**Transcript was automatically generated by artificial intelligence.**

Paul Martin
Good afternoon and welcome to another episode of Paul Martin's crucial conversations today we have with us someone I have known for a long time. Rick Katz. Rick is the vice president of business development at Spine and Sport Physical Therapy, Spine and Sport. Physical Therapy is a private equity backed company based out of one of the most beautiful places on the earth. San Diego, California. And they have grown to 35 plus clinics. Rick is a doctor of physical therapy and also has his masters in exercise physiology. Rick, it is great to have you with us today.

Rick Katz
It's nice to be nice to connect with you again.

Paul Martin
And thank you all for joining us as well. So, Rick, our clients as well as folks that we talk to out there in the industry when a new acquire and I know you guys aren't brand new, but compared to some of the legacy acquirers, you are a newer acquirer in the industry and I think that brings you well. But our clients often ask us three specific questions as it relates to new acquirers. And the first one is and I would ask you this question, Rick, for spine and sport is is your strategy for becoming a successful company in the industry different from the strategies that some of the larger legacy companies are following?

Rick Katz
I would say, yes, in a way that the company is being built, that it's not solely based on acquiring and acquiring dollars to the bottom line. It's building the foundation of the company. So it's a little more strategic and knowing with my background, the background of our CEO would come from larger companies. And you have to build a strong infrastructure for a company and then build on that and find cultural fix that work within your company. So I would say probably a little bit more strategic than larger companies who are obviously looking for either DA or not on map.

Paul Martin
Yeah. And so, Rick, the characteristics that you think would make the best fit of a company that, again, would really thrive by joining spine sport.

Rick Katz
And get down to the basics of what physical therapy is. So it's a it's a patient interaction, patient delivery, customer service type of business. And you walk into a clinic, there is a certain culture that a certain vibe that's within the clinic. And you have to feel that from the first moment of the interaction. So it's not really a paper transaction as much engaged as that. People transaction. And so the fit is somebody that has a good friend of those days with obviously all the tyrants of diversification, referral sources and their sources and that sort of and it's really to me, it's the it's the vibe of the clinic and the culture. And I have dove in with the company, which has gone on almost two years. The acquisitions, almost all of them have been people I've known personally. So I already know that that, that cultural, that vibe fits fine before I walk into that. No.

Paul Martin
Sure, sure. Yeah. And that people business. But you know, all of you need to know that while. Yes. It's people to people they are trading some paper when they do acquisitions. Isn't that right, Rick.

Rick Katz
Yeah, yeah, yeah. There's the business side. The problem with the transaction.

Paul Martin
I just don't want anybody gets confused there. You're not you're going to trade people will give you a couple of people for a couple. Yeah. No. So let's talk about the nuts and bolts of an acquisition, you know, in terms of structure, process that spine. And so walk us through to make an acquisition. How would you define that as being different from kind of the strategies that a larger legacy company may use?

Rick Katz
Yeah, I look at it almost like a two phased process. The first is, as I mentioned, just seeing how they operate. But I do a higher level review of the operations. I ask for some of the basic information on the metrics of the company that are the going back a couple of years staffing payer mix and just to kind of get a feel of it from a profitability standpoint, is it something that would interest us that has had enough substance and upside to it? And I'll look through that after we signed in the Air Force and give them a higher level views saying, you know, I think that we might be interested in Uber or not interested right now. And here's a few things you can do. Maybe consult with Paul Martin, the head of their business, but we'll take a look or it looks like it's a sit and and if that's that's the case, then we'll start looking at what like add back to maybe to the business to bolster what their value is to us in terms of consolidation. And the profit may go away. And then we get to the second level process where we have the LOI, which is a formal offer that is made after flight support team visit and interviews with our equity partner. Great point partners. And the yellow light comes out from great client partners and we present that. And if we negotiate from that point and then we enter into our more of a deep dove due diligence process which involve compliance review, involve we get contractually involved, obviously the quality of earnings and we stage that and we have questionnaires that really ask for all the details of their engagement down to the nitty gritty about the personnel and everything. And we'll have regular weekly calls with, with the seller and with us to go through with our diligence process. And then that proceed to a, a one or two day meeting with that with the seller to go through all of the due diligence. And that's going to be for questions and operations and transition and then then proceed towards towards closing. So it's a multi-level stage process that kind of brings the person along as they go without trying to be overwhelming just at the data room and we've got the data and the documents into that and we try a few things on a timeline timetable. We'll actually give them the timetable of what our commitment is to closing the deal. So that one thing I personally I know I don't like to see is a deal that streams along. And, and I think our due diligence process is good enough on the front end that we have not come back on the back end. And we kind of deal with the developments that I've been involved in, those with the larger companies that I've worked with and that doesn't sit well for transitioning to acquisition. We want to go in with that idea that we can. However, if on the first day, if I notice things that may cause a movie, then those are discussed during the diligence process and people are aware that we may have an issue with whether certain contractual view along that line that we don't we don't have supplies on the back end of the kind of deal.

