U S PHYSICAL THERAPY INC /NV (USPH) FY 2021 MD&A

EXECUTIVE SUMMARY

Our Business.

Our reportable segments include the physical therapy operations segment and the industrial injury prevention services segment. Through our subsidiaries, we operate
outpatient physical therapy clinics that provide pre-and post-operative care for a variety of orthopedic-related disorders and sports-related injuries, treatment for neurological-related injuries and rehabilitation of injured workers. We also
have majority interests in companies which are leading providers of industrial injury prevention services. Services provided in these businesses include onsite injury prevention and rehabilitation, performance optimization, post-offer employment
testing, functional capacity evaluations and ergonomic assessments. The majority of these services are contracted with and paid for directly by employers, including a number of Fortune 500 companies. Other clients include large insurers and their
contractors. These services are performed through Industrial Sports Medicine Professionals, consisting of both physical therapists and specialized certified athletic trainers (ATCs).

During the last three years we completed the acquisitions of seven multi-clinic practices and three industrial injury prevention services businesses as detailed
below:

Besides the multi-clinic acquisitions referenced in the table above, during 2021 and 2020, we purchased the assets and business of three physical therapy clinics
in separate transactions. The clinics operate as satellite clinics of three of our existing clinic partnerships.

During the year ended December 31, 2021, we sold two clinics. The aggregate sales price was $0.1 million. During the year ended December 31, 2020, we sold 14
previously closed clinics. The aggregate sales price was $1.1 million, of which $0.7 million was paid in cash and $0.4 million in a note receivable, payable in two equal installments of principal and any accrued interest.  The first payment was
received in June 2021 and the next payment is due on June 15, 2022.

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We intend to continue to pursue additional acquisition opportunities, develop new clinics and open satellite clinics.

Impact of COVID-19

As previously disclosed in a series of filings with the SEC and further described in detail in our Quarterly Reports on Form 10-Q for the first three quarters of
2020 and our Annual Report on Form 10-K for the year ended December 31, 2020, our results were negatively impacted by the effects of the COVID-19 pandemic in 2020. For the 2021 period as compared to the 2020 period, the increase in revenues and
expenses are primarily due to our business returning to and now exceeding pre-pandemic results.

We have put preparedness plans in place at our facilities to maintain continuity of operations, while also taking steps to keep employees and patients safe. In
line with recommendations to reduce large gatherings and increase social distancing, we continue to allow a large number of office-based employees to work remotely. We are monitoring the situation and will adjust work environments accordingly.

In March 2020 in response to the COVID-19 pandemic, the federal government approved the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The CARES
Act provides numerous tax provisions and other stimulus measures, including temporary changes regarding the prior and future utilization of net operating losses, temporary changes to the prior and future limitations on interest deductions,
temporary suspension of certain payment requirements for the employer portion of Social Security taxes, technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property, and the creation of certain
payroll tax credits associated with the retention of employees.

We have received a number of benefits under the CARES Act including, but not limited to:

CRITICAL ACCOUNTING POLICIES

Critical accounting policies are those that have a significant impact on our results of operations and financial position involving significant estimates requiring
our judgment. Our critical accounting policies are:

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Revenue Recognition.

Revenues are recognized in the period in which services are rendered. Net patient revenue consists of revenues for 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 adjustments) 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. Generally, this occurs as we provide physical and occupational therapy services, as each service provided is distinct and future services rendered are not dependent
on previously rendered services. We have agreements with third-party payors that provide for payments to us at amounts different from our established rates. The allowance for estimated contractual adjustments is based on terms of payor contracts
and historical collection and write-off experience.

Management contract revenue, which is included in other revenue in the consolidated statements of net income, is derived from contractual arrangements whereby we
manage a clinic owned by a third party. 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 industrial injury prevention services business, which are also 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 industrial injury prevention services 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.

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.

