US Physical Therapy Inc (USPH) 2024 Q4 法說會逐字稿

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Please stand by. Your program is about to begin.

Good day and thank you for standing by. Welcome to the US Physical Therapy fourth quarter 2024 and full year earnings conference call.

(Operator Instructions)

I would now like to turn the call over to Chris Reading, Chairman and CEO. Please go ahead, sir.

Thanks David.

Good morning and welcome everyone to our US Physical Therapy fourth quarter and year-end 2024 earnings call. With me on the line this morning includes Carey Hendrickson, our CFO, Eric Williams, our President and COO East, Graham Reeve our COO West, Rick Binstein, our Executive Vice President, General Counsel. Jake Martinez, our Senior Vice President of Finance and accounting.

Before I begin this morning with some color on the quarter in the year, we need to go ahead and cover a brief disclosure, Jake, if you would please.

Thank you, Chris. The presentation includes forward-looking statements which involve certain risks and uncertainties. These forward-looking statements are based on the company's current views and assumptions. The company's actual results may vary materially from those anticipated.

Please see the company's filings with the Securities and Exchange Commission for more information. This presentation also contains certain non-GAAP measures as defined in regulation G and the related reconciliations can be found in the company's earnings release and the company's presentations on our website. Chris!

Thanks, Jake.

I want to begin this morning by thanking our clinicians, partners, and our leadership and support teams for their tireless work this year on behalf of hundreds of thousands of individual patients whose lives we've helped to positively impact. We interact in a very personal, professional, and life improving way with a physical therapy intervention across more than 5 million patient encounters.

I'm particularly proud of all of our facilities for the way patients feel about them with a net promoter score across our network of 93, which, as is outstanding. Our Google care ratings are 4.9, and the demand for our services has never been higher than it has been these past 12 months.

In the fourth quarter, we established a new high-water mark in visits per clinic per day across our portfolio partnerships at 31.7 compared to 29.9 in the prior year's quarter, our total patient volume grew 13% year over year and despite the Medicare rate reduction we absorbed again in 2024.

We moved the needle upwards in our overall net rate through our recontacting efforts of our commercial plans in combination with some outsized growth of our work comp volume as well, that combination lifted our rate for the quarter to $104.73, and we expect to continue to make progress from there in the new year.

Our challenge all year which we continue to work on surrounds our cost to deliver the outstanding care that we provide due in large part to the very competitive environment we've been in to hiring enough therapists, which you can see from our daily visit numbers that we're doing, but the cost per visit continues to be something that has remained more difficult than we expected to rein in.

On that front, we have continued to make adjustments where needed across our portfolio of partnerships, especially in support and related roles along with our part-time employee base. Additionally, we are piloting an AI-driven note system which should help to decrease the time spent generating a note in a patient's CMR while helping to improve our overall clinician efficiency.

We're also piloting technology that would allow us to staff more clinics, front offices virtually or in combination with local and virtual staff and reduce our overhead burden that way. Please know this cost promise is a promise we made and one we intend to keep, and the entire team is working to deliver on that.

2024 proved to be a very good development year for us. We completed seven acquisitions, six and PT across a variety of states including Wyoming, Pennsylvania, Colorado, which was a new state for us and doing exceptionally well. And of course, our entry into New York with our Metro PT deal announced in November of last year.

In fact, during the fourth quarter alone, we added approximately 70 clinics in a combination of acquisitions and denovo locations which will provide a great jump start for us in this new year.

One of our completed acquisitions last year was in our injury prevention business with long-standing, well-respected provider in that space. That has gone very well, and our entire injury prevention business has continued to grow at a very nice clip overall.

For the fourth quarter, revenue grew more than 32%, which was a strong finish to an equally strong year overall, where revenue grew again for the year nearly 24% to approximately $97 million with the gross profit increasing 21.5% for the year, much of that in organic growth.

Speaking of organic growth, we continued to expand into new industry verticals near year end we landed a very large, approximately 50 FTE contract with one of our nation's premier auto manufacturers. That contract impacted a margin a little bit as we ramped staffing up quickly after winning that competitive engagement.

We have a lot of information covered, so I'm going to turn things over momentarily, but let me say this our industry has been in a tough loss cycle for a few years. But we are going to come out of this stronger, I believe, than we went in. Foundationally we have developed significant muscles that maybe when things were easier were underused.

Muscles that needed to drive exceptional volume, the ones that allow care delivery and exceptionally high rates of patient affirmation for the appreciation of the benefit of that care, the ones that allow us to grind through challenging rate negotiations which have lifted our rate despite cuts from the government which we expect to sunset shortly.

