U.S. Physical Therapy (USPH): Leveraging Volume Growth and Strategic Acquisitions to Drive Margin Expansion and Earnings Upside

U.S. Physical Therapy (USPH) has emerged as a standout performer in the healthcare services sector, driven by a trifecta of patient volume growth, disciplined cost management, and accretive acquisitions. As of June 30, 2025, the company reported a 21.4% year-over-year increase in Adjusted EBITDA to $26.9 million, alongside a 16.7% surge in total patient visits to 1.56 million. These metrics underscore a business model that is not only resilient but strategically positioned to capitalize on structural tailwinds in the physical therapy and industrial injury prevention markets.

Volume Growth: A Catalyst for Revenue and Margin Expansion

USPH's ability to drive patient volume growth is a cornerstone of its success. The company's net rate per patient visit rose to $105.33 in Q2 2025, even after a 2.9% Medicare rate reduction took effect in January 2025. This resilience reflects strong demand for physical therapy services and the company's pricing discipline. With average daily patient visits per clinic hitting a record 32.7, USPH is scaling its operations efficiently, leveraging economies of scale to reduce per-visit costs.

Operating costs per visit declined to $83.95 from $84.46 in the prior year, despite adding 51 net new clinics. This efficiency gain is critical: it allowed gross profit margins to expand to 20.9% in Q2 2025, up from 20.1% in the same period in 2024. The company's focus on high-volume, low-cost operations is a repeatable formula for margin expansion, particularly as it continues to integrate new clinics into its network.

Strategic Acquisitions: Fueling Diversification and Revenue Streams

USPH's acquisition strategy has been both disciplined and transformative. In the first half of 2025 alone, the company added six clinics and closed four underperforming locations, bringing its total to 768 clinics. Two notable acquisitions include:
- A 80% stake in an outpatient home-care physical and speech therapy practice (generating $2.1 million in annual revenue).
- A 60% equity interest in a three-clinic practice (contributing $5.3 million in annual revenue and 28,000 visits).

These deals not only diversify USPH's revenue streams but also expand its footprint in high-growth areas like home-care therapy. The Industrial Injury Prevention Services (IIP) segment, which grew 22.6% to $29.1 million in Q2 2025, further illustrates the company's ability to monetize niche markets. IIP's gross profit margin expansion to 21.8% (excluding the April 2024 acquisition) highlights the accretive nature of these strategic moves.

Cost Management: Sustaining Margins Amid Growth

While USPH's top-line growth is impressive, its cost management strategies are equally vital. Operating costs from physical therapy operations increased by 16.0% in Q2 2025, but this was largely due to the 51 new clinics added since 2024. Salaries and related costs per visit rose modestly to $60.08, while total operating costs per visit fell, demonstrating the company's ability to absorb growth without eroding margins.

Corporate office costs, which rose to $17.5 million in Q2 2025, were offset by higher revenues, keeping them at 8.9% of net revenue. Excluding one-time integration costs, this figure drops to 8.7%, reflecting USPH's commitment to lean overhead. The company's recent $25 million share repurchase authorization and $0.45 quarterly dividend (a 23.5% yield) further emphasize its focus on capital efficiency and shareholder returns.

Investment Implications: A High-Conviction Play in Healthcare

USPH's financials and strategic execution position it as a compelling long-term investment. The company raised its 2025 Adjusted EBITDA guidance to $93–$97 million, a 15–19% increase from its prior range. This confidence is justified: USPH's patient volume growth, margin resilience, and acquisition pipeline suggest a compound annual growth rate (CAGR) of 18–20% in EBITDA over the next three years.

For investors, the key risks include potential regulatory changes in Medicare reimbursement and integration challenges from rapid acquisition growth. However, USPH's track record of seamless integrations and its focus on high-margin IIP services mitigate these concerns. The company's balance sheet, with $25 million in share repurchase capacity and a strong cash flow profile, provides additional downside protection.

Conclusion: A Model of Operational Excellence

U.S. Physical Therapy exemplifies how a healthcare services company can leverage volume growth, cost discipline, and strategic acquisitions to drive sustainable profitability. With a robust pipeline of opportunities in physical therapy, home-care, and industrial injury prevention, USPH is well-positioned to outperform its peers. For investors seeking exposure to a high-conviction, capital-efficient business, USPH offers an attractive risk-reward profile.

Investment Recommendation: Buy. USPH's strong fundamentals, margin expansion trajectory, and disciplined capital allocation make it a top-tier healthcare play. Target entry points near its 52-week low, with a long-term price objective of $28–$30 per share (based on 12x 2025 Adjusted EBITDA).