Good day and thank you for standing by. Welcome to the U.S. Physical Therapy Second Quarter 2024 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. I’d now like to turn the call over to Chris Reading, President and CEO. Please go ahead, sir.

Thanks, Jamie. Good morning. And welcome everyone to our second quarter 2024 U.S. Physical Therapy earnings call. With me on the line this morning, I’ve got Carey Hendrickson, our Chief Financial Officer; Eric Williams, our President and COO, East; Graham Reeve, our Chief Operating Officer, West; Rick Binstein, our Executive Vice President and General Counsel. Before I make some prepared remarks relating to our quarter and year, I’ll ask Jake Martinez to cover a brief disclosure.

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. The related reconciliations can be found in the company’s earnings release and the company presentations on our website. Chris?

Thanks, Jake. So, let’s get started. My discussion this morning will cover a variety of highlights. We’ve definitely made some progress in some key areas. It will also touch on one of our primary challenges as well. Let’s start with the fact that this was a very solid quarter from a volume perspective. The best visit per clinic per day quarter in our history. April was our high month at 31.2, marking a high also for the year, followed by May nicely over 30. June, just under 30 at 29.8. And all of this follows our normal seasonal progression with school finishing and summer vacations kicking off for a bit before things get back to normal that they’ve begun to do with school starting up here in Texas this week in many places. Speaking a minute to our expectations, our total visits are ahead of where we budgeted them to be at the midpoint this year, better by approximately 6,600 visits and ahead of last year’s same period by over 108,000 visits. Our partnerships are doing a great job addressing demand and doing a terrific job with patients in what seems to be a rather tight labor market. More on that in a minute. And kudos are due to our contracting team. We’re starting to see their hard work over the past 18 months really beginning to bear fruit. Net rate for the quarter progressed nicely and finished at $105.05 per visit, up a little bit more than $3 per visit over the same quarter in 2023. As you might remember, last year we renegotiated a large volume of commercial and more complicated contracts. While those adjustments took a little time to phase in and show up, they’re doing so now in really nice progression that we are seeing and expect to continue as the year goes forward. We have also seen work comp volume move up, and while the aggregate percentage has changed a little, it really shows up when you see the number and rate of year-over-year change in work comp visits, which I’ll have Eric cover as we open it up for discussion after these prepared remarks. The culmination of rate for commercial plans and our faster-than-average work comp growth is resulting in a very nice uptick in our net rate so far for the year and actually we expect that to continue as we go forward. In the injury prevention side of things, we had a very good quarter. Revenues grew by more than 23%. We also saw a nice margin improvement of about 70 basis points to 21.4%, with an increased profitability of more than 27%. And I was just out in Denver, spent a few days with WREX partners. They’re working to integrate our recent Atlas acquisition. That opportunity is going very well and the integration of our teams is progressing nicely with what I think will be some enhancements that will be beneficial to us in the long run once this combination is fully complete. Both of our injury prevention partnerships, East and West, are doing well and gaining new customers and have a better-than-expected, better-than-budget trajectory on the year so far. Where we had more work, and frankly, we are behind where we expected to be at this point, and really our primary point of struggle was around our PT-related costs for labor. Carey will cover the per visit and percent of revenue costs in detail, but the sum of it all is that the people we have hired this last year, and likely in that period slightly preceding that, are at a higher rate given inflation and employee scarcity than we’ve experienced in the past. Therapists overall are about 4% more on average for incentives. Front office personnel are about 5% more. Additionally, in a handful of markets, we have greater-than-expected use of contract and travel-based labor. That obviously has hurt us in impacting our performance and our margin, despite the strong gains in net rate that we’ve made. It’s a little bit of a two-edged sword in that we have good demand in and across most of our partnerships and addressing that immediate demand in the current environment has necessitated that we bring on more contract labor than we initially envisioned. Our ops teams are very aware of where we are and where we would like to be and are working hard to ensure that we have the staffing balanced appropriately for the season and we have sufficient resources to meet the demand, but remain highly efficient at the same time. Additionally, we’ve made numerous investments in the areas of recruiting that we expect to bear fruit and some longer-term initiatives with respect to school relationships, partnerships and affiliations. These are all things you should expect us to be doing over the coming months and quarters as we look to readjust to the market factors that are currently influencing our outlook for the remainder of the year. Let me say this. While I know our cost issue is an unfavorable development we have to overcome, when you look at our key focus areas over time, we have a very good history of overcoming obstacles. We have a dedicated and capable group of partners, a great ops team, all of whom are working to get this dialed in over the coming period. One final note. We’re busy and remain committed on the development side of things. A few of our deals have pushed out a little bit due to factors that we don’t control on the seller side of the equation, but rest assured, we’re working hard and we expect a strong finish to the year for our development efforts with some exciting markets and partners who we are anxious to make part of our family as we look ahead. That concludes my overview and prepared remarks. Carey, as he always does so well, will cover the detail behind these themes. Go ahead, Carey.