We implemented ASC 606 beginning January 1, 2018, using a modified retrospective transition method. The principal change relates to how the new standard requires
healthcare providers to estimate the amount of variable consideration to be included in the transaction price up to an amount which is probable that a significant reversal will not occur. The most common forms of variable consideration we
experience are amounts for services provided that are ultimately not realizable from a customer. There were no changes to revenues or other revenues upon implementation. Under the new standards, our estimate for unrealizable amounts will continue
to be recognized as a reduction to revenue. The bad debt expense historically reported will not materially change.

For ASC 606, 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.

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 allowance for credit losses, includes only those
amounts we estimate to be collectible.

The following table details the revenue related to the various categories (in thousands):

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Contractual Allowances. 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 our clinics. We estimate contractual allowances based on our interpretation of the applicable regulations, payor contracts and historical calculations. Each month we estimate
our contractual allowance for each clinic based on payor contracts and the historical collection experience of the clinic and apply an appropriate contractual allowance reserve percentage to the gross accounts receivable balances for each payor
of the clinic. Based on our historical experience, calculating the contractual allowance reserve percentage at the payor level is sufficient to allow us to provide the necessary detail and accuracy with our collectability estimates. However, the
services authorized and provided and related reimbursement are subject to interpretation that could result in payments that differ from our estimates. Payor terms are periodically revised necessitating continual review and assessment of the
estimates made by management. Our billing systems may not capture the exact change in our contractual allowance reserve estimate from period to period. Therefore, in order to assess the accuracy of our revenues and hence our contractual allowance
reserves, our management regularly compares our cash collections to corresponding net revenues measured both in the aggregate and on a clinic-by-clinic basis. In the aggregate, the historical difference between net revenues and corresponding cash
collections in any given fiscal year has generally reflected a difference within approximately 1.0% to 1.5% of net revenues. Additionally, analysis of subsequent period’s contractual write-offs on a payor basis reflects a difference within
approximately 1.0% to 1.5% between the actual aggregate contractual reserve percentage as compared to the estimated contractual allowance reserve percentage associated with the same period end balance. As a result, we believe that a reasonable
likely change in the contractual allowance reserve estimate would not be more than 1% to 1.5% of gross billings in accounts receivable at December 31, 2021. For purposes of demonstrating the sensitivity of this estimate on our Company’s financial
condition, a 1% to 1.5% increase or decrease in our aggregate contractual allowance reserve percentage would decrease or increase, respectively, net patient revenue by approximately $1.3 million to $1.9 million for the year ended December 31,
2021. Management believes the changes in the estimate of the contractual allowance reserve for the periods ended December 31, 2021, 2020 and 2019 have not been material to the statement of income.

The following table sets forth information regarding our patient accounts receivable as of the dates indicated (in thousands):

The following table presents our patient accounts receivable aging by payor class as of the dates indicated (in thousands):

Reimbursement for Medicare beneficiaries is based upon a fee schedule published by HHS. For a more complete description of our third-party revenue sources, see “Business—Sources of Revenue” in Item 1.

Goodwill. 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.

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We operate a two segment business which is made up of various clinics within partnerships, and the other is an industrial injury prevention services business. The
partnerships are components of regions and are aggregated to the operating segment level for the purpose of determining our reporting units when performing our annual goodwill impairment test. In 2021, 2020 and 2019, there were six regions. In
addition to the six regions, in 2021 and 2020, the impairment analysis included a separate analysis for the industrial injury prevention services business, as a separate reporting unit.

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. The evaluation of goodwill in 2021, 2020 and 2019 did not result in any goodwill amounts that were deemed impaired.

For our annual assessment of goodwill, we evaluated whether events or circumstances indicated that it was more likely than not that the fair value of the reporting
units were reduced below their carrying value as of December 31, 2021. As a result of the assessment, we determined that it was not more likely than not that goodwill and tradenames of the reporting units were impaired as of December 31, 2021.

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”). The Put Right or Call Right 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. 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.

On the date we acquire a controlling interest in a partnership and the limited partnership agreement for such partnerships 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 income. Although the adjustments are not reflected in the consolidated statements of 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.