And if we have [erred], we've [erred] on the side of people and relationships and making sure that we had the resources to do all that was necessary and right for our patients and their care. We're not done, and we are committed to making progress in this important area.

And with all the positive momentum to our development efforts for new clinics, new partnerships and territories along with record volume, we have a lot to be thankful for as we head into this new.

Carey, we have a lot to cover, so why don't you take it from there.

Great, thank you, Chris, and good morning, everyone.

We reported adjusted EBITDA for the fourth quarter of 2024 of $21.8 million which compared to $19 million in the prior year.

Our adjusted EBITDA margin using minority adjusted revenues like our adjusted was 15.2% for both the fourth quarter of '24 and the fourth quarter '23. Our average visits per day, as Chris noted, were a record high for any quarter in our history at 31.7. Our average visits per day benefited from our action to closed 32 underperforming clinics in the third quarter, which had a lower average visit per day than the rest of our clinics.

On a month-by-month basis, October visits per day were at 31.5%. November was at 33.1%, and December at 31.5%, with each month being a record high volume for that particular month. For the full year, our average daily visits per clinic was 30.4, which is the highest amount for any full year in our history.

Our net rate of $104.73 in the fourth quarter of 2024 was at $1.05 per visit higher than the fourth quarter of last year. Even with the 1.8% Medicare rate reduction by CMS, it went into effect, as at the beginning of 2024. Excluding Medicare, our rate was up $1.57 per visit, or 1.4% over the fourth quarter of last year.

The fourth quarter rate was a little lower than the second and third quarters in 2024, primarily to the addition of Metro in the fourth quarter, and their average rate of $102.54 was lower than our overall average rate.

Excluding Medicare and Metro, our net rate was up approximately 2.5% in the fourth quarter. For the full year, our net rate in 2024 was $104.71, and $1.91 increase over the net rate of $102.80 in the fourth quarter of 2023.

Of course this includes the 1.8% Medicare rate reduction in '24. If you exclude that, our full year net rate increased 3.1% in 2024 as compared to 2023. We continue to benefit from 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. And our rate for each major category of payers other than Medicare increased year over year. And we will remain focused on rate enhancing initiatives in 2025.

Physical therapy revenues were $153.8 million in the fourth quarter of '24, which was an increase of $19.2 million or 14.2% from last year's fourth quarter. The increase was driven by a higher net rate, 3.1% increase in visits at our mature clinics, and the addition of Metro in November, which had approximately $10 million of revenue in the month of November and December.

Our physical therapy operating costs were $124.3 million which was an increase of 16.6%. Approximately half of the dollar increase of $17.7 million was related to Metro.

Excluding acquisitions, our salaries and related costs per visit was $61.92 in the fourth quarter of '24, which compares to $59.72 in the fourth quarter of '23, which is an increase of 3.5%. If you exclude acquisitions, our total operating costs per visit increased just 1.7%, moving from $84.09 in the fourth quarter of '23 to $85.50 in the fourth quarter this year.

Our PT margin was 17.9% in the fourth quarter of '24 compared to 19.5% in the fourth quarter of last year, 23%. Excluding acquisitions, our PT margin was 18.5% in the fourth quarter of this year, being 2024.

Our IIP team, as Chris noted, produced excellent growth in the fourth quarter and for the full year of 2024. Our IIP net revenues were up 32.1% over the fourth quarter of 23% with IIP income up 15.6% over the prior year. Excluding the IIP acquisition that we made earlier this year, IIP revenues were still up 16.5%, with our gross profit up high single digits.

Our IIP margin was 18.5% in the fourth quarter of '24, and as Chris noted, the large new Ottawa client that we added in the fourth quarter muted our margin a little bit in the fourth quarter. For the full year our IIP revenues were up 23.8% with IIP up 21.5% and a margin of 20.6%.

Our corporate office costs were in line for both the fourth quarter and the full year they were 8.6% of our net revenue in the fourth quarter of 24 and 8.7% of net revenue for the full year of 2024.

Our operating results were $7.8 million that compares to $8.9 million in the fourth quarter of '23. In the fourth quarter of 2024, we did record a $1 million true up which increased our income tax expense. That $1 million should not be factored into our go forward effective tax rate.

Our fourth quarter 2024 operating results were also impacted by lower interest incomes since we deployed our invested cash and acquisitions in the fourth quarter and higher amortization expense, which is non-cash of course, which increased due to the acquisitions.

Our balance sheet continues to be in an excellent position. We have $140.6 million of debt on our term loan with a swap agreement in place that places the rate on that term loan at 4.7%, and that rate will extend through the middle of 2027.

