medical costs in the current quarter, compared to lower-than-average medical costs in Q2 2025. Reporting salaries and related costs as a percent of revenue were replaced by the company's previous methodology of reporting salaries and related costs per visit.

Jason Curtis: Reporting salaries and related costs as a percent of revenue replaces the company's previous methodology of reporting salaries and related costs per visit. For clinics operating as hospital affiliation, salaries and related costs of licensed staff are fully reimbursed by the hospital systems, with the reimbursement recognized as revenue for USPH. This structure allows USPH to invest in additional staffing without the risk of negatively impacting bottom-line profitability. As a result, utilizing a percentage of revenue is a more meaningful metric. Adjusted physical therapy gross profit margin in Q2 2026 was 19.9%, compared to 21.4% in Q2 2025. As noted, employee medical costs in Q2 2026 compared to Q2 2025 were a headwind. During Q2 2026, the company integrated 31 existing clinics into hospital affiliations. The remaining 39 existing clinics are expected to integrate during Q3.

Speaker #1: For clinics operating as hospital affiliations, salaries and related costs of licensed staff are fully reimbursed by the hospital systems with the reimbursement recognized as revenue for USPH.

Speaker #1: This structure allows USPH to invest in additional staffing without the risk of negatively impacting bottom-line profitability. As a result, utilizing a percentage of revenue is a more meaningful metric.

Speaker #1: Adjusted physical therapy gross profit margin in Q2 2026 was 19.9% compared to 21.4% in Q2 2025. As noted, employee medical costs in Q2 2026 compared to Q2 2025 were a headwind.

Speaker #1: During Q2 2026, the company integrated 31 existing clinics into hospital affiliations. The remaining 39 existing clinics are expected to integrate during the third quarter.

Speaker #1: IIP revenue for Q2 2026 was 32 million dollars. A 9.1% increase over last year. Including a 3.6% increase in comparable partnerships. IIP margin was 20.4% in Q2 2026 compared to 20.3% in Q2 2025.

Jason Curtis: IIP revenue for Q2 2026 was $32 million, a 9.1% increase over last year, including a 3.6% increase in comparable partnerships. IIP margin was 20.4% in Q2 2026 compared to 20.3% in Q2 2025. Adjusted corporate expense as a percent of revenue was 8.4% in Q2 2026 compared to 8.7% in Q2 2025. The company is continuing its effort to upgrade its finance and HR systems with an expected go live at the beginning of 2027. This upgrade will improve efficiencies throughout the organization and position USPH for future growth. Interest expense was $3.2 million in Q2 2026 compared to $2.4 million in Q2 2025. In Q2 2026, the all-in effective interest rate, including all associated costs, was 5.3%. Income tax rate in Q2 2026 was 29.6%. Year to date 2026 income tax rate is 30.5%, approximately in line with full year 2026 expectations.

Speaker #1: Adjusted corporate expenses as a percent of revenue were 8.4% in Q2 2026, compared to 8.7% in Q2 2025. The company is continuing its effort to upgrade its finance and HR systems, with an expected go-live at the beginning of 2027.

Speaker #1: This upgrade will improve efficiencies throughout the organization and position USPH for future growth. Interest expense was 3.2 million dollars in Q2 2026 compared to 2.4 million dollars in Q2 2025.

Speaker #1: In Q2 2026, the all-in-effective interest rate including all associated costs was 5.3%. Income tax rate in Q2 2026 was 29.6%. Year-to-date 2026 income tax rate is 30.5% approximately in line with full year 2026 expectations.

Speaker #1: Adjusted EBITDA for Q2 2026 was $27.0 million, compared to $26.9 million in Q2 2025. Adjusted operating results were $11.3 million for Q2 2026, compared to $12.4 million for Q2 2025.

Jason Curtis: Adjusted EBITDA for Q2 2026 was $27.0 million compared to $26.9 million in Q2 2025. Adjusted operating results were $11.3 million for Q2 2026 compared to $12.4 million for Q2 2025. Adjusted operating results per share were $0.75 in Q2 2026 compared to $0.81 in Q2 2025. Net income attributable to USPH shareholders was $9.9 million in Q2 2026 compared to $12.4 million in Q2 2025. Included in net income was a loss on change in fair value of contingent earn out considerations of $992,000 in Q2 2026 compared to a gain of $790,000 in Q2 2025. Improving results in recent acquisitions with contingent earnouts increases the associated liability, resulting in a charge to the P&L. As such, a loss on change in fair value of earnout consideration reflects improving underlying performance of impacted acquisitions.

Speaker #1: Adjusted operating results per share were 75 cents in Q2 2026 compared to 81 cents in Q2 2025. Net income attributable to USPH shareholders was 9.9 million dollars in Q2 2026 compared to 12.4 million dollars in Q2 2025.

Speaker #1: Included in net income was a loss from the change in fair value of Tangent earn-out considerations of $992,000 in Q2 2026, compared to a gain of $790,000 in Q2 2025.

Speaker #1: Improving results in recent acquisitions with contingent earn-outs increases the associated liability resulting in a charge to the P&L. As such, a loss unchanged in fair value of earn-out consideration reflects improving underlying performance of impacted acquisitions.

Speaker #1: Earnings per share were 25 cents in Q2 2026 compared to 58 cents in Q2 2025. Under GAAP, changes in the value of redeemable non-controlling interest are excluded from net income but are included in the earnings per share calculation.

Jason Curtis: Earnings per share were $0.25 in Q2 2026 compared to $0.58 in Q2 2025. Under GAAP, changes in the value of redeemable non-controlling interests are excluded from net income but are included in the earnings per share calculation. Improving performance in partnerships with redeemable non-controlling interest has a dilutive impact on earnings per share. Turning to the balance sheet, cash and cash equivalents were $25 million at the end of Q2 2026, compared to $36 million at the end of 2025. Credit facility borrowings were $221 million at the end of Q2 2026, compared to $162 million at the end of 2025. Reflecting the impact of the previously announced upsized $450 million credit facility, revolver availability at the end of Q2 2026 was $229 million, compared to $145 million prior year.

Speaker #1: Improving performance in partnerships with redeemable non-controlling interest has a dilutive impact on earnings per share. Turning to the balance sheet, cash and cash equivalents were 25 million dollars at the end of Q2 2026 compared to 36 million dollars at the end of year 2025.

