Acquisitions of Businesses

3 Months Ended

Mar. 31, 2025

Acquisitions of Businesses [Abstract]

3. Acquisitions of Businesses

The Company’s strategy is to continue acquiring outpatient physical therapy practices, to develop outpatient physical therapy clinics as satellites in existing partnerships and to continue acquiring companies that provide and serve the IIP sector. The consideration paid for each acquisition is derived through arm’s length negotiations and funded through working capital or borrowings under the Company’s revolving facility.

The purchase price plus the fair value of the non-controlling interest for the acquisitions after March 31, 2024 were allocated to the fair value of the assets acquired, inclusive of identifiable intangible assets (i.e. tradenames, referral relationships and non-compete agreements) and liabilities assumed based on the estimated fair values at the acquisition date, with the amount in excess of fair values being recorded as goodwill. The Company is in the process of completing its formal valuation analysis of the above-mentioned acquisitions in order to identify and determine the fair value of tangible and identifiable intangible assets acquired and the liabilities assumed. Thus, the final allocation of the purchase price may differ from the preliminary estimates used on March 31, 2025, based on additional information obtained and completion of the valuation of the identifiable intangible assets. Changes in the estimated valuation of the tangible assets acquired, the completion of the valuation of identifiable intangible assets and the completion by the Company of the identification of any unrecorded pre-acquisition contingencies, where the liability is probable and the amount can be reasonably estimated, will likely result in adjustments to goodwill. The Company does not expect the adjustments to be material. The Company continues to evaluate the components for the purchase price allocations for subsequent acquisitions in 2024 and 2025.

The results of operations of the acquisitions below have been included in the Company’s unaudited consolidated financial statements from their respective date of acquisition. Unaudited proforma consolidated financial information for the acquisitions has not been included, as the results, individually and in the aggregate, were not material to current operations.

During the three months ended March 31, 2025, the Company acquired a majority interest in the following businesses:

2025 Acquisitions

		% Interest		Number of
Acquisition	Date	Acquired		Clinics
February 2025 Acquisition	February 28, 2025		65%		3

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

Besides the multi-clinic acquisition referenced above, the Company purchased the assets and business of three physical therapy clinics, which were tucked into larger partnerships in separate transactions.

The following table provides details on the preliminary purchase price allocation for the acquisitions described above.

	Physical Therapy
	Operations
	(In thousands)
Cash paid, net of cash acquired	$	4,211
Seller notes		-
Contingent payments		1,259
Total consideration	$	5,470

Estimated fair value of net tangible assets acquired:
Total current assets	$	227
Total non-current assets		132
Total liabilities		(258	)
Net tangible assets acquired		101
Customer and referral relationships		1,604
Non-compete agreements		77
Tradenames		395
Goodwill		5,438
Fair value of non-controlling interest (classified as redeemable non-controlling interest)		(2,145	)
	$	5,470

Total current assets primarily represent accounts receivable while total non-current assets consist of fixed assets and equipment used in a physical therapy practice.

For the acquisitions completed in the three months ended March 31, 2025, the values assigned to the customer and referral relationships and non-compete agreement are being amortized on a straight-line basis over their respective estimated lives. For customer and referral relationships, the weighted-average amortization period is 12.0 years. For the non-compete agreements, the weighted-average amortization period is 5.0 years. The values assigned to tradenames are tested annually for impairment.

2024 Acquisitions

		% Interest		Number of
Acquisition	Date	Acquired		Clinics
November 2024 Acquisition	November 30, 2024		75%		8
October 2024 Acquisition	October 31, 2024		50%		50
August 2024 Acquisition	August 31, 2024		70%		8
April 2024 Acquisition	April 30, 2024		**		*
March 2024 Acquisition	March 29, 2024		50%		9

*	IIP business.

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

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

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

On August 31, 2024, the Company acquired a 70% equity interest in an eight-clinic practice physical therapy and the original practice owners retained a 30% equity interest. The purchase price for the 70% equity interest was approximately $2.0 million. As part of the transaction, the Company agreed to additional contingent consideration if future operational and financial objectives are met. The maximum amount of additional contingent consideration due under this agreement is $3.6 million. The contingent consideration was valued at $2.1 million on March 31, 2025.