In addition to the term loan, we also have $175 million revolving credit facility that had just $11 million drawn on it at December 31, 2024.

Our cash balance at the end of December was $41.4 million and in 2024 we deployed $133 million of cash into acquisitions, and we bought back more than $9 million of interest from our existing partners. Acquisitions will continue to be our primary focus of capital allocation, and our capital structure is well positioned for it.

Also of note, our board increased our quarterly dividend rate from $0.45 per share to $0.45 per share effective with our first quarter dividend.

Looking to 2025, we expect our full year 2025 EBITDA to be in the range of $88 million to $93 million. We have the Medicare rate headwind as we enter the years. We've noted a 2.9% reduction, which equates to approximately $6.4 million of revenue and $5.7 million of EBITDA, but we still expect good growth in EBITDA in 2025 with a full year contribution from the acquisitions we completed in 2024.

The full year impact of a payer rate increases that we completed in 2024, and then a partial year impact of the ones that we will complete in 2025. Continued volume increases in our existing clinics and continued double digit growth in our IIP business.

As we noted in the press release, we expect the first quarter to be our lowest EBITDA quarter of the year. That's consistent with previous years just due to normal seasonal factors, likely somewhere around 20% of our full year EBITDA in the first quarter.

With that, I'll turn the call back to Chris, and we'll take questions.

Yeah, thanks Carey. Great job. Operator let's go ahead and open it up for questions.

(Operator Instructions)

Brian Tanquilut, Jefferies.

Hey, good morning, guys. My first question, Carey, as I think about the growth assumptions that are in your guidance, I know there's a Medicare rate cut, but curious how you're thinking about volume growth, number one, and then kind of like your rate trajectory, knowing that there's a Medicare rate cut coming in and then maybe also the impact of the 32 clinics that you closed.

Yeah, so, I'll start, go ahead. Did you want to say something Chris?

No, go ahead, Carey.

I'll start with the closure of the clinics. That closure of the clinics, they That makes about a positive $1.5 million impact on our 2025. They had a loss of about $1.5 million EBITDA in 2024 in those first nine months prior to closing them. So, that'll be a positive for 2025. As far as rate, we do have the 2.9% Medicare rate reduction, but we're going to continue to grow all of our other payers.

We are, constantly looking to increase those rates based on negotiations we're in the middle of right now. We've got some of our larger states that we're in contract negotiations on right now and expect to see some increases in 2025.

so, you know we still expect our rate, even with the 2.9% reduction in Medicare, our rate, we expect to increase in 2025, maybe not at the rate it did when you compare '24 to '23 just because we have a larger Medicare rate reduction, but we're going to increase the rate in 2025. I'm confident in that.

And then as far as volume at our mature clinics, I think you know we go into the year of 2025 expecting to see continued growth in that, we have 3% visit growth in the fourth quarter, and I think we can achieve that certainly in 2025, somewhere in that 2% to 3% range at a minimum. Any comments from you other than that?

No, I think that's right, and the team continues to work on all these foundational fundamental issues, and we expect to make continued progress in all those areas.

Understand. And then Chris, maybe as I think about, recruiting and retention and wage inflation, obviously still an area of focus and maybe a little bit of a challenge there. I'm curious, what do you think the dynamics are there and are we getting close to the end of that trend or just, yeah, anything you can share with us on your thoughts there?

Yeah, Brian, I wish I knew. I mean, it's difficult for us to project what demand is going to look like. Certainly, there are internal and external factors, the number of people that are in physical therapy school, the number of graduates, the geographic distribution of those, there are a lot of factors.

So, a little bit difficult for me to project when things change, I will tell you that we've made some investments this year in infrastructure and people we hired a number of individuals. We upgraded systems on the recruiting side.

We've changed how we're addressing the market on the recruiting side, we're seeing some definite improvement in that area, significant measurable improvement, anecdotal improvement from our partners. They're seeing more applicants than they've seen, in a very long time. But in terms of the rate is always determined by, the competition and your ability to differentiate yourself compared to others.

We certainly have the balance sheet and the stability in comparison to the vast majority of our competitors. So, a lot of stability there, but it's a competitive market right now and if we want to continue to grow volume, we have to remain competitive and we expect to.

Got it. All right, thank you.

Thank you.

Lawrence Solow, CJS Securities.

Hey, good morning, guys. Just piggybacking on Brian's question. So, just on the volume outlook for this year, so the 2% to 3% because I think it was a little bit less than that in '24 and there was sort of some I think some staffing constraints and whatnot. So, I guess the question is sounds like inflationary pressures are still there, but. Things won't get fixed overnight, but I know you have several issues under way.