Speaker #1: Credit facility borrowings were 2201 million dollars at the end of Q2 2026 compared to 162 million at the end of year 2025. Reflecting the impact of the previously announced upsized 450 million dollar credit facility, revolver availability at the end of Q2 2026 was 229 million dollars compared to 145 million dollars prior year.

Speaker #1: In addition to increasing revolver availability, the new credit facility also contains 125 million dollar accordion providing sufficient liquidity to fund sizable future acquisitions. During the quarter, the company repurchased 306,000 shares on the open market for a total consideration of 19.2 million dollars at an average share price of $62.80.

Jason Curtis: In addition to increasing revolver availability, the new credit facility also contains $125 million accordion, providing sufficient liquidity to fund sizable future acquisitions. During the quarter, the company repurchased 306,000 shares on the open market for a total consideration of $19.2 million at an average share price of $62.80. Including share repurchases made in 2025, the company has materially concluded repurchases under its current $25 million authorization. Year to date Q2 2026 operating cash flow was $38 million compared to $30 million for Year to date Q2 2025. As Chris mentioned, subsequent to the end of the Q2, the company completed the acquisition of a 12-clinic physical therapy practice for a purchase price of $16.4 million. This practice currently generates $12 million in annual revenue and 112,000 annual visits.

Speaker #1: Including share repurchases made in 2025, the company has materially concluded repurchases under its current 25 million dollar authorization. Year-to-date Q2 2026 operating cash flow was 38 million dollars compared to 30 million dollars for year-to-date Q2 2025.

Speaker #1: As Chris mentioned, subsequent to the end of the second quarter, the company completed the acquisition of a 12 clinic physical therapy practice for a purchase price of 16.4 million dollars.

Speaker #1: This practice currently generates 12 million in annual revenue and 112,000 annual visits. Including the two previously announced Q1 2026 acquisitions, the cumulative purchase price of our three announced 2026 acquisitions is 38 million dollars with a combined annualized revenue of 27 million dollars.

Jason Curtis: Including the two previously announced Q1 2026 acquisitions, the cumulative purchase price of our three announced 2026 acquisitions is $38 million, with a combined annualized revenue of $27 million. Taking into account the year-to-date 2026 results and the expected increasing benefit of hospital affiliations in the back half of the year, we are reaffirming our full year 2026 adjusted EBITDA guidance of $102 million to $106 million. With that, I will turn the call back to Chris.

Speaker #1: Taking into account the year-to-date 2026 results, and the expected increasing benefit of hospital affiliations in the back half of the year, we are reaffirming our full year 2026 adjusted EBITDA guidance of 102 million dollars to 106 million dollars.

Speaker #1: With that, I will turn the call back to Chris.

Speaker #2: Thanks, Jason. Great job. Appreciate it. Brady, we're going to go ahead and open it up for questions.

Chris Reading: Thanks, Jason. Great job. Appreciate it. Operator, we're gonna go ahead and open it up for questions.

Speaker #3: Thank you. If you'd like to ask a question, press star 1 on your keypad. To leave the queue at any time, press star 2.

Operator 2: Thank you. If you'd like to ask a question, press star one on your keypad. To leave the queue at any time, press star two. Once again, that is star one to ask a question. We will take our first question from Benjamin Rossi with JPMorgan. Please go ahead, your line is now open.

Operator: Thank you. If you'd like to ask a question, press star one on your keypad. To leave the queue at any time, press star two. Once again, that is star one to ask a question. We will take our first question from Benjamin Rossi with JPMorgan. Please go ahead, your line is now open.

Speaker #3: Once again, that is star 1 to ask a question. And we will take our first question from Benjamin Rossy with JP Morgan. Please go ahead.

Speaker #3: Your line is now open.

Speaker #2: Hey, Ben.

Chris Reading: Hey, Ben.

Speaker #4: Good morning. Hey, thanks for taking my questions here. So, just on the back-half ramp implied for the remainder of the year, it sounds like that's going to be more weighted towards Q4, once those remaining facilities have been integrated in Q3.

Benjamin Rossi: Good morning. Hey, thanks for taking my questions here. Just on the H2 ramp implied for the remainder of the year, sounds like that's gonna be more weighted towards Q4 once those remaining facilities have been integrated in Q3. You also mentioned the additional 50 hires being front-loaded. Can you just walk us through the specific initiatives that you're expecting to deliver margin lift during the H2 of the year? Then how should we be thinking about the timing of associated costs and benefits during Q3 and Q4?

Speaker #4: You also mentioned the additional 50 hires being front-loaded. Can you just walk us through the specific initiatives that you're expecting to deliver margin lift during the back half of the year?

Speaker #4: And then, how should we be thinking about the timing of associated costs and benefits during Q3 and Q4?

Speaker #2: Yeah. So we have a number of things. I mean, the welcome wire initiative, we've talked about earlier. That involves the semi-virtualization of our front desk and aggregation of certain functions.

Chris Reading: Yeah. We have a number of things. I mean, the WelcomeWare initiative we've talked about earlier, that involves the semi-virtualization of a front desk and aggregation of certain functions to potentially remote site. That we know results in our ability to take out headcount at the front desk. That will continue to ramp. We're more than halfway through our expected ramp in there. The big impact then is just the impact from getting these hospital facilities fully loaded. Jason mentioned we have close to 40, 39, I believe, that will flow in this quarter. Some of those are already in the works. Many of them are with a few to remain here this next month. That's gonna give us a good solid lift. The other things, like I said, we're working on for next year.

Speaker #2: To potentially remote site. That we know results in our ability to take out headcount at the front desk. So that will continue to ramp.

Speaker #2: We're more than halfway through our expected ramp in there. And then the big impact, Ben, is just the impact from getting these hospital facilities fully loaded.

Speaker #2: Jason mentioned we have close to 40, 39, I believe, that will flow in this quarter. Some of those are already in the works. Many of them are with a few to remain here this next month.

Speaker #2: That's going to give us that's going to give us a good solid lift. And then the other things, like I said, we're working on for next year.

Speaker #2: But those are the big impact things between now and year-end.

Chris Reading: Those are the big impact things between now and year end.

Speaker #4: Great, appreciate the color there. I just have a couple of clarifications on that $5.6 million in revenue you reported from the hospital affiliation during Q2. Can you just walk through the mechanics of the hospital affiliation revenue recognition, and how that flows through your P&L?

