ATI Physical Therapy Reports Third Quarter 2023 Results

Drove Continued Growth in Visits, Rate per Visit, Revenue and Adjusted EBITDA
Reflecting Continuing Execution of Transformation Initiatives and Strong Demand for Physical Therapy

Robust Therapist Hiring and Retention Results in Growing Clinician Base
Advancing Company's Capacity to Expand Patient Access to High-Quality Care

BOLINGBROOK, Ill., Nov. 6, 2023 /PRNewswire/ -- ATI Physical Therapy, Inc. (NYSE: ATIP) ("ATI" or the "Company"), a nationally recognized outpatient physical therapy provider in the United States, today reported financial results for the third quarter ended September 30, 2023.

"We continued growing many key performance metrics in the third quarter," said Sharon Vitti, Chief Executive Officer of ATI. "Despite a constrained labor market in the industry, our ongoing commitment to the ATI culture and our front‐line teams resulted in a 5% quarter-over-quarter increase in clinician headcount. We continue to pursue our strategic vision to lead in the musculoskeletal sector while helping people live healthier."

Ms. Vitti added, "Equally exciting, we saw higher rates per visit in the third quarter due to strong rate realization and continuing operational improvements in our revenue cycle management processes. The increase was further augmented by higher rates in new contracts and renewals."

Joe Jordan, Chief Financial Officer of ATI, said, "Our people and operational initiatives are generating solid progress in financial results. As we approach the end of the year, we have increased confidence in the top end of our guidance range."

Third Quarter 2023 Results

Supplemental tables of key performance metrics for the first quarter of 2021 through the third quarter of 2023 are presented after the financial statements at the end of this press release. Commentary on performance results in the third quarter of 2023 is as follows:

• Net revenue was $177.5 million compared to $172.3 million in the second quarter of 2023 and $156.8 million in the third quarter of 2022, an increase of 3.0% quarter-over-quarter and 13.2% year-over-year. The increases were primarily due to a higher rate per visit, adept execution by the Company's clinicians to ensure access for patients, and strong demand for ATI's physical therapy ("PT") and adjacent services, partially offset by one less business day.
  
  
  • Net patient revenue was $162.3 million compared to $156.9 million in the second quarter of 2023 and $142.3 million in the third quarter of 2022, an increase of 3.4% quarter-over-quarter and 14.0% year-over-year. See below for discussion of drivers to net patient revenue (i.e., patient visits and Rate per Visit).
    
    
  • Other revenue was $15.2 million compared to $15.4 million in the second quarter of 2023 and $14.5 million in the third quarter of 2022, a decrease of 1.3% quarter-over-quarter and an increase of 5.0% year-over-year. The year-over-year increase was mostly due to higher MSA revenue.
    
    
• Visits per Day ("VPD") were 23,435 compared to 23,412 in the second quarter of 2023 and 21,493 in the third quarter of 2022, an increase of 0.1% quarter-over-quarter and 9.0% year-over-year. The year-over-year increase was driven by the Company's increased capacity to see patients through a higher number of clinical FTE and higher productivity per clinical FTE.
  
  
  • VPD per Clinic was 25.9 compared to 25.7 in the second quarter of 2023 and 23.2 in the third quarter of 2022, an increase of 0.2 visits quarter-over-quarter and 2.7 visits year-over-year. These increases were primarily driven by the Company's continued focus on operational excellence within its clinics and ongoing footprint optimization efforts.
    
    
• Rate per Visit ("RPV") was $109.90 compared to $104.74 in the second quarter of 2023 and $103.46 in the third quarter of 2022, an increase of 4.9% quarter-over-quarter and 6.2% year-over-year. The increases in RPV were primarily driven by adjustments due to favorable rate realization on prior period visits, operational improvements around front-end and claims submission processes, and favorable contracting in certain key markets.
  
  
• Salaries and related costs were $97.1 million compared to $95.3 million in the second quarter of 2023 and $90.3 million in the third quarter of 2022, an increase of 1.8% quarter-over-quarter and 7.5% year-over-year. The quarter-over-quarter increase was primarily due to more clinicians and support staff in addition to higher group health expenses. The year-over-year increase was primarily due to added clinicians and support staff, wage inflation, and bonuses and stock-based awards for our care providers.
  
