U.S. Physical Therapy, Inc.

Good day and thank you for standing by. Welcome to the U.S. Physical Therapy Fourth Quarter 2024 and Full Year Earnings Conference Call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question and answer session. In order to ask a question during that session, please press the star key followed by the number one on your telephone keypad. Please be advised that today's conference is being recorded If you require any further assistance, please press star then zero. I would now like to turn the call over to Chris Redding, Chairman and CEO. Please go ahead, sir.

Thanks, David. Good morning and welcome, everyone, to our U.S. Physical Therapy fourth quarter and year-end 2024 earnings call. With me on the line this morning include Kerry Hendrickson, our CFO, Eric Williams, our President and COO of EAST, Graham Reeve, our COO of WEST, Rick Binstein, our Executive Vice President, General Counsel. Jake Martinez, our Senior Vice President, Finance and Accounting. Before I begin this morning with some color on the quarter and 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. Hey, everyone. 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 positively impact. We interact in a very personal, professional, and life-improving way with our physical therapy intervention across more than 5 million patient encounters. I'm particularly proud of all of our facilities for the for the way patients feel about them with a net promoter score across our network of 93, which, as you know, 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 watermark in visits per clinic per day across our portfolio of 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 recontracting 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 the 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 our therapists, which you can see from our daily visit numbers that we're doing. But a cost per visit continues to be something that has remained more difficult than we expected to reign in. On that front, we've 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 that should help to decrease the time spent generating a note in a patient's EMR 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 in 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 and a combination of acquisitions and de novo locations, which will provide a great jumpstart for us in this new year. I'm sorry, excuse me. One of our completed acquisitions last year was in our injury prevention business with a longstanding, 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 continue 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 our margin a little bit as we ramped staffing up quickly after winning that competitive engagement. We have a lot of information to cover, so I'm going to turn things over momentarily, but let me say this. Our industry has been in a tough wash 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 at 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 aired, we've aired on the side of people and relationships, 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, the new clinics, new partnerships and territories, along with record volume, we have a lot to be thankful for as we head into this new year. Kerry, 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 EBITDA was 15.2% for both the fourth quarter of 24 and the fourth quarter of 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 close 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 $1.05 per visit higher than the fourth quarter of last year, even with the 1.8% Medicare rate reduction by CMS that went into effect, as you know, 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, excuse me, 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 our higher net rate, the 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 months 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 $61.82 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 cost per visit increased just 1.7 percent, moving from $84.09 in the fourth quarter of 23 to $85.50 in the fourth quarter of this year. Our PT margin was 17.9 percent in the fourth quarter of 24 compared to 19.5 percent in the fourth quarter of last year, 23. Excluding acquisitions, our PT margin was 18.5 percent 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 percent over the fourth quarter of 23, with IIP income up 15.6 percent over the prior year. Excluding the IIP acquisition that we made earlier this year, our IIP revenues were still up 16.5 percent 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 IP revenues were up 23.8%, with IIP income 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 income 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 45 cents per share to 45 cents 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 year, as we've noted, a 2.9% reduction, which equates to approximately $6.4 million of revenue and $5.7 million of EBITDA. But we'd still expect good growth in EBITDA in 2025 with a full-year contribution to 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, Kerry. Great job. Operator, let's go ahead and open it up for questions.

Absolutely. At this time, if you'd like to ask a question, please press the star and one keys on your telephone keypad. Keep in mind, you can remove yourself from the question queue at any time by pressing star and two. We'll take our first question from Brian Tanquillette with Jefferies. Please go ahead. Your line is open. Good morning, guys. Good morning. My first question, Kerry, as I think about the growth assumptions that are in your guidance, you know, 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 um i'll start go ahead did you want to say something chris no go ahead karen i'll start with the uh the closure of the clinics that closure of the clinics you know they they that makes about a positive one and a half million dollar impact on our 2025. they had a loss about one and a half million dollars in ebitda in in 2024 in those first nine months prior to closing them so that's 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, 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 in when you compare 24 to 23, just because we have a larger Medicare rate reduction, but we're going to, we're going to increase the rate in 2025. I'm, I'm confident in that. Um, 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. You know, we had 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. Chris, any comments from you other than that?

