Good day, everyone, and thank you for standing by. Welcome to the U.S. Physical Therapy First Quarter 2025 Conference Call. At this time all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I'd now like to turn the call over to Chris Reading, Chairman and CEO. Please go ahead, sir.

Good morning, everyone, and welcome to our U.S. Physical Therapy First Quarter 2025 Call. With me, as usual, on the phone this morning, Carey Hendrickson, our Chief Financial Officer; Rick Binstein, our Executive Vice President and General Counsel; Eric Williams, our President and Chief Operating Officer; Graham Reeve, our Chief Operating Officer, West; and Jason Curtis, our Senior Vice President, Finance and Accounting. Before we start the call today, I'll ask Jason to cover a brief disclosure, and then we'll get going.

Thank you, Chris. The presentation includes forward-looking statements, which involve certain risks and uncertainties. These forward-looking statements are based on the company's current views and assumptions. The company's actual results may vary materially from those anticipated. Please see the company's filings with the Securities and Exchange Commission for more information. This presentation also contains certain non-GAAP measures as defined in Regulation G, and the related reconciliations can be found on the company's earnings release and the company's presentations on our website.

Thanks, Jason. So I'm going to approach this call this morning a little bit differently than I generally do. Rather than read prepared remarks, I'm going to walk through this in a more fluid way. I think I can tell the story a bit better, so if you'll hang with me. We started this quarter out, and we had some tough weather at the beginning. By the end of it, we still had the best first quarter on a visit per clinic per day perspective than we've ever produced. And that was against last year, which was uniformly very strong. Nine out of last year's 12 months were the highest we’ve ever experienced. So January was a little slower than we would have liked, at 29.4%. It moved up in February to 31.4%, but was still weather-impacted. Then we finished really strong in March at 33.2 visits per clinic per day. This trend has continued as we have moved forward. Remember, for us, Q1 is typically our lightest volume quarter of the year. I want to talk a little about Metro Physical Therapy for a moment. I just got back from spending last weekend with the Metro team. Metro was the largest acquisition we completed in November. They had a similar visit progression. I mention this because they are now our biggest partnership. We started out a little slow in January, with 44 visits per clinic per day, which is still outstanding. By the end of March, we finished at around 50 visits per clinic per day. I mentioned that I was with them this weekend. They had an annual leadership meeting off-site, and I spent a few days with the team. I met the executive team and spent time with them, including Michael Mayrsohn, the owner, and about 80 others who run their clinics and support those facilities. I came out of that meeting very impressed and encouraged by the talent, mentorship, leadership, and overall direction of that partnership. Another highlight for the quarter is that if you look at our overall numbers, Carey is going to cover them in more detail, but our margin for the quarter was acceptable. If you look at our margin progression, particularly where we ended up in March, it was a 21-day month for us, but we finished with nicely above a 20% margin in March, and we need to continue that. We are working hard with the operations team, directly involved with our top 40 partnerships, trying to move the needle. You are aware of the headwinds we have faced. We anticipate continued progress. I feel optimistic about that compared to prior periods. Regarding rates, our team has been quite busy and they have done a great job of improving rates by over $2 per visit, despite the Medicare rate cut of 2.9% this year. Considering the accumulated reductions since 2021, it has resulted in about a $20 million profit impact on our Medicare business this year. Yet, we are still finding ways to grow. It has taken some time, but we believe this is the last year of such reductions. These adjustments are challenging, but we are making progress. Our payer contracting team has excelled, and we are fortunate to have worked with Careology and their team, who have provided valuable market intelligence. We continue to see volume demand looking ahead. On the injury prevention side, we can't stress enough how important that segment is for us. We generally see good growth organically, and we have expanded successfully this quarter even after facing challenges in the prior year. We are optimistic about the partnerships and new opportunities for growth. Lastly, I want to thank our clinicians and support teams who continue to do an amazing job. Despite recent headwinds, they consistently deliver for our partners and patients. We expect to update guidance shortly, but we want to ensure we have an accurate outlook before doing so. That concludes my remarks, and Carey, please go ahead.