  
• PT salaries and related costs per visit were $57.47 compared to $54.81 in the second quarter of 2023 and $56.20 in the third quarter of 2022, an increase of 4.8% quarter-over-quarter and 2.3% year-over-year. The quarter-over-quarter increase was primarily due to lower labor productivity of 9.3 VPD per clinical FTE compared to 9.5 in the second quarter of 2023, driven by seasonality and integration of new team members. The year-over-year increase was primarily due to a reconfigured clinic support structure and higher compensation per clinical FTE, partially offset by a higher labor productivity of 9.3 VPD per clinical FTE compared to 8.7 in the third quarter of 2022.
  
  
• Rent, clinic supplies, contract labor and other was $52.7 million compared to $50.4 million in the second quarter of 2023 and $51.4 million in the third quarter of 2022, an increase of 4.5% quarter-over-quarter and 2.5% year-over-year. The increases were primarily driven by higher spend on contract labor and outside services.
  
  
• PT rent, clinic supplies, contract labor and other per clinic was $57,012 compared to $53,866 in the second quarter of 2023 and $53,945 in the third quarter of 2022, an increase of 5.8% quarter-over-quarter and 5.7% year-over-year. The increases were primarily driven by higher spend on contractor labor and outside services.
  
  
• Provision for doubtful accounts was $3.3 million compared to $2.4 million in the second quarter of 2023 and $2.8 million in the third quarter of 2022. PT provision as a percentage of net patient revenue was 2.1% compared to 2.0% in the third quarter of 2022.
  
  
• Selling, general and administrative expenses were $25.1 million compared to $36.6 million in the second quarter of 2023 and $25.3 million in the third quarter of 2022, a decrease of 31.4% quarter-over-quarter and 0.7% year-over-year. The quarter-over-quarter decrease was driven primarily by the absence of one-time debt and capital transaction costs incurred in the second quarter of 2023 and insurance reimbursements related to non-ordinary course legal costs. The slight year-over-year decrease was primarily driven by insurance reimbursements for non-ordinary legal costs, mostly offset by higher non-ordinary legal and regulatory costs and employee incentive awards.
  
  
• Interest expense during the quarter was $15.5 million, compared to $16.7 million in the second quarter of 2023 and $11.8 million in the third quarter of 2022. The quarter-over-quarter decrease was primarily due to a lower interest rate hedge benefit, and the year-over-year increase was primarily due to higher interest rates and lower interest rate hedge benefit.
  
  
• Income tax expense (benefit) was $0.1 million, compared to $0.1 million in the second quarter of 2023 and $(7.2) million in the third quarter of 2022.
  
  
• Net loss was $14.6 million compared to $21.7 million in the second quarter of 2023 and $116.7 million in the third quarter of 2022.
  
  
• Fully diluted Class A common stock loss per share was $4.42 compared to $17.74 in the second quarter of 2023 and $29.76 in the third quarter of 2022, adjusted on a retrospective basis to reflect the reverse stock split completed in June 2023.
  
  
• Adjusted EBITDA¹ was $9.4 million compared to $9.3 million in the second quarter of 2023 and $(0.4) million in the third quarter of 2022. The quarter-over-quarter increase was primarily driven by higher revenue from an increase in rate per visit in addition to lower one-time costs and benefits, mostly offset by higher clinic operating expenses. The year-over-year increase was primarily driven by higher revenue from both more visits and a higher rate per visit, partially offset by higher clinic operating expenses.
  
  Adjusted EBITDA¹ margin was 5.3% compared to 5.4% in the second quarter of 2023 and (0.3)% in the third quarter of 2022.
  
  
• Net decrease in cash was $63.4 million year-to-date compared to essentially break-even in the first nine months of 2022.
  
  Operating cash use was $17.8 million year-to-date compared to $59.1 million in the first nine months of 2022, reflecting higher earnings in addition to conclusion of the Medicare Accelerated and Advance Payment Program ("MAAPP") repayments in the third quarter of 2022 and other timing differences between accrual and cash basis.
  
