U S PHYSICAL THERAPY INC /NV (USPH)

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis of U.S. Physical Therapy, Inc. and its subsidiaries (herein referred to as “we,” “us,” “our” or the “Company”) should be read in conjunction
with (i) our historical consolidated financial statements and accompanying notes thereto included elsewhere in this Quarterly Report on Form 10-Q; and (ii) our Annual Report on Form 10-K for the year ended December 31, 2025 filed with the
Securities and Exchange Commission (the “SEC”) on February 27, 2026 (“2025 Annual Report”).

This discussion includes forward-looking statements that are subject to risk and uncertainties. Actual results may differ substantially from the statements we make in this
section due to a number of factors that are discussed below.

FORWARD-LOOKING STATEMENTS

We make statements in this report that are considered forward-looking statements within the meaning given such term under Section 21E of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”). These statements contain forward-looking information relating to the financial condition, results of operations, plans, objectives, future performance and business of our Company. These statements (often using words
such as “believes”, “expects”, “intends”, “plans”, “appear”, “should” and similar words) involve risks and uncertainties that could cause actual results to differ materially from those we project. Included among such statements, but not limited
to, are those relating to opening clinics, availability of personnel and the insurance reimbursement environment. The forward-looking statements are based on our current views and assumptions, and actual results could differ materially from those
anticipated in such forward-looking statements as a result of certain risks, uncertainties, and factors, which include, but are not limited to:

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Many factors are beyond our control. Given these uncertainties, you should not place undue reliance on our forward-looking statements. Please see the other sections of this
report and our other periodic reports filed with the Securities and Exchange Commission (the “SEC”) for more information on these factors. Our forward-looking statements represent our estimates and assumptions only as of the date of this report.
Except as required by law, we are under no obligation to update any forward-looking statement, regardless of the reason the statement may no longer be accurate.

EXECUTIVE SUMMARY

We operate our business through two reportable business segments. Our physical therapy operations segment consists of physical therapy, speech therapy and occupational therapy clinics
and home-care physical and speech therapy practices that provide pre- and post-operative care and treatment for a variety of orthopedic-related disorders, sports-related injuries, and rehabilitation of injured workers. Services provided by the
industrial injury prevention services (“IIP”) segment include onsite injury prevention and rehabilitation, performance optimization, post offer employment testing, functional capacity evaluations, ergonomic
assessments, occupational medicine testing services, and drug & alcohol testing. The majority of IIP is contracted with and paid for directly by employers, including a number of Fortune 500 companies. IIP is performed through Industrial
Sports Medicine Professionals with specialized training related to the musculoskeletal system.

During the three months ended March 31, 2026, and for the year ended December 31, 2025, we completed the acquisitions of clinic practices and IIP business detailed below:

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* IIP business

** On April 30, 2025, the Company acquired an outpatient home care practice that provides speech and occupational therapy through its 50% owned subsidiary Metro. After the transaction, the Company’s
ownership interest is 40%, the local partners have an ownership interest of 40% and the practice’s preacquisition owners have a 20% ownership interest.

*** Home-care business

Our strategy is to continue acquiring multi-clinic outpatient physical therapy practices and home-care physical and speech therapy practices, to develop outpatient physical therapy clinics as satellites in existing
partnerships, and to continue acquiring companies that provide industrial injury prevention services.

The following table provides a roll forward of our clinic count for the periods presented.

Clinic Count Roll Forward (1)

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[Excerpt truncated for page length; source filing is linked above.]

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of U.S. Physical Therapy, Inc. and its subsidiaries (herein referred to as “we”, “us”, “our” or the “Company”) should be read in
conjunction with the Company’s consolidated financial statements and accompanying notes included elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis, including information with
respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review the “Risk Factors” and “Forward-Looking Statements” sections of this Annual Report on Form 10-K
for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

This section of this Annual Report on Form 10-K generally discusses 2025 and 2024 items and year-to-year comparisons between 2025 and 2024. Discussions of 2023 items
and year-to-year comparisons between 2024 and 2023 can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2024, filed with the Securities and Exchange Commission on March 3, 2025.

EXECUTIVE SUMMARY

The Company operates its business through two reportable business segments. Our physical therapy operations consist of physical therapy, speech therapy and occupational therapy clinics
and home-care physical and speech therapy practices that provide pre- and post-operative care and treatment for a variety of orthopedic-related disorders, sports-related injuries, and rehabilitation of injured workers. Services provided by
the industrial injury prevention services (“IIP”) segment include onsite services for clients’ employees including injury prevention and rehabilitation, performance optimization, post-offer employment testing, functional capacity
evaluations and ergonomic assessments. The majority of IIP is contracted with and paid for directly by employers, including a number of Fortune 500 companies. IIP is performed through industrial sports medicine professionals with
specialized training related to the musculoskeletal system.

During the last three years, we completed the following acquisitions of outpatient physical therapy practices, companies that manage and/or provide administrative services to outpatient
physical therapy practices, and IIP businesses detailed below:

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* On April 30, 2025, the Company acquired an outpatient home care practice that provides speech and occupational therapy through its 50% owned
subsidiary MSO Metro LLC. (“Metro”). After the transaction, the Company’s ownership interest is 40%, the local partners have an ownership interest of 40% and the practice’s preacquisition owners have a 20% ownership interest.

** Home-care business.

*** On April 30, 2024, one of our primary IIP businesses, Briotix Health Limited Partnership, acquired 100% of an IIP business.

**** IIP business

***** On October 31, 2023, we concurrently acquired 100% of an IIP business and a 55% equity interest in an ergonomics software business (“October 2023 Acquisition”).

Our strategy is to continue acquiring multi-clinic outpatient physical therapy practices and home-care physical and speech therapy practices, to develop outpatient physical therapy clinics as satellites in
existing partnerships, and to continue acquiring companies that provide industrial injury prevention services.

The following table provides a roll forward of our clinic count for the periods presented.

Clinic Count Roll Forward (1)

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Recent Developments

On January 2, 2026, we acquired a 50% interest in a physical practice with eight-clinic locations. The prior owner retained a 50% ownership interest.

On January 31, 2026, we acquired an industrial injury prevention business. The prior owner retained a 30% ownership interest.

On February 24, 2026, our Board of Directors raised our 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.

We repurchased 81,322 of our own shares for total consideration of $5.6 million from the open market during the three months ended December 31, 2025, which demonstrates our focus on enhancing shareholder
value as well as our confidence in the long-term prospects of the Company.

Strategic Hospital Alliances

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 Metro’s existing outpatient physical therapy
clinics in New York will become part of the hospital system’s 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 25, 2026, we announced a 10-year strategic alliance between another of our subsidiary partners and a local hospital system whereby our subsidiary partner’s existing 10 outpatient physical therapy
clinics will become part of the hospital system’s clinical services network.