Benjamin Rossi: Great. Appreciate the color there. Just a couple clarifications on that $5.6 million in revenue you reported from the hospital affiliation during Q2. Can you just walk through the mechanics of the hospital affiliation revenue recognition, how it flows through your P&L? Is there any ballpark for how many visits those clinics are currently seeing? If we're assuming those volumes are coming in at a slight premium to your consolidated revenue per visit, is it fair to think of this group currently representing maybe 50,000 patient visits, or is that overstating volumes? Thanks.

Speaker #4: And then is there any ballpark for how many visits those clinics are currently seeing? For assuming those volumes are coming in at a slight premium to your consolidated revenue per visit, is it fair to think of this group currently representing maybe 50,000 patient visits or is that overstating volumes?

Speaker #4: Thanks.

Speaker #2: Jason, do you want to do you want to take a swing at the revenue recognition part and the thesis parts associated with that? And then.

Chris Reading: Jason, do you wanna take a swing at the revenue recognition part and the pieces, parts associated with that?

Speaker #1: Yeah. Sure.

Jason Curtis: Yeah. Sure.

Speaker #2: Eric, maybe we can touch base on the number of the visit number of this remaining group.

Chris Reading: Eric, maybe we can touch base on the visit number of this remaining group.

Speaker #4: Sure.

Jason Curtis: Sure. The $5.6 million comes from two components of the agreement with the hospitals. One is a per visit fee. For every visit that we see, every patient that we see, we receive a fee, an income from the hospitals. Additionally, as Chris mentioned, we receive a reimbursement for the licensed clinical staff who are treating those patients. The sum of those two income streams is the $5.6 million. That would, just for clarity, replace

Speaker #1: So the 5.6 million dollars comes from two components of the agreement with the hospitals. One is a per-visit fee so for every visit that we see, every patient that we see, we receive a fee, an income from the hospitals.

Speaker #1: And then additionally, as Chris mentioned, we receive a reimbursement for the licensed clinical staff who are treating those patients. So the sum of those two income streams is the 5.6 million dollars.

Speaker #1: And that would, just for clarity, replace the net patient revenue that we would have previously seen when they were operating pre-hospital affiliations. So the 5.6 million dollars is the hospital increase.

Eric Williams: The net patient revenue that we would have previously seen when they were operating pre-hospital affiliations. The $5.6 million is the hospital increase. There would be a reduction to net patient revenue, it would be less than the increase we're seeing from the $5.6 million increase.

Speaker #1: There would be a reduction to net patient revenue, but it would be less than the increase we're seeing from the 5.6 million dollar increase.

Speaker #2: Ben, does that make sense?

Chris Reading: Does that make sense?

Speaker #4: Yeah, I appreciate the additional details there.

Benjamin Rossi: Yeah. Appreciate the additional details there.

Speaker #5: In terms of the volume going through those metro clinics, just the outpatient clinics, we're averaging about 45 visits per day per clinic in our New York market.

Eric Williams: In terms of the volume going through those metro clinics, just the outpatient clinics, we're averaging about 45 visits per day per clinic in our New York market. Expect that to continue to increase with our NYU relationship.

Speaker #5: And expect that to continue to increase with our NYU relationship.

Speaker #4: Got it. And just a quick clarification.

Benjamin Rossi: Got it. Just as a quick clarification.

Speaker #2: Again, just to provide a little perspective. Prior to the NYU lingo, opportunity we were able to grow year over year basis about these around numbers but about 120,000 visits year over year.

Chris Reading: Just to provide a little perspective. Prior to the NYU Langone opportunity, we were able to grow in year-over-year basis about, these are round numbers, but about 120,000 visits year-over-year. That was 2025 to current period 2026. That's without the support of that hospital. Those clinicians that we hired, we fully expect to get them very busy and to produce very significant growth between now and the same time next year, including additional clinics, potential tuck-ins, and other things that we have in the works.

Speaker #2: That was 25 to current period 26. That's without the support of that hospital. So those clinicians that we hired, we fully expect to get them very busy in the produce, very significant growth between now and this same time next year.

Speaker #2: Including additional clinics, potential tuck-ins, and other things that we have in the works.

Speaker #4: Great. Appreciate the details there.

Benjamin Rossi: Great. Appreciate the details there.

Operator 2: Thank you. We'll move next to Larry Solow with CJS Securities. Please go ahead.

Operator: Thank you. We'll move next to Larry Solow with CJS Securities. Please go ahead.

Speaker #3: Thank you. And we'll move next to Larry Solo with CJS Securities. Please go ahead.

Speaker #2: Morning, Larry.

Chris Reading: Morning, Larry.

Speaker #4: Good morning, Chris. Just follow up on that one. So the 50 clinicians that you hired in advance, essentially this quarter, and if I do the math, that I mean, if they're making 100,000 a year, that would be like 2 million in the quarter or something like that.

Larry Solow: Good morning, Chris. Just follow up on that one. The 50 clinicians that you hired in advance, essentially this quarter, and if I do the math, if they're making $100,000 a year, that would be like $2 million in the quarter or something like that. Maybe it's more than that, but will that be reimbursed under the alliance or essentially it should be, right?

Speaker #4: So maybe it's more than that. But does that will that be reimbursed under the alliance or essentially, it should be, right?

Speaker #2: Yeah, it doesn't. It's not going to erase our Q2 expense. But as soon as those clinics are rolled into the arrangement, that cost gets picked up and effectively supplemented by NYU.

Chris Reading: Yeah, it's not going to erase our Q2 expense, as soon as those clinics are rolled into the arrangement, that cost gets picked up and effectively supplemented by NYU. It was important for us to make that decision. Michael made a good decision, I think. Schools produce graduates at certain times of the year, and based on our confidence and our ability to grow, we kind of have to reap those opportunities when they're available. That hurt us a bit in Q2.

Speaker #2: So that's it was important for us to make that decision. Michael made a good decision, I think. Schools produce graduates at certain times of the year.

Speaker #2: And based on our confidence and our ability to grow, we kind of have to we kind of have to reap those opportunities when they're available.

Speaker #2: And so that hurt us a bit in Q2.

Speaker #4: Right. And it is my number, is that right? A couple million dollars, plus or minus? Is that a fair ballpark?

Larry Solow: Right. Is my number, is that right? A couple million dollars plus or minus? Is that fair ballpark?