Great. Thank you, Chris, and good morning, everyone. We saw some really good things inside of our numbers for the second quarter, things that we expect to continue to benefit us through the remainder of the year and beyond. Chris mentioned some of them in his remarks, but they’re particularly notable and worth repeating a few of them. Our hard work on rate negotiations and our focus on increasing workers’ comp as a percentage of our overall business continued to take root in the second quarter, resulting in a substantial year-over-year increase in our net rate. Also, our average visits per day in the second quarter are a record high for the company and our IIP business grew at a mid-teens rate in the second quarter, even before adding the acquisition that we made on April 30. Our salaries and contract labor were higher than we would have liked in the quarter, but the business itself is strong as we continue to see meaningful growth in these key indicators. We reported adjusted EBITDA for the second quarter of 2024 of $22.1 million, compared to $23.6 million in the prior year. Our adjusted EBITDA margin was 16.4% in the second quarter of this year, compared to 17.7% in the second quarter of the prior year. Traditionally, most calculate our EBITDA margin without the benefit of knowing what our adjusted revenue for minority interest is, which makes it appear that our margin is lower than it actually is. This adjusted EBITDA margin that I just quoted is 16.4% in the second quarter. It’s calculated on an apples-to-apples basis with both revenue and EBITDA adjusted for minority interest. Our operating results were $11 million in the second quarter of 2024, which is an increase of $600,000 over the second quarter of 2023. On a per-share basis, operating results were slightly lower than 2024, than 2023 at $0.73 this quarter, and $0.76 in the second quarter of last year. That small decrease is related to the increase in shares that were associated with the secondary offering that we completed in May of last year. Our average visits per clinic per day in the first quarter were 30.6, which is the highest volume per quarter in the company’s history. Chris noted what the progression was throughout the month. The lower number in June, as he mentioned, is our typical seasonal pattern, as both patients and our clinicians take vacations, and the schedule just changes a little bit in the summer for families. In July, our average visits per day were 29.8, which is consistent with July of last year, and it’s in sync with our seasonal expectations. Our net rate was $105.05 in the second quarter of 2024, which was $3.02 per visit, or 3% higher than the second quarter of last year, even with another 1.8% Medicare reduction by CMS that was in effect in the second quarter of 2024. This was the highest quarterly net rate we’ve had since 2020 while enduring four Medicare rate reductions by CMS since that time. Excluding Medicare, our rate was up $4.80 per visit, or 4.5% over the second quarter of last year. The increase was largely related to our strategic priority of increasing reimbursement rates through contract negotiations with commercial and other payers, and our focus on growing our workers’ comp business. We’re also focused on maximizing our cash collections through improvements in our revenue cycle management. Each of our major category of payers increased year-over-year. Workers’ comp, which is one of our highest rate categories, increased from 9.6% of our revenue mix in the second quarter of 2023 to 10.1% in the second quarter of 2024. These rate-enhancing initiatives will remain high priorities throughout 2024 and beyond. Physical therapy revenues were $143.5 million in the second quarter of 2024, which was an increase of $11.2 million or 8.5% from the second quarter of 2023. This increase was driven by having 25 more clinics on average in the second quarter of 2024 than in the second quarter of last year, as well as an increase in our visits at mature clinics, and of course, the increase in that rate. Physical therapy operating costs were $114.7 million, which was an increase of 10.3% over the second quarter of last year, due in part, again to having 25 more clinics on average in the second quarter of last year, as well as the increases in salaries and wages and contract labor costs that we’ve mentioned. On a per visit basis, our total operating costs were $84.46 in the second quarter, which compares to $80.61 in the second quarter of 2023. Our salaries and related costs per visit were $59.66 in the second quarter of 2024, compared to $57.59 in the second quarter of 2023. And our physical therapy margin was 20.1% in the second quarter of 2024. As Chris noted, our IIP team produced excellent growth in the first quarter. IIP net revenues were up $4.5 million or 23.2% over the second quarter of 2023, with IIP income up $1.1 million or 27.4%. Excluding the acquisition that we closed on March 31, 2024, our net revenues were still up 13.5%, with our gross profit up 15.7%. Our IIP margin increased from 20.7% in the second quarter of 2023 to 21.4% in the second quarter of 2024. Our corporate office costs were $14.2 million, which is 8.5% of revenue, right in line with expectations in the second quarter of 2024. That compared to $12.1 million or 8% of revenue in the second quarter of 2023. The second quarter of 2023 included a downward revision in our bonus accrual, causing it to look a little bit better as a percent of revenue than in the second quarter of this year. Our corporate costs in the second quarter of this year were actually lower than our budget by about $400,000. Quickly turning to our balance sheet, it continues to be in excellent position. We have $142.5 million of debt on our term loan, with a swap agreement in place that places the rate on our debt at 4.7%, which you know is a very favorable rate in today’s market and well below the current Fed funds rate even. In the first half of 2024 alone, the swap agreement saved us $1.8 million in interest expense, with cumulative savings of $5.1 million since the third quarter of 2022 in interest expense. In addition to the term loan, we also have a $175 million revolving credit facility that had nothing drawn on it during the second quarter, so that’s all available capacity and we have approximately $90 million of excess cash over and above what we need for working capital ready for deployment into growth initiatives. We deployed $40 million of cash in acquisitions so far this year and expect to deploy more before the end of the year. As we noted in our release, we’re updating our EBITDA guidance for full year 2024, returning to our original range of $80 million to $85 million. The change in guidance reflects our updated expectations for salaries and related costs and contract labor through the remainder of the year related to the continuing challenging employment environment, particularly for our clinicians and our front office staff. We expect our patient volumes to continue to be strong during 2024 and we expect to make additional progress on net rate throughout the year. With those details, Chris, I’ll turn it back to you. We’ll take questions.