These arrangements will be accretive to our revenue, operating income and margins.

Medicare Reimbursement

The Medicare program reimburses outpatient rehabilitation providers based on the Medicare Physician Fee Schedule (“MPFS”). Outpatient rehabilitation providers may enroll in Medicare as
institutional outpatient rehabilitation facilities (i.e., rehab agencies) or individual physical or occupational therapists in private practice. The majority of our clinicians are enrolled as individual physical or occupational therapists
in private practice while the remaining balance of providers are reimbursed through enrolled rehab agencies.

For calendar years 2021, 2022 and 2023, Centers for Medicare and Medicaid Services (“CMS”) expected decreases in Medicare reimbursement were partially offset by one-time increases in
payments as a result of other legislation passed by Congress, resulting in decreases of approximately 3.5%, 0.75% and 2.0% in each of these years, respectively.  For January 1 through March 8 of 2024, CMS’s final rule resulted in an
approximate 3.5% decrease in Medicare payments for the therapy specialty. However, effective as of March 9, 2024, pursuant to the Consolidated Appropriations Act, 2024, Congress minimized the reduction in Medicare payments for therapy
services for the balance of 2024, resulting in an approximate 1.8% reduction in Medicare payments for therapy services (rather than the 3.5% decrease). The MPFS for 2025 decreased Medicare reimbursement for therapy services by approximately
2.9% as compared to the reimbursement rates in effect for most of 2024. For 2026, the proposed MPFS is expected to increase Medicare reimbursement for therapy services by approximately 1.75% as compared to the reimbursement rates for 2025.

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In the final 2020 MPFS rule, CMS clarified that when the physical therapist is involved for the entire duration of the service and the physical therapist assistant (“PTA”) provides
skilled therapy alongside the physical therapist, an identification of the PTA’s participation (as denoted by a “CQ modifier”) is not required. Also, when the same service (code) is furnished separately by the physical therapist and PTA,
CMS applies the de minimis standard to each 15-minute unit of codes, not on the total physical therapist and PTA time of the service. For dates of service on and after January 1, 2022, CMS pays for physical therapy and occupational therapy
services provided by PTAs and occupational therapist assistants (“OTAs”) at 85% of the otherwise applicable Part B payment amount. CMS allows a timed service to be billed without a CQ (for PTA’s) or CO (for OTA’s) modifier when a PTA or OTA
participates in providing care, but the physical therapist or occupational therapist meets the Medicare billing requirements without including the PTA’s or OTA’s minutes. This occurs when the physical therapist or occupational therapist
provides more minutes than the 15-minute midpoint.

RESULTS OF OPERATIONS

The defined terms with their respective description used in the following discussion are listed below:

Mature clinics are clinics (physical clinic locations and home-care business units) opened or acquired prior to January 1, 2024, and are still
operating as of the balance sheet date.

Net rate per patient visit is net patient revenue related to our physical therapy operations divided by total number of patient visits (defined
below) during the periods presented.

Patient visits is the number of unique patient visits during the periods presented for both physical clinic locations and home-care.

Average daily visits per clinic is patient visits (excluding home-care visits) divided by the number of days in which normal business operations
were conducted during the periods presented and further divided by the average number of clinics in operation during the periods presented.

Clinics are outpatient physical therapy clinics that are either owned or managed by the Company or one of its subsidiaries.

2025 Year period covering the twelve months ended December 31, 2025.

2024 Year period covering the twelve months ended December 31, 2024.

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Full Year 2025 versus Full Year 2024

* Not meaningful

Total net revenue for the 2025 Year increased $109.6 million, or 16.3%, to $781.0 million from $671.3 million for the 2024 Year while operating costs increased $83.9 million, or 15.3%, to $631.3 million from
$547.4 million over the same periods, respectively. Gross profit for the 2025 Year was $149.7 million, or 19.2% of net revenue, compared to $123.9 million for the 2024 Year, or 18.5% of net revenue.

Net income attributable to our shareholders (“USPH Net Income”), a generally accepted accounting principles (“GAAP”) measure, was $39.6 million for the 2025 Year compared to $31.4 million for the 2024 Year.
Under GAAP, increases and decreases in the value of redeemable noncontrolling interests (related to ownership interests of our partners in subsidiaries that are not fully owned by USPH), net of taxes, are not included in net income, but
they are included in the calculation of earnings per share.  Our improved performance in 2025 increased the value of these ownership interests, net of taxes, by $18.0 million, which reduced earnings per share.  Earnings per share was $1.42
for the 2025 Year and $1.84  for the 2024 Year.

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The table below shows the calculation of earnings per share for the periods presented.

We reported net earnings of $39.6 million ($1.42 per share) in 2025 and $31.4 million ($1.84 per share) in 2024.

Non-GAAP Measures

The following tables provide details of the basic and diluted earnings per share computation and reconcile net income attributable to USPH shareholders calculated in accordance with GAAP to Adjusted EBITDA,
Operating Results and other non-GAAP measures. We believe providing Adjusted EBITDA, Operating Results, and other non-GAAP measures to investors is useful information for comparing our period-to-period results as well as for comparing with
other similar businesses since most do not have redeemable instruments and therefore have different equity structures. Additionally, management believes that these non-GAAP measures provide useful supplemental information to investors,
analysts, and other stakeholders in assessing the Company’s operational performance and financial trends. We use Adjusted EBITDA, Operating Results and other non-GAAP measures, which eliminate certain items described above that can be
subject to volatility and unusual costs, as the principal measures to evaluate and monitor financial performance period over period.

Adjusted EBITDA, a non-GAAP measure, is defined as net income attributable to our shareholders before interest income, interest expense, taxes, depreciation, amortization, change in fair value of contingent
earn-out consideration, changes in revaluation of put-right liability, equity-based awards compensation expense, clinic closure costs, impairment on assets held for sale, business acquisition related costs, costs related to a one-time
financial and human resources systems upgrade, loss on sale of a partnership and other income and related portions for non-controlling interests.

Operating Results, a non-GAAP measure, equals net income attributable to our shareholders less, changes in revaluation of a put-right liability, clinic closure costs, loss on sale of a partnership, changes in
fair value of contingent earn-out consideration, business acquisition related costs, costs related to a one-time financial and human resources systems upgrade, an income tax adjustment to revalue our deferred tax assets and liabilities to
the most current statutory tax rate, and any allocations to non-controlling interests, all net of taxes. Operating Results per share also excludes the impact of the revaluation of redeemable non-controlling interest and the associated tax
impact.

Adjusted EBITDA, Operating Results and other non-GAAP measures presented are not measures of financial performance under GAAP. Adjusted EBITDA, Operating Results and other non-GAAP measures should not be
considered in isolation or as an alternative to, or substitute for, net income attributable to our shareholders presented in the consolidated financial statements.

