Financial Analysis

4. Acquisitions of Businesses The Companys strategy is to continue acquiring and managing multi-clinic outpatient physical therapy practices, to develop outpatient physical therapy clinics as satellites in existing partnerships and to continue acquiring companies that provide and serve the IIP sector. The consideration paid for each acquisition is derived through arms length negotiations and funded through working capital, borrowings under the Companys revolving credit facilities or proceeds from the secondary offering discussed in Note 1. The finalized purchase prices plus the fair value of the non-controlling interests for the acquisitions in 2024 and 2023 were allocated to the fair value of the assets acquired, inclusive of identifiable intangible assets, i.e. trade names, referral relationships and non-compete agreements, and liabilities assumed based on the fair values at the acquisition date, with the amount exceeding the fair values being recorded as goodwill. For the acquisitions in 2025, the Company is in the process of completing its formal valuation analysis to identify and determine the fair value of tangible and identifiable intangible assets acquired and the liabilities assumed. Thus, the final allocation of the purchase price may differ from the preliminary estimates used at December 31, 2025 based on additional information obtained and completion of the valuation of the identifiable intangible assets. Changes in the estimated valuation of the tangible assets a …

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20. Contingencies The Company is a party to various legal actions, proceedings, and claims (some of which are not insured), and regulatory and other governmental audits and investigations in the ordinary course of our business.

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19. Defined Contribution Plan The Company has several 401(k) profit sharing plans covering certain employees with three months of service. For certain plans, the Company makes matching contributions. The Company may also make discretionary contributions of up to 50% of employee contributions. The Company did not make any discretionary contributions for the years ended December 31, 2025, 2024 and 2023. The Company matching contributions totaled $3.7 million, $2.6 million and $2.2 million, respectively, for the years ended December 31, 2025, 2024 and 2023.

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11. Borrowings Amounts outstanding under the Credit Agreement (as defined below) and notes payable consisted of the following. As of the Year Ended December 31, 2025 December 31, 2024 Principal Amount Unamortized Debt Issuance Cost (2) Net Debt Principal Amount Unamortized Debt Issuance Cost (2) Net Debt (In thousands) Term Facility $ 131,250 $ (620 ) $ 130,630 $ 140,625 $ (1,049 ) $ 139,576 Revolving Facility 30,500 - 30,500 11,000 - $ 11,000 Other (1) 1,329 - 1,329 2,953 - $ 2,953 Total debt 163,079 (620 ) 162,459 154,578 (1,049 ) 153,529 Less: Current portion of long-term debt 10,287 (422 ) 9,865 11,422 (423 ) 10,999 Long-term debt, net of current portion $ 152,792 $ (198 ) $ 152,594 $ 143,156 $ (626 ) $ 142,530 (1) The long-term portion is included as part of Other Long-Term Liabilities in the Consolidated Balance Sheet. (2) Debt issuance costs are amortized over the term of the Term Loan and recorded to interest expense. Effective December 5, 2013, the Company entered into an Amended and Restated Credit Agreement with a commitment for a $125.0 million revolving credit facility. This agreement was amended and/or restated in August 2015, January 2016, March 2017, November 2017, and January 2021. On June 17, 2022, the Company entered into the Third Amended and Restated Credit Agreement (the Credit Agreement) among Bank of America, N.A., as administrative agent (Administrative Agent) and the lenders from time-to-time party thereto. The Credit Agreement, which matures on June …

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17. Equity Based Plans U.S. Physical Therapy Stock Incentive Plans Amended and Restated 1999 Employee Stock Option Plan The Amended and Restated 1999 Employee Stock Option Plan (the Amended 1999 Plan) permits the Company to grant to non-employee directors and employees of the Company up to 600,000 non-qualified options to purchase shares of common stock and restricted stock (subject to proportionate adjustments in the event of stock dividends, splits, and similar corporate transactions). The exercise prices of options granted under the Amended 1999 Plan are determined by the Compensation Committee. The period within which each option will be exercisable is determined by the Compensation Committee. Amended and Restated 2003 Stock Option Plan The Amended and Restated 2003 Stock Option Plan (the Amended 2003 Plan) permits the Company to grant to key employees and outside directors of the Company incentive and non-qualified options and shares of restricted stock covering up to 2,600,000 shares of common stock (subject to proportionate adjustments in the event of stock dividends, splits, and similar corporate transactions). As of December 31, 2025, there were 0.3 million shares remaining that can be subject to new awards under the Amended 2003 Plan. Stock-based compensation expense related to the Amended 1999 Plan and Amended 2003 Plan was approximately $8.3 million, $7.8 million, and $7.7 million for the years ended December 31, 2025, 2024 and 2023 respectively. As of December 31 …