Thank you, Chris, and good morning, everyone. Like Chris, I was really encouraged by our performance in the first quarter, especially how we concluded. It creates a solid foundation for the year ahead. Our net rate increased from the fourth quarter, despite the Medicare rate reduction. Our IIP business continues to see double-digit growth. Our EBITDA rose by $2.8 million over last year. Using minority-adjusted revenues to align with our adjusted EBITDA, our adjusted EBITDA margin improved from 13.2% in the first quarter of 2024 to 13.7% in the first quarter of 2025. Overall, this marks a positive start to the year. Our average visits per day reached a record high for the first quarter at 31.4%, while we lost about 26,000 visits due to weather impacts, specifically in January and February. However, as we moved beyond those weather challenges, our average daily volumes picked up nicely in March, growing to 33.2 visits per day. Our net rate for Q1 stood at $105.66, showing strong growth against last year even with the Medicare rate cut. We continue to benefit from strategic priorities aimed at increasing reimbursement rates through contract negotiations as well as growing our workers' comp business. Over the last two years, workers' comp has grown from 9.3% of our revenue mix to 10.9% in Q1 of this year, marking the highest level since 2020. We focus heavily on maximizing cash collections through improved revenue cycle management, and our physical therapy revenues in Q1 totaled $156.4 million, a $22 million increase from the same quarter last year. While operating costs did rise, careful management has helped to ensure we maintain good margins. We've had a very solid quarter in terms of growth in both classes of business. As I said, the trajectory looks strong, and we're committed to executing on our plans for revenue and EBITDA growth this year and beyond.

Thanks, Carey. Let's go ahead and open the call for questions.

Thank you. We'll take our first question from Joanna Gajuk with Bank of America. Your line is open.

Good morning, Joanna.

Hi, good morning. This is Joanna Gajuk. Hi, how are you? Thanks for taking the question. First, the question on mature clinic revenue was actually down year-over-year. What was the guiding volume inside that negative number? It sounds like it was negative because pricing was positive. How much was the weather in that number? I assume there's also a calendar impact with one fewer day of revenue. Can you walk us through that?

Yes, I can start. Carey, feel free to jump in. The weather hit us particularly hard. We always face weather impact in Q1, but we experienced extraordinary conditions in some of our largest partner markets, like Nashville, where we have nearing 80 service locations and all over Texas. Several days of severe weather affected our operations, making some locations inaccessible or unable to staff fully. Demand remains strong, though, and we expect to bounce back as we move into the remainder of the year. Overall, I’m not overly worried about the demand.

Because I want to ask, yes, go ahead, Carey. Did you have any more to add?

No, I just agree that a lot of the weather impact we faced in Q1 was at our mature clinics, and that's primarily why their performance was weaker than others.

Okay. And I guess staying on the topic of volumes and as it relates to the economy, it sounds like based on the March stat, you’re not seeing any significant issues right now. Can you remind us how your business has performed through previous economic downturns? The market seems somewhat worried about that.

Yes, there is talk about entering a recession. Historically, during 2008-2009, we faced considerable challenges but managed to maintain growth through strategic adjustments, including continued facility acquisition and improvements elsewhere in the business. Our naming volumes were slightly impacted during that period. Though we don't predict a recession, we've been in a good position with solid demand, and staffing remains a bit tight but manageable.

And to your point on staffing, will a recession possibly improve staffing conditions, making it easier for you to hire?

It's hard to say how staffing will change in various economic downturns. Generally, when downturns occur, companies tighten budgets. Interestingly enough, during the last recession, we maintained our staff and saw growth. Availability may be different this time around. Generally, we feel positioned well right now.

Great. Thank you. I'll go back to the queue.

Thank you.

Thank you. We'll take our next question from Benjamin Rossi with JPMorgan. Your line is now open.

Great. Thanks for the question. About the IIP outperformance, it certainly is a bright spot with revenue and gross profit up nearly 30%, while your gross margin remains intact year-over-year. What are the primary drivers within that segment? What are the growth vectors you see across IIP in terms of volumes and rates? Is there potential runway for expansion?

Ben, those are great questions. IIP is hard to define regarding its universe due to its distinctive characteristics compared to outpatient physical therapy. The companies that engage with us often present their most challenging problems, which we solve by providing measurable injury reductions, resulting in savings on workmen's compensation insurance. This model leads to organic growth, which we are actively developing. There is potential given that many businesses still haven't adopted injury prevention strategies. Hence, there is more greenfield opportunity compared to traditional markets.

I appreciate the clarity given there. Just a quick follow-up: Do the rate escalators you mentioned include automatic inflation adjustments?

I can’t definitively say. I don’t know if our contracts have indexed escalations against inflation or are fixed dollar adjustments. It varies among contracts, but typically, we negotiate increases when necessary. Eric, do you want to add anything?