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The tables that follow define and reconcile non-GAAP Adjusted EBITDA and non-GAAP Operating Results to the most directly comparable GAAP measure.

(1) Costs associated with the closure of 23 owned clinics during the year ended December 31, 2025 and 45 owned clinics during the year ended December 31, 2024.  See Clinic Count Roll
Forward on page 34 for additional information.

(2) Primarily consists of retention bonuses, legal and consulting expenses related to the acquisitions of equity interests in certain partnerships.

(3) Consists of costs related to a one-time financial and human resources systems upgrade.

(4) Mostly consist of adjustment to revalue the Company’s deferred tax assets and liabilities to the most current statutory tax rate.

Adjusted EBITDA (1), a non-GAAP measure, was $95.0 million for the 2025 Year, an increase of $13.2 million or 16.2% million,
from $81.8 million for the 2024 Year.

Operating Results (1), a non-GAAP measure, was $40.0 million for 2025 Year, an increase of $3.1 million, from $36.9 million in
the 2024 Year. On a per share basis, Operating Results were $2.63 in 2025 Year compared to $2.45 in the 2024 Year.

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The tables below reconcile other non-GAAP measures to the most directly comparable GAAP measures.

(1) Certain earnout bonuses and incentive costs related to the Metro acquisition.

(2) Includes expenses related to the acquisitions of equity interests in certain partnerships.

(3) Includes costs related to a one-time financial and human resources systems upgrade.

(4) Excludes costs related to management contracts.

(5) Amortization of certain intangible assets was reallocated between the physical therapy operations and IIP segments. Prior year amounts were reallocated to conform with current
presentation.

* Not meaningful

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Physical Therapy Operations

(1) See Glossary of Terms - Revenue Metrics for definition.

(2) Includes 47 owned clinics added during the year ended December 31, 2025 and 96 owned clinics added during the year ended December 31, 2024. See Clinic Count Roll Forward on page 34 for additional
information.

(3) Includes 23 owned clinics closed during the year ended December 31, 2025 and 45 owned clinics closed during the year ended December 31, 2024. See Clinic Count Roll Forward on page 34 for additional
information.

(4) Includes revenues from management contracts.

(5) Includes costs from management contracts.

(6) Excludes $0.9 million for the 2025 Year Ended and $4.6 million for the 2024 Year Ended of certain incentive costs related to the Metro acquisition and gains or losses related to clinic closures, as
applicable. See the reconciliation of non-GAAP measures to the most directly comparable GAAP measure on page 40.

(7) Amortization of certain intangible assets was reallocated between the physical therapy operations and IIP segments.  Prior year amounts were reallocated to conform with current presentation.

(8) Per visit costs exclude management contract costs.

(9) Not meaningful.

Revenues

Net revenue from physical therapy operations increased $92.2 million, or 16.0% in the 2025 Year versus the comparable prior year period.  Additionally, net rate per patient visit increased to $105.76 for the
2025 Year from $104.71 for the 2024 Year. Gross profit from physical therapy operations increased $22.1 million, or 20.9%, to $128.0 million for the 2025 Year  from $105.9 million for the 2024 Year. Excluding certain incentive costs related
to the Metro acquisition, which occurred on October 31, 2024, and clinic closures costs, adjusted gross profit (a non-GAAP measure), increased by $18.5 million or 16.8% over the comparable periods. See
the reconciliation of non-GAAP measures to the most directly comparable GAAP measure on page 40.

For the 2025 Year, we had 6,150,104 total patient visits compared to 5,353,189 for the 2024 Year.

Other revenue was $16.2 million for the 2025 Year and $13.9 million for the 2024 Year, of which revenue from, management contracts was $9.6 million for the 2025 Year as compared to $9.8
million for the 2024 Year.

Operating costs

Operating costs increased by $70.0 million or 15.0% to $538.5 million for the 2025 Year from $468.5 million in the 2024 Year. Operating costs were 80.8% of net revenue for
the 2025 Year compared to 81.5% of net revenue for the 2024 Year. Excluding certain incentive costs related to the Metro acquisition and losses related to clinic closures for both periods, total adjusted operating costs per visit
(excluding management contracts) was $86.15 in the 2025 Year compared to $85.21 in the comparable prior year period. See the reconciliation of non-GAAP measures to the most directly comparable GAAP
measure on page 40.

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Salaries and related costs, clinics (excluding management contracts) increased to $381.6 million in the 2025 Year from $330.1 million in the 2024 Year, an increase of $51.5
million, or 15.6% mostly due to the clinics added since the comparable prior year period. Excluding certain incentive costs related to the Metro acquisition and  losses related to clinic closures, adjusted salaries and related costs per visit was $61.93 in the 2025 Year compared to $61.62 in the comparable prior period. See the reconciliation of non-GAAP measures to the most directly comparable GAAP measure on page 40.

Rent, supplies, contract labor and other costs, related to clinics (excluding management contracts) increased to $123.5 million in the 2025 Year from $104.6 million in the 2024 Year, an
increase of $19.0 million, or 18.1% mostly due to clinic additions.

Depreciation and amortization increased to $17.8 million in 2025 Year from $14.8 million in the 2024 Year, an increase of $3.1 million, or 20.7%, primarily due to clinic additions in the
2025 Year compared to the 2024 Year. Amortization of certain intangible assets was reallocated between the physical therapy operations and IIP segments. Prior year amounts were reallocated to conform with current presentation.

Clinic closure costs for the 2025 Year were $0.3 million compared to $4.4 million in the 2024 Year. We closed 45 underperforming clinics in the 2024 Year compared to
23 clinics in the 2025 Year.

The provision for credit losses was $7.6 million for the 2025 Year and $6.9 million for the 2024 Year. As a percentage of net patient revenues, the provision for credit losses was 1.2%
for both the 2025 Year and the 2024 Year.

Gross Profit

Gross profit from physical therapy operations increased $22.1 million or 20.9% to $128.1 million, or 19.2% as a percent of net revenues, for the 2025 Year as compared to $105.9 million, or 18.4% as a percent
of net revenues, for the 2024 Year. Excluding certain incentive costs related to the Metro acquisition and clinic closure costs for both periods of $0.9 million, the adjusted gross profit margin ( a non-GAAP measure) increased $18.5 million, or 16.8%, to $129.0 million, or 19.4% as a percent of net revenues for the 2025 Year compared to $110.5 million, or 19.2% as a percent
of net revenues, for the 2024 Year. See the reconciliation of non-GAAP measures to the more directly comparable GAAP measure provided on page 40 for more information.

Industrial Injury Prevention Services

(1) Amortization of certain intangible assets was reallocated between the physical therapy operations and IIP segments.  Prior year amounts were reallocated to conform with current presentation.