Effective December 31, 2017, we entered into amendments to our limited partnership agreements for our acquired partnerships replacing the mandatory redemption
feature. No monetary consideration was paid to the partners to amend the agreements. The amended limited partnership 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. The purchase
price of the partner’s limited partnership interest upon the exercise of either the Put Right or the Call Right is calculated per the terms of the respective agreements. We accounted for the amendment of the limited partnership agreements as an
extinguishment of the outstanding mandatorily redeemable non-controlling interests, which were classified as liabilities, through the issuance of new redeemable non-controlling interests classified in temporary equity. Pursuant to Accounting
Standards Codification (“ASC”) 470-50-40-2, we removed the outstanding liabilities at their carrying amounts, recognized the new temporary equities at their fair value, and recorded no gain or loss on extinguishment as management believes the
redemption value (i.e. the carrying amount) and fair value are the same. In summary, the redemption values of the mandatorily redeemable non-controlling interest (previously classified as liabilities) were reclassified as redeemable
non-controlling interest (temporary equity) at fair value on the December 31, 2017, consolidated balance sheet.

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 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.

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SELECTED OPERATING AND FINANCIAL DATA

The following table and discussion relate to continuing operations unless otherwise noted. The defined terms with their respective description used in the
following discussion are listed below:

The following table presents selected operating and financial data, used by management as key indicators of our operating performance:

RESULTS OF OPERATIONS

2021 COMPARED TO 2020

For 2021, the net income attributable to our shareholders was $40.8 million compared to $35.2 million for 2020 and $40.0 million for the year ended December 31,
2019 (“2019”). Inclusive of the charge or credit for revaluation of non-controlling interest, net of taxes, used to compute earnings per diluted share in accordance with GAAP, the amount was $31.1 million, or $2.41 per diluted share, for 2021 as
compared to $31.8 million, or $2.48 per diluted share, for 2020, and $31.3 million, or $2.45 per diluted share, for 2019.  For both 2021 and 2020, in accordance with current accounting guidance, the revaluation of
redeemable non-controlling interest, net of tax, is not included in net income but rather charged directly to retained earnings; however, the charge for this change is included in the earnings per basic and diluted share calculation. See table
below (in thousands, except per share data):

For 2021, our Operating Results, inclusive of Relief Funds, were $43.8 million, or $3.39 per diluted share, an increase of 13.8%, as compared to $38.4 million, or
$2.99 per diluted share, for 2020.  For 2021, our Operating Results, excluding Relief Funds (as defined below), were $40.9 million, or $3.17 per diluted share, an increase of 33.5%, as compared to $30.6 million, or $2.39 per diluted share, for
2020.  Operating Results, a non-Generally Accepted Accounting Principles (“non-GAAP”) measure, equals net income attributable to diluted shareholders per the consolidated statements of income less gain on sale of partnership interests and clinics
plus charges incurred for clinic closure costs and expenses related to executive officer transitions and settlement of a legal matter, all net of taxes. Operating Results per diluted share also excludes the impact of the revaluation of redeemable
non-controlling interest and the associated tax impact. See table below for a detailed computation (in thousands, except per share data):

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The above table reconciles net income attributable to our shareholders calculated in accordance with GAAP to Operating Results, a non-GAAP measure defined above.
We believe that Operating Results, which eliminates certain items described above that can be subject to volatility and unusual costs, is one of the principal measures to evaluate and monitor financial performance period over period. We also
believe that Operating Results is useful information for investors to use in comparing the Company's period-to-period results as well as for comparing with other similar businesses.

Operating Results is not a measure of financial performance under GAAP and, therefore, 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.

