US Physical Therapy - Q3 2024

Transcript

Operator (participant)

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

Christopher Reading (Chairman and CEO)

Thank you. Good morning and welcome, everyone, to our Q3 2024 U.S. Physical Therapy earnings call. With me on the line this morning, I've got our executive team, including Carey Hendrickson, our CFO, Eric Williams, our President and COO, Graham Reeve, Chief Operating Officer West, Rick Binstein, our Executive Vice President and General Counsel. Also with us on the call, Jake Martinez, our Senior Vice President of Finance and Accounting. I've got a lot to discuss with you this morning, but before we begin, we need to cover a brief disclosure statement, so Jake, if you would, please.

Jake Martinez (SVP of Finance and Accounting)

Thank you, Chris. This presentation includes forward-looking statements, which involve certain risks and uncertainties. These forward-looking statements are based on the company's current views and assumptions. The company's actual results may vary materially from those anticipated. Please see the company's filings with the Securities and Exchange Commission for more information. This presentation also contains certain non-GAAP measures, as defined in Regulation G, and the related reconciliations can be found in the company's earnings release and the company presentation on our website. Chris?

Christopher Reading (Chairman and CEO)

Thank you, Jake. So we've got a lot to unpack here, a lot of things going on in this quarter, but I want to begin by thanking our partners and all of our operations support for the focus around care, the grind in general, and what has been a little bit of a challenging market for a while now. The good news is that in a number of key areas, we're making steady forward progress. First, visit volume, which directly correlates to our referrals, ties most closely with the tremendous care that our partners and clinicians deliver every day in more than 700 locations around the country. It's continued to be very strong. We've seen solid demand all year.

This Q3, our patient visits increased 6%, and our visits per clinic per day, which is really our measure of local clinic demand, hit an all-time high for any third quarter at 30.1 visits. Coupled with that, our net rate continued to climb year over year to $105.65 versus $102.37 in the prior year quarter. This combination drove revenue 9.3% to $142.2 million for Q3 and Adjusted EBITDA up 13.4% for the quarter. All of this during a time of sequential rate pressure from Medicare and wage and other inflation overall. On the cost side, we made some decisions this quarter, which will have an impact next year, particularly as we look ahead. We closed and will sell some of our underperforming facilities in secondary markets, which are no longer working for us, creating a disproportionate investment in time.

This is never easy, but with recent incoming investments in great markets like Wyoming, Oregon, and most recently New York, we have to focus our time and attention on where we can create the greatest return. So net of closures, we are operating in an owned and managed capacity, now totaling 750 locations and continuing to grow in 43 states. In order to get all this done, we had some cleaning up to do, considering our current slate of opportunities and our expectations around growth and return. Other additions in the quarter beyond New York Metro included a previously announced eight-clinic practice in the Northeast. Through the end of October, we have opened or acquired 20 De Novo or Acqui-Novo facilities, in addition to our larger announced acquisitions, with other opportunities in the pipeline yet to come, making for some good momentum as we look ahead to 2025.

Also, on the highly positive side of the equation is our performance in our injury prevention business, which continues to grow at an outsized pace. Revenue this quarter grew approximately 30% compared to Q3 last year, and operating profit was up over 27% in the same period. We continue to invest in that space, and I'm pleased to announce that we just started a very substantial auto manufacturing contract and a further expansion of one of our largest, longest-tenured clients, among many other organic opportunities in our development pipeline. I want to take a minute to thank both of our IP leadership teams for their work this year and growth they've delivered, underpinned by exceptional service and care that they provide within many of our nation's largest and most prominent employers.

So let's shift gears for a minute and discuss one topic that continues to be the big area of focus for us operationally, and that is dealing with and responding to the increased costs for people, as well as products and services that have resulted in our cost per visit increase on a year-over-year basis. First, let's look at where we are for the quarter before we speak about what we've done to adjust the trajectory going forward. For the quarter, our salary-related cost per visit, which includes not only our clinical costs but all of our clinic-level salaries, including our billing and collections teams and our front desk staff, finished the quarter at $62.47 per visit, compared to $60.35 in the 2023 third quarter, a 3.5% increase.

