ATI Physical Therapy reports financial results for the fourth quarter and full year that ended December 31, 2021.

“We achieved our revenue guidance for the year and approximated the low end of our Adjusted EBITDA range,” says Jack Larsen, Executive Chairman of ATI Physical Therapy. “Despite a pronounced impact from recent COVID variants on daily operations, disrupting both patient scheduling and clinical staff attendance, our nationwide team stayed true to our central mission to deliver high quality care and service to our customers as illustrated by an increase in our Net Promotor Score to 78 from 73 during the third quarter and a Google Star Rating of 4.8.”

Larsen continues, “During the quarter, we also saw increased therapist retention, with annualized clinician turnover declining 400 basis points quarter over quarter, and clinical FTE increasing to nearly 2,500.  Moreover, we refreshed our sales and marketing strategy and have identified high priority channels for our field-based sales team, working closely with our clinic directors, to drive referrals and visits throughout the year.”

Joe Jordan, Chief Financial Officer of ATI Physical Therapy, adds, “As discussed below, we refinanced our first lien term loan this week with a new credit agreement and revolving credit facility and issued perpetual preferred stock with detachable warrants.  With this refinancing transaction, we reduced leverage and increased liquidity in order to establish a strong footing to support operations and invest in our people and growth strategies as we work to continue scaling the business.”

ATI Physical Therapy Fourth Quarter 2021 Results

Supplemental tables of key performance metrics for the first quarter of 2019 through the fourth quarter of 2021 are presented after the financial statements at the end of this press release.  Commentary on performance results in the fourth quarter of 2021 is as follows:

  • Net operating revenue was $155.8 million compared to $159.0 million in the third quarter of 2021 and $153.1 million in the fourth quarter of 2020, a decrease of 2.0% quarter over quarter and an increase of 1.7% year over year.
     
    • Net patient revenue was $140.3 million compared to $141.9 million in the third quarter of 2021 and $136.8 million in the fourth quarter of 2020, a decrease of 1.1% quarter over quarter and an increase of 2.5% year over year. See below for discussion of drivers to net patient revenue, i.e. patient visits and Rate per Visit.
       
    • Other revenue was $15.5 million compared to $17.2 million in the third quarter of 2021 and $16.3 million in the fourth quarter of 2020, a decrease of 9.7% quarter over quarter and a decrease of 4.8% year over year. The decrease was primarily due to sale of the Home Health service line on October 1, 2021. 
       
  • Visits per Day (“VPD”) were 20,649 compared to 20,674 in the third quarter of 2021 and 19,441 in the fourth quarter of 2020, essentially flat quarter over quarter and an increase of 6.2% year over year.
     
    VPD per Clinic was 22.8 compared to 23.1 in the third quarter of 2021 and 22.2 in the fourth quarter of 2020, a decrease of 0.3 quarter over quarter and an increase of 0.6 year over year. During the last 2 weeks in December 2021, there was a significant negative impact to visits across our platform as the Omicron wave of COVID caused an increase in patient appointment cancellations, clinical staff sick absences, and overall decline in referral volume.
     
  • Rate per Visit was $104.51 compared to $105.56 in the third quarter of 2021 and $109.98 in the fourth quarter of 2020, a decrease of 1.0% quarter over quarter and 5.0% year over year. The decreases were primarily due to continued unfavorable incremental mix shifts in payor classes, states and services.
     
  • Salaries and related costs were $88.1 million compared to $86.8 million in the third quarter of 2021 and $79.1 million in the fourth quarter of 2020, an increase of 1.4% quarter over quarter and 11.3% year over year due to lower labor productivity and wage inflation.
     
    PT salaries and related costs per Visit were $55.73 compared to $53.70 in the third quarter of 2021 and $52.16 in the fourth quarter of 2020, an increase of 3.8% quarter over quarter and 6.9% year over year. The increases were due to lower labor productivity of 8.3 VPD per clinical FTE compared to 8.8 in both the third quarter of 2021 and the fourth quarter of 2020. The year over year increase was also due to wage inflation experienced in certain pockets of the country in 2021 compared to 2020.
     
  • Rent, clinic supplies, contract labor and other was $47.8 million compared to $45.8 million in the third quarter of 2021 and $42.8 million in the fourth quarter of 2020, an increase of 4.4% quarter over quarter and an increase of 11.6% year over year due to more clinics, higher use of contract labor, and higher advertising expenses.
      
    PT rent, clinic supplies, contract labor and other per Clinic was $50,976 compared to $49,499 in the third quarter of 2021 and $47,168 in the fourth quarter of 2020, an increase of 3.0% quarter over quarter and 8.1% year over year. The sequential quarter and year over year increases were primarily driven by greater use of contract labor while we worked to fill open positions. An additional contributor was higher advertising expenditures.
     
  • Provision for doubtful accounts was $2.1 million compared to $3.5 million in the third quarter of 2021 and $3.3 million in the fourth quarter of 2020. PT provision as a percent of net patient revenue was 1.5% compared to 2.5% in the third quarter of 2021 and 2.4% in the fourth quarter of 2020, reflecting improved collections.
     
  • Selling, general and administrative expenses were $29.9 million compared to $30.8 million in the third quarter of 2021 and $30.0 million in the fourth quarter of 2020, a decrease of 2.9% quarter over quarter and 0.5% year over year primarily due to variations in non-recurring expenditures.
     
  • Income tax benefit was $12.4 million compared to $28.3 million in the third quarter of 2021 and $2.0 million in the fourth quarter of 2020.
     
  • Net income (loss) was $8.7 million compared to $(333.8) million in the third quarter of 2021 and $2.2 million in the fourth quarter of 2020. The third quarter 2021 net loss included significant non-cash items, notably goodwill and intangible asset impairment charges of $(509.0) million and change in fair value of warrant liability and contingent common shares liability of $162.2 million. The non-cash change in fair value of warrant liability and contingent common shares liability in the fourth quarter of 2021 was $10.0 million. 
     