Do you think staffing will still be a constraint on that volume or will that be more just on a cost impact in terms of the staffing side.

Yeah, look, I mean, we always have puts and takes from a staffing perspective. When you have approaching 800 locations, you're going to have some many potentially where you're fully staffed. And then others where you're intermittently looking for one reason or another, either volume growth is exceeding your current capacity, or you have somebody relocate and things happen.

Generally speaking, we're making progress on the recruiting side. Our retention has been good and so I expect that we're going to be able to address the volume as we go forward with the investments that we've made in a little better fashion than we did, in the last 12months to 18 months.

Having said that, I don't know that I'm prepared to give you, a radically different volume number as we start this year. Let's see how it plays out and everybody's working very hard to deliver on that as we have both delivered and worked on that, issue, and we'll see how the year comes through.

That's fair. And I know you spoke about several issues and your kind of highlighted that again in your press release, and this is a moving target. It feels like there's a lot of moving parts. Maybe inflation is probably more resistant than we thought, but maybe a few months ago, but I know I think last quarter you threw out like a $10 million ultimate cost savings number without an actual timeline.

Again, you still feel comfortable, maybe not that $10 million exact number, but that we're moving in the right direction and there are excess things you can cut out or efficiencies that you can build in. It just takes time. Is that fair to say?

Yeah, I think it's fair. Look, we're not perfect. We've, I think, delivered on almost everything we said we were going to do. This is the one area that we've got to continue to work at, and it's challenging, our partners.

Our partner's tendency is to [err] on the side of making sure they have enough people and it's probably the right side to [err] on generally enough people to take care of staff, and yet with inflation we've got to figure out a way how not to be moment to moment, with lack resources, and it doesn't take a lot that.

Yeah, somewhere between $50.75 dollars a day per clinic, aggregates up to, $10 million to $15 million pretty quickly and so we think. In a longer period of time, in addition to the basic things that the operations team is working on daily with our partners to make sure that our match very precisely with volume demands, we're hopeful that the front desk initiative around virtualization will give us the ability to scale back there and be more efficient.

Particularly across smaller locations handle a number of locations virtually, and then we're hopeful that the AI system that we're using for documentation helps to make our clinician day a little bit more efficient and therefore potentially a little bit more productive.

And so that's going to take a little time, of course, and so those are newer, more recent changes in addition to the day to day focus that has been ongoing and we have more work today, so we've got to deliver some results.

Just last one on the CMS, obviously it's been a multi-year headwind. It does feel like, and I know I think you mentioned that too in your release, that again the government never know exactly what's, but it sounds like we're to be at the end of that four or five years of cuts.

Yeah, we should be we definitely should be statutorily, according to the way that. You know this original law was drafted around neutrality and fee schedule. We should be beyond that.

We've now absorbed, particularly with interest, all of the rates cut that was prescribed at the beginning, which was an onerous, kind of wrongheaded cut that wasn't supposed to be directed to physical therapy but which we absorbed anyway.

We continue to be frequently in Washington and have a lot of discussions with key members. We have a bill that is entitled as the Safe Act, which we think can be used as a saver to offset some of the potential increases in the entire physician fee schedule.

Safe Act is designed to reduce falls, allowing Medicare patients to get a screen without a co-pay in a Physical Therapy office and so we have a lot of traction with that. We're hoping that's something that comes to pass this year. So, we're making progress. It's been a tough series of years, but we're hoping to come out the other side and it'll be nice to have what we hope to be, neutral to forward years again in the future.

Great, thank you guys. I appreciate all the callers.

Yeah, thankfully.

Jared Haase, William Blair.

Morning.

Morning and thanks for taking the questions. Maybe I'll ask on the IIP segment looks like that accelerated on an organic basis to end the year. Just wanted to make sure I understand what drove that acceleration.

So, is that largely cross cell driven, any new logos kind of that were material in the period and then obviously you mentioned kind of expecting that double digit growth profile to continue. Can you just remind us, I guess, what level of visibility do you have in that trend, on a forward year basis?

Yeah, visibility is really good. I mean, barring some major change which would be unforeseen, I think we've done a pretty good job over the seven years or eight years.

I guess it's eight years now going into this year that we've had it, we had one year that was flat and we had visibility into some anticipated change several years ago and beyond that we've been consistently double digits and so one of the things that our team has gotten particularly good at and I'm really proud of them, the CEO for our largest injury prevention company was in town with us this week.