Looking at our salary and related costs as a percentage of revenue, we were able to hold our cost flat year-over-year at approximately 57.6%, which I feel we can continue to improve upon, especially as we get continued rate lift. So let's talk about what we did to make some adjustments as we look forward. In the quarter, the ops team went back and remapped our clinics to where we were in 2021. By 2021, well, that was a fairly lean year coming out of the first year of COVID. Where possible, they've worked to use that as a template, adjusted, of course, for visit changes and wage inflation to a certain extent. That roadmap of sorts should help us as we finish the year. Excuse me one second. To better understand this, it might have taken us a little longer than normal to be able to fully address it.

For the most part, that we're talking about small daily cost numbers. Now, with approximately 750 facilities, the difference each day of just $50 in total cost increase, and that's across salary, hours, goods and services, rent, electricity, the list goes on. The difference of only $50 aggregates quickly to $9.5 million over the course of a year. So our team is in the weeds, pruning and pulling very carefully so as not to disturb the flowers. The fruit of what we are trying to do, which is to take great care of our patients and ensure that we have the right available resources to do that on a consistent basis. So it's tedious work, but just like in a beautiful garden, it's necessary work. And once through won't be enough.

It will have to be repeated often to ensure we maintain our clinical garden in the way that we desire. Very great fruit in terms of continued visit and referral growth, fueled by patients and physicians alike who have a great experience as a result of our care and service, while being careful to have the right resource allocation. It's a tough balancing act, for sure. So even though that took a good deal of time this past quarter to sort through, our gross profit, excluding closure costs, increased 14.5% from prior year's third quarter, and our gross margin for PT increased 90 basis points to 18.9%. Not yet where we want it to be, but moving in the right direction.

Before I wrap up, let me speak to one thing that I think some of our investors have been concerned with since we did our capital raise late spring of last year, and that has been our pace of deployment of those funds by way of acquisitions. As many of you may remember, when we raised that money, we said we would be disciplined in deploying it with partners whom we believe would be a great long-term fit for our company, sharing our values around the importance of people delivering great patient care. I will tell you that wait has been worth it. Partnerships we've acquired this year, strengthening our core injury prevention business, and the PT partnerships we have acquired over these past 17 months have been and will be outstanding additions to our company. For the longest time, we waited on New York.

That patience has paid off in a big way with our partnership with the Metro PT team. Those guys are on fire to deliver strong growth and exceptional care, and we're excited to work alongside them and all of our partners to make a difference to our patients as well as our shareholders. Sometimes it takes us a little time, but this team generally does what we say we're going to do. We appreciate your patience as we work to build a sustainable and bright future for us, our partners and staff, and certainly for all of our patients and companies who count on us to show up and deliver results for them every day. So thank you. That concludes my prepared comments, at least until we open things up for questions.

So, Carey, you always do such a good job of covering the intricate details of our overall quarter and year-to-date financial performance, so I'm handing you the ball.

Carey Hendrickson (CFO)

Great. Thank you, Chris, and good morning, everyone. I'll start with a few highlights and notes inside of our third-quarter results. Our net rate, as Chris mentioned, increased again in the third quarter to $105.65 per visit. That's the highest our net rate has been since late 2020, which was prior to the four consecutive years of Medicare rate reductions by CMS, which also at that time benefited from a 2% sequestration rate relief. Our average visits per day in the third quarter were a record high for a third quarter at 30.1. Our contract labor costs decreased by $600,000 from the second quarter to the third quarter, and our PT margin improved by 90 basis points over the third quarter last year.

We optimized our portfolio with the closure of 32 clinics, which will improve our metrics going forward and will also allow our ops team to focus on growth initiatives and acquisition opportunities. And then our IIP business grew more than 13% in the third quarter, even before adding the acquisition that we made earlier this year. We reported Adjusted EBITDA for the third quarter of 2024 of $21.1 million compared to $18.6 million in the prior year. Our Adjusted EBITDA margin was 15.5% in the third quarter of this year, which was up slightly from 15.3% in the third quarter of last year. Our operating results were $10.4 million in the third quarter of 2024, an increase of $1.2 million or 12.4% over the third quarter of 2023.