Reported total revenue

Reported total revenue for 2021 increased $72.1 million, or 17.0% to $495.0 million as compared to $423.0 million for 2020.  See table below
for a detail of reported total revenue (in thousands):

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Net patient revenue from physical therapy operations

Net patient revenue from physical therapy operations increased $65.0 million, or 17.4%, to $438.3 million for 2021 from $373.3 million in 2020. Included in net
patient revenue from physical therapy operations are revenues related to clinics sold or closed of $0.5 million for 2021 and $5.5 million for 2020.  During 2021, the Company sold its interest in two clinics and closed three clinics. During 2020,
the Company sold its interest in 14 clinics and closed 34 clinics. For comparison purposes, excluding revenue from the clinics sold or closed, net patient revenue from physical therapy operations was approximately $437.8 million for 2021 and
$367.8 million for 2020, an increase of 19.1%. Revenue related to Mature Clinics increased $44.6 million, or 12.5%, for 2021 compared to 2020.

The average net patient revenue per visit was $103.88 for 2021 as compared to $105.66 for 2020, including all clinics operational during such periods. Total
patient visits were 4,219,576 for 2021 and 3,533,371 for 2020, an increase of 19.4%.

Net patient revenues are based on established billing rates less allowances and discounts for patients covered by contractual programs and workers’ compensation. Net patient revenues
reflect contractual and other adjustments, which we evaluate monthly, relating to patient discounts from certain payors. Payments received under these contractual programs and workers’ compensation are based on predetermined rates and are
generally less than the established billing rates of the clinics.

Other revenue from physical therapy operations, management contracts and industrial injury prevention services

Other revenue was $2.9 million in 2021 and $2.0 million in 2020.  Revenues from management contracts were $9.9 million in 2021
as compared to $8.4 million in 2020. Revenue from our industrial injury prevention services business increased 12.0% to $43.9 million in 2021 compared to $39.2 million in 2020, with $2.2 million of the increase related to the acquisition of an
industrial injury prevention services business on November 30, 2021.

Operating cost

Total operating cost, excluding closure costs, a non-GAAP measure, was $377.8 million in 2021, as compared to $324.6 million in 2020. Total operating cost,
excluding closure costs, was 76.3% as a percentage of net revenue in 2021 and 76.7% in 2020. On a cost per visit basis, total operating cost, excluding closure costs, was $79.70 per visit in 2021 as compared to $81.74 per visit in 2020, a
decrease of 2.5%.  Included in operating cost for 2021 was $30.6 million related to Clinic Additions, of which $19.6 million was associated with the 2020 Clinic Additions.  Included in operating cost for 2020 was $8.4 million related to 2020
Clinic Additions. Operating cost related to Mature Clinics increased by $31.7 million for 2021 compared to 2020.  Operating cost related to management contracts increased by $1.7 million in 2021 compared to 2020. In addition, operating cost
related to the industrial injury prevention services business increased by $4.1 million for the comparable periods.  See table below for a detail of operating cost, excluding closure costs (a non-GAAP measure) (in thousands):

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Closure costs in 2020 were $3.9 million, which includes estimates of remaining lease obligations, derecognition of goodwill and other costs related to closed and
sold clinics. Each component of clinic operating costs is discussed below:

Operating Cost—Salaries and Related Costs

Salaries and related costs increased to $278.5 million for 2021 from $235.6 million in 2020, an increase of $42.8 million, or 18.2%. Included in salaries and
related costs for 2021 was $7.3 million related to 2021 Clinic Additions. Salaries and related costs for clinics sold or closed in 2021 and 2020 were $0.3 million and $3.8 million in 2021 and 2020, respectively. Salaries and related costs for
Mature Clinics increased $26.5 million in 2021 compared to 2020. Salaries and related costs for management contracts increased $1.4 million for 2021 compared to 2020. Salaries and related costs for the industrial injury prevention services
business increased $2.8 million for the comparable periods. Salaries and related costs as a percentage of net revenues were 56.3% for 2021 and 55.7% for 2020. Salaries and related costs for physical therapy operations were $57.81 per visit in
2021 as compared to $58.10 per visit in 2020, a decrease of 0.5%.  See table below for a detail of salaries and related costs (in thousands):