On April 30, 2024, the Company acquired 100% of an IIP business through one of its primary IIP businesses, Briotix Health Limited Partnership, for a purchase price of approximately $24.0 million, of which $0.5 million was in the form of a note payable. The note accrues interest at 5.0% per annum and the principal and the interest is to be paid in May 2025. As part of the transaction, the Company agreed to additional contingent consideration if future operational objectives are met by the business. The maximum amount of additional contingent consideration due under this agreement is $10.0 million. The contingent consideration was valued at $2.0 million as of March 31, 2025.

On March 29, 2024, the Company acquired a 50% equity interest in a nine-clinic physical therapy and hand therapy practice (“March 2024 Acquisition”). The original owners of the practice retained the remaining 50%. The purchase price for the 50% equity interest was approximately $16.4 million, of which $0.5 million was in the form of a note payable. The note accrues interest at 4.5% per annum and the principal and the interest are payable on March 29, 2026. As part of the transaction, the Company agreed to additional contingent consideration if future operational and financial objectives are met. There is no maximum payout. The contingent consideration was valued at $0.8 million on March 31, 2025.

For the year ended December 31, 2024, besides the multi-clinic acquisition referenced above, the Company purchased the assets and business of seven physical therapy clinics, which were tucked into larger partnerships in separate transactions.

The following table provides details on the purchase price allocations for the March 2024 acquisition and preliminary purchase price allocations for the other acquisitions described above.

	Physical Therapy
	IIP			Operations			Total
	(In thousands)
Cash paid, net of cash acquired	$	23,106		$	110,149		$	133,255
Seller note		455			1,220			1,675
Granted shares		-			1,500			1,500
Contingent payments		2,100			15,571			17,671
Total consideration	$	25,661		$	128,440		$	154,101

Estimated fair value of net tangible assets acquired:
Total current assets	$	1,655		$	9,043		$	10,698
Total non-current assets		218			31,241			31,459
Total liabilities		(540	)		(28,957	)		(29,497	)
Net tangible assets acquired		1,333			11,327			12,660
Customer and referral relationships		6,708			53,097			59,805
Non-compete agreement		261			3,306			3,567
Tradenames		1,331			12,113			13,444
Goodwill		16,028			148,740			164,768
Fair value of non-controlling interest (classified as redeemable non-controlling interest)		-			(100,143	)		(100,143	)
	$	25,661		$	128,440		$	154,101

Total current assets primarily represent accounts receivable while total non-current assets consist of fixed assets and equipment used in the practice.

For the acquisitions in 2024, the values assigned to the customer and referral relationships and non-compete agreements are being amortized on a straight-line basis over their respective estimated lives. For customer and referral relationships, the weighted-average amortization period is 12.0 years. For the non-compete agreements, the weighted-average amortization period is 5.0 years. The values assigned to tradenames are tested annually for impairment.

Variable Interest Entities

Certain states prohibit the “corporate practice of medicine,” which restricts the Company from owning physical therapy practices which directly employ therapists and from exercising control over medical decisions by therapists. In these states, the Company enters into long-term management agreements with medical practices that are owned by licensed therapists, which, in turn, employ or contract with therapists who provide professional services.

Based on the provisions of the management agreements, the Company determined that these entities are variable interest entities. The Company’s ownership percentages in these entities is 50% as of March 31, 2025. The Company consolidates the VIEs since it controls the management and operating activities that are most significant to the VIEs’ economic performance and its ownership interests expose the Company to the risks and benefits that could potentially be significant to each VIE.

The assets of the VIEs recognized in consolidation may only be used to settle obligations of each respective VIE and may not be used to satisfy claims of the Company, and the creditors of each VIE do not have recourse to the Company’s general credit. As of March 31, 2025, and December 31, 2024, the total assets of the Company’s variable interest entities were $232.1 million and $231.3 million, respectively. As of March 31, 2025, and December 31, 2024, the total liabilities of the Company’s VIEs were $31.4 million and $31.9 million respectively.

The table below presents the operating results of the VIEs.

	Three Months Ended
	March 31, 2025
	(In thousands)
Net revenue	$	19,806
Operating cost:
Salaries and related costs		12,905
Rent, supplies, contract labor and other		5,304
Provision for credit losses		197
Total operating cost		18,406
Gross profit		1,400
Other expense		4
Income before taxes	$	1,396