On a per-share basis, operating results were $0.69 in the third quarter of this year versus $0.62 in the third quarter of last year. Our average visits per clinic per day, as I mentioned, was 30.1. That was the highest volume for the third quarter in the company's history. July and August were both at 29.9, consistent with our seasonal patterns for summer months, and then September increased to 30.7. Each of those months was a record high volume for that particular month, July, August, and September. Our net rate of $105.65 in the third quarter of 2024 was $3.28 per visit, or 3.2% higher than the third quarter of last year, even with the 1.8% Medicare rate reduction set by CMS that was put into effect at the beginning of 2024.

If you exclude Medicare, our rate was up $4.17 per visit, or 3.9% over the third quarter of last year. The increase was largely related to our continuing strategic priority of increasing reimbursement rates through contract negotiations with commercial and other payers and our focus on growing our workers' comp business. We are also focused on maximizing our cash collections through improvements in our revenue cycle management. Each major category of payers increased year over year, and workers' comp, which is one of our highest-rate categories, continues to increase as a percentage of our revenue mix, moving from 9.6% of our revenue in the third quarter of 2023 to 10.4% in the third quarter of 2024, and it was also up on a sequential basis, increasing from 10.1% in the second quarter of 2024 to 10.4% in the third quarter of this year.

These rate-enhancing initiatives remain a high priority for us. Physical therapy revenues were $142.7 million in the third quarter of 2024, an increase of $12.2 million or 9.3% from the third quarter of last year. The increase was driven by our higher net rate, an increase in visits in our mature clinics, as well as having 21 more clinics on average in the third quarter of 2024 than we had in the third quarter of 2023. Physical therapy operating costs were $119.2 million, which includes $3.4 million of closure costs related to the 32 clinics that we closed during the third quarter. Excluding closure costs, our PT expenses were $115.8 million, which was up 8.2% from prior year due to having 21 more clinics on average than in the third quarter of last year.

On a per-visit basis, our salaries and related costs were $62.47 in the third quarter of 2024. That compares to $60.35 in the third quarter of 2023, which is an increase of 3.5%. When you look at our total operating costs, they increased just 2.2%, moving from $84.47 in the third quarter of 2023 to $86.37 in the third quarter of this year. Our PT margin was 18.9%, excluding closure costs in the third quarter, up from 18.0% in the third quarter of last year. As Chris mentioned, our IIP team produced excellent growth in the third quarter. Our IIP net revenues were up $5.8 million, or almost 30%, over the third quarter of 2023, with IIP income up $1.2 million, or 27.1% over the prior year. Excluding the IIP acquisition that we made earlier this year, our net revenues were still up 12.9%, with our gross profit up 13.2%.

And our IIP margin was a very healthy 22.2%. Our corporate office costs are in line for both the third quarter and the full year. Through the first nine months of 2024, our corporate costs were 8.7% of net revenue as compared to 8.5% in the first nine months of 2023. Our balance sheet continues to be in an excellent position. We have $140.6 million of debt on our term loan, with a swap agreement in place that places the rate on our debt at 4.7%, which, as you know, is a very favorable rate in today's market and well below the current Fed funds rate. Under that swap, our one-month term SOFR is fixed at 2.8%, and that extends to the middle of 2027. In addition to the term loan, we also have a $175 million revolving credit facility that had nothing drawn on it during the third quarter.

Our cash balance at the end of September was $117 million, with approximately $90 million of that cash available for acquisitions and other growth initiatives. As we've announced, we used $75 million for the Metro acquisition, which we made on October 31st, leaving us with approximately $15 million in available cash before we have to draw on our revolving credit facility. We have deployed so far this year $117 million of cash into acquisitions. We continue to expect our EBITDA to come within the range previously provided of $80-$85 million. There's no update to guidance. Our volumes have continued strong in the early part of the fourth quarter, with October trending similarly to September.

The recent measures we've taken to impact expenses and optimize our portfolio are important steps in keeping our cost structure in proper alignment and focusing our efforts on areas with the greatest potential impact. Finally, we're excited about the recent acquisition of Metro Physical Therapy in New York, even beyond its initial significant contribution. They have a great team, and they're a great fit with USPH, and we expect Metro to be an excellent growth engine for us in the years ahead. With that, Chris, I'll turn the call back to you, and we'll take questions after.