Operating Cost—Rent, Supplies, Contract Labor and Other

Rent, supplies, contract labor and other costs increased to $94.0 million for 2021 from $84.3 million for 2020, an increase of $9.7 million, or 11.5%. Included in
rent, supplies, contract labor and other costs for 2021 and 2020 related to Clinic Additions was $9.0 million. Rent, supplies, contract labor and other costs for clinics related to partnership interests closed or sold in 2021 and 2020 were $0.2
million and $2.8 million in 2020, respectively. Rent, supplies, contract labor and other costs related to Mature Clinics increased $4.4 million. Rent, supplies, contract labor and other costs as a percent of net revenues was 19.0% for 2021 and
19.9% for 2020. Rent, supplies, contract labor and other costs for physical therapy operations were $20.63 per visit in 2021 as compared to $22.37 per visit in 2020, a decrease of 7.8%. See table below for a detail of rent, supplies, contract
labor and other costs (in thousands):

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Operating Cost—Provision for Credit Losses

The provision for credit losses for net patient receivables was $5.3 million for 2021 and $4.6 million for 2020. As a percentage of net patient revenues, the
provision for credit losses was 1.1% for both 2021 and 2020. The provision for credit losses at the end of each period is based on a detailed, clinic-by-clinic review of overdue accounts and is regularly reviewed in the aggregate in light of
historical experience.

Our provision for credit losses as a percentage of total patient accounts receivable was 5.64% at December 31, 2021 and 4.57% at December 31, 2020.

The average accounts receivable days outstanding were 32 days at December 31, 2021 and December 31, 2020. Net patient receivables in the amounts of $4.6 million
and $4.5 million were written-off in 2021 and 2020, respectively.

Gross Profit

Gross profit, excluding closure costs, a non-GAAP measure, was $117.2 million for 2021, an increase of $18.8 million, or 19.1% as compared to $98.4 million for
2020. The gross profit percentage, less closure costs, was 23.7% of total revenue for 2021, an increase of 40 basis points, as compared to 23.3% for 2020. The gross profit percentage for the Company’s physical therapy operations, excluding
closure costs, was 23.8% for 2021, an increase of 70 basis points as compared to 23.1% for 2020. The gross profit percentage on management contracts revenue was 15.7% for 2021 as compared to 20.9% for 2020. The gross profit percentage for the
industrial injury prevention services business was 24.4% for 2021 as compared to 25.7% for 2020. See table below for details on gross profit, excluding closure costs (a non-GAAP measure) (in thousands) and a reconciliation against Gross Profit
(in thousands):

Corporate Office Costs

Corporate office costs were $46.5 million for 2021 compared to $42.0 million for 2020. Corporate office costs were 9.4% of total revenue for 2021 as compared to
9.9% for 2020. For 2020, corporate offices costs included temporary salary reductions and furloughs related to the pandemic. Also, in both 2021 and 2020, corporate office costs included $1.3 million in equity compensation expense related to the
accelerated vesting of restricted stock previously granted to two executive officers upon their retirement in July 2021 and November 2020. Excluding the equity compensation related to the accelerated vesting of restricted stock, corporate office
costs was 9.1% of total revenue for 2021 and 9.6% for 2020.

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Operating Income

Operating income for 2021 was $70.6 million, an increase of $18.2 million, or 34.8%, as compared to $52.4 million for 2020. Operating income as a percentage of
total revenue increased 190 basis points from 12.4% for 2020 to 14.3% for 2021.

Other Income—Relief Funds

Relief Funds recognized in other income were $4.6 million for 2021 and $13.5 million for 2020.  See discussion related to Relief Funds for more information.

Other Income - Resolution of a Payor Matter and Other Expense – Settlement of a Legal Matter

Other income for the 2021 Year includes $1.2 million of income related to the positive resolution of a payor matter and other expense includes a $2.6 million
increase in a reserve related to a settlement of a legal matter.  In January 2022, the Company paid $2.75 million related to this matter.