Speaker #2: Well, I think the I think the 100,000 per person is probably in the ballpark when you look at benefits. And sign on bonuses and other things, maybe a little bit more than that.

Chris Reading: Well, I think the $100,000 per person is probably in the ballpark. When you look at benefits and sign-on bonuses and other things, maybe a little bit more than that, but I think it's probably close enough.

Speaker #2: But I think it's probably close enough.

Speaker #4: Okay. And the year-to-date, you mentioned a little over $3 million higher. So, higher insurance—was that mostly felt this quarter, or was it already running higher in Q1?

Larry Solow: Okay. The year to date, you mentioned a little over $3 million higher insurance. Was that mostly felt this quarter or was it already running higher in Q1?

Speaker #2: It was running it was the bigger impact was Q2. Jason has the quarterly breakdown. We ran light all of '25 and we knew we were running light.

Chris Reading: The bigger impact was Q2. Jason has the quarterly breakdown. We ran light all of 2025, we knew we were running light. We budgeted to a median number where we've averaged for 2026, we've pretty significantly exceeded that number on these handful of semi-catastrophic cases that we have. Jason.

Speaker #2: We budgeted to a median number where we've averaged for '26 and we've pretty significantly exceeded that number on these handful of semi-catastrophic cases that we have.

Speaker #1: About 80% of the about 80% of the $3 million that Chris referenced was a second quarter when you think about the spread between the higher-than-average experience in the second quarter 2026 versus lower-than-average experience in the second quarter 2025.

Jason Curtis: About 80% of the $3 million that Chris referenced was Q2, when you think about the spread between the higher than average experience in Q2 2026 versus lower than average experience in Q2 2025.

Speaker #4: Gotcha. So that's like a couple million between that and the pre-hiring or the hiring in advance. That's probably could all in 2 and a half, 3 million dollars in the quarter.

Larry Solow: Got you. It's like a couple million between that and the pre-hiring or the hiring in advance. That's probably could all in two and a half, $3 million in the quarter on your operating profit. Okay. No, I appreciate that clarification. The volumes were nice, really strong, it's good to see Medicare pricing finally coming through here. Just on the commercial side, a little bit light, a little over 1% increase. Anything had been running around two, anything, I don't want to split hairs on one quarter, but anything to call out there?

Speaker #4: Under operating profit. Okay. No, I appreciate that clarification. And the volumes were nice. Really strong. And it's good to see Medicare pricing finally coming through here.

Speaker #4: Just on the commercial side, a little bit light. One little over 1% increase. And anything have been running around 2. Anything I don't want to split hairs on one quarter, but anything to call out there?

Speaker #2: No. It's going to move around a little bit and it's going to depend on when deals went into effect and quarterly timing and just like we talked about kind of the catch-up on the Medicare side, which gets us to a more normal average.

Chris Reading: No, it's going to move around a little bit, and it's going to depend on when deals went into effect and quarterly timing and just like we talked about, kind of the catch up on the Medicare side, which gets us to a more normal average. We really look at it over the course of a year. We're kind of where we expect it to be. We have more to come, but it's a little bit lumpy here and there, depending on the size of the contracts and the timing.

Speaker #2: We really look at it over the course of a year. So we're kind of where we expect it to be. And we have more to come.

Speaker #2: But it's a little bit lumpy here and there depending on the size of the contracts and the timing.

Speaker #4: Yeah. We're around.

Larry Solow: Yeah, no, that makes sense.

Speaker #1: We were up 3.4% in the first quarter on commercial.

Eric Williams: We were up 3.4% in Q1 on commercial.

Speaker #4: Oh, okay. Okay. So year-to-date, you're still running over 2%. Okay. Great. And then just lastly, you mentioned you recently refinanced increased the size of your credit facility.

Larry Solow: Oh, okay.

Eric Williams: Year to date.

Larry Solow: Okay. Year to date, you're still running over 2%. Okay, great. Just lastly, you mentioned you recently refinanced, increased the size of your credit facility. I think you also mentioned the accordion you added. Sounds like you're pretty confident in terms of continuing to do acquisitions and potentially even increase that activity. Is that fair?

Speaker #4: And then I think you also you mentioned the accordion you added. Sounds like you're pretty confident in terms of continuing to do acquisitions and potentially even increase that activity.

Speaker #4: Is that fair?

Speaker #2: Yeah. It's all fair. I mean, we're going to use the same filter that we've always used. So we're not going to spend differently just because we have money available.

Chris Reading: Yeah, it's all fair. We're going to use the same filter that we've always used. We're not going to spend differently just because we have money available. We're not going to be.

Speaker #2: We're not going to be—we're not going to be impudent. But it gives us the room to do some—to do the things that are available if we feel like it's the right thing to do.

Chris Reading: Imprudent. It gives us the room to do the things that are available, if we feel like it's the right thing to do.

Speaker #4: Gotcha. Great. Okay, great. Thanks, Chris. I appreciate it.

Larry Solow: Got you. Great. Okay, great. Thanks, Chris. I appreciate it.

Speaker #2: Thanks, Larry.

Chris Reading: Thanks, Larry.

Speaker #3: Thank you. And we'll move next to Jack Slevin with Jefferies. Please go ahead.

Operator 2: Thank you. We'll move next to Jack Slavin with Jefferies. Please go ahead.

Operator: Thank you. We'll move next to Jack Slavin with Jefferies. Please go ahead.

Speaker #2: Hey, Jack.

Speaker #5: Hey, guys. How's it going, Chris? Thanks for taking the question. I guess I want to touch maybe not on the interim. It seems you've covered enough on sort of the moving pieces near term around the hospital partnerships.

Chris Reading: Hey, Jack.

Jack Slavin: Hey, guys. How's it going, Chris? Thanks for taking the question. I guess I want to touch maybe not on the interim items. You've covered enough on sort of the moving pieces near term around the hospital partnerships. On some of the comments you made, Chris, as far as 2027 goes in the pipeline, can you maybe give a little more color on sort of what that looks like and sort of when you think maybe some of the next announcements of partnerships could start to come off? Secondly, if you think very long term and you look across your whole portfolio, it's obviously a very exciting opportunity.

Speaker #5: But on some of the comments you made, Chris, as far as 2027 goes in the pipeline, can you maybe give a little more color on sort of what that looks like and sort of when you think maybe some of the next announcements of partnerships could start to come off?