Paul Martin
So it sounds like, you know, you obviously come with a wealth of experience in this industry having been through an acquisition yourself, working with larger companies, great Point Partners has also played this game before as well. So while you know what I've what I just heard was well yes your new acquire the folks that are making the decisions and going through this process with a potential acquisition are not folks that are doing this for the first time. This is you guys have been through this many, many times. I also noted that it starts with just something very brief, just getting some basic information or having that conversation to see if there's really a fit before you get into a lot of the detail. And I think a lot of business owners appreciate that, you know, not having, you know, basically, you know, going through and pulling all kinds of information only to come back and say this isn't a fit really doesn't make sense. So good stuff. Good stuff. So, you know, many of the companies that we work with, as well as companies out there are making these kinds of decisions on who they're going to partner with. Culture becomes a real, real, real big piece of that. Someone in that has been with your company that you acquired, let's say, one or two years ago. How would they describe the culture of spine in sport?

Rick Katz
I think you describe it as evolving. And actually it's our company, although it's been established for years, we've had a new leadership coming in with great right and heading over from Select Medico in Southern California. And he and I share very similar passion backgrounds. We actually both worked for HealthSouth at the same time back back in the day. And understanding that you have to really establish a strong culture that that people can relate to and grasp on to and kind of set the tone for everything moving forward. And in the last year, our company has gone through a real introspective process and what the impact, what is our culture and to develop our culture and values. And we're just actually rolling all that out now at every angle, a new vision, statement, new new values. And that really relates back to the fact that we really want to empower our employees, empower patients to see the full potential. So we are putting that upfront into discussions with people so that they can see really what we're all about. Now, I think most companies that have value proposition are very forward thinking. What they're doing is matter of how they embody that and figure that out on a daily basis. That is important. And that's something that I believe that we are we have all along this haven't hasn't been well defined in the past. And right now it's very important.

Paul Martin
And, you know, many owners, they want to, you know, protect their people. And we often say, well, yes, you want to protect them. You also want to show them that there can be opportunities if you were to partner or be acquired by a larger business, what would you say to the question of what opportunities are there for kind of the rank and file staff, physical therapist, clinical clinical directors becoming a part of spine and sport?

Rick Katz
Yeah, that's that's a real good question because, you know, you think about the sellers are motivated for their own personal views and what depending on where they're at in their career path, whether you're looking at a is an exit strategy or you're looking at a partner that will grow with them. But the even as important as that is, what is the motivation and where were the staff people that you have on board and how do you keep them engaged? Because obviously they're not getting a distribution, the proceeds for the most part. So they have to be engaged and motivated for other reasons and recognize this. And and that's kind of where I think Brad and I have matched up real well. And that and Elbow, who's the chairman of our board, is that we want to create something internally that gives individuals a path. And as you know, physical therapists are individuals that are always seeking to better themselves, clinically or professionally. They're always looking for knowledge, always. They always have someone can have an answer to that. To some extent, you feel like, you know you're an imposter. In some ways not good enough. You're always looking for knowledge to get better. And so we have created pathways and those pathways can go get in different directions. They can go into a leadership pathway in which we have a formal leadership development programs and all of our kind of directors and people interested in leadership go through that. That takes them through how to grow as a clinical director manager, understand that the metrics of the business, understand payment and understand this basic nuances of running a business. Alternatively, we have we've created a path for clinical political advancement, which involves both internal education that we provide and or advances to different levels of clinical advancement that have a change in status, gender or other position, but also a change or rewarding the compensation for doing that because not everybody wants to be a leader. Magic Bullet. Some of the expert clinicians and develop guest programs. And then embedded in that we also have a mentorship program so that new grass and people that feel like you to have somebody that that can guide them along the pathway we can speak to that and assign mentors and play the nudges. And then we have a really robust student program. And last year we had a program over with 100,000 students that came to our clinic. So there's a lot of avenues. And with that student program, obviously we have to support and train clinical instructors and give them that opportunity. So I think by having multiple pathways that recognize both leadership, financial advancement and also clinical skill advancement engages the employees of the Target acquisition. And we always think that the clinicians that are part of an active design and front office people, unless they feel there's something in it for them, they tend to question it and maybe doubt the motivations. But if they understand that there's opportunity that that was created through the acquisition, again, if they engage.