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

I understand. And then, Chris, maybe as I think about, you know, recruiting and retention and wage inflation, obviously still an area of focus and maybe a little bit of a challenge there. So, 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 could 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, you know, 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, you know, 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 to 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, you know, in a very, very long time. But in terms of the rate, You know, the rate is always determined by, you know, 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.

Thanks, guys. Thank you. We'll take our next question from Larry Sello with PJS Securities. Please go ahead. Your line is open.

Thanks. Good morning. Hey, good morning, guys. Just piggybacking on Brian's question. So just on the volume outlook for this year, the 2% or 3%, because I think it was a little bit less than that, right, in 24, and there was sort of some I think some staffing constraints and whatnot. So, I guess the question is, it sounds like inflationary pressures are still there, but things won't get fixed overnight. But I know you had, you know, you have several initiatives underway. 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 12 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 um both delivered and and worked on that you know issue and you know we'll see how the year comes through that's fair and i know what you know you you spoke about several issues and you kind of highlighted that again in your press release um

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, maybe a few months ago. But I know last quarter you threw out like a $10 million ultimate cost savings number without an actual timeline. Again, do 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 kind of fair to say?

Yeah, I think it's fair. I think it's fair. Look, you know, 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 tend to see us 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 you know, with Slack resources. And it doesn't take a lot, you know, that, you know, somewhere between $50 and $75 a day per clinic, you know, aggregates up to, you know, $10 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 hours match very precisely with volume demands. You know, 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 and all number of locations virtually. And then we're hopeful that the AI scribe system that we're using for documentation helps to make our clinicians' day a little bit more efficient and therefore potentially a little bit more productive. and so this can take a little time of course and and so those are those are newer uh more recent changes in addition to the day-to-day focus that has been ongoing and we have more work to do so we've got we've got to deliver some results right and just just lastly 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 government is you never know exactly what's happening but it sounds like we're to be at the end of that four or five years of cuts um yeah we should be we definitely should be and statutorily you know according to the way that you know this original law was drafted around neutrality and fee schedule we should we should be beyond that um we've now absorbed particularly with interest you know all of the rate cut that was prescribed at the beginning which was an onerous, you know, kind of wrong-headed cut that wasn't supposed to be directed toward 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, we know 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 copay 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. And 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, you know, neutral to forward years again in the future.

Great. Thank you, guys. I appreciate all the color. Yeah, thanks, Larry.

We'll take our next question from Jared House with William Blair. Please go ahead. Your line is open.

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-sell 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, you know, on a forward year basis?

Yeah, visibility is really good. I mean, you know, 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. You know, 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, 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, you know, for our country, you know, across many, 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, you know, over a period of time, the team, we've added to it. The team's matured and just doing a really nice job. Really proud of those guys.

That's great. That's super helpful, Collar. 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, you know, any, Collar, in terms of, you know, how do 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, has had, you know, really, really strong success in the auto industry. You know, they serve a number of the world's biggest auto manufacturers already. And this was a particular auto plant in the U.S. which was being served longstanding by a large competitor. It was a competitive process. And I think, you know, these companies, they talk, you know, 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 our margin a little bit, which you saw in the fourth quarter. The auto contracts 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. We'll take our next question from Xinxin Zhai with Core Partners. Please go ahead. Your line is open.

Hey, Chris and Kerry. 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 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, you know, 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 cost it puts as it relates to that budget.

Yeah, let me just say this, and then Kerry has the detail on some of the puts and takes. Our budget's actually a little bit higher than the midpoint of the range that we provided. You know, these guides, you know, aren't perfect, and we try to frame it as best we can. You know, you've got to remember that we've got a Medicare reduction this year, which takes out a pretty significant chunk, actually, you know, eliminates a lot of the Metro lift, which, again, we're 50% on. So, you know, remember that as well. So, Terry, you want to walk through the detail around that?