Christopher Reading (Chairman and CEO)

Thanks, Carey. Okay, Operator, we'll go ahead and open the line for questions.

Operator (participant)

Absolutely. At this time, if you'd like to ask a question, please press the star and one keys on your telephone keypad. Keep in mind you can remove yourself from the question queue at any time by pressing star and two. Again, it is star and one to ask a question today. We'll take our first question from Brian Tanquilut with Jefferies. Please go ahead. Your line is open.

Brian Tanquilut (Equity Analyst)

Morning, guys.

Christopher Reading (Chairman and CEO)

Good morning

Brian Tanquilut (Equity Analyst)

Good morning. So maybe, Chris, I'll just ask you about these moves that you've made, exiting some markets and some of the labor initiatives that you've put in place. So how should we be thinking about the flow-through impact of these over the next 6 to 12 months, number one? And then are you thinking of any incremental moves, whether it's further evaluations of markets and clinics or anything else on the labor front that you can walk us through in terms of what those moves exactly are?

Christopher Reading (Chairman and CEO)

Sure. I would say give us a little time to let some of these changes kind of flow through. So I think the bigger impact is next year, particularly in two areas. One, we won't have any of the aggregate drain of those facilities, but more importantly, probably than anything, is that we'll have the time and attention freed up from our very important ops team so they can focus on our partnerships and our partners who are better positioned to grow. So that's kind of the overall view. In terms of will there ever, is there ever, could there be other markets and times where we make adjustments, and the answer to that is absolutely. This is an evolving thing, and when we have to respond, people business, number one. People aren't like numbers. Things ebb and flow, and sometimes they change over time.

The good news is with many of these facilities, we've had them for many, many years and have been with us for a long time, and they've done well, and at this point, we see a better opportunity to carry forward with time and focus in other areas, but we'll continue to have what we think is a disciplined pruning process, if that's the right term, but I think we've gotten the heavy lift of that done, and some of these facilities will, in fact, sell and are in the process of doing that, and so that'll further help us just as we position ourselves for the right resources as we go forward.

Brian Tanquilut (Equity Analyst)

That makes sense. And then maybe just on the Metro acquisition, Carey, number one, is that going to be consolidated going forward? And then maybe, Chris, for you, given the size of that deal, it's larger than what you've normally been doing. How should we be thinking about your appetite and capability to do chunk deals, at least for the next 12 months, as you work on the integration of this asset? Thanks.

Carey Hendrickson (CFO)

Yeah. Brian, I'll just say yes, we do expect to be able to consolidate Metro into all of our metrics, our revenue, expenses, all along our P&L. Yes.

Christopher Reading (Chairman and CEO)

And then the answer to the other question, Brian, is really about what's the right fit. So I think we're going to be well positioned because the Metro team's in really good shape. They have a great team. They have a great plan on the year. We certainly are in the middle and have been in the middle of integration-related things. Even before the deal closed, we were on the ground, had people on the ground working on some key things. So it really depends on what becomes available, I think. And we don't have anything today immediately that we're working on that's of the same size. But if there was something that came along that ended up like Metro will be and is, which is a great fit, then sure, we have the resources and I think the appetite to tackle it.

Now, whether that happens in the next 12 months or not, we'll have to see. But we're still working on good things. We have other things that we expect to get done this year and into the early part of next year that are kind of typical for us, and certainly de novo expansions and a lot of planned expansion within the Metro partnership as well. So I don't see us changing our tack. It's just about looking for the right fit at the right time.

Brian Tanquilut (Equity Analyst)

Understand. Thank you.

Christopher Reading (Chairman and CEO)

Thanks, Brian.

Operator (participant)

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

Christopher Reading (Chairman and CEO)

Morning, Joanne.

Joanna Gajuk (Equity Research Analyst)

Hi, good morning. Hi, good morning. Thanks so much for taking the question. So first, I guess just to make sure to confirm that since you did not mention the guidance, or should I read it as a no change to your EBITDA guidance for the year?

Carey Hendrickson (CFO)

That's right. Yeah. We still expect it to come within the range we previously provided of $80-$85 million.