That team has done an exceptional job in cross selling and the acquisitions that we brought in have added to our industry verticals types of industries that we serve. They've also broadened our offering over time and over that same period of time we've gotten much better at cross selling. And so those are two significant components

In addition to the fact that more and more companies are becoming aware that injury prevention. Is a necessary part of preventing their massive musculoskeletal spend issues. It's a problem, for our country, across many industry segments. And so, it's that combination, we did an acquisition earlier in the year, I think it was probably April of 2024.

That acquisition has gone well, that integration has gone well, and again, over a period of time, the team we've added to its matured and just doing a really nice job, really proud of those guys.

That's great. That's super helpful color. And then I'll maybe ask a related question on the same segment. I was just curious, the large competitive win that you cited in the fourth quarter. I was hoping to hear, any color in terms of, how you frame the key characteristics that I guess differentiated your services, allowing you to win that larger client.

Yeah, so one of our injury prevention partnerships had, really strong success in the auto industry. They serve a number of the world's biggest auto manufacturers already and this was a particular auto plant in the US which was being served long standing by a large competitor. It was a competitive process.

And I think you know these companies, they talk, certainly there are components of price that come into play, although I don't think we were particularly aggressive in terms of our pricing necessarily, but the service that we provide and the relationships with our staff and the consistency of the teams I think has stood out over time and look, we win some, we lose some.

This one was a great win for us. It caused us to have to staff up quickly, which compressed the margin a little bit, which saw in the fourth quarter. The auto contract in general, a little tighter margin than some other industries, but I'm proud of that team as well. They're doing a great job, and they have a lot of good things in the works for this coming year.

Perfect. That's great to hear, and I'll hop back in queue. Thanks.

Yeah, thank you Jared.

Jin Shanjai, Core Partners.

Hey Chris and Carey, this is Ryan Quinn from Core. Can you guys hear me okay?

Yeah, you're good.

Good morning. We're just trying to better understand the EBITDA budget for 2025 at the midpoint of 90.5, given the 88 to 93 guidance. It seems like full year 2024 has about two months of Metro, which you noted that was about $10 million of revenue for November and December. And if I kind of imply there EBITDA margin of about 19%. It gets me to about $2 million of EBITDA.

So, if I back out those two months for 2024, I kind of get to an $80 million EBITDA number. And if I just, simplistically add on $12 million of Metro to that to get an apples-to-apples comparison, I'm somewhat getting to a full year '25 implied $91.8 million of EBITDA.

Which is a little bit higher than your midpoint guide. So, I'm just trying to better understand the puts and takes as it relates to the growth because it seems like the average visits per day is record highs and the demand dynamics are extremely high, but we're just trying to better understand some of the costs as it relates to that budget.

Yeah, let me just say this, and then Carey has the detail on some of the puts and takes. The budget's actually a little bit higher than the midpoint of the range that we provided.

These guys aren't perfect, and we try to frame it as best we can. You've got to remember that we've got a Medicare reduction this year which takes out a pretty significant chunk, actually, eliminates a lot of the metro list which again we're 50% on so remember that as well. So, Carey, you want to walk through the detail around that.

First of all, Ryan, thank you for the question, but your Metro estimate is a little high, so we, they have, when we bought them, they had, they have about $12 million of EBITDA and we have we own 50% of that. So, their EBITDA dot to us is somewhere around $6 million plus or minus, a little bit. So, and the fourth quarter amount of EBITDA that you quoted was a little high too,

So, there's probably about a million dollars or so in the fourth quarter from their contribution for those two months. So, if you look at our, I break it out into pieces. If you look at our contribution in 2025 versus where we were in 2024 from acquisitions, all our acquisitions. Probably somewhere around, an $8 million to $9 million dollar increase in '25 versus what we had from them in '24.

IIP is going to go up more a little more than $3 million I would say. But then we have the Medicare reduction of $5.7 million EBITDA and that corporate costs are going to increase because we have to support the growth as well as the initiatives from financial systems that we have in 2025 that we need to upgrade. We haven't upgraded our financial systems in a number of years.

That's probably, could be $5 million, $6 million, $7 million in additional corporate costs, but still, as a percent of revenue, I think it will go down in 2025 versus in '24. Then you're left with, the core of that growing, at a pretty good rate without the Medicare reduction.

In 2025, it's, what, $6 million to $10 million somewhere around there, these are all just broad strokes, but that kind of gets you to where that midpoint range is, so hopefully that, hopefully that's helpful.

Appreciate that additional color. And then just one more if I may, it's obviously it's great to see the net rate per patient visit increase year over year to that 104.73, but it did take a little bit of a step down sequentially from Q2 and Q3 as well. Just trying to understand some of the puts and takes there like, can you help us understand that a little bit better?