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14. Income Taxes Significant components of deferred tax assets and liabilities included in the consolidated balance sheets as of the periods below were as follows. As of the Year Ended December 31, 2025 December 31, 2024 (In thousands) Deferred tax assets: Compensation $ 2,045 $ 2,370 Provision for credit losses 792 747 Lease obligations - including closed clinics 29,888 36,205 Other 94 - Deferred tax assets $ 32,819 $ 39,322 Deferred tax liabilities: Depreciation and amortization $ (31,274 ) $ (32,392 ) Operating lease right-of-use assets (28,109 ) (34,221 ) Gain on cash flow hedge (244 ) (960 ) Change in revaluation of put-right liability (312 ) (638 ) Other (1,271 ) (576 ) Deferred tax liabilities (61,210 ) (68,787 ) Net deferred tax liabilities $ (28,391 ) $ (29,465 ) The deferred tax assets and liabilities related to purchased interests not yet finalized may result in an immaterial adjustment. As of December 31, 2025, the Company has a federal tax payable of $0.9 million and state tax receivables of $3.1 million. The federal tax payable is included in accrued expenses and the state income tax receivable is included in other current assets on the accompanying consolidated balance sheets. For the years ended December 31, 2025, 2024, and 2023 income taxes for financial reporting purposes differ from the amount computed by applying the statutory federal income tax rate of 21% as shown as in the following table: Year Ended December 31, 2025 U.S. federal statutory rate $ 12,47 …

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13. Leases The Company has operating leases for its corporate offices and operating facilities. The Company determines if an arrangement is a lease at the inception of a contract. Right-of-use assets represent the Companys right to use an underlying asset during the lease term and operating lease liabilities represent net present value of the Companys obligation to make lease payments arising from the lease. Right-of-use assets and operating lease liabilities are recognized at commencement date based on the net present value of the fixed lease payments over the lease term. The Companys operating lease terms are generally five years or less. The Companys lease terms include options to extend or terminate the lease when it is reasonably certain that the option will be exercised. As most of the Companys operating leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Operating fixed lease expense is recognized on a straight-line basis over the lease term. Variable lease payment amounts that cannot be determined at the commencement of the lease such as increases in lease payments based on changes in index rates or usage are not included in the right-of-use assets or operating lease liabilities. These are expensed as incurred and recorded as variable lease expense. The components of lease expense were as follows. For the Year Ended December 3 …

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Recently Adopted Accounting Guidance On July 4, 2025, the President signed H.R. 1, the One Big Beautiful Bill Act, into law. The legislation did not have a material impact on the Companys income tax expense for the year ended December 31, 2025, nor did it materially change the Companys effective income tax rate for 2025. On December 14, 2023, the FASB issued ASU 2023-09 Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires disclosure on an annual basis, a tabular reconciliation, including both amount and percentage of specific categories of the effective tax rate reconciliation, including state and local income taxes (net of Federal taxes), foreign taxes, effects of changes in tax laws and regulations, effects of cross-border tax laws, tax credits, changes in valuation allowances, nontaxable and nondeductible items and changes in unrecognized tax benefits. Additional disclosures are required for certain items exceeding five percent of income from continuing operations multiplied by the statutory income tax rate. The standard also requires disclosure of income taxes paid between Federal, state and foreign jurisdictions, including further disaggregation of those payments exceeding five percent of the total income taxes paid. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, and early adoption is permitted. The Company adopted this standard as of January 1, 2025, utilizing the prospective application as permitted in the stand …