Okay, Carey. Great job. Thank you. Jamie, let’s go ahead and open it up for questions.

Certainly. We’ll go first to Brian Tanquilutit with Jefferies. Please go ahead.

Hey. Good morning, guys.

Good morning.

Chris, maybe I’ll start with you. So the labor challenges that we’re seeing here, right? I mean, I guess two questions. It doesn’t seem like it’s impacting your ability to drive volume growth. So is this just a matter of basically a reset in the baseline for what your therapists are making? And then maybe the second part of the question would just be, how are you thinking about strategies and initiatives to drive and improve that labor situation?

Yeah. It’s a good question. So, first part is the perspective that it hasn’t impacted our volume because the volume’s been pretty good. I think it has impacted our volume in a negative way. I mean, we’ve beefed up our recruiting teams, we’re doing better, but we still have markets where if somebody does leave us and turnover’s been good, if somebody does leave us, they relocate their family to another state or another place. It takes a while to fill that spot and we do feel it. And so I think if the labor market eases, I think it reciprocally will have a further uplift on volume, but demand’s good. Look, the operations team, it’s a tough balance, particularly as we have gone into and through now vacation season with our staff working hard to deal with the volume that they have and the necessity to bring in some other or ancillary staff to fill those gaps, to keep volume up. Ops team’s very aware of it. Eric and Graham and our regional presidents. And it’s tough, but we’ve got to just keep everything very dialed in. We had a greater number of techs hired in the period than I kind of expected, so they’re digging into that a bit. That may just be a seasonal thing and we’re coming out of that season now that school’s back in. And then just on the demand side, any time that there’s pressure around hiring, the tendency is to pay more, to just block it down. And so we need to do a better longer-term job on widening the funnel. And so we’re making some adjustments and some investments in the part of our business that really interfaces most closely with the PT schools around the country and offering, I think a wider complement of things that we can do for those programs to help them and reciprocally help us as well. And so it’s a little bit of a longer-term program and project, but all those things are in the works right now.

Okay. That makes sense. For my follow-up question, are you noticing any changes in turnover, or is it stable with what we're observing simply being a consistent replacement cycle in line with the usual trend?

Yeah. I think turnover’s actually been pretty steady, steady meaning it’s been good for the last year and a half, two years. I think the group’s done a good job on that. Where we’ve seen pressure is, this year we gave probably larger-than-average raises just because people were pressed and the market’s tight and it’s very competitive. And then the newer people coming in, we know we’re paying a bit more than we were a couple years ago and so I think it’s that combination. Where I think we’re going to have to retest and I don’t know that it’ll be on the clinician side of the market, but on our hourly wage area in our front desk and looking maybe for some more efficiencies there or retesting the numbers that we’ve been paying this last year to see if we can balance inflation. I’ve debated a bit to see if we can get those back down a little. And so all those factors, along with making sure our cash flow’s been fantastic, our collections have been really good and our executive who handles that area’s doing a great job, and just making sure we’re as efficient as we need to be and can be on the backside of our operations as well. And so that in combination with the fact that I expect that we’ll still see some more rate growth, I’m really pleased with all of the reports and how that is lining up. And Carey and I both expect to see that to continue to progress over the coming period. And so it’s going to have to be that combination of operational focus seeing what we can do in terms of rate at the front desk and some efficiencies in some other areas, and hopefully we can get it down a bit.

Thank you.

Thanks, Brian.

We’ll hear next from Larry Solow with CJS Securities. Please go ahead.