Speaker #5: And then secondly, if you think very long term and you look across your whole portfolio, it's obviously a very exciting opportunity. How do you think about across the whole base of clinics you have, how many of these could potentially be eligible based on the market or potential hospital partners, etc.?

Jack Slavin: How do you think about, across the whole base of clinics you have, how many of these could potentially be eligible based on the market or potential hospital partners, et cetera, of sort of how far you could potentially push into hospital partnerships on a longer term basis? Thanks.

Speaker #5: Sort of how far you could potentially push into hospital partnerships on a longer-term basis. Thanks.

Speaker #2: Yeah. So I'll take the second part of that first. On a longer-term basis, I think slowly and steadily we can push into a pretty good subset of our portfolio.

Chris Reading: Yeah. I'll take the second part of that first. On a longer term basis, I think slowly and steadily, we can push into a pretty good subset of our portfolio. When you look at right now the top 30 or 40 partnerships in our company, they already aggregate 75% or 80% of our earnings. These are partnerships typically in MSA markets where there's good population support, multiple hospital systems, and where we have good brand recognition and reputation. We can't address all the markets all at once. These deals take I wish they could move as fast as we can move, because we can move very fast. I have a great team. Our general counsel's fantastic, and he can move quickly with these, and the operations teams can move quickly.

Speaker #2: And so when you look at right now the top 30 or 40 partnerships in our company, they already aggregate 75 or 80 percent of our earnings.

Speaker #2: And these are partnerships typically in MSA markets where there's good population support, multiple hospital systems, and where we have good brand recognition and reputation.

Speaker #2: And so we can't address all the markets all at once. And these deals take I wish they could move as fast as we can move because we can move very fast.

Speaker #2: We have a great team. Our general counsels are fantastic. And he can move quickly with these. And operations teams can move quickly. We're dealing with hospital systems that when they think they're moving quickly, we think we're watching paint dry a little bit sometimes.

Chris Reading: We're dealing with hospital systems that when they think they're moving quickly, we think we're watching paint dry a little bit sometimes. They're gonna happen. You're gonna get some additional announcements. You can't predict the absolute cadence of these. I would be over my skis and outside my point of control to be able to do that. We feel confident that 2027 is gonna look meaningfully different with the next few of these.

Speaker #2: And so they're going to happen you're going to get some additional announcements. You can't predict the absolute cadence of these. That would be over my skis and outside my point of control to be able to do that.

Speaker #2: But we feel confident that 2027 is going to look meaningfully different with the next few of these.

Speaker #5: Okay. Really helpful. And then just to follow up maybe on a slightly different side of things, you have this deal coming through in 3Q with the 12 clinics.

Jack Slavin: Okay. Really helpful. Just to follow up maybe on a slightly different side of things. You have this deal coming through in Q3 with the 12 clinics. I know entering the year, you're pretty bullish on sort of potential opportunities on the inorganic side of things via M&A. Can you speak to maybe if there more to come on this front, other things that you guys have in the pipeline right now? We'd love to hear about sort of the current state of M&A. Thanks.

Speaker #5: I know entering the year, you're pretty bullish on sort of the potential opportunities on the inorganic side of things via M&A. Can you speak to maybe if they're more to come on this front, other things that you guys have in the pipeline right now?

Speaker #5: Would love to hear about sort of the current state of M&A. Thanks.

Speaker #2: Yeah. We continue to have good discussions. We're indulgent on some things right now. We it's difficult for me to be particularly descriptive and not kind of put us in the corner on these because we're going through our process.

Chris Reading: Yeah, we continue to have good discussions. We're in diligence on some things right now. It's difficult for me to be particularly descriptive and not kind of put us in the corner on these, because we're going through our process, and we're in discussions with a number of people, both on the injury prevention side and on the PT side. We know that there are some things that are coming to market this year, probably late in the year, that are going to be a little bit bigger. We'll see. I think we'll produce a good development year, and we're excited, particularly once we get these hospital partnerships under the tent.

Speaker #2: And we're in discussions with a number of people, both on the injury prevention side and on the PT side. And we know that there are some things that are coming to market that this year probably late in the year that are going to be a little bit bigger.

Speaker #2: And so we'll see. I think we'll produce a good development year. And we're excited particularly once we get these hospital partnerships under the tent.

Speaker #2: It gives us the ability to really transform what we do because we're able to go out and find in the case of New York, there's some really high-volume practices that practically speaking on their own don't make a lot of money, wouldn't be acquisition targets right now that when you pull together the alliance we have with NYU Langone, and the rate differential, and the additional referral support, we can get those done all day long.

Chris Reading: It gives us the ability to truly transform what we do because we're able to go out and find. In the case of New York, there's some really high volume practices that practically speaking on their own, don't make a lot of money, wouldn't be acquisition targets right now. That when we pull together the alliance we have with NYU Langone and the rate differential and the additional referral support, we can get those done all day long. They can have a meaningful impact, as meaningful of an impact as a larger acquisition might have historically where we're paying a lot of money. These, we're not going to have to pay a lot of money for because they don't have big profit lines to begin with.

Speaker #2: And they can have a meaningful impact as meaningful of an impact as a larger acquisition might have historically where we're paying a lot of money.

Speaker #2: And these were not going to have to pay a lot of money for because they don't have big profit line to begin with. And so I think it opens up a front of ours that potentially accelerates cash flow just based on the opportunity at hand and the way the numbers work.

Chris Reading: I think it opens up a front of ours that potentially accelerates cash flow, just based on the opportunity at hand and the way the numbers work. We're excited about that too.

Speaker #2: So we're excited about that too.

Speaker #5: Got it. Really helpful color, Chris. One just touch up on the model for Jason here. I don't know if I missed this, but could you just speak to the from a same-store perspective, in PT, the breakdown of visits and rate in that just over 3% number you gave?

Jack Slavin: Got it. Really helpful color, Chris. One just touch up on the model for Jason here. I don't know if I missed this, but can you just speak to From a same-store perspective in PT, the breakdown of visits and rate in that just over 3% number you gave?

Speaker #4: Yeah. I mean, I think the as we were talking, the math that you were talking about is a pretty reasonable one. So in terms of the total increase, the mature clinic increase is 3.5%.

Jason Curtis: Yeah, I think as we were talking, the math that you were talking about is a pretty reasonable one. In terms of the total increase, the mature clinic increase is 3.5%, and then the net rate increase is 2.1%. You're looking at around 1.5% coming out of visits, I think is a reasonable assumption to make.