Revenues from IIP increased $17.5 million, or 18.0%, $114.4 million for the 2025 Year from $96.9 million for the 2024 Year.  Gross profit from IIP operations increased $3.6 million, or 20.2%, to $21.6 million
for the 2025 Year from $18.0 million in the 2024 Year. The gross profit margin from IIP operations was 18.9% for the 2025 Year compared to 18.6% for the 2024 Year. Excluding the IIP acquisition made in April 2024, IIP revenue increased by
$10.7 million in the 2025 Year and gross profit margin increased $1.5 million or 9.1% in the 2025 Year over the comparable prior year period.

Corporate Office Costs

We are in the process of implementing a new enterprise resource planning (“ERP”) system designed to support certain human resources and accounting functions. The
implementation is intended to enhance system integration, standardize processes, and improve operational efficiency and reporting capabilities. We expect to continue the phased implementation of the ERP system over time while maintaining
existing systems and controls during the transition. Corporate office costs were $69.3 million for the 2025 Year compared to $58.3 million for the 2024 Year.  As a percentage of net revenue, corporate office costs were 8.9% and
8.7% over the same periods, respectively. Excluding acquisition integration costs and the costs associated with the implementation of the new financial and human resources system of $2.4 million and $0.8 million in the comparative years,
corporate office costs was 8.6% of net revenue for the 2025 Year  and the 2024 Year.

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Impairment of Goodwill and Other Intangible Assets, and Assets Held for Sale

During the 2024 Year, we recorded a non-cash impairment charge of $2.4 million related to the impairment of assets held for sale. There were no non-cash impairment charges for the 2025 Year.

Operating Income

Operating income was $86.7 million for the Year 2025 compared to $63.0 million for the 2024 Year. Excluding certain costs described above, adjusted operating income (a non-GAAP measure) increased to $84.1
million for the Year 2025 from $71.0 million for the 2024 Year, an increase of 18.4%. See the reconciliation of non-GAAP measures to the most directly comparable GAAP measure on page 40.

Other (Expenses) Income

Interest Expense, Debt and Other

Interest expense, debt and other was $9.5 million compared to $8.0 million in the 2024 Year as a result of increased borrowings for the 2025 Year. The interest rate on the Company’s credit facilities was 5.0%
for the 2025 Year and 4.7% for the 2024 Year, with an all-in effective interest rate on the credit facilities (including all associated costs), of 5.6% and 5.5% over the same periods, respectively.

Interest income from investment

Interest income from investment amounted to $0.1 million for the 2025 Year and $3.9 million for the 2024 Year.

Change in fair value of contingent earn-out consideration and put-right liabilities

We revalued contingent earn-out consideration related to certain acquisitions and recognized a net gain (a decrease in the related liabilities) of $6.2 million for
the 2025 Year compared to a net loss of $0.2 million for the 2024 Year  (an increase in the related liabilities).

For the 2025 Year, we revalued a put-right liability related to the future purchase of an IIP business and recognized a net non-cash expense (an increase in the
related liability) of $1.3 million compared to a net non-cash expense of $0.1 million for the 2024 Year.

Equity in earnings of unconsolidated affiliate

We recognized income of $1.5 million for the 2025 Year and $1.0 million for the 2024 Year from a joint venture which provides physical therapy services for patients at hospitals. Since we
are deemed to not have a controlling interest in the joint venture, our investment is accounted for using the equity method of accounting.

Provision for Income Taxes

The provision for income tax was $19.8 million, or an effective tax rate of 33.4%, for the 2025 Year and $14.6 million, or an effective tax rate of 31.7%, for the 2024 Year.  Income tax expense for the 2025
Year included an adjustment of $1.2 million to revalue the Company’s deferred tax assets and liabilities using the most current statutory income tax rate. The following table shows the calculation of our effective tax rate for the periods
presented.

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Net Income Attributable to Non-controlling Interest

Net income attributable to redeemable non-controlling interest (temporary equity) was $13.8 million for the 2025 Year and $10.0 million for the 2024 Year.  Net income attributable to
non-controlling interest (permanent equity) was $4.6 million for the 2025 Year and $4.1 million for the 2024 Year.

Other Comprehensive Income

We entered into an interest rate swap agreement in May 2022, which became effective on June 30, 2022.  The maturity date of the swap agreement is June 30, 2027.  It has a $150 million
notional value adjusted concurrently with scheduled principal payments made on the term loan.  Beginning in July 2022, we pay a fixed one-month Secured Overnight Financing Rate (“SOFR”) of interest of  2.815%. The total interest rate in any
period also includes an applicable margin based on the Company’s consolidated leverage ratio. Unrealized gains and losses related to the fair value of the interest rate swap are recorded to accumulated other comprehensive income (loss), net
of tax.

The fair value of the interest rate swap was $0.9 million, and $3.8 million at December 31, 2025 and December 31, 2024 respectively, which has been included within other assets (current
and long term) in the Consolidated Balance Sheet. The impact of the interest rate swap on the accompanying Consolidated Statements of Comprehensive Income was an unrealized loss of less than $2.1 million, net of tax, for the 2025 Year and
an unrealized gain of less than $0.1 million, net of tax, for the 2024 Year.

LIQUIDITY AND CAPITAL RESOURCES

We believe that our business has sufficient cash to allow us to meet our short-term cash requirements. Total cash and cash equivalents were $35.6 million as of December 31, 2025, compared
to $41.4 million as of December 31, 2024.

Additionally, we had $161.8 million of outstanding borrowings and $144.5 million in available credit under our Senior Credit Facilities as of December 31, 2025, compared to $151.6 million
of outstanding borrowings and $164.0 million in available credit under our Senior Credit Facilities as of December 31, 2024.

We believe that our cash and cash equivalents and availability under our Senior Credit Facilities are sufficient to fund the working capital needs of our operating subsidiaries through at
least February 27, 2027.

As of December 31, 2025, we had $35.6 million of cash on hand.  We plan to continue developing new clinics and making additional acquisitions. We have, from time to time, purchased from
or sold to our limited partners non-controlling interests in our existing partnerships. We may purchase or sell additional non-controlling interests in the future.  Generally, any acquisition or purchase of non-controlling interests is
expected to be accomplished using our cash, financing, or a combination of the two.

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We make reasonable and appropriate efforts to collect accounts receivable, including applicable deductible and co-payment amounts. Claims are submitted to payors daily, weekly or monthly
in accordance with our policy or payor’s requirements. When possible, we submit our claims electronically. The collection process is time-consuming and typically involves the submission of claims to multiple payors whose payment of claims
may be dependent upon the payment of another payor. Claims under litigation and vehicular incidents can take a year or longer to collect. Medicare and other payor claims relating to new clinics awaiting CMS approval initially may not be
submitted for six months or more. When all reasonable internal collection efforts have been exhausted, accounts are written off prior to sending them to outside collection firms. With managed care, commercial health plans and self-pay payor
type receivables, the write-off generally occurs after the balance has been outstanding for 120 days or longer.  As of December 31, 2025, we have accrued $6.5 million related to credit balances (including in accrued expenses), a portion of
which is due to patients and payors.  The credit balances are expected to be resolved or paid in the next twelve months.