Paul Martin
Absolutely. I'm just on a side. Your student program, I would imagine, has grown significantly since you've been a part of spine and sport. You know, you come out of education and it's it's you know, I know it's important to you. How do you find that that assist that's in staffing for the future? Do you find that that has an impact on staffing? Seems like therapists want to be able to mentor and therapists that have been mentor may want to come join you in the future. How does that back and forth work for spine and sports?

Rick Katz
First of all, I'm not going to take any credit for the student program because it was well in place and we had a great program. I think they get that a little bit. But yeah, we look at the environment now. Recruitment is tough and but the competition for the labor is is pretty fierce in certain markets. And so the student program is a recruitment program. It allows, you know, the ability to interview somebody over the long haul and to decide if you want to make them an offer and get them engaged in your in your clinic. And then again, look at whether you might be able to best place them and our students that I'll just come from California. We have a lot of a lot of students from out of state that want to look at California. So it's also introducing them to lifestyle and socially engaging them. And there's a lot more to it than just, you know, walking in the clinic and see patients. So I think that we do look at it as a as a very strong, strong recruitment recruitment tool and as if you had a prolonged interview process that really benefits both parties because, you know, if somebody could sit and retain that person after their student, usually to the compliance for a while.

Paul Martin
Absolutely. Absolutely. And so the start was in Southern California, obviously, with the San Diego. And it looks like you now have, you know, a big presence in northern California. How do you guys look at geography strategically now going forward into other states or, you know, what's kind of the geographical strategy that you guys are, the geography strategy, I should say, for you guys?

Rick Katz
Yeah. I mean, as a smaller company, I think any company that wants to grow and have control and have centralization of operations that you're looking at California right now because of just the the similarities and the same payers are dealing with the same regulations. You kind of know the market dynamics. And so California thing right now, it's also interesting because historically the larger companies out there that the API of the US physical therapy they may have backed off California pretty strongly and stayed in other markets. So kind of starting up in a market that has more challenges to it, I think puts us in a good situation for going into markets that may have different challenges or less challenges on a regulatory and gain standpoint. I think long term, yes, we'll look at it and have look at practices outside of California. We have an yet and we just really put in our infrastructure for regional management. So again, back to the climates that we want, we have a very strong infrastructure. We do centralize our billing and collections. We do handle contracting centrally. So going in in the state and my personal background is, you know, if multistate, my company, I was in four different states, highways in Alaska. Alaska saw really no issues in terms of remote management if you have the right people. But I think going into other states is the national strategy and also kind of diversifies your rest a little bit in terms of changes in state laws and regulations in California. Right now, we're very, very stable and have a strong, strong presence on the ground here.

Paul Martin
Yeah. So you're California experts, that's for sure. And to be an exporter of California in California is not easy, as you said, a lot of regulations, a lot of nuances that people don't realize when they, you know, pop into California. And when they pop their head up, they realize that they maybe got into a little more than they thought they would be getting into. So, Rick, again, an educator, so what advice would you have for someone right now, a business owner that's looking to go into this market, 2022? What do you think is the most important step for them in preparation for that move.

Rick Katz
And understanding the metrics and numbers and controlling them, having the ability to predict everything from outcome to net revenue per case, your revenue per visit and understanding at what point would be a logical step to expand possibly, maybe at looking at the value of your practices evaluated based upon your EBIT on profitability, that you can either do that by internally growing within your same space in San Diego area and deploy that potential first, see how you can add efficiencies and control costs first in your own way, and then look at the opportunity beyond that, you add on multiple occasions, hopefully your u-value increase and you become a little more attractive to the to do an exit strategy with a strategic partner. That being said, though, we've done single clinic acquisitions and single clinic acquisitions to be really strong. If you have a good operator that really understands the market, that we do that with the mindset that we want to know where would you go if you decided not to sell and you want to expand? What would you do? What would your plan be? So having the strategic thinking behind you as to what do I want to do if I have the ability to do it is important to us because that gives us a foothold or a step forward as to where would you like to know our next new clinic, based upon the strength of that acquisition. So growing your internal operations, your numbers, understanding the metrics really well and then having some sort of strategic vision of where you want to go, I think those things have to match up way that can be really attractive.

Paul Martin
So whether you're a single clinic business or a multi clinic business, having that strategy, seeing into the future where you can be and really, really knowing and understanding your numbers seems to be the advice I'm hearing, right? Absolutely. Thank you so, Rick, I cannot tell you how much I appreciate you coming on and sharing some really, really good information. I always appreciate talking to you. And again, you always come and you bring things that we've not heard. And so it's always a fresh look. And I really appreciate your time and the opportunity to talk to you today.

Rick Katz
Always great. Connected with you. How to appreciate it.

Paul Martin
So for any of you out there that have a question about the conversation that Rick and I just had could below, let's talk I look forward to talking to you in the very near future. Thank you.