Great. Thanks and…

Good morning.

Good morning, Chris. Good morning, Carey. It's great to ask about the volumes, and I have a follow-up to Brian's question regarding staffing constraints. As you noted, volumes are at record levels for a strong and seasonal quarter. However, I'm curious about the year-to-date perspective, as we seem to be flat on a same-store basis. I understand that Q1 may have been affected by weather, but historically, there has been a 2% to 3% volume growth over the last decade. If we surpass the 30 visits per day mark, are there any constraints affecting that? It seems that staffing might be one of them. You mentioned that volumes are generally in line with your expectations. Are you anticipating a slightly slower volume year this time around, or could you provide some insight into that?

Yeah. I don’t think 30 is the threshold for anything. I mean, a lot of our workforce are part-time, regular committed part-time, but part-time moms that are working, part-time with kids still at home, other things. And so we do have the ability to flex staffing, assuming that staffing is available and people are available and I think that’s been the biggest limiting factor so far this year. And you’re right, we’re flat on the year after having a lighter than expected first quarter. Second quarter came in about where we expected. It was a little bit lighter in June than I think we had modeled, particularly after a strong April. But volume, generally speaking, demand for new patients is there. We just have to be able to assess it from a staff perspective and so I don’t think this is a ceiling for us. We certainly don’t have a ceiling from a facility standpoint, a physical plant and things like that, and it’s all about creating incremental staffing so that we can continue to grow.

Right. And I’m pricing, you’ve done a great job, obviously, made some good strides. It feels to me like hopefully, you continue to negotiate and renegotiate, right? Because physical therapy, as we know, is a cost saver, right? And with these inflationary pressures, you should be able to go back and some industries are getting so much more price, right? So I feel like you got that, right?

Yeah.

Right. And just on the Medicare side, any update there? I think they came out with their proposals. Maybe this is the last year of proposed cuts. Any thoughts, longer term, maybe go into a CPI-based index pricing on the government side?

Yeah. Yeah.

… or anything there?

Yeah. That’s what’s supposed to happen now in the interim period, this comment period following the July release. We’re pressing hard. I mean, having five years’ worth of cuts in a row, in succession, it just makes making operational adjustments very, very difficult. And I think we’ve squeezed and maneuvered and managed, not perfectly by any stretch, but I think pretty well. And yet, I don’t know that I can name another industry that’s had maybe home health and some stretches, this kind of punishment unnecessarily. And it all, frankly, comes from a mistake that MedPAC made when this all began or they didn’t realize that physical therapy was part of the code set that they were impacting. They thought they were impacting interventional pain management specialists, PM&R doctors and orthopedic surgeons, the guys at the top of the food chain and it’s unfortunate, but we’re in it. We’re almost out the other side. I can’t imagine that this is going to continue without some reversal and we’re spending a lot more time in D.C. with the lobby group, our industry group, APTQI, with the APTA, with our congressmen and women. And hopefully, once this election cycle is through and we get some daylight on the other side and people can focus on governing, we can make some progress.

Got it. And the proposed cut, I guess, for 2025, I believe, is just similar to the initial proposal for 2024, just under 3%. Is that right?

Yeah. I think that.

3.5%.

Okay.

Yeah. All right. Okay.

Yeah. Yeah.

And just...

Our…

Yeah. Yeah.

I was just saying, in the meantime, we’re working. We can’t control what Medicare does, what CMS does, unfortunately. But in the meantime, we’re trying to control what we can control and that’s putting a lot of effort towards contract and rate negotiations for commercial, for workers’ comp, for all those things. We’re seeing really good progress there. And you’ll remember, when we did these negotiations, many of them, we built in three-year step increases. So they continue to produce fruit each year to have continual step increases in our rates. So that’s good, and that’s going to benefit us going forward. It’s already benefited us. We’re seeing, really starting to see the impact of it now and I’m pleased with our team that’s been, that’s done a really good job on that, as well as the increase in workers’ comp that, the number of visits in particular and as a percent of our mix, it’s a really good thing, because that’s one of our highest rate categories. So, we’re working hard to move that rate, even with the pressure from CMS.

Great. I was just going to ask you to start off, but just with the Hurricane Beryl, I know it caused a little bit of a lateness in your results and some shutdowns around in the Houston area. I know you guys have a decent amount of facilities down there. Was there any volume impact we should expect in Q3? Thanks.

We lost about 2,600 visits as a result of that, but I noted in my comments that our average visits per day in July was 29.8. So it’s still right in line with what June was and right in line with our expectations and right about the same place it was last year in July of 2023.

Great. I appreciate all the comments. Thank you.

Thanks, Larry.

We’ll go next to Joanna Gajuk with Bank of America.

Hi. Good morning.

Good morning, Joanna.