Joanna Gajuk (Equity Research Analyst)

Also, to confirm this Metro acquisition, which is talking about, was that already contemplated in this guidance range?

Brian Tanquilut (Equity Analyst)

Yes, it was.

Joanna Gajuk (Equity Research Analyst)

So if I do the math, so rough math, I guess for EBITDA NCI, so it's an Adjusted EBITDA number, so this deal adds maybe $1 million or so, right? And you saw some clinics in there, but it sounds like you included that deal. So I guess that's why no change in the guidance rate. And if I may just follow up on the Metro acquisition, so you mentioned clearly better metrics. We know the margins here are higher than USPH. Can you give us a little bit of color? What's driving that is because they are a management company, so there's a cost structure or there's something market-specific that's driving the better metrics for that asset?

Brian Tanquilut (Equity Analyst)

Yeah.

Yeah. Or maybe they have more. Go ahead. Go ahead, Carey.

Carey Hendrickson (CFO)

No, that's all right. I was just going to say they have larger clinics than us for the most part, so than the rest of our portfolio on average. So they run somewhere between 45 and 47 and a half visits per day. So that'll obviously have some upward pressure on our average visits per clinic per day. Their net rate is pretty similar to ours, so there won't be a whole lot of change there. Their margin, they have a full support system at Metro with their support team from a finance perspective, their billing and collections, and all of those things. So the margin's actually pretty similar to ours from an Adjusted EBITDA margin standpoint. And that'll all be in our PT line. So it'll be pretty similar to the rest of the margin for the group.

Joanna Gajuk (Equity Research Analyst)

Okay. Thank you. And I know you don't have a guidance for next year, but this question will be, so now we know this acquisition had a close, so that's good to know it now. But other than that, any, I guess, tailwinds and headwinds to think about as we think about next year? I guess we have the final Medicare rate update, but anything else we should be thinking about as we think about next year? Thank you.

Christopher Reading (Chairman and CEO)

Yeah. Not that I know of. I mean, the most recent thing is the Medicare final rule update, which, as you know, we know all too well, has been typically on an annual basis and further modified by Congress, all of which is in motion and shifting sands as we speak right now as a result of the election last night. And so that's all going to have to shake out. Other than that, I don't know of anything that is on the horizon, plus or minus, that is material for next year.

Carey Hendrickson (CFO)

Right. And of course, we'll benefit from the full year's performance of some of the acquisitions we've made. And Metro in particular, we have two months this year. We'll have 12 months next year, and that's a significant acquisition, so that'll be an add to our 2025.

Christopher Reading (Chairman and CEO)

Joanna, let me add one thing, and Carey made a couple of good points. One of the things that's really helped us a lot this year, and it's taken us a little time, but we've really made good progress around net rate. So the team's done an excellent job. We continue to get pretty meaningful increases in key contracts that haven't started yet. And so we continue to be hopeful that we can see rate lift. The other area that's been particularly strong, and I just really want to give a shout-out to the people who've worked on this, and they've done an excellent job. There's in our work comp area. Carey shared with you some of the percent change numbers, and I think in those, while those were 100% accurate, I think it gets lost in the shuffle a little bit.

Our work comp visits increased on a year-over-year basis, a little more than 16.5% compared to third quarter last year. It's a pretty strong increase. Our revenue for work comp increased just under 19% on a year-over-year basis because our rate in the work comp space also increased as a result of the work that the team has done. And so we're hoping that combination obviously is giving us some continued lift that we've enjoyed so far, and will continue to give us some continued lift as we go forward.

Joanna Gajuk (Equity Research Analyst)

So if I may last follow up on the last comment because it just begs a question there. So where should we expect this workers' comp next year to get to? I guess there was a time years ago where you were maybe more like 14% workers' comp. So is that achievable, or should we just kind of continue to grow from this 10.5% going forward and maybe over time get there, but maybe not? So any color, I guess, how you think about where it could get to? Thank you.