Yeah, Carey, go ahead.

As I mentioned on the call, Metro's average rate is lower than our overall average rate, so it's about 10,250, and that's lower than our than our rate was, for instance, in the third quarter of just above 105. So, when you add that in, it brings that rate down a little bit, but it's still a nice increase even with that over the prior year and that's and we've got rating rate negotiations going on, all the time and you have puts and takes in rate.

But we still were able to increase that at a pretty nice rate in the fourth quarter considering especially the addition of Metro in there at a low rate. It was a 2.5% increase in the fourth quarter of '24 compared to fourth quarter of '23. When you exclude the Medicare impact as well as Metro, so looking at kind of apples to apples and everything other than Medicare.

So, I still consider that maybe not quite as high as it was in the in the second and third quarters, but still a pretty good increase year over year in the fourth quarter.

That's helpful. I appreciate it. And then just going back to the budget for 2025, are you able to help the folks here in China who cover the name just like bridge what the implied EBITDA margin would be for 2025? Does it look similar to 2024, including or excluding Metro? Are we going to see a little bit of a step up there, maybe some a little bit of a decrease? Like how should we be thinking about that?

Well, when I look at our EBITDA margin as well as our, as well, let me just talk PT margin first. PT margin, I think it's going to be relatively similar to what it was in '24. We've got, we're going to have increases in our cost, increases in our costs that are normal, and we talked about some of the, it's just going to depend on how much headway we're able to make, I think.

In our in our cost side of where that margin ends up for the year, but I think it should be, somewhat similar to and hopefully growing a little bit from where it was in 2024 is what I'd say. IIP margin is going to be relatively similar to what it was in '24.

I see, but you guys don't disclose what the estimated actual margin would be.

No, we don't talk that specifically about that.

Okay, well, I appreciate the time, both of you, and we can follow up off on.

Thank you very much. I appreciate the time.

Welcome, thank you.

Constantine Davides, Citizens JMP.

So, maybe you can just talk a little bit about your experience with Metro now that you've owned that for four months and comment on the New York market more broadly since it's your first experience in there and then just how you're thinking about opportunities to add denovos underneath that logo in 2025.

Yeah, I'm going to, Constantine, I'm going to kick this over. Metro, let me make a few comments and then I want Eric Williams to take that Eric's front and centre daily with Michael at Metro.

Metro team's doing a great job. New York's going to turn out to be a really good market for us. We see a lot of growth opportunities, not just in New York but in adjacent areas. But Eric, you want to want to touch a little bit on Metro and where we are.

Yeah, look.

We're excited about having this opportunity in New York. I mean, that whole northeast has really been an area that we haven't done a great job of penetrating and by picking up the metro business, which has a tremendous amount of density on Long Island. We think we have the ability to grow not just, in Long Island but into the other boroughs of New York and overton, New Jersey.

And now that we have a really strong management team at Metro, it's going to open up some doors for us. They have a very solid. A de novo pipeline for New York. A lot of talking opportunities that we're going to be evaluating as well. So I think it dramatically increases our ability to add de novo. I think we did 28 clinics last year if I remember from a de novo perspective, and I think Metro is going to add substantially to that moving forward here in 2025.

One thing I know they do a lot of, or at least some of it home-based therapy, and maybe you guys can just comment broadly on how you think about that at US physical and and what kind of op opportunity you have to extend services beyond the four walls of a typical outpatient clinic.

Yeah let me let me start and then you pick it up. We definitely see home-based therapy as the next opportunity. We've got a partner meeting coming up. It's going to be a big focus, one of, several focuses on service expansion, but Metro has done a great job there and you know we have more planned. Go ahead.

Yeah, I was going to add to that. I mean, the bunker side, was about, 20% of their business there and a lot of expertise and again opens up the door with Metro there not just to expand on the Outpatient clinic side but to expand on the home care side as well.

So, we are excited about looking at that and looking forward to having Michael share with our other partners how we started and grew that product line. So, we also think that creates opportunities for further growth at USPH.

Great, thanks for the call. I guess just one last question, Carey, I apologize if I missed this, but did you quote a workers' comp mix for the quarter and then can you guys just talk about, you've been in that market for a long time. Just what's really driving some of the volume benefits with respect to that part of the market and in terms of your ability to sort of re-accelerate growth in workers' comp.

Yeah, I'm going to let Eric talk about that because he's he's really heading up our workers' comp initiative, so Eric, why don't you take that?

Sure, much like the initiative, this is something we've worked really hard on over the course of the last two years and 2024 was definitely a success for us. A lot of it goes back to significantly increasing the number of work payer relationships that we had and really focusing on pull through all those agreements.