Thanks so much. Hey. Thanks so much for taking the question here. So I guess on the labor, since very tough here, but my question is, to your point, you’ve been hiring these workers for a year or maybe even longer at this higher rate. So my question is, like, why such a surprise on labor during this quarter? I mean, you’ve been talking about staffing improving and turnover below the industry, which I guess that still holds. But I guess, why were you so surprised with this quarter? Why, I guess, it didn’t transpire in Q1?

Yeah.

Yeah.

Go ahead, Carey.

Yeah. I was just going to say, one of the things that played into it, I think, was we expected to be able to transition from contract labor to permanent employees in some of these markets that we’re really challenged with. And so that would have helped us, but we had higher contract labor and that was part of the equation. But, Chris, go ahead.

No. I think part of it was we had a really strong April, really, really strong April. And spring quarter is usually a very strong volume quarter for us. And I think the combination of starting the quarter with a lot of demand resulted maybe in us having slight increments here and there of staff beyond where we needed as the quarter progressed. We’re still peeling this onion a bit. As Carey said, we have a handful of markets that kind of stand out as markets where at least I believe that we shouldn’t have as much contract labor as we do. We should be able to find long-term employees that are committed and part of our staff. We have good teams there, but for whatever reason, we’re struggling in those handful of markets. And so Eric and Graham and the rest of the team, meeting with partners, working on that, we’re trying to look at some of the underlying factors. But as Carey mentioned, we didn’t expect to be carrying as much of contract labor as we have. Then, honestly, I thought as inflation began to subside a bit, we could get our offered hourly rates down. I don’t know that we’ve seen that transpire yet, but we’re going to have to test it, because I think, particularly at our front desk, we’re too high and we’re going to have to see what we can do there. And so combination of factors, I wish it was perfect, it’s not, of course and we’re going to have to make some adjustments.

So when it comes…

And Chris, this is Eric.

Oh! Go ahead.

The only other comment I want to add to that is while the turnover rate is low and we are backfilling clinical and non-clinical positions at a higher rate, there’s also an impact on the existing staff within the business. I mean, when you start bringing in newer people, potentially less experienced, it does have an impact in terms of doing market adjustments to hang on to existing staff. So it’s something that we’re battling right now. I think there’s a couple of things that we’re in the process of doing now that will have an impact for us. We’re certainly going to Chris’s point where we saw labor adds in the business, taking a hard look at ensuring that the productivity that we have within that clinic is consistent with our staffing ratios for clinical and nonclinical staff. So the people that added staff, did we get the volume to leverage those additional expenses. I will say that looking a little bit deeper in this, and to Chris’s point, we still are peeling the onion a little bit. The 23 de novos that we had in place didn’t lever costs as effectively as they should. So we’re in the process of evaluating those businesses to see what we can do in terms of changing their trajectory. We did expect them to contribute a little bit more than they did from a net income perspective. So that’s a place we’re going to have to revisit. There’s no doubt that the additional resources that we’re putting in here will help us, particularly in recruiting, are going to help us. I think we’ve added roughly a 40% increase in recruiting staff to help us in those problem markets where we’ve over-relied on contract labor. So I think those additional resources will help us there. And my hope is the additional resources will also decrease fill times to bring PTs on board where we do have turnover. Because to Chris’s point, there is a volume impact associated with turnover that’s reflected in these first two quarters of numbers for us. So it’s an area that we’re just going to continue to have to focus and invest in going forward here over the balance of the year.

Eric, thank you very much. It seems there are several markets that are particularly notable. My question is whether there has been a shift in the competitive landscape. Are you observing increased competition from other therapy providers such as physical therapy or nursing homes, or has anyone else changed their approach that has intensified competition?

Let me address that. We're observing that young individuals graduating from school now face significantly higher levels of debt compared to previous years, particularly since many programs have shifted to requiring a doctorate. For those of us with children in college, it's clear that tuition costs for both undergraduate and graduate programs continue to rise annually. Unlike in the past, today's graduates are encountering debt burdens that significantly influence their career choices. While I was determined to pursue orthopedic outpatient physical therapy after graduation, many recent graduates are compelled to seek employment where they can earn the most money, whether that's in hospitals, private practices, or home health care. Although overall competition in the market hasn’t dramatically changed, the reality of mounting student debt is forcing graduates to prioritize financial gain in their decisions. This is a new challenge for our industry, and we need to adapt accordingly.

Thanks for that call. If I may, a last one on the topic, and I guess, my last question. So you also mentioned that you look to obviously try to manage down the costs, but you also mentioned some efficiencies. So can you maybe elaborate a little bit, maybe Eric can chime in in terms of what exactly you can do to kind of improve, I guess, efficiencies which would result in improved labor? Thank you.