The average accounts receivable days outstanding was 31 days on December 31, 2025, and December 31, 2024. Net patient receivables in the amounts of $7.3 million and $6.1 million were
written off in 2025 and 2024, respectively.

We continue to return cash to stockholders through dividends and share repurchases. In November 2025, the Board of Directors authorized a fourth quarter dividend payment of
$0.45 per share. The Board of Directors approved a share repurchase program effective August 5, 2025. The program authorizes the repurchase by the Company of up to $25.0 million of its
outstanding shares of common stock over the period ending on December 31, 2026.  Under the share repurchase program, shares may be repurchased from time to time in the open market or negotiated transactions at prevailing market rates, or
by other means in accordance with federal securities laws. The timing and amount of share repurchases under the share repurchase program, if any, will depend on several factors, including the Company’s stock price performance, ongoing
capital allocation priorities and general market conditions. We repurchased 81,322 of our own shares for total consideration of $5.6 million on the open market during the three and twelve months ended December 31, 2025.

Cash Flow

A summary of our operating, investing, and financing activities is discussed below.

Operating Activities

Cash provided by operating activities increased $0.2 million to $75.1 million for the year ended December 31, 2025, as compared to $74.9 million for the year ended December 31, 2024.

Investing Activities

Cash used in investing activities during the year ended December 31, 2025, totaled $36.7 million and consisted of $25.9 million used in the purchase of majority interests in businesses
and non-controlling interest, temporary and permanent equity, and $14.1 million of fixed assets purchases.  These uses were partially offset by $1.4 million received in distributions from an unconsolidated affiliate.

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Financing Activities

Cash used in financing activities during the year ended December 31, 2025, totaled $44.1 million and primarily consisted of $27.4 million of dividends paid to our shareholders, $19.3
million of distributions to non-controlling interests, $9.4 million of payments on the term loan, and $5.6 million paid for the repurchase of common stock. These uses were partially offset by new borrowings of approximately $19.5 million on
our Senior Credit Facilities.

Senior Credit Facilities

On December 5, 2013, we 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, we 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 17, 2027, provides for loans in an aggregate principal amount of $325 million. Such loans will be available through the following facilities
(collectively, the “Senior Credit Facilities”):

The proceeds of the Revolving Facility have been and shall continue to be used by us for working capital and other general corporate purposes of our Company and its subsidiaries,
including to fund future acquisitions and invest in growth opportunities. The proceeds of the Term Facility were used by us to refinance the indebtedness outstanding under the Second Amended and Restated Credit Agreement, to pay fees and
expenses incurred in connection with the loan facilities transactions, for working capital and other general corporate purposes.

We are permitted to increase the Revolving Facility and/or add one or more tranches of term loans in an aggregate amount not to exceed the sum of (i) $100 million plus (ii) an unlimited
additional amount, provided that (in the case of clause (ii)), after giving effect to such increases, the pro forma Consolidated Leverage Ratio (as defined in the Credit Agreement) would not exceed 2.0:1.0, and the aggregate amount of all
incremental increases under the Revolving Facility does not exceed $50,000,000.

The interest rates per annum applicable to the Senior Credit Facilities (other than in respect of Swingline Loans) will be Term SOFR as defined in the agreement plus an applicable margin
or, at our option, an alternate base rate plus an applicable margin.

We also pay to the Administrative Agent, for the account of each lender under the Revolving Facility, a commitment fee equal to the actual daily excess of each lender’s commitment over
its outstanding credit exposure under the Revolving Facility (“unused fee”). We may prepay and/or repay the revolving loans and the term loans, and/or terminate the revolving loan commitments, in whole or in part, at any time without
premium or penalty, subject to certain conditions.

The Credit Agreement contains customary covenants limiting, among other things, the incurrence of additional indebtedness, the creation of liens, mergers, consolidations, liquidations and
dissolutions, sales of assets, dividends, and other payments in respect of equity interests, acquisitions, investments, loans and guarantees, subject, in each case, to customary exceptions, thresholds and baskets. The Credit Agreement
includes certain financial covenants which include the Consolidated Fixed Charge Coverage Ratio and the Consolidated Leverage Ratio, as defined in the Credit Agreement. The Credit Agreement also contains customary events of default.

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Our obligations under the Credit Agreement are guaranteed by our wholly owned material domestic subsidiaries (each, a “Guarantor”), and our obligations and any Guarantors are secured by a
perfected first priority security interest in substantially all of our existing and future personal property and each Guarantor, subject to certain exceptions.

As of December 31, 2025, $131.3 million was outstanding on the Term Facility while $30.5 million was outstanding under the Revolving Facility, resulting in $144.5 million of credit
availability. As of December 31, 2025, we were in compliance with all of the covenants contained in the Credit Agreement. The interest rate for the 2025 Year on our Senior Credit Facilities, net of savings from the interest rate swap
described below, was 5.0%, with an all-in interest rate, including all associated costs, of 5.6%. Interest is payable at the end of the selected interest period but no less frequently than quarterly and on the date of maturity.

Interest Rate Swap

In May 2022, we entered into an interest rate swap agreement, effective on June 30, 2022, with Bank of America, N.A, which became effective on June 30, 2022. It has a $150 million
notional value adjusted concurrently with scheduled principal payments made on the term loan and has a maturity date of June 30, 2027. Beginning in July 2022, we receive 1-month SOFR, and pay a fixed rate of interest of 2.815% on 1-month
SOFR on a quarterly basis. The total interest rate in any period also includes an applicable margin based on our consolidated leverage ratio. In connection with the swap, no cash was exchanged between us and the counterparty.

We designated our interest rate swap as a cash flow hedge and structured it to be highly effective. Consequently, unrealized gains and losses related to the fair value of the interest
rate swap are recorded to accumulate other comprehensive income (loss), net of tax.

As of December 31, 2025, the fair value of the interest rate swap was $0.9 million, a decrease  of $2.1 million, net of any income tax effect, as compared to December 31, 2024. The fair
value of the interest rate swap is included in other assets (current and long term) in our consolidated balance sheet while the increase in fair value is presented as unrealized loss in our consolidated statements of comprehensive income.
The interest rate swap arrangement generated $2.0 million in interest savings for the 2025 Year.