Interest Expense—Debt and Other

Interest expense—debt and other was $0.9 million for 2021 and $1.6 million for 2020. At December 31, 2021, $114.0 million was outstanding under our Amended Credit
Agreement (as defined below under “—Liquidity and Capital Resources”). See “—Liquidity and Capital Resources” below for a discussion of the terms of our Amended Credit Agreement.

Provision for Income Taxes

The provision for income tax was $15.3 million for 2021 and $13.0 million for 2020. The provision for income tax as a percentage of income before taxes less net
income attributable to non-controlling interest (effective tax rate) was 27.2% for 2021 and 27.0% for 2020. See table below ($ in thousands):

Net Income Attributable to Non-controlling Interest

Net income attributable to redeemable non-controlling interest (temporary equity) was $11.4 million for 2021 and $11.2 million for 2020.  Net income attributable
to non-controlling interest (permanent equity) was $5.7 million for 2021 and $6.1 million for 2020.

LIQUIDITY AND CAPITAL RESOURCES

We believe that our business is generating sufficient cash flow from operating activities to allow us to meet our short-term and long-term cash requirements, other
than those with respect to future significant acquisitions. At December 31, 2021, we had $28.5 million in cash and cash equivalents compared to $32.9 million at December 31, 2020. Although the start-up costs associated with opening new clinics
and our planned capital expenditures are significant, we believe that our cash and cash equivalents and the availability under our Amended Credit Agreement are sufficient to fund the working capital needs of our operating subsidiaries, future
clinic development and acquisitions and investments through at least December 2022. Significant acquisitions would likely require financing under our Amended Credit Agreement.

Effective 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 in August 2015, January 2016, March 2017, November 2017, January 2021, and November 2021 (hereafter is referred to as “Amended Credit Agreement”).  In November 2021, we exercised the accordion feature in the
Amended Credit Agreement to increase to limit on our facility from $125.0 million to $150.0 million, with an updated accordion feature providing for an additional capacity of $25.0 million, therefore increasing the availability up to $175.0
million.

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The 2021 amendment to the Amended Credit Agreement allows for cash and noncash consideration for acquisitions permitted under the Amended Credit Agreement of up to
$50,000,000 for any fiscal year, and allows for payments in cash dividends to  shareholders in an aggregate amount not to exceed $50,000,000 in any fiscal year. The Amended Credit Agreement is unsecured and includes certain financial covenants
which include a consolidated fixed charge coverage ratio and a consolidated leverage ratio, as defined in the agreement. The Amended Credit Agreement is unsecured and has loan covenants, including requirements that we comply with a consolidated
fixed charge coverage ratio and consolidated leverage ratio. Proceeds from the Amended Credit Agreement may be used for working capital, acquisitions, purchases of our common stock, dividend payments to our common stockholders, capital
expenditures and other corporate purposes. The pricing grid is based on our consolidated leverage ratio with the applicable spread over LIBOR ranging from 1.25% to 2.0% or the applicable spread over the Base Rate ranging from 0.1% to 1%. Fees
under the Amended Credit Agreement include an unused commitment fee ranging from 0.25% to 0.3% depending on our consolidated leverage ratio and the amount of funds outstanding under the Amended Credit Agreement.

On December 31, 2021, $114.0 million was outstanding on the Amended Credit Agreement resulting in $61.0 million of availability. As of the date of this report, we
were in compliance with all of the covenants thereunder.

Cash provided by operations was $76.4 million and net proceeds from our Amended Credit Agreement amounted to $98.0 million. The major uses of cash for investing
and financing activities included: purchase of interests in businesses ($86.8 million), purchases of redeemable non-controlling interest, temporary equity ($28.5 million), purchases of fixed assets ($8.2 million), proceeds on sale of partnership
interest ($0.3 million), distributions to non-controlling interests ($16.9 million), payments of cash dividends to our shareholders ($18.8 million), and payments on notes payable ($4.9 million).