Speaker #4: And then the net rate increase is 2.1%. So you're looking at around 1.5% coming out of visits, I think, is a reasonable assumption to make.

Speaker #5: Got it. Appreciate that. Thanks, guys.

Jack Slavin: Got it. Appreciate that. Thanks, guys.

Speaker #1: Thank you. And we will move next to Joanna Gajok with Bank of America. Please go ahead.

Operator 2: Thank you. We will move next to Joanna Gajuk with Bank of America. Please go ahead.

Operator: Thank you. We will move next to Joanna Gajuk with Bank of America. Please go ahead.

Speaker #6: Hey, this is Joaquin. I got a Martinez on for Joanna. Just wanted to ask quickly on the paramedics and how you guys saw self-pay increase throughout the quarter or decrease?

Joaquin Martinez: Hey, this is Joaquin Martinez on for Joanna. Just wanted to ask quickly on the payer mix and how you guys saw self-pay increase throughout the quarter or decrease. Thanks.

Speaker #6: Thanks.

Speaker #2: Jason, you have that one?

Chris Reading: Jason, if you have that one.

Speaker #4: Yeah. I mean, we saw a small decrease in that particular line item. I think it's a total percentage of the payer mix, self-pay is significantly less than 5%, runs in the 3.5%, 3.5 to 4% range.

Jason Curtis: Yeah, we saw a small decrease in that particular line item. I think it's very important to note that from a total percentage of the payer mix, self-pay is significantly less than 5%, runs in at the 3.5% to 4% range. Commercial, Medicare, and workers' comp are really where the needle movers occur.

Speaker #4: So commercial, Medicare, and workers' comp are really where the needle movers occur.

Speaker #2: Yeah. Understanding the underpinnings to that question, we've gotten some questions related to hospital callouts on increases for uninsured and things like that. We really don't see big swings to our payer mix.

Chris Reading: Yeah. Understanding the underpinnings to that question. We've gotten some questions related to hospital call-outs on increase for uninsured and things like that. We really don't see big swings to our payer mix, and we've never really ever seen a big swing in our un- or under-insured populations. We've been very steady and volume's been very good, as we've mentioned, and that part of our business is pretty steady as well. It's not a big part.

Speaker #2: And we've never really ever seen a big swing in our un or underinsured populations so we've been very steady in volume has been very good as we've mentioned.

Speaker #2: And that part of our business is pretty steady as well. It's not a big part.

Speaker #6: Okay. Thanks. And could you talk about your workers' comp mix and what your average workers' comp revenue per visit increase was? And are there more contracts you plan on bringing in or did bring in over the last quarter?

Joaquin Martinez: Okay, thanks. Could you talk about your workers' comp mix and what your average workers' comp revenue per visit increase was, are there more contracts you plan on bringing in or did bring in over the last quarter? Thank you.

Speaker #6: Thank you.

Speaker #4: Yeah. So our workers' comp in terms of the penetration is holding steady at about 10%. And as I mentioned, we saw a nice increase of 2% in the second quarter.

Jason Curtis: Yes, our workers' comp, in terms of the penetration, is holding steady at about 10%. As I mentioned, we saw a nice increase of 2% in Q2 in terms of revenue per visit.

Speaker #4: In terms of revenue per visit.

Speaker #2: And Eric, I don't know. I don't have in front of me or off the top of my head even any new contracts that would have influenced that one way or the other.

Chris Reading: Eric, I don't know. I don't have in front of me or off the top of my head even, any new contracts that would have influenced that one way or the other. I don't know whether you do.

Speaker #2: I don't know whether you do.

Speaker #6: Yeah. Yeah. I'll tell you what's been driving rate and volume. And this has been a big initiative for us over the last couple of years.

Eric Williams: Yeah. I'll tell you what's been driving rate and volume, this has been a big initiative for us over the last couple of years, we've seen an increase in visits. We've seen an increase in rate. If you flashback, three plus years ago, we really had fixed agreements that were driving the bulk of our work comp business. Those were network agreements. We brought someone on to lead this initiative for us. I think we've added somewhere around 22 or 23 agreements over the course of the last three years. We have another four to five agreements that are going to come online here over the balance of 2026. There is a difference between what those different contracts pay. The networks pay a little bit lower.

Speaker #6: And we've seen an increase in visits. We've seen an increase in rate. And if you flashback, three-plus years ago, we really had six agreements that were driving the bulk of our work comp business.

Speaker #6: And those were network agreements. And we brought someone on to lead this initiative for us. I think we've had somewhere around 22 or 23 agreements over the course of the last three years.

Speaker #6: We have another four to five agreements that are going to come online here. Over the balance of 2026. And there is a difference between what those different contracts pay.

Speaker #6: The networks pay a little bit lower. The PPO agreements that we have pay a little bit higher. And that's what we're seeing more of is the PPO business on our door.

Eric Williams: The PPO agreements that we have pay a little bit higher, that's what we're seeing more of, is the PPO business on our door, and it's having an impact on rate. To Jason's point, in Q2, we finished with a rate of $155.32 on work comp. That was 2% higher than prior year. I think we'll continue to see traction here on the rate and volume side as we continue to move forward.

Speaker #6: And it's having an impact on rate. And Jason's point in Q2, we finished with a rate of 155 dollars in 32 cents on work comp.

Speaker #6: It was 2% higher than prior year. So I think we'll continue to see traction here on the rate and volume side as we continue to move forward.

Speaker #2: Thanks, sir.

Chris Reading: Thanks, Eric.

Speaker #6: Great. Thank you.

Joaquin Martinez: Great. Thank you.

Speaker #1: Thank you. And once again, if you would like to ask a question, please press the star and one on your keypad now. And we'll take our next question from Mike Petuski with Barrington Research.

Operator 2: Thank you. Once again, if you would like to ask a question, please press the star and one on your keypad now. We'll take our next question from Mike Petusky with Barrington Research. Please go ahead.

Operator: Thank you. Once again, if you would like to ask a question, please press the star and one on your keypad now. We'll take our next question from Mike Petusky with Barrington Research. Please go ahead.

Speaker #1: Please go ahead.

Speaker #2: Hey, Mike.

Chris Reading: Hey, Mike.

Speaker #7: Hey. Good morning. I guess Chris, I don't think I heard you, but if I did forgive, any comments on the proposed pricing for next year?