  • Adjusted EBITDA was $1.6 million compared to $8.5 million in the third quarter of 2021 and $18.6 million (excluding CARES Act Provider Relief Funds of $24.1 million) in the fourth quarter of 2020, a decrease of 80.8% quarter over quarter and 91.2% year over year. The sequential quarter decrease was primarily driven by lower revenue and higher salaries and related costs and higher rent, clinic supplies, and contract labor costs.
     
    Adjusted EBITDA margin was 1.1% compared to 5.4% in the third quarter of 2021 and 12.2% (excluding CARES Act Provider Relief Funds) in the fourth quarter of 2020.
     
  • Net (decrease) increase in cash was $(17.5) million compared to $(24.5) million in the third quarter of 2021 and $11.9 million in the fourth quarter of 2020. Cash use in the fourth quarter of 2021 included $9.2 million in connection with the Medicare Accelerated and Advance Payment Program (“MAAPP”) and deferral of the employer portion of Social Security taxes under the CARES Act.

Summary of key balance sheet items as of December 31, 2021 is as follows:

  • Cash and cash equivalents totaled $48.6 million, and the revolving credit facility was undrawn with available capacity of $19.8 million, net of usage by letters of credit, equaling $68.4 million in available liquidity.

Other notable achievements and/or news in the fourth quarter of 2021 were as follows:

  • Opened 20 new clinics in existing states, including Georgia, Massachusetts, Michigan, and Texas; and closed 10 clinics primarily in Illinois. This brings the total number of clinics for the year to 910. The company continues to capitalize on growth opportunities in individual markets, while optimizing its footprint and financial return in other local markets.
     
  • Net Promotor Score (“NPS”) of 78 and Google Star Rating of 4.8, reflecting continued high customer satisfaction and brand loyalty.

ATI Physical Therapy Full Year 2021 Results

Commentary on performance results for the full year 2021 is as follows:

  • Net operating revenue was $627.9 million compared to $592.3 million for the full year 2020, an increase of 6.0% year over year. 
     
    • Net patient revenue was $561.1 million compared to $529.6 million for the full year 2020, an increase of 5.9% year over year.
       
    • Other revenue was $66.8 million compared to $62.7 million for the full year 2020, an increase of 6.6% year over year.
  • Salaries and related costs were $336.5 million compared to $306.5 million for the full year 2020, an increase of 9.8% year over year. 
     
  • Rent, clinic supplies, contract labor and other was $180.9 million compared to $166.1 million for the full year 2020, an increase of 8.9% year over year.
     
  • Provision for doubtful accounts was $16.4 million compared to $16.2 million for the full year 2020. Provision as a percent of net operating revenue was 2.6% compared to 2.7% for the full year 2020.
     
  • Selling, general and administrative expenses were $111.8 million compared to $104.3 million for the full year 2020, an increase of 7.2% year over year.
     
  • Non-cash goodwill and intangible asset impairment charges totaled $962.3 million. As a result of revisions to our forecasts reported in July and October 2021, including the factors related to our revisions of the forecasts, it was determined that the fair value amounts of goodwill and trade name were below their respective carrying amounts.
     
  • Income tax benefit was $71.0 million compared to an expense of $2.1 million for the full year 2020.
     
  • Net (loss) income was $(782.0) million compared to $(0.3) million for the full year 2020. 
     
  • Adjusted EBITDA was $39.8 million compared to $63.6 million (excluding CARES Act Provider Relief Funds of $91.5 million) for the full year 2020, a decrease of 37.5% year over year.
     
    Adjusted EBITDA margin was 6.3% compared to 10.7% (excluding CARES Act Provider Relief Funds) for the full year 2020.
     
  • Net (decrease) increase in cash was approximately $(93.5) million compared to an increase of $103.8 million in cash for the full year 2020.

Refinancing and Equity Issuance

In February 2022, ATI Physical Therapy entered into a new credit agreement for a $500 million term loan maturing in 2028 and executed a new $50 million revolving credit facility maturing in 2027.  Additionally, we issued $165 million in Series A perpetual preferred stock accruing a dividend (payable in kind) at 12% per annum, subject to adjustments in certain circumstances, with approximately 11.5 million detachable warrants to purchase shares of our common stock.  

The warrants represent 5.5% of our common stock on a fully-diluted basis.  Proceeds from the transaction were used to pay off the previously outstanding term loan of $555 million due in 2023, pay fees on the transaction, and add approximately $77 million to our balance sheet providing capital to support operations and accelerate growth.  See our Form 8-K filed on February 25, 2022 for additional information.

ATI Physical Therapy 2022 Guidance

For the full year 2022, ATI expects net operating revenue to be in a range of $675 million to $705 million, which represents approximately 7.5% to 12.3% year over year growth.  We anticipate continuing to ramp visits steadily throughout 2022 as we continue to grow clinical headcount and execute on the sales and marketing strategy put in place at the end of 2021.  We expect Adjusted EBITDA will ramp throughout 2022 as revenue ramps, however, we expect a higher expense ratio early in 2022 as we have made the decision to hire clinicians in advance of volume improvements anticipated from our sales and marketing strategy.  Adjusted EBITDA for 2022 is expected to be in a range of $25 million to $35 million.

As we reignite prior referral relationships and set the groundwork to build long-term connections with new target referral providers, we expect to return to pre-COVID visit volumes by the end of 2022. 

While we continue to ramp our existing clinics, we are also seeing incremental growth opportunities in select markets and accordingly expect to open approximately 35 new clinics in 2022.

[Source(s): ATI Physical Therapy, PR Newswire]