US Physical Therapy Inc 2026 Q2 Earnings Call

Thank you. Good morning, and welcome, everyone, to our US 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 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.

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. Thanks, Kate.

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 and then 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. 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'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 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. 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'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, 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. 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 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. 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, and it is 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 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. With continued WelcomeWare 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.

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. 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. Thanks, Chris, 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.

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.

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. 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 the third quarter.

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.