Well, that’s definitely volume. I mean, volume is our best way to lever our costs. But the point that I was referencing earlier is, going back and taking a look at where we had headcount adds, particularly in the tech and front office space, which is where a lot of our headcount adds did take place, and making sure that those clinics with those additional adds are really at the threshold that we would expect from a visit perspective to support that kind of staffing. So that’s a clinic-by-clinic analysis that’s going to result in, if we’re overstaffed, shuffling people around and putting them in the right place or taking labor out in the event that they don’t have the volume to support it.

Great. Thank you so much.

Thank you.

Our next question will come from the line of Jared Haase with William Blair. Please go ahead.

Good morning, Jared.

Hey. Good morning. Thanks for taking the questions. Carey, maybe for you, I just want to make sure I understood kind of the, going back to the original guidance range for adjusted EBITDA for the year, some of the assumptions in the second half of the year, just want to understand kind of the puts and takes there. Is that largely reflecting swing factors in the labor environment in the second half of the year or anything else that you call out in terms of assumptions for the guidance? And are you assuming further increases in labor costs for here or is that largely kind of based on current trends?

The guidance is based on current trends in our labor and does not impact revenue. We are performing as expected according to our previous guidance and forecast. However, we did need to increase the cost estimates slightly to align with what we have observed so far this year.

Carey, if I may, I want to add one thing.

Yeah.

When we originally did guidance, we had a pretty good sized deal that we had close to done and we had baked in and unfortunately, as life happens sometimes, one of the owners went and probably is still going through a difficult divorce that put the kibosh on that opportunity. And so that in combination with some of the other factors that we’ve discussed at length here, but that was a pretty good chunk of both revenue and EBITDA that was, we expected to be in the door by the end of June, but we had to adjust that.

Understood. That makes sense and that’s helpful. And then I guess just as a follow-up, maybe taking a step back, this is a bit more of a strategic question, but I’m curious how you think about the balance between growth and profitability going forward. Obviously, you’re seeing strong demand and very nice volume trends that of course is leading to some of the incremental contract labor utilization to help support that. Do you start to consider at all kind of pivoting this strategy a bit and maybe capture a little less volume growth but have a little bit more stability on the expense side?

Yeah. It’s tough. I mean, it’s a fair question. It’s a good question. We’re in the service business to take care of people. And so when somebody’s at your door and they’ve had surgery and they want to be seen, we just as caregivers at heart, we have a hard time saying no to that. And so generally speaking, most of our facilities, probably with a few exceptions, we don’t have waiting lists. They don’t have a lot of patients that they turn away. It’s not to say that we shouldn’t look at our mix of patients and how we prioritize based on acuity and maybe even based on, in some cases, payer dynamics, who gets to the front of the line. And we’re having to look at all those things, quite honestly, to make sure that the next 10 patients come in aren’t patients that are just barely above our cost to deliver care. We’ve got to be focused. That’s why the focus on work comp has been so important. And I guess on that, just to create some perspective, I’d like Eric to talk a little bit about the growth in that comp area because I do think it relates to your question and how we prioritize what we do and when we make step adjustments and other things. Eric, you want to touch on that?

Sure. Yeah. Sure. I’m happy to talk about that. I know it’s been a focus of our quarterly calls here for a little while. There was a lot of work that was done to really properly position the organization to grow work comp. Carey referenced it. Work comp went from 9.6% of revenues Q2 last year to 10.1% this year. And while that may seem relatively slow or light when compared to what work comp percentages looked like in the past, we’re making substantial strides in terms of visit growth. Our visit growth in Q2 on work comp was 12.6%. We’re running about 9.3% year-to-date. So this category is growing really, really well. I think it’s directly tied to the efforts we’ve had in terms of substantially increasing network participation. And we have another nine work comp contracts that are going to be coming online here in Q3 and Q4 that I think will further drive growth in the work comp category and it’s absolutely our highest-paying segment of the business and going well. So it’s gone great and I think it’ll continue to grow going forward as we move through the year.

Thank you.

Any additional questions, Mr. Haase?

No. That was great. Appreciate all the color. Thank you.

We’ll go next to Michael Petusky with Barrington Research. Please go ahead.

Hey, Mike.

Hi. I wanted to follow up about the initiatives you've implemented, particularly regarding automation at the front desk. Have you reached the limits of what can be achieved there, or is there still potential to further reduce the labor challenges you're facing in that area of your business?

I don’t think we’re maxed at the front desk, Eric. I don’t know if you or Graham want to touch on that, but we’re still fortunately and unfortunately, I think we still have opportunity there and we’re early in it yet, I think, on some of that automation change.