Yeah, sure. First of all, Ryan, thank you for the question, but your Metro estimate is a little high. So we, you know, they have, when we bought them, they had about, they have about $12 million of EBITDA and, you know, we have a 50, we own 50% of that. So their EBITDA to us is somewhere around $66 million plus or minus, you know, a little bit. So that's, so, and the fourth quarter amount of EBITDA that you quoted was a little high too. So they were probably about a million dollars or so in the, in the fourth quarter from their contribution for those two months. So if you look at our, I broke, 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, you know, an eight to $9 million increase in 25 versus what we had from them in 24, IP is going to go up more than a little more than $3 million. I would say, But then we have the Medicare reduction of $5.7 million in EBITDA. We've got corporate costs that 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, you know, could be $5, $6, $7 million in additional corporate costs. But still, as a percent of revenue, I think it will go down in 2025 or so as in 24, then you're left with, you know, the core of that growing, um, you know, at a, at a pretty good rate without the Medicare reduction, uh, in, in 2025, it's, you know, what, six to $10 million, somewhere around there. Um, just, these are all just broad strokes, but that kind of gets you to where that midpoint range is. Um, so 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

As I mentioned on the call, Metro's average rate was lower than our overall average rate, so it's about 102.50, and that's lower than our rate was, for instance, in the third quarter of just above 105. So, you know, 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 we've got rate negotiations going on, you know, all the time, and you have, you know, you have puts and takes in rate, but we Still, we're 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 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 it 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 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 comment for 2025, are you able to help the folks here and kind of uncover 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 a little bit of a decrease? How should we be thinking about that?

Well, when I look at our EBITDA margin as well as our 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're going to have increases in our costs that are normal, and we talked about some of that. It's just going to depend on how much headway we're able to make, I think, 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. I.P. 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, appreciate the time, both of you, and we can follow up offline. Thank you very much. Appreciate the time.

You're welcome. Thank you.

We'll take our next question from Constantine Davides with Citizens JMP. Please go ahead. Your line is open.

Maybe you can just talk a little bit about your experience with Metro now that you've sort of 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 Denovo's 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 center 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. Get a lot of growth opportunities, not just in New York, but in adjacent areas. Eric, you 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 over to 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 um, uh, de novo pipeline, uh, for New York, uh, a lot of talking opportunities that we're going to be evaluating as well. So I think it dramatically increases our ability to, um, add to know that I think we did 28 clinics last year, if I remember from a de novo perspective, uh, and I think Metro is going to add substantially to that, uh, moving forward here in 2025.

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

Yeah, let me start, and then you pick it up. We definitely see home-based therapy. as you know the next opportunity we've got a partner meeting coming up it's going to be a big focus one of you know several focuses on service expansion but metro's done a great job there and um you know we have more planned go ahead eric yeah i was going to add to that i i mean you know the home care side you know was about you know 20 of 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 color. I guess just one last question. Kerry, 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 know, 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 really heading up our workers' comp initiative. So, Eric, why don't you take that?

Sure. Yeah, much like the radar initiatives, this is something we've worked really hard on over the course of the last two years and 2024 was was definitely a success for us. A lot of it goes back to significantly, you know, increasing the number of work comp pay 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. You know, three years ago, so go back to, you know, 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 forward top. On a year-to-date basis, you know, very similar. Total revenues have increased 15.7% year over year. On an annualized basis, visits increased 11.6%. And overall for the year, we went up about 3.7% on rate. So it's been a focused effort. We invested in some additional resources. We spent a lot of time with our partners, you know, 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 employer. outpatient physical therapy patients. So it's that infrastructure and training that we put in place that are making a big difference for us. And we have several more agreements still in process right now, which we expect to, you know, further help us grow our business in 2025.

And Constantine, to your specific question about MIX, it was our, 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. On an apples-to-apples basis, our mix was 10.4% in the fourth quarter, just like it was in the third quarter of 24.