On December 31, 2021, we acquired a 75% interest in a three-clinic physical therapy practice with the practice founder retaining 25%. The purchase price for the
75% interest was approximately $3.7 million, of which $3.5 million was paid in cash and $0.2 million in the form of a note payable.  The note accrues interest at 3.25% per annum and the principal and interest is payable on December 31, 2023.

On November 30, 2021, we acquired an approximate 70% interest in a leading provider of industrial injury prevention services.
The previous owners retained the remaining interest. The initial purchase price for the 70% equity interest, not inclusive of the $2.0 million contingent payment in
conjunction with the acquisition if specified future operational objectives are met, was approximately $63.2 million, of which $62.2 million was paid in cash, and $1.0 million is in the form of a note payable. The note accrues interest at 3.25%
and the principal and interest is payable on November 30, 2023. The business generates approximately $27.0 million in annual revenue at a margin of approximately
20%. As part of the transaction, we also agreed to the potential future purchase of a separate company under the same ownership that provides physical therapy and rehabilitation services to hospitals and other ancillary providers in a
distinct market area.  The current owners have the right to put this transaction to us in approximately five years, with such right having a $3.5 million fair value at
December 31, 2021, as reflected on the Company’s consolidated balance sheet in Other long-term liabilities.  The value of this right will be adjusted in future periods, as appropriate, with any change in fair value reflected in the Company’s consolidated statement of income.

On September 30, 2021, we acquired a company that specializes in return-to-work and ergonomic services, among other offerings.
The business generates more than $2.0 million in annual revenue. We acquired the company’s assets at a purchase price of approximately $3.3 million (which includes the obligation to pay an amount up to $0.6 million in contingent payment
consideration in conjunction with the acquisition if specified future operational objectives are met) and contributed those assets to our industrial injury prevention services
subsidiary. The initial purchase price, not inclusive of the $0.6 million contingent payment, was approximately $2.7 million, of which $2.4 million was paid in cash, and $0.3 million is in the form of a note payable. The note accrues interest at
3.25% per annum and the principal and interest is payable on September 30, 2023.

On June 30, 2021, we acquired a 65% interest in an eight-clinic physical therapy practice with the previous owners retaining 35%. The purchase price was approximately $10.3 million, of which $9.0 million was paid in cash, $1.0 million is payable based on the achievement of certain business criteria
and $0.3 million is in the form of a note payable. The note accrues interest at 3.25% per annum and the principal and interest is payable on June 30, 2023. Additionally, we have an obligation to pay an additional amount up to $0.8 million in
contingent payment consideration in conjunction with the acquisition if specified future operational objectives are met. We recorded acquisition-date fair value of this contingent liability based on the likelihood of the contingent earn-out
payment. The earn-out payment will subsequently be remeasured to fair value each reporting date.

On March 31, 2021, we acquired a 70% interest in a five-clinic physical therapy practice with the previous owners retaining 30%.  When acquired, the practice was developing a sixth clinic which has been completed. The purchase price for the 70% interest was approximately $12.0 million, of which
$11.7 million was paid in cash and $0.3 million in the form of a note payable.  The note accrues interest at 3.25% per annum and the principal and interest is payable on March 31, 2023.

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On November 30, 2020, we acquired a 75% interest in a three-clinic physical therapy practice with the previous owners retaining 25%. The purchase price for the 75% interest was $8.9 million (net of cash acquired), of which $8.6 million was paid in cash and $0.3 million in the form of a note payable
that is payable in two principal installments totaling $162,500 each. The first principal payment plus accrued interest was paid in November 2021 with the second installment to be paid in November 2022. The note accrues interest at 3.25% per
annum.

On September 30, 2020, we acquired a 70% interest in an entity which holds six management contracts that have been in place for
a number of years and had five years remaining on their term as of the acquisition date. The previous owners retained the remaining 30%. The purchase price for the 70%
interest was approximately $4.2 million, with $3.7 million payable in cash and $0.5 million in notes payable. One of the notes payable of $0.2 million was paid in September 2021 and the note of $0.3 million was paid in November 2020.