Yeah, Chris, I think that’s a very fair description of where we’re at. I think there’s still opportunity here. We haven’t taken advantage of all of the functionality that is available to us. And that really goes back to some integration issues that we’re having with our EMR vendor that we’re working through as it relates to the ability to turn on some of that functionality. So it’s going slower, but it’s not going to be the magic pill. I think it’s going to help some, but it’s not going to have this major, major impact in terms of decreasing front office staff. I think at our larger facilities, it creates efficiencies for us, but we’re continuing to look at other opportunities besides automation in terms of how we can leverage administrative costs within our business. And more to come on that as we go down that path and we’ll share it with you guys as that vision unfolds.

And one other initiative that was talked about maybe 12 months, 18 months ago that I haven’t heard a lot about since is GPO. And I mean, is that something that’s still at all a meaningful focus or is that also sort of very marginal in terms of impact?

Yeah. It’s…

Go ahead, Graham.

We’re still working through it. It’s been challenging in some areas. We’re looking at different options for how we can do different savings mechanisms. We do have it stood up. It’s rolled out to probably about 45% to 50% of our clinics. We’ve seen some savings, but it hasn’t moved the needle as much as we were thinking it might. So we’re looking at some different options on how we might be able to get some more movement on that sort of span.

Okay. And I think, I guess, just to sort of wrap up this idea, I mean, is there an issue, Chris, do you feel like in terms of getting partner buy-in on some of these initiatives that really is needed, where you want to let these guys, they’re entrepreneurial guys, you want to let them run their business, but at some level maybe they’re not taking advantage of all that you guys could help them with in terms of optimizing? I’m just curious if maybe...

Yeah. No. I actually don’t think that, and that’s not to say that in any initiative that we don’t have people who are excited and early adopters and other people who are going to come on with a little different perspective, but I think our partners have done a great job and we’ve built a lot of trust over the years. It varies by category and by specific activity, whatever it is we’re doing. For instance, right now, and we’ve been working on this for a while and it really has been, as Eric mentioned, the systems issue, but remote therapeutic monitoring, which is an opportunity that CMS provides to us to interface with patients and as they perform their home program and maintain a level of consistency. We think that’s really important and we thought it was important a year ago, but we couldn’t get the vendors and systems to talk efficiently and while we had partners who were interested in it, it was too clunky and it was difficult and we’ve finally gotten the vendor interface worked out, taken a lot longer than we had hoped. That’s the nature of things sometimes. You bring different companies together and you try to get things to work and try to push as hard as you can and if it’s too inefficient, it doesn’t get adopted as readily. So, there was a period of time, for instance, on that initiative and rollout where we just had to press pause because it wasn’t worth beating the drum on and getting people frustrated, so we had to focus on other things. That’s the nature of operations. I mean, you live on relationships and you focus where you think you can get the greatest return and if you’re working on 100 things, you’re probably not getting a lot done. You have to focus on the key things that are going to make a difference. And so, I think our partners do a good job. I think they understand. They’re certainly not fighting, but these are day-to-day, minute-to-minute issues that just require a lot of attention and precision and in some places, we’ve got to dial in a little better. In other places, we’re going to have to just figure out that the reality is it’s going to be a little bit more expensive and we’re going to have to come up with some other revenue opportunities to offset it and that’s just the nature of the business right now.

Let me just sneak one last one in and then I’ll get off.

Yeah.

Regarding the labor challenges and the recent CMS cuts, do you think there is an opportunity for APTA and other industry leaders to approach decision-makers and express the need for assistance? It seems we are at a critical point where access to services will be affected. The situation feels unsustainable. Have you discussed any strategies to advocate for support, especially since others are receiving price increases due to inflation while we still deal with pricing pressures and the challenges of compensating clinical and front office staff? Thank you.

Thanks. Mike, the world’s complicated, but this particular issue isn’t complicated. We know that we save on the medical side of things. We know that we save significant costs. We know that patients who go through a course of physical therapy spend less on the entirety of their health care in a year or 18 months following a course of PT. For a Medicare age patient, they’re going to spend less, particularly being more active, more socially engaged, more activity, lower A1c, all of that. It’s not lost on anybody. In most APTQI, which I’m a part of and all of the big companies for the most part are a part of, along with the APTA, we’re in DC now a lot and we don’t run into many lawmakers who think that we should have had these cuts or they’re necessary or they make sense to them. But Washington’s been a bit of a dysfunctional place. We’ve all noticed that. And so unwinding these which have a secondary budget impact relative to the neutrality has been difficult. They’ve been mitigated, but they haven’t been unwound. I hope we can at least mediate a cut for 2025 as we have in the more recent period and then we should move into a system which allows us to have cost of living based rate changes. I mean, if you look at the accumulation, I don’t know exactly what it’s been, but it’s close to 10% that we’ve absorbed in this year on an accumulated basis. But in this year, if you look at where we are compared to where we were in 2019, it’s tens of millions of dollars that fall straight to the bottom line or specifically get removed straight from the bottom line. It’s been an every year thing. I’m not whining. It is what it is. We’ve got to deal with it. But if you’ve given me a neutral to 1% to 2% increase every year, what we could do with that would be amazing. I think we’re about to turn the page and it’s been a long time coming and we’re kind of tired of being in this lost cycle that we’ve been in, but I think we’re nearing the end. We will continue to press our D.C. constituency hard with the way the world is. It’s just hard to get necessarily the aggregated attention that you need to make dramatic change, but we’re not giving up.