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15. Segment Information The Companys reportable segments include the physical therapy operations segment and the IIP segment. Also included in the physical therapy operations segment are revenues from management contract services and other services which include services the Company provides on-site, such as athletic trainers for schools . Physical Therapy Operations The physical therapy operations segment primarily operates through subsidiary clinic partnerships (Clinic Partnerships), in which the Company generally owns a 1% general partnership interest in all the Clinic Partnerships. The Companys limited partnership interests generally range from 65% to 75% (the range is 30% - 99%) in the Clinic Partnerships. The managing therapist of each clinic owns, directly or indirectly, the remaining limited partnership interest in most of the clinics (hereinafter referred to as Clinic Partnerships). Some of the Clinic Partnerships serve as management services organizations which manage and provide staffing and a variety of administrative services to physical therapy provider entities in which the Company does not have an ownership interest. These Clinic Partnerships similarly are owned collectively by the Company and one or more physical therapists who are involved in the management of the operations. To a lesser extent, the Company operates some clinics through wholly-owned subsidiaries (hereinafter referred to as Wholly-Owned Facilities). The Company continues to seek to attract fo …

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2. Significant Accounting Policies Cash Equivalents The Company maintains its cash and cash equivalents at financial institutions. The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. The combined account balances at several institutions typically exceed Federal Deposit Insurance Corporation (FDIC) insurance coverage and, as a result, there is a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage. Management believes that this risk is not significant. Long-Lived Assets Fixed assets are stated at cost. Depreciation is computed on the straight-line method over the estimated useful lives of the related assets. Estimated useful lives for furniture and equipment range from three to eight years and for software purchased from three to seven years. Leasehold improvements are amortized over the shorter of the related lease term or estimated useful lives of the assets, which is generally three to five years. Goodwill and Other Indefinite-Lived Intangible Assets Goodwill represents the excess of the amount paid and fair value of the non-controlling interests over the fair value of the acquired business assets, which include certain identifiable intangible assets. Historically, goodwill has been derived from acquisitions and, prior to 2009 , from the purchase of some or all of a particular local managements equity interest in an existing clinic. Effective January 1, …

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18. Preferred and Common Stock Preferred Stock The Board is empowered, without approval of the shareholders, to cause shares of preferred stock to be issued in one or more series and to establish the number of shares to be included in each such series and rights, powers, preferences, and limitations of each series. There are no provisions in the Companys Articles of Incorporation specifying the vote required by the holders of preferred stock to take action. All such provisions would be set out in the designation of any series of preferred stock established by the Board. The bylaws of the Company specify that, when a quorum is present at any meeting, the vote of the holders of at least a majority of the outstanding shares entitled to vote who are present, in person or by proxy, shall decide any question brought before the meeting, unless a different vote is required by law of the Companys Articles of Incorporation. Because the Board has the power to establish the preferences and rights of each series, it may afford the holders of any series of preferred stock, preferences, powers, and rights, voting or otherwise, senior to the right of holders of common stock. The issuance of the preferred stock could have the effect of delaying or preventing a change in control of the Company. Common Stock In May 2023, the Company completed a secondary offering of 1,916,667 shares of its common stock at an offering price of $90.00 per share. Upon completion of the offering, the Company receiv …

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21. Subsequent Events On January 2, 2026, the Company acquired an eight-clinic practice with eight clinic locations. The prior owners retained 50% ownership interest. On January 31, 2026, the Company acquired 70% of an industrial injury prevention business. The previous owners retained a 30% ownership interest. On February 2, 2026, we announced a 10-year strategic alliance between our subsidiary partner, Metro, and a prominent New York hospital system, whereby 60 of Metros existing outpatient physical therapy clinics in New York will become part of the hospital systems clinical services network. The alliance is expected to begin operations with an initial group of clinics in mid-2026, with all 60 clinics anticipated to be operational by year-end 2026. On February 24, 2026, the Companys Board of Directors raised the Companys quarterly dividend rate from $0.45 per share to $0.46 per share, effective immediately, and declared a quarterly dividend for the first quarter of 2026 at the higher rate. The dividend will be payable on April 10, 2026, to shareholders of record on March 13, 2026. On February 25, 2026, the Company announced a 10-year strategic alliance between another of its subsidiary partners and a local hospital system whereby the subsidiary partners existing 10 outpatient physical therapy clinics will become part of the hospital systems clinical services network. …

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