Notes Payable and Deferred Payments Related to Acquisitions

We generally enter into various notes payable as a means of financing our acquisitions. Our present outstanding notes payable primarily relate to the acquisitions of a business or
acquisitions of majority interests in such businesses. At December 31, 2025, our remaining outstanding balance on these notes aggregated $1.3 million, of which $0.8 million is payable in 2026, $0.4 million is payable in 2027 and less than
$0.1 million is payable in 2028. Notes are generally payable in equal annual installments of principal over two years plus any accrued and unpaid interest. Interest accrues at various interest rates ranging from 4.5% to 8.5% per annum.

On September 30, 2025, together with a local partner, we acquired a two-clinic practice for a purchase price of $0.4 million, which was paid in cash. As part of this transaction, we
agreed to additional consideration if future objectives are met. The contingent consideration was valued at less than $0.1 million as of December 31, 2025.

On July 31, 2025, we acquired a 60% equity interest in a three-clinic practice with the practice owners retaining a 40% equity interest. The purchase price for the 60% equity interest was approximately $7.9
million, of which $7.6 million was paid in cash and $0.3 million in the form of a note payable. The note accrues interest at 5.0% per annum and the principal and interest is payable on July 31, 2027. As

part of this transaction, we agreed to additional consideration if future operational objectives are met. The contingent consideration was valued at $2.8 million as of December 31, 2025.

On April 30, 2025, we acquired an outpatient home-care physical and speech therapy practice through our 50%-owned subsidiary, Metro. After the transaction, our ownership interest is 40%, our local partners
have a partnership interest of 40% and the practice’s pre-acquisition owners have a 20% ownership interest. The purchase price for the 80% equity interest was approximately $2.3 million which was paid in cash.  As part of this transaction, we agreed to additional consideration if future operational objectives are met. The maximum amount of additional contingent consideration due under this agreement is $1.8 million. The contingent
consideration was valued at $1.0 million as of December 31, 2025.

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On February 28, 2025, we acquired a 65% interest in a physical therapy practice with three clinic locations. The prior owners retained a 35% ownership interest. The purchase price for the
65% interest was approximately $3.8 million which was paid in cash. As part of this transaction, we agreed to additional consideration if future operational objectives are met. The maximum amount of additional contingent consideration due
under this agreement is $1.3 million.  The contingent consideration was valued at $0.5 million as of December 31, 2025.

On November 30, 2024, we acquired a 75% equity interest in an eight-clinic physical therapy practice. The owner of the practice retained 25% of the equity interests. The purchase price
for the 75% equity interest was approximately $15.9 million, of which $15.7 million was paid in cash, and $0.2 million was in the form of a note payable. The note accrues interest at 5.0% per annum and the principal and interest is due and
payable on December 1, 2026.

On October 31, 2024, we acquired a 50% interest in Metro pursuant to a Equity Interest Purchase Agreement (the “Purchase Agreement”) dated October 7, 2024 among U.S. Physical Therapy,
Ltd. (a subsidiary of the Company), Metro, the members of Metro, and Michael G. Mayrsohn, as Sellers’ Representative.  We also became the managing member of Metro. We paid a purchase price of approximately $76.5 million, $75.0 million of
which was funded by our cash on hand and the remaining $1.5 million through the issuance of 18,358 shares of the Company’s common stock based on a trailing five-day average as of the day immediately prior to closing. The shares of the
Company’s common stock were issued in reliance upon exemptions from registration pursuant to Section 4(2) under the Securities Act. The Purchase Agreement also included an earnout where the sellers can earn up to another $20.0 million of
additional consideration if certain performance criteria relating to the Metro business are achieved. The value of the contingent consideration at December 31, 2025 was $7.4 million.

On August 31, 2024, we acquired a 70% equity interest in an eight-clinic practice physical therapy and the original practice owners retained a 30% equity interest. The purchase price for
the 70% equity interest was approximately $2.0 million. As part of the transaction, we agreed to additional contingent consideration if future operational and financial objectives are met. The maximum amount of additional contingent
consideration due under this agreement is $3.6 million.  The contingent consideration was valued at $0.5 million on December 31, 2025.

On April 30, 2024, we acquired 100% of an IIP business through one of its primary IIP businesses, Briotix Health Limited Partnership, for a purchase price of approximately $24.0 million,
of which $0.5 million was in the form of a note payable. The principal and the interest has been paid as of December 31, 2025. As part of the transaction, we agreed to additional contingent consideration if future operational objectives are
met by the business. In August 2025, we paid $1.9 million in full settlement of the contingent consideration.

On March 29, 2024, we acquired a 50% equity interest in a nine-clinic physical therapy and hand therapy practice. The original owners of the practice retained the remaining 50%. The
purchase price for the 50% equity interest was approximately $16.4 million, of which $0.5 million was in the form of a note payable. The note accrues interest at 4.5% per annum and the principal and the interest are payable on March 29,
2026. As part of the transaction, we agreed to additional contingent consideration if future operational and financial objectives are met. There is no maximum payout. In November 2025, we paid $2.5 million in full settlement of the
contingent consideration.

On September 29, 2023, we acquired a 70% equity interest in a four-clinic physical therapy practice. The owner of the practice retained 30% of the equity interests. The purchase price for
the 70% equity interest was approximately $6.0 million, of which $5.4 million was paid in cash, and $0.6 million was in the form of a note payable. The note accrues interest at 5.0% per annum and the principal and interest are payable in
two installments. The first payment of principal and interest of $0.3 million was paid in January 2024, and the second installment of $0.3 million was due on September 30, 2025. The final payment of principal and interest of $0.3 million
was paid in August 2025.

In a separate transaction, on September 29, 2023, we acquired a 70% equity interest in a single clinic physical therapy practice. The owner of the practice retained 30% of the equity
interests. The purchase price for the 70% equity interest was approximately $7.8 million, of which $7.4 million was paid in cash and $0.4 million was a deferred payment. The $0.4 million deferred payment was paid in full in September 2025.

On July 31, 2023, we acquired a 70% equity interest in a five-clinic practice. The practice’s owners retained a 30% equity interest. The purchase price for the 70% equity interest was
approximately $2.1 million, of which $1.8 million was paid in cash and $0.3 million is a deferred payment that was due on June 30, 2025. The deferred payment was paid in full in August 2025.

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On May 31, 2023, we and a local partner together acquired a 75% interest in a four-clinic physical therapy practice. After the transaction, our ownership interest is 45%, our local
partner’s ownership interest is 30%, and the practice’s pre-acquisition owners have a 25% ownership interest. The purchase price for the 75% equity interest was approximately $3.1 million, of which $1.7 million was paid in cash by us, $1.1
million was paid in cash by the local partner, and $0.3 million was in the form of a note payable (of which $0.2 million was to be paid by us and $0.1 million was to be paid by the local partner). The note was paid in full on July 1, 2024.