On February 27, 2020, we acquired interests in a four-clinic physical therapy practice. The four clinics are operated in four
separate partnerships. The Company’s interests in the four partnerships range from 10.0% to 83.8%, with an overall 65.0% based on the initial purchase transaction. The aggregate purchase price was $11.9 million, of which $11.6 million was paid in
cash and $0.3 million in the form of a seller note. The note accrues interest at 4.75% per annum and the principal and interest was paid in February 2022.

On September 30, 2019, we acquired a 67% interest in an eleven-clinic physical therapy practice with the previous owners retaining 33%. The purchase price for the 67% interest was $12.4 million, of which $12.1 million was paid in cash and $0.3 million in the form of a seller note that is payable in
two principal installments totaling $150,000 each. The first principal payment plus accrued interest was paid in September 2020 and the second installment was paid in September 2021. The note accrues interest at 5.0% per annum.

On April 11, 2019, we acquired a company that is a provider of industrial injury prevention services. The acquired company
specializes in delivering injury prevention and care, post offer employment testing, functional capacity evaluations and return-to-work services. It performs these services across a network of 45 states including onsite at eleven client
locations. The business was then combined with Briotix Health, the Company’s industrial injury prevention services operation, increasing the Company’s ownership position in the Briotix Health partnership to approximately 76.0%. The purchase price
for the acquired company was $22.9 million ($23.6 million less cash acquired of $0.7 million), which consisted of $18.9 million in cash, (of which $0.5 million will be paid to certain shareholders), and a $4.0 million seller note. The note was
paid in April 2021.

Historically, we have generated sufficient cash from operations to fund our development activities and to cover operational needs. We plan to continue developing
new clinics and making additional acquisitions. We have from time to time purchased the non-controlling interests of limited partners in our Clinic Partnerships. We may purchase additional non-controlling interests in the future. Generally, any
acquisition or purchase of non-controlling interests is expected to be accomplished using a combination of cash and financing. Any large acquisition would likely require financing.

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 account receivable has been outstanding for 120 days or longer.

We have future obligations for debt repayments, employment agreements and future minimum rentals under operating leases. The obligations as of December 31, 2021
are summarized as follows (in thousands):

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 businesses. At December 31, 2021, our remaining outstanding balance on these notes aggregated $4.4 million.

The notes payable for the acquisition of businesses of $4.4 million are payable in 2022 and 2023. Notes are generally payable
in equal annual installments of principal over two years plus any accrued and unpaid interest. See above table for a detail of future principal payments. Interest accrues at various interest rates ranging from 3.25% to 4.75% per annum.

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The limited partnership agreements, as amended, 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. The purchase price of the partner’s limited partnership 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, 2021 was $154.4 million.

As of December 31, 2021, we have accrued $6.6 million related to credit balances and overpayments due to patients and payors.
This amount is expected to be paid in 2022.

From September 2001 through December 31, 2008, our Board of Directors (“Board”) authorized us to purchase, in the open market or
in privately negotiated transactions, up to 2,250,000 shares of our common stock. In March 2009, the Board authorized the repurchase of up to 10% or approximately 1,200,000 shares of our common stock (“March 2009 Authorization”). Our Amended
Credit Agreement permits share repurchases of up to $15,000,000 in the aggregate, subject to compliance with covenants. We are required to retire shares purchased under the March 2009 Authorization.

There is no expiration date for the share repurchase program. As of December 31, 2021, there are currently an additional
estimated 156,986 shares (based on the closing price of $95.55 on December 31, 2021) that may be purchased from time to time in the open market or private transactions depending on price, availability and our cash position. We did not purchase
any shares of our common stock during the years ended December 31, 2021 and 2020.

We have an investment in a joint venture that is accounted
for using the equity method of accounting.

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FACTORS AFFECTING FUTURE RESULTS

The risks related to our business and operations include:

See also Risk Factors in Item 1A of this Annual Report on Form 10-K.