Mike Petusky: Hey, good morning. I guess, Chris, I don't think I heard you, but if I did, forgive. Any comments on the proposed pricing for next year?

Speaker #2: Yeah. If we didn't touch on that. And I appreciate I called it out at the end. We have I wasn't specific. So we have the benefit of knowing that CMS intends to give modest price increase for next year, somewhere between we think around 1.5%.

Chris Reading: Yeah, we didn't touch on that. I appreciate, I called it out at the end. We have, but I wasn't specific. We have the benefit of knowing that CMS intends to give modest price increase for next year, somewhere between, we think, around 1.5%. That increase would, of course, affect our traditional Medicare. Wouldn't necessarily affect our Medicare Advantage. It affects a percentage of those contracts, but not all. While it's not a big increase, it is an increase. The other thing that they've done, which they haven't done in a long time, is through our APTQI alliance. There was an indicator or an influencer of some of the rate movement around the particular indicator that I hadn't heard about before. It's called an IPSE multiplier.

Speaker #2: And so that increase would, of course, affect our traditional Medicare wouldn't necessarily affect our Medicare Advantage affects a percentage of those contracts, but not all.

Speaker #2: While it's not a big increase, it is an increase. The other thing that they've done, which they haven't done in a long time, is through our APTQI Alliance, there was an indicator or an influencer of some of the rate movement around the particular indicator that I hadn't heard about before.

Speaker #2: It's called an IPSI multiplier. Has to do with the subset of specialists who use the codes that are in your code set and the relative call it aggregate reimbursement to those positions.

Chris Reading: It has to do with the subset of specialists who use the codes that are in your code set and the relative, call it, aggregate reimbursement to those physicians. Said a different way, in our code set, we know we have majority of it's physical and occupational therapists who make, on an income basis, a pretty low amount when you look across the whole physician fee schedule. We also have orthopedic surgeons, we have interventional pain management specialists, we have physical medicine rehabilitation doctors who make a great deal of money. We discovered this a year ago. We were the only group in the physician fee schedule whose, that IPSE factor that I mentioned, who didn't take into account the full width and breadth of everyone who uses that code.

Speaker #2: So set a different way. If in our code set, we know we have majority of it's physical and occupational therapists, who make on an income basis a pretty low amount when you look across the whole physician fee schedule.

Speaker #2: But we also have orthopedic surgeons. We have interventional pain management specialists. We have physical medicine and rehabilitation doctors, who make a great deal of money.

Speaker #2: We were the— and we discovered this a year or so ago, a year ago. We were the only group in the Physician Fee Schedule whose IPSI factor that I mentioned didn't take into account the full width and breadth of everyone who uses that code.

Speaker #2: So again, said differently, we were being treated differently than all the other groups in the physician fee schedule. We brought that to CMS's attention.

Chris Reading: said differently, we were being treated differently than all the other groups in the physician fee schedule. We brought that to CMS's attention a year ago. They seemed surprised by it. They did their own work. They've given us an early indication that in 2028, we'll see the beginning of some, what we hope to be, not clear yet, and it's not set yet completely, but a resolution of that difference in the form of some more positive momentum going forward into the 2028 year. Stay tuned on that. We've got more work to do. That's a positive indicator as we look forward.

Speaker #2: A year ago, they seemed surprised by it. They did their own work. They've given us an early indication that in 2028, we'll see the beginning of some what we hope to be not clear yet and it's not set yet completely but a resolution of that difference in the form of some more positive momentum going forward into the 2028 year.

Speaker #2: So stay tuned on that. We've got more work to do. But that's a positive indicator as we look forward.

Speaker #6: Okay. That's terrific. Thank you. That's helpful. Chris, I'm just curious. On the industrial injury prevention business, the organic growth in the quarter seems a little softer than what you guys have been sort of putting up some big numbers.

Mike Petusky: Okay. That's terrific. Thank you. That's helpful. Chris, I'm just curious, on the industrial injury prevention business, the organic growth in the quarter seemed a little softer than what you guys have been.

Chris Reading: Yeah

Mike Petusky: sort of putting up some big numbers. I'm just curious, was there a piece of business lost there, or can you just comment on that?

Speaker #6: And I'm just curious, were there some was there a piece of business loss there? Or can you just comment on that?

Speaker #2: Yeah. A couple of different things. So I think if I remember right, going back last year, Q2, we had an 18% organic growth rate.

Chris Reading: Yeah, a couple different things. I think if I remember right, going back last year, Q2, we had an 18% organic growth rate. Pretty high comp, number one, on last year. We had one contract and it was an automobile manufacturer contract, and we got notice on this more than a year ago. It's a Japanese manufacturer who we had a longstanding good relationship. They changed the hierarchy of who in that company made the decisions about healthcare. We had very good local relationship at the plants where we provided service. Those people wanted to continue to keep us, yet somebody outside the market made the decision to move to a different provider. That happened in this year. I think we're feeling most of that in Q2. That's been replaced by Nissan Motors contract and the largest grocery store chain in Texas.

Speaker #2: So pretty high comp, number one. On last year, we had one contract and it was an automobile manufacturer contract. And we got notice on this more than a year ago.

Speaker #2: It's a Japanese manufacturer. We had a longstanding good relationship. They changed the hierarchy of who in that company made the decisions about healthcare we had very good local relationship at the plant where we provided service.

Speaker #2: Those people wanted to continue to keep us. Yet somebody outside the market made the decision to move to a different provider. So that happened in this year.

Speaker #2: I think we're feeling most of that in Q2. That's been replaced by Nissan Motors contract. And the largest grocery store chain in Texas, that contract, which is also expanding, but there was we don't lose many contracts.

Chris Reading: That contract, which is also expanding. We don't lose many contracts. That's really the one impact that we've had, since we've been in this business, is with that particular employer. It created a little bit of a dent, but we filled it in and we're going forward. We'll say we just hired what sounds like a great new salesperson for one of our partnerships, who is embarking on trying to be more aggressive in the market. We're excited about that and we'll see where that goes. We are a little lighter than normal, but we think it's temporary.

Speaker #2: We have that's really the one impact that we've had since we've been in this business is with that particular employer. It created a little bit of a dent.

Speaker #2: But we filled it in and we're going forward. And we'll say we just hired what sounds like a great new salesperson for one of our partnerships.