Christopher Reading (Chairman and CEO)

I wish I had a really, really clear, great crystal ball. I don't. All I can tell you is the team has been focused on it. We've discussed it with all of you that it's a focus. We put it out there that we were going to move the needle. The needle's definitely moving and is moving in the right direction at an outsized rate, and where we end up, I don't honestly know. I'd be making up a number, which I'm not going to do, so I think for now, you know where we are, and you know that it's changing slowly, and there are going to be things that happen in between in lots of different areas, some expected, some not, and so just kind of mix it all together, and I think the net overall is definitely more progress to be made.

Joanna Gajuk (Equity Research Analyst)

Thank you.

Christopher Reading (Chairman and CEO)

Thank you.

Operator (participant)

We'll take our next question from Larry Solow with CJS Securities. Please go ahead. You have the floor. It's open.

Larry Solow (Managing Director and Equity Analyst)

Hey. Morning, Chris. Hey. Good morning, Carey. I guess just a few follow-ups on the pricing. So the net rate this quarter, you said up 3%, and that obviously is net of a CMS decline. As these rates continue to tick up nicely sequentially, it feels like you're building some good momentum, right? And fair to say that, like you said, you have, I assume, annual kickers to it in these things. So are you more comfortable that we're entering a period now where these, at least on the commercial side, rates should grow 2%-3% a year? Is that a fair multi-year outlook?

Christopher Reading (Chairman and CEO)

Carey, let me start with this, and then you can jump in. So I would say, Larry, the rates that we've just to be really clear, the rates, most of the rates that we've recontracted, many have been a multi-year contract. So it might be 4% or 5% in year one and then 2% or 3% for two or three years thereafter. I don't know that many of the contracts have a perpetual annual increase associated with them. They're contracted for a period of time, and then they just renew after that. And we've got to go back and get after it again before these contracts expire. But for the near term, many are going to have additional boosts, not all, but many. And so that is helping us to offset the continued pressure, unfortunately, that we're feeling from Medicare, at least for this one more year.

Larry Solow (Managing Director and Equity Analyst)

Right. And on that Medicare, so the 2.9%, right? I think it's a 2.9% cut for you guys, right, or something like that? Is that what it works out to?

Christopher Reading (Chairman and CEO)

Yeah. It's just under 3%.

Larry Solow (Managing Director and Equity Analyst)

Right.

Christopher Reading (Chairman and CEO)

So that's very code-specific, so.

Larry Solow (Managing Director and Equity Analyst)

Right. And assuming there may or may not be some congressional action, obviously, there's been in the last few years. It feels like there are reasonable chances there will be, but let's just assume it could be a similar rate decline to what we're seeing this year. Any thoughts from a high level? I've heard from various sources that this should be the last year, right, on the Physician Fee Schedule. And any thoughts as we look out 2026 and beyond that hopefully Medicare, which historically has been more of a little bit of a good guy for you guys, at least becomes neutral?

Christopher Reading (Chairman and CEO)

Yeah. I think so. I mean, look, trying also to predict what the government's going to do has been kind of a foolish business. But yeah, this should be the last year, and we believe it'll be the last year. And nobody we talk to in Congress thinks these cuts were right to begin with. In fact, they were based on the old assumptions that MedPAC now admits erroneous assumptions that were unintended. We ended up with the unintended consequences. And so I can't see that they're going to perpetuate that, but we'll have to wait and see. Unfortunately, Medicare is a year-to-year thing and really should be probably a two or three-year rolling kind of a look so that companies like ours had the opportunity to know what the landscape was going to look like.

It's not that way yet, but we're expecting this to be the last year that we have a headwind there, for sure.

Larry Solow (Managing Director and Equity Analyst)

Good. Good. Let's cross our fingers there. On the vines, Chris, up obviously at a record high. So I can't complain per se, but up about 1%-ish in the last couple of quarters, and I think flash for the year. It was a little bit of a difficult comp in the beginning of the year. But is that more like what I know you've had bigger volume growth as we look over the last 10 years, probably averaged more like 2%-3%. Is that just kind of move around a little bit? I know you had some staffing challenges too, which maybe led to some inability to meet all the demand. But just any thoughts on volume as we look forward?

Christopher Reading (Chairman and CEO)

Yeah. And Carey, I don't have it at my fingertips and I should. I'm trying to remember what same store was this quarter. I thought it was 2-something, but yeah, you're right. I mean.

Larry Solow (Managing Director and Equity Analyst)

For the.