On February 28, 2023, we acquired 80% interest in a one-clinic physical therapy practice. The practice’s owners retained 20% of the equity interests. The purchase price for 80% equity
interest was approximately $6.2 million, of which $5.8 million was paid in cash and $0.4 million in the form of a note payable. The note accrued interest at 4.5% per annum. The note was paid in full on February 28, 2025.

Redeemable Non-Controlling Interest

Certain of our limited partnership agreements and operating agreements provide that, upon the triggering events, we have a call right and the selling entity or individual has a put right
for the purchase and sale of the limited partnership interest held by the partner. Once triggered, the put right and the call right do not expire, even upon an individual partner’s death,` and contain no mandatory redemption feature. In
addition, in certain of these limited partnership agreements and operating agreements, the selling entity or individual also has a put right that can be exercised after the passage of a designated period of time or upon a termination of
employment.  The purchase price of the underlying equity interest upon the exercise of either the put right or the call right is calculated per the terms of the respective agreements and classified as redeemable non-controlling interest
(temporary equity) in our consolidated balance sheets. The fair value of the redeemable non-controlling interest at December 31, 2025 was $293.3 million.

Contractual Obligations

We have future obligations for debt repayments and associated interest payments as well as future minimum lease payments under our non-cancellable operating leases. The obligations as of
December 31, 2025, are summarized as follows:

(1) Amounts due under our Company’s Senior Credit Facilities discussed above.

(2) Amounts due related to certain acquisitions discussed above.

(3) Interest on our Senior Credit Facility was estimated using the average outstanding balance for the respective periods and our effective interest rate on our Term Facility for the 2025 Year of 4.7%.
Interest on our other debt was estimated using the stated rate in the debt agreement.

(4) Includes variable non-lease components, including but not limited to common area maintenance.

CRITICAL ACCOUNTING POLICIES

Management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements which have been prepared in accordance with
accounting principles generally accepted in the United States. The preparation of these financial statements requires estimates and judgments that affect the reported amounts of our assets, liabilities, net sales and expenses, and
disclosure of contingent assets and liabilities. Management bases estimates on historical experience and other assumptions it believes to be reasonable given the circumstances and evaluates these estimates on an ongoing basis. Actual
results may differ from these estimates under different assumptions or conditions.

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We believe that the following critical accounting policies involve a higher degree of judgment and complexity. See Item 8, Note 2, Significant Accounting Policies, to our audited
consolidated financial statements which are included elsewhere in this Annual Report on Form 10-K for a complete discussion of our significant accounting policies. The following reflect the significant estimates and judgments used in the
preparation of our consolidated financial statements.

Revenue Recognition

The Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) 606. For ASC 606, there is an implied contract between the Company and the patient upon each
patient visit. Separate contractual arrangements exist between the Company and third-party payors (e.g. insurers, managed care programs, government programs, workers’ compensation) which establish the amounts the third parties pay on behalf
of the patients for covered services rendered. While these agreements are not considered contracts with the customer, they are used for determining the transaction price for services provided to the patients covered by the third-party
payors. The payor contracts do not indicate performance obligations for the Company but indicate reimbursement rates for patients who are covered by those payors when the services are provided. At that time, the Company is obligated to
provide services for the reimbursement rates stipulated in the payor contracts. The execution of the contract alone does not indicate a performance obligation. For self-paying customers, the performance obligation exists when the Company
provides the services at established rates. The difference between the Company’s established rate and the anticipated reimbursement rate is accounted for as an offset to revenue—contractual allowance. Payments for services rendered are
typically due 30 to 120 days after receipt of the invoice.

Patient revenue

Revenues are recognized in the period in which services are rendered. Net patient revenue consists of revenues from physical therapy and occupational therapy clinics that provide pre-and
post-operative care and treatment for orthopedic related disorders, sports-related injuries, preventative care, rehabilitation of injured workers and neurological-related injuries. Net patient revenue (patient revenues less estimated
contractual allowances – described below) is recognized at the estimated net realizable amounts from third-party payors, patients and others in exchange for services rendered when obligations under the terms of the contract are satisfied.
There is an implied contract between us and the patient upon each patient visit. Separate contractual arrangements exist between us and third-party payors (e.g. insurers, managed care programs, government programs, and workers’ compensation
programs) which establish the amounts the third parties pay on behalf of the patients for covered services rendered. While these agreements are not considered contracts with the customer, they are used for determining the transaction price
for services provided to the patients covered by the third-party payors. The payor contracts do not indicate performance obligations for us but indicate reimbursement rates for patients who are covered by those payors when the services are
provided. At that time, we are obligated to provide services for the reimbursement rates stipulated in the payor contracts. The execution of the contract alone does not indicate a performance obligation. For self-paying customers, the
performance obligation exists when we provide the services at established rates. The difference between our established rate and the anticipated reimbursement rate is accounted for as an offset to revenue—contractual allowance.

Other Revenues

Revenue derived from management agreements with physicians and hospitals is included in other revenue in the consolidated statements of net income. We do not have any ownership interest
in these clinics. Typically, revenues are determined based on the number of visits conducted at the clinic and recognized at the point in time when services are performed. Costs, typically salaries for our employees, are recorded when
incurred.

Revenues from the IIP business, which are included in other revenues in the consolidated statements of net income, are derived from onsite services we provide to clients’ employees
including injury prevention, rehabilitation, ergonomic assessments, and performance optimization. Revenue from the IIP business is recognized when obligations under the terms of the contract are satisfied. Revenues are recognized at an
amount equal to the consideration we expect to receive in exchange for providing injury prevention services to our clients. The revenue is determined and recognized based on the number of hours and respective rate for services provided in a
given period.

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Additionally, other revenue includes services we provide on-site at locations such as schools and industrial worksites for physical or occupational therapy services, athletic trainers and
gym membership fees. Contract terms and rates are agreed to in advance between us and the third parties. Services are typically performed over the contract period and revenue is recorded at the point of service. If the services are paid in
advance, revenue is recorded as a contract liability over the period of the agreement and recognized at the point in time when the services are performed.

Management contract revenue, which is also included in other revenue, is derived from contractual arrangements whereby the Company manages a clinic for unrelated physician groups and
hospitals. Typically, revenue is determined based on the number of visits conducted at the clinic and recognized at a point in time when services are performed. Costs, typically consisting of salaries, are recorded when incurred. Management
contract revenue was $9.6 million for the year ended December 31, 2025 and $9.8 million for the year ended December 31, 2024.