Yes, that's right. The escalators we have are not uniformly built into an inflation index, and they'll need renegotiation as they come due. Our relationships allow us to make necessary adjustments during those times.

Great, I appreciate the additional commentary. Thank you.

Thank you.

Thank you. We'll take our next question from Brian Tanquilut with Jefferies. Your line is now open.

Hey, good morning, guys.

Hi, Brian.

Congrats on the quarter. Chris, I appreciate your candid remarks over prepared remarks. As I think about the improvements you see in business, do you think it indicates durability in demand and improved productivity from your clinicians? Does recruiting and retention appear to have stabilized?

Demand is indeed strong. We've made significant investments in recruitment, and our partners are focused alongside our corporate support team, meaning we are seeing positive outcomes from those investments. Also, we've strengthened relationships with schools and enhanced our internship programs, which are crucial for our future hiring pipeline. So several approaches collectively are yielding positive results.

Also curious about your lobbying efforts for the industry. What are you keeping an eye on, and what potential positives do you anticipate?

We’ve invested considerable effort in Washington, particularly through the Alliance for Physical Therapy Quality and Innovation. We’ve seen a consistent sentiment from legislators that recent Medicare cuts were a mistake. We are also promoting programs that include physical therapists managing musculoskeletal cases effectively, resulting in significant cost savings. We have initiatives that could expand beyond our current framework, but we’re still working to gain traction. While there’s a lot happening in DC, advocacy is crucial to ensuring our interests are represented.

Thank you, Chris.

Thanks, Brian.

Thank you. We'll take our next question from Lawrence Solow from CJS Securities. Your line is now open.

Great, thanks.

You're welcome.

I appreciate the insights on pricing, Chris. It looks promising that overall rates were up slightly. Can you provide clarity on your Medicare situation? It appears commercial customers are faring better?

Yes, we experienced growth in commercial, with workers' compensation showing solid improvement, being up around 10%. Commercial was also up, though Medicare continued to be stable, despite a minor uptick, even amidst the rate reduction. Overall, we felt optimistic based on our strategic focus on improving our rates.

Thank you, that definitely helps. I’d like to revisit visit volumes. There has been a significant increase over time, but are same clinic visits down year-over-year?

Yes, same clinic volumes were affected negatively due to weather, particularly in January and February, but improved in March. We expect to achieve growth in same-store volumes moving forward.

So, you still believe you'll grow same-center volume for the year?

Yes, I do think we can grow same-store volumes for the rest of the year as we move beyond the weather impact.

Understood. Lastly, regarding margin trends, what led to the year-over-year decline?

We faced some cost increases from mid-last year, and we continue absorbing those throughout Q1, which impacted the margin. We also had one less day of revenue due to the calendar, but the primary contributing factor to margin decrease was the acquisitions which had slightly lower margins paired with cost growth. Nonetheless, we're working diligently on stabilizing margin growth in line with net rate growth.

Yes, particularly in January and February, Metro, which we acquired in November, had a particularly lower margin. Weather-impacted months contributed to this. I anticipate stabilization as we progress into the year.

Thanks for that detailed perspective.

Thank you. We'll take our next question from Jared Haase with William Blair. Your line is now open.

Good morning. Thanks for taking my questions. Chris, regarding the leadership meetings with the Metro team, what were the key insights you gathered regarding what works well?

Absolutely. It’s a great team with a focused growth plan, both acquisition and organic strategies. I was greatly impressed by their leadership, mentoring, and commitment to exceptional service. They operate with a cradle-to-grave model that caters to all age groups and various care needs. Their leadership meetings reflected a commitment to a high standard of practice, and I believe there are tangible insights we can replicate across our partnerships.

That’s insightful. I’m interested in how your home care capability will be received across other partnerships.

Yes, the home care opportunity is intriguing because it can address specific patient needs who may be homebound temporarily. Home care often enhances patient satisfaction, which ultimately improves treatment outcomes. However, implementation will need to be gradual across our partnerships, as each has distinctive capabilities.

Thank you. We have no further questions in the queue at this time. I'll turn the program back over to our presenters for any additional or closing remarks.

Thank you, everybody. Those were good questions. I hope you found today’s discussion transparent. Carey and I will be available later today and throughout the week. We appreciate this opportunity to speak to our shareholders, and please reach out if you have anything further you’d like to discuss based on today’s call. Have a great rest of your week.

Thank you. This does conclude today's program. Thank you for your participation. You may disconnect at any time, and have a wonderful day.