  Investing cash use was $14.6 million year-to-date compared to $21.9 million in the first nine months of 2022, with the decrease primarily due to fewer new clinic openings. Specifically, 13 clinics were opened year-to-date compared to 33 clinics in the prior comparative period.
  
  Financing cash use was $31.0 million year-to-date, which included revolver net repayments of $24.8 million. Financing cash generated was $80.9 million in the first nine months of 2022, which included refinancing the Company's first lien term loan with a new credit agreement and issuing Series A preferred stock with detachable warrants.

• As of September 30, 2023, total liquidity was $39.7 million comprised of cash and cash equivalents of $19.7 million and available revolving credit facility of $20.0 million. The Company also has access to a $25.0 million delayed draw term loan.

Additionally, ATI opened three clinics and closed fourteen clinics during the quarter in connection with the Company's ongoing footprint optimization initiative. The Company had 900 clinics at the end of the third quarter.

Third Quarter 2023 Earnings Conference Call

Management will host a conference call at 5 p.m. Eastern Time on November 6, 2023 to review third quarter 2023 financial results. The conference call can be accessed via a live audio webcast. To join, please access the following web link, ATI Physical Therapy, Inc. Q3 2023 Earnings Conference Call, on the Company's Investor Relations website at https://investors.atipt.com at least 15 minutes early to register and download and install any necessary audio software. A replay of the call will be available via webcast for on-demand listening shortly after the completion of the call, at the same web link, and will remain available for approximately 90 days.

About ATI Physical Therapy

At ATI Physical Therapy, we are committed to helping people live better. We provide convenient access to high-quality care to prevent and treat musculoskeletal (MSK) pain. Our approximately 900 locations in 24 states and virtual practice operate under the largest single-branded platform built to support standardized clinical guidelines and operating processes. With outcomes from more than 3 million unique patient cases, ATI strives to utilize quality standards designed to deliver proven, predictable, and impactful patient outcomes. From preventative services in the workplace and athletic training support to outpatient clinical services and online physical therapy via our online platform, CONNECT™, a complete list of our service offerings can be found at ATIpt.com. ATI is based in Bolingbrook, Illinois.

Forward-Looking Statements 

All statements other than statements of historical facts contained in this communication are forward-looking statements for purposes of the safe harbor provisions under the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of the words such as "believe," "may," "will," "estimate," "continue," "anticipate," "intend," "expect," "should," "would," "plan," "project," "forecast," "predict," "potential," "seem," "seek," "future," "outlook," "target" or similar expressions that predict or indicate future events or trends or that are not statements of historical matters. These forward-looking statements include, but are not limited to, statements regarding the impact of physical therapist attrition and ability to achieve and maintain clinical staffing levels and clinician productivity, anticipated visit and referral volumes and other factors on the Company's overall profitability, and estimates and forecasts of other financial and performance metrics and projections of market opportunity. These statements are based on various assumptions, whether or not identified in this communication, and on the current expectations of the Company's management and are not predictions of actual performance. These forward-looking statements are provided for illustrative purposes only and are not intended to serve as, and must not be relied on by any investor as, a guarantee, an assurance, a prediction or a definitive statement of fact or probability. Actual events and circumstances are difficult or impossible to predict and will differ from assumptions. Many actual events and circumstances are beyond the control of the Company.

These forward-looking statements are subject to a number of risks and uncertainties, including:

• our liquidity position raises substantial doubt about our ability to continue as a going concern;
• risks associated with liquidity and capital markets, including the Company's ability to generate sufficient cash flows, together with cash on hand, to run its business, cover liquidity and capital requirements and resolve substantial doubt about the Company's ability to continue as a going concern;
• our ability to meet financial covenants as required by our 2022 Credit Agreement, as amended;
• risks related to outstanding indebtedness and preferred stock, rising interest rates and potential increases in borrowing costs, compliance with associated covenants and provisions and the potential need to seek additional or alternative debt or capital financing in the future;
• risks related to the Company's ability to access additional financing or alternative options when needed;
• our dependence upon governmental and third-party private payors for reimbursement and that decreases in reimbursement rates, renegotiation or termination of payor contracts, billing disputes with third-party payors or unfavorable changes in payor, state and service mix may adversely affect our financial results;
• federal and state governments' continued efforts to contain growth in Medicaid expenditures, which could adversely affect the Company's revenue and profitability;
• payments that we receive from Medicare and Medicaid being subject to potential retroactive reduction;
• changes in Medicare rules and guidelines and reimbursement or failure of our clinics to maintain their Medicare certification and/or enrollment status;
• compliance with federal and state laws and regulations relating to the privacy of individually identifiable patient information, and associated fines and penalties for failure to comply;
• risks associated with public health crises, including COVID-19 (and any existing and future variants) and its direct and indirect impacts or lingering effects on the business, which could lead to a decline in visit volumes and referrals;
• our inability to compete effectively in a competitive industry, subject to rapid technological change and cost inflation, including competition that could impact the effectiveness of our strategies to improve patient referrals and our ability to identify, recruit, hire and retain skilled physical therapists;
• our inability to maintain high levels of service and patient satisfaction;
• risks associated with the locations of our clinics, including the economies in which we operate, size and expected growth of our addressable markets, and the potential need to close clinics and incur closure costs;
• our dependence upon the cultivation and maintenance of relationships with customers, suppliers, physicians and other referral sources;
• the severity of climate change or the weather and natural disasters that can occur in the regions of the U.S. in which we operate, which could cause disruption to our business;
• risks associated with future acquisitions, divestitures and other business initiatives, which may use significant resources, may be unsuccessful and could expose us to unforeseen liabilities;
• failure of third-party vendors, including customer service, technical and IT support providers and other outsourced professional service providers to adequately address customers' requests and meet Company requirements;
• risks associated with our ability to secure renewals of current suppliers and other material agreements that the Company currently depends upon for business operations;
• risks associated with our reliance on IT infrastructure in critical areas of our operations including, but not limited to, cyber and other security threats;
• a security breach of our IT systems or our third-party vendors' IT systems may subject us to potential legal action and reputational harm and may result in a violation of the Health Insurance Portability and Accountability Act of 1996 or the Health Information Technology for Economic and Clinical Health Act;
• maintaining clients for which we perform management and other services, as a breach or termination of those contractual arrangements by such clients could cause operating results to be less than expected;
• our failure to maintain financial controls and processes over billing and collections or disputes with third-party private payors could have a significant negative impact on our financial condition and results of operations;
• our operations are subject to extensive regulation and macroeconomic uncertainty;
• our ability to meet revenue and earnings expectations;
• risks associated with applicable state laws regarding fee-splitting and professional corporation laws;
• inspections, reviews, audits and investigations under federal and state government programs and third-party private payor contracts that could have adverse findings that may negatively affect our business, including our results of operations, liquidity, financial condition and reputation;
• changes in or our failure to comply with existing federal and state laws or regulations or the inability to comply with new government regulations on a timely basis;
• our ability to maintain necessary insurance coverage at competitive rates;
• the outcome of any legal and regulatory matters, proceedings or investigations instituted against us or any of our directors or officers, and whether insurance coverage will be available and/or adequate to cover such matters or proceedings;
• general economic conditions, including but not limited to inflationary and recessionary periods;
• changes in the political environment and events involving financial volatility, defaults or other adverse developments that affect the U.S. or global markets, resulting in liquidity problems which may have a material adverse effect on our results of operations;
• our facilities face competition for experienced physical therapists and other clinical providers that may increase labor costs, result in elevated levels of contract labor and reduce profitability;
• risks associated with our ability to attract and retain talented executives and employees amidst the impact of unfavorable labor market dynamics, wage inflation and recent reduction in value of our share-based compensation incentives, including potential failure of steps being taken to reduce attrition of physical therapists and increase hiring of physical therapists;
• risks resulting from the 2L Notes, IPO Warrants, Earnout Shares and Vesting Shares being accounted for as liabilities at fair value and the changes in fair value affecting our financial results;
• further impairments of goodwill and other intangible assets, which represent a significant portion of our total assets, especially in view of the Company's recent market valuation;
• our inability to remediate the material weaknesses in internal control over financial reporting related to income taxes and to maintain effective internal control over financial reporting;
• risks related to dilution of Common Stock ownership interests and voting interests as a result of the issuance of 2L Notes and Series B Preferred Stock;
• costs related to operating as a public company; and
• risks associated with our efforts and ability to regain and sustain compliance with the listing requirements of our securities on the New York Stock Exchange ("NYSE").