Christopher Reading (Chairman and CEO)

Go ahead.

Larry Solow (Managing Director and Equity Analyst)

No, it was up about 2.5% from a volume standpoint.

Christopher Reading (Chairman and CEO)

Yeah. No question. I'd love for that to be 3.5%. Staffing is tight right now. It's tight everywhere. And at the same time, as you heard, we're trying to balance not having resources that are standing around with good patient demand and trying to hone that in because small dollars aggregate pretty quickly. And so it's a little bit tricky. But I can tell you the team's working very, very hard to create that, to keep that demand up and to create that growth. We are where we are right now, and we've had a lot to deal with in terms of rate pressure and response on that side and cost pressure and response on that side. And I think all in all, it's a perfect—not perfect, but not too bad either. It's been pretty good, net-net. So we continue to work hard at it.

And none of us are satisfied with where we are. We have things that we can do better, and we're working hard at. So that'll continue to be one of them.

Larry Solow (Managing Director and Equity Analyst)

Great. Thanks. I appreciate the call.

Christopher Reading (Chairman and CEO)

Yes, sir. Thank you.

Operator (participant)

As a reminder, if you'd like to ask a question today, please press the star and one keys. We'll take our next question from Mike Petusky with Barrington Research. Please go ahead. Your line is open.

Christopher Reading (Chairman and CEO)

Hey, Mike. Good morning.

Michael Petusky (Managing Director and Senior Research Analyst)

Hey. Good morning, guys. Hey, could you all give just real quick on the housekeeping, the payer mix breakout, if you have it?

Carey Hendrickson (CFO)

Sure. Yeah. Hold on just one second. Let me get it up in front of me. In the third quarter, it was pretty typical. Commercial is 47%. Medicare is 33%, which is right in line with where it has been. As I mentioned, workers' comp went up. It was 10.4%. And then there's everything else. It's Medicaid, personal injury, and self-pay. So pretty consistent. It's very consistent with the second quarter, other than workers' comp inching up a little bit.

Michael Petusky (Managing Director and Senior Research Analyst)

Was Medicaid somewhere around like 6%, something like that, 5%, 6%?

Carey Hendrickson (CFO)

No, it's about 3.5%.

Michael Petusky (Managing Director and Senior Research Analyst)

Right now. Okay. Great.

Carey Hendrickson (CFO)

Yeah. 6.5% or so for every.

Michael Petusky (Managing Director and Senior Research Analyst)

Okay. So, curious on the injury prevention business, Chris. Obviously, top line's great because of the M&A, but it's also great ex-M&A, double-digit growth. And I'm just curious, I mean, is that new business? Are you getting deeper with current customers? What's driving that?

Christopher Reading (Chairman and CEO)

Yeah. Yeah. I would say yes and yes. So, new business and deeper with existing customers. The nice thing about this business is, and this is true of anything, it truly, truly works. And so it's designed to save companies money. It does that. It does that on a very consistent basis. And so typically, we'll start with the company, maybe a national company, but we'll start with one or two locations. And they tend to be the hardest, worst locations in terms of injury management or injury exposure. And we start with that, and the team does a great job. And then we get embedded organic expansion kind of opportunities with that company based on the great job that the team has done. And then there are new companies. Risk managers in certain industries move between companies. They've had experience, and they've heard about us.

And so we get brought in either on a direct basis or through an RFP process and win those opportunities. And again, I'm really proud of that both teams have done a really good job this year. Our core team, our legacy team, their largest customer has decided to put us in every one of their locations around the country. And so that's been. We're already in hundreds of locations. So that's been a fantastic relationship. And then the other team, we have a lot of auto industry business. We've displaced one of the biggest providers in the injury prevention industry in their home state with a major auto manufacturer. And that's a 50 FTE book of business where we have 50 people now on-site full-time or nearly so within a given footprint. And so that's a big win. That's a new win. And so it's really both.

And so, as you point out, we've done some very good acquisitions that have worked out really well for us that have opened and broadened not only our service delivery, the products and services that we are able to sell to industry. So it's created more cross-selling opportunities. But it's also increased our exposure in different industry verticals. So maybe that we were primarily in distribution and warehousing and now manufacturing and now auto manufacturing and now construction and transportation. And so once you get a foothold or a customer in each of those industry verticals, you open yourself up to a world of other people who think, "Okay, they understand my business. Now maybe we can talk." And so it's been great overall. Like I said, really proud of both of those teams.