Awesome. Thanks for taking that question, guys.

Thank you. We'll take our next question from Mike Petusky with Barrington Research. Please go ahead. You're live.

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 listed 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 rate. 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 is on the – or through the businesses on the outpatient clinic side. So that's an opportunity for them.

All right, terrific. And then I'm not sure I heard this clearly, and I may not have. Gary, did you say essentially when you were sort of doing the puts and takes on the EBITDA and sort of the bridge to the guide, 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. Ah, ah. Okay. Okay. All right. So in terms then of the technology initiatives, I mean, 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 – you know, I know different places sort of handle notes and differently. Some, you know, are very heavy and, you know, therapists sort of doing the notes as they're treating the patient. Some are less, you know, less relaxed about that. I mean, how much pickup can you get from the AI notes pilot and then from the other piece of the technology virtual staffing?

yes i still think tbd to be determined um i expect we'll have more cost related pickup in the virtualization part at the front desk necessarily than we will on a cost perspective from the you know the ai notes component do think it'll help to reduce some of the stress on our therapists i think it'll help retention I think it's going to be a welcome ad. And I think anytime you reduce stress, you know, and you free up some time, you create the opportunity to, you know, to generate a little bit more revenue potentially. But I think the big, 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, you know, 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 31st and look at the rate cut that CMS put in for 25, I'm assuming, you know, between our plans in Gaza, Greenland, and Canada, that this may not be front and center 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 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, you know, a surprise. You know, 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, you know, propping up select candidates subsets in the physician fee schedule that have been under particular duress the last few years physical therapy certainly one of those kind of the proposal that i don't think will end up getting traction is that the entire physician fee schedule would get a lift and it's just really a cost prohibitor you know item to do that because some of those positions have gotten lifts 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.

Thank you, Mike.

We'll take our next question from Joanna Gajuk from Bank of America. Please go ahead. Your line is open.

Yes, hi, thanks so much for taking a couple of follow-ups here. Thanks for the call on the non-Medicare rate excluding Metro in Q4, 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 lowest rate, do we expect the average revenue per case 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, yes. And then what do you assume for like the, you know, 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, 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, you know, 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, you know, I would still expect an underlying increase of somewhere around the 2 percent 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. As Eric mentioned, I think we'll see some nice lift on metro rates. I think we would expect at least as much, if not a little more, rate increase there than we have on some of our other acquisitions. We've got some real opportunity there, I think.

Okay, great to hear that last comment. So on another topic, I guess, I don't think you talk about cash flow. So I guess it was down in the quarter. I don't know if there's some timing issue, but also for the full year, the cash flow was down. Maybe there was also something related to timing and such, because I guess also 23% Cash flow a lot year over year. So I guess, you know, when we talk about the history, but also more importantly, like how we should think about cash flow outlook for 25.

Yeah, I mean, I think, you know, 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, you know, There aren't, I would 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. It's a penny 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, you know, 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 from a 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 will have a good amount of activity in 2025 on the acquisition front, too. Hope that helps, Joanne.

No, this is helpful. Thank you. I appreciate it. And I guess on the acquisition front, any income or car, whether there's 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 know, like you might need to buy some assets or some capabilities to actually do it, you know, more in an expanded way outside of the metro market, or is it something that you would develop internally? Thank you.

Yeah, I think on the home care side, we're looking at both actually in discussions right now. You know, in one market, as Eric mentioned, we have a partner meeting coming up in March where that's going to be one of the featured, you know, expansion elements that, you know, we'll spend some time with Michael's help and introduce 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 in 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 Kerry mentioned, compared to many, many of our competitors, we do a great job undoubtedly, but whose capital structure is considerably tighter. In some cases, you know... really difficult, you know, beginning 2022 and forward. We're in a great spot, and, you know, 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 it's continually 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. Carrie and I are available as the day goes on and tomorrow, and feel free to give us a call. 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.