Mike Petusky

Mike Petusky inquired about the expected non-Medicare pricing tailwind for 2026, the current payer mix with a focus on workers' compensation, and the factors contributing to the sequential decline in Injury Prevention (IIP) gross margin in Q4 2025.

Answer

Carey Hendrickson, CFO, confirmed that a 1.5%-2% positive trend for non-Medicare pricing is a reasonable estimate, with the overall Medicare rate increase translating to approximately 1.1% for USPH. She noted that the payer mix remained consistent with Q3 2025, with commercial at over 48%, Medicare over 33%, and workers' compensation at 9.7%, and all categories saw double-digit visit increases year-over-year in Q4. Chris Reading, Chairman and CEO, attributed the sequential decline in IIP gross margin to staffing up for new large contracts ahead of revenue generation and typical Q4 seasonality due to manufacturing facility shutdowns. He also highlighted the strong margin profile of the recent New York IIP acquisition.

Mike Petusky inquired about the non-Medicare pricing outlook, asking if a 1.5%-2% positive rate is a reasonable estimate in addition to the Medicare bump, and sought clarification on the overall impact of the Medicare rate increase. He also asked for the current payer mix, specifically commenting on workers' comp progress, and questioned the sequential decline in Injury Prevention (IIP) gross margin, considering larger, lower-margin deals and seasonality.

Answer

Carey Hendrickson (CFO, U.S. Physical Therapy) confirmed that a 1.5%-2% positive rate for non-Medicare pricing is a reasonable estimate. She clarified that the 1.75% Medicare increase applies to traditional Medicare and a portion of Medicare Advantage visits, resulting in an overall approximate 1.1% increase across all Medicare visits. She provided the Q4 2025 payer mix: commercial just above 48%, Medicare a little above 33%, and workers' comp at 9.7%, noting that all categories increased by double-digit amounts (10%-15%) from Q4 2024. Chris Reading (Chairman and CEO, U.S. Physical Therapy) attributed the sequential IIP gross margin decline to staffing up for new, large contracts ahead of revenue generation and typical Q4 seasonality, where manufacturing facilities often go dark.

Mike Petusky inquired about the anticipated tariff impact included in the 2026 guidance and the actual tariff impact experienced in 2025, as well as whether the company had reserved for potential legal settlements. He also asked if the free cash flow improvement seen from 2024 to 2025 could serve as a reasonable estimate for the improvement expected in 2026 versus 2025.

Answer

CFO Julie Andrews stated that the 2026 guidance includes an expected $1 million-$2 million tariff impact, which was lighter in 2025 as it wasn't a full-year impact. She confirmed that an accrual for legal settlements was taken in Q3, directing to the K filing for more details. Regarding free cash flow, Julie Andrews agreed that an improvement in the range of $7 million-$8 million, or slightly more, for 2026 versus 2025 is a reasonable guesstimate, excluding the impact of any potential legal settlements, which are assumed to occur in the coming year.

Mike Petusky inquired about the tariff impact included in the 2026 guidance and the actual impact in 2025, whether the company has reserved for potential legal settlements, and a guesstimate for free cash flow improvement in 2026 compared to 2025.

Answer

Julie Andrews (CFO) stated that the 2026 guidance includes a $1 million-$2 million tariff impact, which was lighter in 2025 as it wasn't a full-year impact. She confirmed an accrual for a legal settlement was made in Q3 2025, advising to refer to the K filing for details. For free cash flow, she suggested an additional improvement of $7 million-$8 million or slightly more in 2026 versus 2025, excluding the impact of any potential legal settlements, which are assumed to occur.