Very good. Thanks, guys. Appreciate it.

Thanks, Mike.

And our final question in queue will be a follow-up from Larry Solow with CJS Securities. Please go ahead.

Great. Thank you, guys. I just have question on the workers’ comp, I guess more from a high level, this used to be like a mid-teens percent of your business, right, pre-COVID, and obviously, the world has changed a little bit. Our remote work accelerated, but I feel like your target audience can’t really be remote in terms of their working field. So I’m just curious, structurally, is there anything different that has caused the dramatic decline in workers’ comp volume over the years since COVID?

Larry, I wish I had a perfect answer for that. I mean, all of our companies that I’m aware of post-COVID saw a pretty significant drop in workers’ comp percentage. I can’t tell you that I know why that makes sense or why it would happen, but it has happened. And all we can do is focus on what we do and that focus has been to retrain, particularly a front office, to make sure that communication and follow-up across the comp world, multiple constituencies who have interest in the case. It’s the payer, it’s the case manager, maybe the company, the doctor, of course, always, but it’s just that continuous retraining and we focused on that. And as Eric said, we’ve gotten access to a broader network, and to be honest, through COVID, we were dealing with other things at the time, and along over that period, which was a couple of years, give or take, on best turnover, you lose people and you lose some traction. So we’re trying to get it back. I’m not going to promise that we’re going to get back to 14%, but as Eric said, we are growing our comp visits at a rate that’s a pretty nice rate, so we’ll see where it ends up.

Okay. If I just may squeeze one last one on a more positive note…

Sure. Sure.

As Carey said, the industrial venture business obviously grew nicely, low-double digits on an organic basis. What’s the driver there and does that business, is that a contra-indicator of employment? Because obviously, although I know the labor market is tight, things are maybe getting, unemployment’s coming up a little bit, so things are maybe loosening a little bit or getting worse, maybe better for you guys in a sense. But what’s going on in the business that’s driving that growth?

Yeah. Yeah. Yeah. Simply, it works. It works really well. We now have more programs and services and program lines than ever before. When we started, we had one primary and a couple very peripheral, and now we have 15 or 20 different individualized programs. As a result of some of the acquisitions that we’ve done, those have all integrated well and some of the growth that we’ve had, both in the team and our service offering. So, one, it works. It saves money. We’re seeing companies where we get a foot in the door, be willing to expand from just their most problematic sites across the country so that there is a really nice organic intra-customer growth opportunity. We’re seeing, as you might guess, as risk managers and heads of HR move within an industry or within an industry area to different companies and they’ve had good luck with us, good success before. It’s not luck, good success. They’re bringing us in. And look, companies are dealing with a musculoskeletal issue that is a significant problem for them. And it’s the word getting out that these types of programs, they work. And so, it’s a combination of things, but I’m really proud of our teams. We’ve added and grown and strengthened these teams over time and they’re doing a good job right now. I expect the momentum that we have will continue. In terms of the question about how it relates to where the economy is, I would say, some of these programs are cyclical in that when the economy is blowing and going, they’re busier and some are counter-cyclical. So in other words, maybe when labor gets really tight, our post-offer testing, which is meant to screen out people who might get injured down the line or likely to be injured, we have companies in some segments that we can’t find anybody, we can’t screen anybody out. And so as labor gets tighter, some of those programs slow down, but that’s always in the mix. Now we have enough diversity across our programs to where if we see a slowdown in one, we’re seeing a pickup in another and it doesn’t show up as much. So it’s just pretty steady overall.

Got it. Great. Thank you, guys. Appreciate it.

Thank you.

And ladies and gentlemen, at this time, if there are no further questions, I’d like to turn the floor back over to Chris Reading for any additional or closing comments.

Okay, Jamie. Thank you. Listen, I know this was a long call. I want to thank everybody for your questions, your attention. I know we have some follow-up calls scheduled, so please reach out to Carey or I, and we’re happy to spend time with you. And just know that we’re working hard on these opportunities. So have a great day. Thanks again. Bye.

Once again, ladies and gentlemen, that will conclude the U.S. Physical Therapy second quarter 2024 earnings call. Thank you for your participation. You may disconnect at this time.