Contractual Allowances

The allowance for estimated contractual adjustments is based on terms of payor contracts and historical collection and write-off experience. Contractual allowances result from the
differences between the rates charged for services performed and expected reimbursements by both insurance companies and government-sponsored healthcare programs for such services. Medicare regulations and the various third-party payors and
managed care contracts are often complex and may include multiple reimbursement mechanisms payable for the services provided in Company clinics. The Company estimates contractual allowances based on its interpretation of the applicable
regulations, payor contracts and historical calculations. Each month the Company estimates its contractual allowance for each clinic based on payor contracts and the historical collection experience of the clinic and applies an appropriate
contractual allowance reserve percentage to the gross accounts receivable balances for each payor of the clinic. Based on the Company’s historical experience, calculating the contractual allowance reserve percentage at the payor level is
sufficient to allow the Company to provide the necessary detail and accuracy with its collectability estimates. However, the services authorized, provided and related reimbursement are subject to interpretation that could result in payments
that differ from the Company’s estimates. Payor terms are periodically revised necessitating continual review and assessment of the estimates made by management. The Company’s billing system does not capture the exact change in its
contractual allowance reserve estimate from period to period. In order to assess the accuracy of its revenues, management regularly compares its cash collections to corresponding net revenues measured both in the aggregate and on a
clinic-by-clinic basis. In the aggregate, historically the difference between net revenues and corresponding cash collections for any fiscal year has generally reflected a difference not exceeding 1.5% of net revenues. As a result, the
Company believes that a change in the contractual allowance reserve estimate would not likely be more than 1.0% to 1.5% on any balance sheet date.

Provision for Credit Losses

We determine allowances for credit losses based on the specific agings of receivables and payor classifications at each clinic. The provision for credit losses is included in clinic
operating costs in the statements of net income. Patient accounts receivable, which are stated at the historical carrying amount net of contractual allowances, write-offs and provision for credit losses, includes only those amounts we
estimate to be collectible. Our provision for credit losses was 1.0% of total net revenue for each years ended December 31, 2025 and 2024, respectively.  Management believes that this is reasonable because the majority of our payors
consist of highly solvent, highly regulated, commercial insurance companies as well as government programs, including Medicare.

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 management’s equity interest in an existing clinic. Effective January 1, 2009, if the
purchase price of a non-controlling interest by the Company exceeds or is less than the book value at the time of purchase, any excess or shortfall is recognized as an adjustment to additional paid-in capital.

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Goodwill and other indefinite-lived intangible assets are not amortized but are instead subject to periodic impairment evaluations. The fair value of goodwill and other identifiable
intangible assets with indefinite lives are evaluated for impairment at least annually and upon the occurrence of certain events or conditions and are written down to fair value if considered impaired. These events or conditions include but
are not limited to a significant adverse change in the business environment, regulatory environment, or legal factors; a current period operating, or cash flow loss combined with a history of such losses or a projection of continuing
losses; or a sale or disposition of a significant portion of a reporting unit. The occurrence of one of these events or conditions could significantly impact an impairment assessment, necessitating an impairment charge. We evaluate
indefinite-lived tradenames in conjunction with our annual goodwill impairment test.

Impairment of Goodwill, Other Indefinite-Lived Intangible Assets and Long-Lived Assets

We operate our business through two segments consisting of our physical therapy clinics and our IIP business. For purposes of goodwill impairment analysis, each of our segments is further
broken down into reporting units.  Reporting units within our physical therapy business comprise of regions primarily based on each clinic’s location. In addition to the seven regions, in 2025 and 2024, the IIP business consisted of two
reporting units.

As part of the impairment analysis, we are first required to assess qualitatively if we can conclude whether goodwill is more likely than not impaired. If goodwill is more likely than not
impaired, we are then required to complete a quantitative analysis of whether a reporting unit’s fair value is less than its carrying amount. In evaluating whether it is more likely than not that the fair value of a reporting unit is less
than its carrying amount, we consider relevant events or circumstances that affect the fair value or carrying amount of a reporting unit. We consider both the income and market approach in determining the fair value of its reporting units
when performing a quantitative analysis.

An impairment loss generally would be recognized when the carrying amount of the net assets of a reporting unit, inclusive of goodwill and other identifiable intangible assets, exceeds
the estimated fair value of the reporting unit.

Additionally, we review property and equipment and intangible assets with finite lives for impairment upon the occurrence of certain events or circumstances that indicate the related
amounts may be impaired.

During the year-ended December 31, 2024, we recorded a non-cash impairment charge of $2.4 million related to assets held for sale. There was no non-cash impairment charge in 2025.

We will continue to monitor for any triggering events or other indicators of impairment.

Redeemable Non-Controlling Interest

The non-controlling interests that are reflected as redeemable non-controlling interest in our consolidated financial statements consist of those owners, including us, that have certain
redemption rights, whether currently exercisable or not, and which currently, or in the future, require that we purchase or the owner sell the non-controlling interest held by the owner, if certain conditions are met and the owners request
the purchase (“Put Right”). We also have a call right (“Call Right”). Most of the Put Rights or Call Rights may be triggered by the owner or us, respectively, at such time as both of the following events have occurred: 1) termination of the
owner’s employment, regardless of the reason for such termination, and 2) the passage of specified number of years after the closing of the transaction, typically three to five years, as defined in the limited partnership agreement. Other
Put Rights may be triggered at the discretion of the owner after a set period of time has passed. The Put Rights and Call Rights are not automatic (even upon death) and require either the owner or us to exercise our rights when the
conditions triggering the Put or Call Rights have been satisfied. The purchase price is derived at a predetermined formula based on a multiple of trailing twelve months earnings performance as defined in the respective limited partnership
agreements.

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On the date we acquire a controlling interest in a Subsidiary and the limited partnership agreement or operating agreement, as applicable, for such Subsidiary contains redemption rights
not under our control, the fair value of the non-controlling interest is recorded in the consolidated balance sheet under the caption—Redeemable non-controlling interest. Then, in each reporting
period thereafter until it is purchased by us, the redeemable non-controlling interest is adjusted to the greater of its then current redemption value or initial value, based on the predetermined formula defined in the respective limited
partnership agreement. As a result, the value of the non-controlling interest is not adjusted below its initial value. We record any adjustment in the redemption value, net of tax, directly to retained earnings and not in the consolidated
statements of net income. Although the adjustments are not reflected in the consolidated statements of net income, current accounting rules require that we reflect the adjustments, net of tax, in the earnings per share calculation. The
amount of net income attributable to redeemable non-controlling interest owners is included in consolidated net income on the face of the consolidated statement of income. We believe the redemption value (i.e. the carrying amount) and fair
value are the same.

Non-Controlling Interest

We recognize non-controlling interests, in which we have no obligation but the right to purchase the non-controlling interests, as equity in the consolidated financial statements separate
from the parent entity’s equity. The amount of net income attributable to non-controlling interests is included in consolidated net income on the face of the consolidated statements of net income. Operating losses are allocated to
non-controlling interests even when such allocation creates a deficit balance for the non-controlling interest partner. When we purchase a non-controlling interest and the purchase differs from the book value at the time of purchase, any
excess or shortfall is recognized as an adjustment to additional paid-in capital.