So, you can take a look at the number of agreements that we had in place, two years ago to go back to the end of 2022, we tripled the number of those relationships and significantly increased pull through. If you take a look at, I'll give you some Q4 numbers and then some year-to-date numbers.

Visits in the fourth quarter grew 11.6% year over year. Rate increased in that quarter 7%, and overall revenue increased 19.5% quarter over quarter for work comp.On a year to day basis, they're similar. Total revenues have increased 15.7% year over year on an annualized basis, increased 11.6% and overall, for the year we went up about 3.7% on rates.

So, it's been a focused effort. We invested in some additional resources. We spent a lot of time with our partners, teaching them what's a little bit different about handling a workers' compensation patient and relationship with case managers, referral sources, employers versus how you do that for a traditional outpatient Physical Therapy patient.

So, it's that infrastructure and training that we put in place that make a big difference for us, and we have several more agreements still in process right now which we expect to, further help us grow our business in 2025.

And Constantine's theory, specific question about mix. It was the workers' comp mix was right at 10% in the fourth quarter of 2024. It was down a little bit from the third quarter, but the reason is that Metro doesn't have a significant component of workers' comp as the rest of our business does. If you on an apple-to-apple basis our mix was 10.4% in the fourth quarter just like it was in the third quarter of '24.

Awesome, thanks for taking the questions guys.

Thank you.

Mike Petusky, Barrington Research.

Hey Mike.

Hey, good morning. Lots of great information. Thank you. So, going back to Metro, the net rate there, I'm just curious, do they have a decent amount of Medicare or are these contracts that you can improve as they are more fully integrated? Can you just speak to that 102,54? I mean, can that be that be lifted over time?

It will be lifted. Go ahead Eric.

Yeah there's actually a number, one of the areas where we bring a lot of resources that Metro didn't have is on the payer contracting side, and we're, neck deep in terms of rate negotiations with a number of payers in the market and absolutely have the ability to increase right and our expectation is that we're going to a lot of their home care business is Medicare.

But again, the vast majority of the volume going through their clinics through the business is on the outpatient clinic side so couple of opportunities for them.

All right, terrific. And then I'm not sure I heard this clearly, and I may not have. Carey, did you say essentially when you're sort of doing the puts and takes on the EBITDA and sort of the bridge to the to the guy, did you say you were assuming a pickup of $3 million from the technology initiatives you guys are putting in place? Did you say that or did I totally mishear that?

No, I didn't. I would say a little north of $3 million from our IIP business. That may be what.

Okay, all right, so in terms in terms then of the technology initiatives, and Chris, what are you, I understand that you're in the pilot stage, but like what do you think you can pick up?

I don't know how, I know different places sort of handle notes differently some, are very heavy and, therapists sort of doing the notes as they're treating the patients, some are less or less relaxed about that. I mean how much pickup can you get from the AI notes pile and then from the other piece of the technology of virtual staffing.

Yes, I still think TBD to be determined. I expect we'll have more cost related pick up in the virtualization part at the front desk necessarily than we will on a cost perspective from the AI notes component.

Do you think it will help to reduce some of the stress on our therapists, I think it will help retention. I think it's going to be a welcome and I think anytime you reduce stress and you free up some time, you create the opportunity to generate a little bit more revenue potentially.

But I think the bigger part on the cost side is going to be the front desk virtualization and how we're able to do that in increments and we're not deep enough long enough in to have a real good handle on that yet, Mike, but I feel from talking to others, I feel like we can definitely make some progress from where we are.

And then just last question, and unfortunately, I think I know the answer to this. Given all the activities in Washington, I'm assuming that the thought that maybe Congress would go back post December 31 and look at the weight cut that CMS put in for '25.

I'm assuming, between our planes in Gaza, Greenland and Canada that that this may not be front and centre in terms of activities. Can you just kind of confirm that that's not something that you guys still have hope for?

We don't have that built into our budget and we don't have an expectation that's going to happen. Is there an outside possibility that remains? Yeah, I would tell you not to bet on it. If it happens, it'll be, a surprise. I'm not predicting anything that happens in Washington these days. I think the way they've gone about it in draft form.

The cost is going to be prohibitive rather than, propping up the lad sets in the physician to be scheduled that have been under particular duress the last few years. Physical therapy is certainly one of those kinds of the proposal that I don't think will end up getting traction is that the entire physician schedule would get a lift.

And it's just really a cost prohibitive item to do that because some of those physicians have gotten lists the past few years and this would be in addition to that. So, when you aggregate all that, it's a really big number and so that's why I don't think it's going to happen, but could it? Yeah, but not counting on it. We're not expecting it.