If any of these risks materialize or our assumptions prove incorrect, actual results could differ materially from the results implied by these forward-looking statements.

Investors should also review those factors discussed in the Company' Form 10-K for the fiscal year ended December 31, 2022, under the heading "Risk Factors," and other documents filed, or to be filed, by ATI with the SEC. New risk factors emerge from time to time and it is not possible to predict all such risk factors, nor can the Company assess the impact of all such risk factors on the business of the Company or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the foregoing cautionary statements. Readers should not place undue reliance on forward-looking statements. The Company undertakes no obligations to publicly update or revise any forward-looking statements after the date they are made or to reflect the occurrence of unanticipated events, whether as a result of new information, future events or otherwise, except as required by law.

In addition, statements of belief and similar statements reflect the beliefs and opinions of the Company on the relevant subject. These statements are based upon information available to the Company, as applicable, as of the date of this communication, and while the Company believes such information forms a reasonable basis for such statements, such information may be limited or incomplete, and statements should not be read to indicate that the Company has conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and you are cautioned not to unduly rely upon these statements.

Non-GAAP Financial Measures

To supplement the Company's financial information presented in accordance with GAAP and aid understanding of the Company's business performance, the Company uses certain non-GAAP financial measures, namely "Adjusted EBITDA" and "Adjusted EBITDA margin." ATI believes Adjusted EBITDA and Adjusted EBITDA margin (i.e., Adjusted EBITDA divided by Net Revenue) assist investors and analysts in comparing the Company's operating performance across reporting periods on a consistent basis by excluding items that it does not believe are indicative of ATI's core operating performance.

Management believes these non-GAAP financial measures are useful to investors in highlighting trends in our operating performance, while other measures can differ significantly depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which ATI operates and capital investments. Management uses these non-GAAP financial measures to supplement GAAP measures of performance in the evaluation of the effectiveness of the Company's business strategies, to make budgeting decisions, to establish discretionary annual incentive compensation and to compare ATI's performance against that of other peer companies using similar measures. Management supplements GAAP results with non-GAAP financial measures to provide a more complete understanding of the factors and trends affecting the business than GAAP results alone.

Adjusted EBITDA and Adjusted EBITDA margin are not recognized terms under GAAP and should not be considered as an alternative to net income (loss) or the ratio of net income (loss) to net revenue as a measure of financial performance, cash flows provided by operating activities as a measure of liquidity, or any other performance measure derived in accordance with GAAP. Additionally, these measures are not intended to be a measure of cash available for management's discretionary use as they do not consider certain cash requirements such as interest payments, tax payments and debt service requirements. The presentations of these measures have limitations as analytical tools and should not be considered in isolation, or as a substitute for analysis of the Company's results as reported under GAAP. Because not all companies use identical calculations, the presentations of these measures may not be comparable to other similarly titled measures of other companies and can differ significantly from company to company.

Please see "Reconciliation of GAAP to Non-GAAP Financial Measures" below for reconciliations of non-GAAP financial measures used in this release to their most directly comparable GAAP financial measures. We are unable to provide a reconciliation between forward-looking Adjusted EBITDA to its comparable GAAP financial measure without unreasonable effort, due to the high difficulty and impracticability of predicting certain amounts required by GAAP with a reasonable degree of accuracy by the date of this release.

Contacts:

Investors
Joanne Fong
SVP, Treasurer and Investor Relations
ATI Physical Therapy
investors@atipt.com
(630) 296-2222 x 7131

Media
Genesa Garbarino
Garbo Communications
[email protected]
424-499-7025

Rob Manker
Director of Marketing & Public Relations
ATI Physical Therapy
[email protected]
630-296-2222 ext. 7432

SOURCE ATI Physical Therapy