Speaker #2: Who is embarking on trying to be more aggressive in the market. And so we're excited about that. And we'll see where that goes. But we are a little lighter than normal.

Speaker #2: But we think it's temporary.

Speaker #6: Yeah. Chris, I'll add a little I'll add a little additional color commentary on there for one of our injury prevention businesses. And their pipeline continues to be very, very strong.

Mike Petusky: Great.

Eric Williams: Yeah, Chris, I'll add a little additional color commentary on there for one of our injury prevention businesses. Their pipeline continues to be very strong. However, they've had a number of open positions that have been taking longer to fill, so they haven't been able to execute against driving revenue with some of that pipeline. They've recently filled a number of those positions. To Chris's point, we believe this is temporary and will pick back up momentum.

Speaker #6: However, they've had a number of open positions that have been taken longer to fill. So they haven't been able to execute against driving revenue with some of that pipeline.

Speaker #6: And they've recently filled a number of those positions. So to Chris's point, we believe this is temporary. And we'll pick back up momentum. Great.

Speaker #6: If I could sneak one more in and then I'll turn it over to somebody else. Just on the expectations around adjusted EBITDA contribution from the hospital agreements.

Mike Petusky: Great. If I could sneak one more in.

Chris Reading: Sure

Mike Petusky: Turn it over to somebody else. Just on the expectations around adjusted EBITDA contribution from the hospital agreements. I think, when these were first announced, you sort of said $7.3 for 2027, in terms of the adjusted EBITDA contribution. I honestly don't even recall what you said for this year. I think it was very modest.

Speaker #6: I think when these were first announced, these sort of said 7.3 for 27 in terms of the adjusted EBITDA contribution. And I honestly don't even recall what you said for this year.

Speaker #6: I think it was very modest. Can you just sort of update? I guess first, if you could help me, with 26 potential contribution. And then is 7.3 still your view?

Chris Reading: Right.

Mike Petusky: Can you just sort of update, I guess first, if you could help me with 2026 potential contribution, and then is $7.3 still your view or has that been adjusted? Thanks.

Speaker #6: Or has that been adjusted? Thanks.

Speaker #2: Let me speak to 27 and then I'll have Jason walk you through the mechanics of 26. Because frankly, off the top of my head, I'm not confident I'm going to remember it exactly.

Chris Reading: Let me speak to 2027, and then I'll have Jason walk you through the mechanics of 2026, because frankly, off the top of my head, I'm not confident I'm going to remember it exactly. We will update the market as we always do at the end of the year with what we expect those opportunities to do in 2027. Let me explain the reason behind that. When we guided, our board was comfortable giving guidance because this was so new. Our guidance was based on the trailing 12 months visit rate at the time we enacted that contract. It didn't include a run rate at the time. It also didn't include any takeouts in the business.

Speaker #2: But we will update the market as the year with what we expect those opportunities to do in 2027. But we're very confident that the early results are going to position us for a greater number in 2027.

Speaker #2: And let me explain the reason behind that. When we guided our board was comfortable giving guidance because this was so new, our guidance was based on a trailing 12-month visit rate at the time we enacted that contract.

Speaker #2: So it didn't include a run rate at the time. It also didn't include any takeouts in the business. Takeouts would be as the business transitions and as we work down accounts receivable.

Chris Reading: Takeouts would be as the business transitions and as we work down accounts receivable, we won't have the need for billing and collections inside these partnerships over a long period of time. Now, Metro will continue to keep billing collections for their home care business, but we won't need billing collections for the outpatient business. That cost goes away. We didn't include that. We were very conservative with how we guided. We'll give a more specific number when we guide for 2027, but it's going to be bigger than what we originally said.

Speaker #2: We won't have the need for billing and collections inside these partnerships over a long period of time. Now, Metro will continue to keep billing and collections for their home care business.

Speaker #2: But we won't need billing collections for the outpatient business. So that cost goes away. We didn't include that. We were very conservative with how we guided.

Speaker #2: We'll give them more specific number when we guide for 27. But it's going to be bigger than what we originally said.

Speaker #3: Yeah. And I would say for 2026, as we talked about in the second quarter, we did see some revenue that began to flow in from the hospital affiliations.

Jason Curtis: Yeah, I would say for 2026, as we talked about in Q2, we did see some revenue that began to flow in from the hospital affiliations, although we did have that offset from some of the pull forwards of hiring to get ourselves ready for the additional volume that we expect on a go-forward basis. If you take that $7.3 and assume that it's going to be something higher than that and divide it by four, you're getting something like $1.5 to $2 million impact in Q4. Q3 is going to be somewhere in between those two numbers as we're continuing to ramp in the remaining clinics.

Speaker #3: Although we did have that offset from some of the pull forwards of hiring to get ourselves ready for the additional volume that we expect on a go-forward basis.

Speaker #3: If you take that 7.3 and assume that it's going to be something higher than that and divided by 4, you're getting something like 1.5 to 2 million dollar impact in Q4.

Speaker #3: Q3 is going to be somewhere in between those in between those two numbers is where continuing to ramp in the remaining clinics.

Speaker #6: Okay. Thank you very much, guys. Appreciate it.

Mike Petusky: Okay. Thank you very much, guys. Appreciate it.

Speaker #2: Thanks, Mike.

Chris Reading: Thanks, Mike.

Speaker #1: Thank you. At this time, this concludes our question and answer session. I will now turn the meeting back to Chris Redding for any additional or closing remarks.

Operator 2: Thank you. At this time, this concludes our question and answer session. I will now turn the meeting back to Chris Reading for any additional or closing remarks.

Operator: Thank you. At this time, this concludes our question and answer session. I will now turn the meeting back to Chris Reading for any additional or closing remarks.

Speaker #2: Thank you. Listen, we appreciate your time this morning. We're available over the next days and week or weeks for any follow-up that you need.

Chris Reading: Thank you. Listen, we appreciate your time this morning. We're available over the next days and week or weeks for any follow-up that you need. We thank you for your interest and your support. Have a great day. Bye now.

Speaker #2: And we thank you for your interest and your support. Have a great day. Bye now.

Operator 2: This concludes today's meeting. We appreciate your time and participation. You may now disconnect. Thank you.

Operator: This concludes today's meeting. We appreciate your time and participation. You may now disconnect. Thank you.

Q2 2026 US Physical Therapy Inc Earnings Call

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