Very good, thanks guys.

Thanks Mike.

Joann Gajuk, Bank of America.

Yes, hi, thanks so much for taking, a couple of follow-ups here. I guess on the thanks for the color on the non-Medicare rate excluding metro in Q4, the pricing, the average revenue per case.

So, what exactly do you assume for '25, I guess, on that piece of the non-Medicare rate, I guess excluding Metro. But then I guess even with the metro coming at the lower rate, do we expect the average for the year for '25 to be flat or up a little bit or down a little bit? Thank you.

So, I'm sorry, the last part was whether average rate will be up or down versus '24, is that correct?

Yes, for the full year, yeah, and then what you do for like the kind of non-Medicare, for the '25 year.

Yeah, I do believe the rate will be up in '25 versus '24. I think I noted earlier, it may not, maybe not at the same rate as it was '24 to '23 because we do have the larger Medicare rate reduction in '25 than we did in '24, but still, I do expect it to be up in '25 versus '24.

As far as non-Medicare increase, it's hard to predict that exactly because it depends on what rate negotiations we get completed and when and when those actually take effect. But I would still expect an underlying increase of somewhere around the 2% mark, if not hopefully a little bit better than that.

I think we need to achieve that in order to get to a rate increase in 2025 when you've got that Medicare rate reduction kind of looming there, and as Eric mentioned, I think we'll see some nice lift on Metro rates. I think we're, we would expect at least as much if not little more rates increase there than we have on some of our other acquisitions. We've got some real opportunity there, I think.

Okay, good, great to hear, last comment. So, on another topic, I guess, on, I don't think you talk about cash flow, so I guess it was down in the quarter. I know there's some timing issue, but also for the full year, the cash flow is down and there was also something, related to timing and such because I guess also '23. Cash flow a lot year over year.

So, I guess, when we talk about the history, but also more importantly how we should think about cash flow outlook for '25.

Yeah, I mean, I think, look, we've had really good cash flow, more than enough to help us pay down that term loan a little bit, make acquisitions of course some of that came from cash we already had on our balance sheet. Year to year there are, I wouldn't necessarily say any big puts or takes, but I expect we will have some cash flow growth in 2025, a little bit more than we had in 2024.

Just for more our dividend increase is not quite as significant as it's a pity increase, which is nice, but it doesn't add that much to our cash flow. So, I think when we have the cash flow growth top line there's not going to be as much taken away from as much of an increase in the dividend as perhaps the rest of the growth.

So, I think we'll be in a good position for cash flow growth standpoint. I'm not worried about our cash flow growth. We have our cash flow period. I think we generate a good amount of cash. It may vary a little bit year to year, but we're in a good position from that standpoint.

Our capital structure is really what I'm focused on, and I think we're in a good position to be able to allocate capital to the acquisitions going forward, which I do believe we will have a good amount of activity in 2025 on the acquisition front too. Hope that helps, Joann.

No, this is helpful. Thank you. I appreciate it. And I guess on the acquisition front, any income occur where there's so many different things you're looking at, I mean, I guess you're talking about this home therapy as a kind of, I guess new service line, but is there something where you like you might need to buy some assets or some capabilities to actually do it, more in expanded way outside of the metro market. Or is it something that you would develop internally?

Thank you.

Yeah, I think we're on the home care side we're looking at both actually in discussions right now, in one market we're, as Eric mentioned, we have a partner meeting coming up in March where that's going to be one of the featured, expansion elements that, we'll spend some time with Michael's health and introduced to our partners and that's something that we think we can begin to do with select partnerships organically

Then there's just the normal stuff and injury prevention and physical therapy that we're always working on. So, I think we'll have good opportunities this year as we have as Carey mentioned, compared to many of our competitors who do a great job undoubtedly, but whose capital structure is considerably tighter in some cases, really difficult,

Beginning 2022 and four we're in a great spot and we have a great home for really good companies and we're going to continue to be active and so you know you may see us across, I don't know that I consider home care really to be a different, truly a different segment. It's what we normally do in physical therapy. It's just sight. It's different, but you'll see us continue to be active in all those areas.

And there are no further questions on the line at this time. I'll return the program to our speakers for any closing remarks.

Okay David, thank you. Look, thanks everybody for your time today. Thanks for your questions. A lot of great questions. Carey and I are available as, the day goes on and tomorrow, and feel free to give us a call and have a great rest of your day. Thank you. Bye now.

This does conclude today's program. Thank you for your participation, and you may now disconnect.