Michael Petusky (Managing Director and Senior Research Analyst)

Fantastic. In terms of the Metro deal, I'm just curious, is there any ability for you guys to, I think Carey may have said that the net rate is pretty favorable for Metro, but I'm just curious if there's anything on the contracting side that you guys can bring to them where maybe your contracting is a little bit more favorable to certain insurers. Just curious if there's any opportunity for some uplift from your contracts, things.

Christopher Reading (Chairman and CEO)

So I will tell you that the Metro team did a great job historically and even leading up to our acquisition in terms of what they've done with their own contract rates. Now they have some additional resources that we can bring to bear with and for their team. Some of the rates that Metro has re-contracted haven't really kicked in yet or just now kicking in or will kick in shortly. And so yeah, I think there's some additional lift. And we're looking at that whole New York market very strategically to see how we can continue to add to that. And time will tell based on our ability to execute on this. But I feel pretty confidently over a period of time, we can do really good things. But I will tell you that they themselves did the heavy lift so far.

We'll see if we can help them with that as they go forward.

Michael Petusky (Managing Director and Senior Research Analyst)

Very good. Last question for me. Just in terms of the election results last night, is there anything that came out of that last night that makes you think that the U.S. Congress would be more or less likely to sort of do their typical week before Christmas action on the proposed reduction in reimbursement?

Christopher Reading (Chairman and CEO)

Yeah. That's an interesting question, and I kind of expected it, and I don't really know how to answer it. We'll see if both houses of Congress end up being Republican-controlled. It looks like that's going to happen. Look, I'm not going to predict. I don't know. I think on the, and this isn't a political statement by me in any way, shape, or form, so I don't want anybody to read into it. I think most of us understand that Republicans are more deficit-focused and smaller government-focused than their counterparts on the Democratic side of things. And so we've been in kind of a little bit of a more balanced relationship the last couple of years. That may change a bit as we go forward. And anytime you have change, you have pieces get moved around. So I don't know that I can predict.

We're prepared for the cut that's been announced regardless of what happened last night, and we're going to be working to try to get that cut that was announced here a week or so ago mitigated as we have over the last number of years, and I feel reasonably confident that, let me say, I feel reasonably hopeful that we can get that done, but the political landscape, it's hard to predict.

Michael Petusky (Managing Director and Senior Research Analyst)

Kind of just as a quick follow-up to that, are you aware of any folks that were particularly in Congress that were particularly friendly to outpatient PT that will no longer be part of Congress going forward? I mean, did you all lose anybody that's been particularly helpful in terms of your advocacy for PT and the industry in general?

Christopher Reading (Chairman and CEO)

I think the folks on our side through APTQI, which I'm very much part of and proud to be a part of, have done great work. Liberty Partners has done great work to help us long ago understand that we have to have broad connectivity on both houses of Congress and across both parties, and so I think we're pretty well positioned. Many of our primary advocates are key people that are very secure on both sides, again, both parties and both sides of Congress, and so I think we're okay there. I definitely don't think we're starting over if that's the question.

Michael Petusky (Managing Director and Senior Research Analyst)

It was. Thank you.

Christopher Reading (Chairman and CEO)

Thanks, Mike.

Operator (participant)

Once again, if you'd like to ask a question today, please press the star and one keys on your telephone keypad. We can pause for a moment to allow any further questions to queue. There are no further questions on the line. I'll return the call to our speakers for any additional or closing remarks.

Christopher Reading (Chairman and CEO)

Yeah. Thank you, everybody. I appreciate your time today. Again, team's working very hard. Give us a chance to finish out this year the way that we have described to you. And we're focused on delivering continued growth next year with some of the capital deployments that we've made and some of the adjustments that we've made ongoing and even the ones here more recently. So again, we thank you for your patience and your trust, and we hope you have a great day. Take care. Bye now.

Operator (participant)

This does conclude today's program. Thank you for your participation, and you may now disconnect.