ATI Physical Therapy Inc, the largest single-branded outpatient physical therapy provider in the United States, reports financial results for the second quarter ended June 30, 2022.
“Patient demand remains strong as referrals and visits continued to increase quarter over quarter. While the productivity of our providers increased quarter over quarter, allowing more patients to receive timely care, we did not meet our growth targets,” said Sharon Vitti, Chief Executive Officer of ATI Physical Therapy. “We believe the opportunities in front of us are within reach, and our teams are aggressively working to expand our provider workforce and increase capacity to care for more patients.”
Joe Jordan, Chief Financial Officer of ATI Physical Therapy, said, “The company continues to navigate headwinds within a tight labor market. While revenue and margin increased quarter over quarter as the Company continues to work to increase clinic and labor utilization, the pace of improvement has been muted in the second quarter by a competitive market for physical therapists. While turnover has improved year over year, with an ATI clinician annualized turnover rate of 27% in the second quarter (37% inclusive of contractors), our hiring has not grown to the levels required to support our growth plans. As such, we revised full year 2022 guidance. With this and a rising interest rate environment, we also recorded non-cash goodwill and intangible asset impairment charges in the quarter totaling approximately $128 million.”
Ms. Vitti continued, “There is much work to be done, and I look forward to leading this talented team as they continue to write ATI’s next chapter with tenacity and purpose.”
Second Quarter 2022 Results
Supplemental tables of key performance metrics for the first quarter of 2019 through the second quarter of 2022 are presented after the financial statements at the end of this press release. Commentary on performance results in the second quarter of 2022 is as follows:
- Net operating revenue was $163.3 million compared to $153.8 million in the first quarter of 2022 and $164.0 million in the second quarter of 2021, an increase of 6% quarter over quarter and essentially flat year over year.
- Net patient revenue was $148.5 million compared to $138.9 million in the first quarter of 2022 and $146.7 million in the second quarter of 2021, an increase of 7% quarter over quarter and 1% year over year. See below for discussion of drivers to net patient revenue, i.e. patient visits and Rate per Visit.
- Other revenue was $14.8 million compared to $14.9 million in the first quarter of 2022 and $17.4 million in the second quarter of 2021, a decrease of 1% quarter over quarter and 15% year over year. The year over year decrease was mostly due to sale of the Home Health service line on October 1, 2021.
- Visits per Day (“VPD”) were 22,403 compared to 21,062 in the first quarter of 2022 and 21,569 in the second quarter of 2021, an increase of 6% quarter over quarter and 4% year over year.
VPD per Clinic were 24.2 compared to 22.9 in the first quarter of 2022 and 24.3 in the second quarter of 2021, an increase of 1.3 visits quarter over quarter and a decrease of 0.1 visit year over year. The increase was muted by the tight labor market for physical therapists with clinical FTE essentially flat quarter over quarter.
- Rate per Visit was $103.57 compared to $103.06 in the first quarter of 2022 and $106.26 in the second quarter of 2021, essentially flat quarter over quarter and a decrease of 3% year over year. The year over year decrease was primarily due to the 2022 Medicare Physician Fee Schedule, which introduced a 0.75% decrease in overall rates and an additional 15% decrease in rates paid for services performed by physical therapy assistants, and unfavorable mix shifts in payors, states and services.
- Salaries and related costs were $89.6 million compared to $87.4 million in the first quarter of 2022 and $80.9 million in the second quarter of 2021, an increase of 3% quarter over quarter due to wage inflation and an increase of 11% year over year due to higher number of clinical FTE and wage inflation.
PT salaries and related costs per Visit were $53.64 compared to $55.47 in the first quarter of 2022 and $48.22 in the second quarter of 2021, a decrease of 3% quarter over quarter due to improved labor productivity partially offset by wage inflation and an increase of 11% year over year primarily due to wage inflation, adding clinic support staff, and lower labor productivity.
- Rent, clinic supplies, contract labor and other was $50.4 million compared to $51.6 million in the first quarter of 2022 and $44.1 million in the second quarter of 2021, a decrease of 2% quarter over quarter due to lower expenditures on a per clinic basis and an increase of 14% year over year due to more clinics and higher expenditures on a per clinic basis.
PT rent, clinic supplies, contract labor and other per Clinic was $53,017 compared to $54,472 in the first quarter of 2022 and $47,857 in the second quarter of 2021, a decrease of 3% quarter over quarter primarily due to lower spend related to clinical events and an increase of 11% year over year primarily driven by greater use of contract labor compared to prior year while the Company works to fill open positions. - Provision for doubtful accounts was $3.5 million compared to $3.6 million in the second quarter of 2021. PT provision as a percent of net patient revenue was 2% in both quarters.
- Selling, general and administrative expenses were $31.8 million compared to $30.0 million in the first quarter of 2022 and $26.4 million in the second quarter of 2021, an increase of 6% quarter over quarter primarily due to a probable legal settlement arising from a payor billing dispute, partially offset by lower debt refinancing fees, and an increase of 21% year over year due to the aforementioned legal settlement, higher public company operating costs and non-ordinary legal and regulatory costs, partially offset by lower transaction costs.
- Non-cash goodwill impairment charge was approximately $87.9 million, and the non-cash trade name indefinite-lived intangible asset impairment charge was approximately $40.0 million. Due to an increase in discount rate, driven by an increase in Treasury rates, and revised near-term Company expectations given current labor market headwinds it was determined that the fair value amounts of goodwill and trade name were below their respective carrying amounts.
- Income tax benefit was $13.0 million compared to $23.3 million in the first quarter of 2022 and $19.7 million in the second quarter of 2021.
- Net loss was $135.7 million compared to $138.2 million in the first quarter of 2022 and $439.1 million in the second quarter of 2021.
- Adjusted EBITDA1 was $5.4 million compared to $(4.7) million in the first quarter of 2022 and $24.0 million in the second quarter of 2021. Quarter over quarter, the increase was primarily driven by higher revenue, lower rent, clinic supplies, and contract labor costs and lower provision for doubtful accounts. Year over year, the decrease was primarily due to higher cost of services and higher selling, general, and administrative expenses as detailed above.
Adjusted EBITDA margin was 3% compared to (3)% in the first quarter of 2022 and 15% in the second quarter of 2021. - Net increase (decrease) in cash was $31.1 million year-to-date 2022 compared to $(51.6) million in the first six months of 2021.
Operating cash use was $32.7 million year-to-date 2022 compared to $27.1 million in the first six months of 2021. Cash repaid in connection with the Medicare Accelerated and Advance Payment Program (“MAAPP”) under the CARES Act was $10.8 million year-to-date 2022 compared to $3.8 million in the first six months of 2021.
Investing cash use was $17.6 million year-to-date 2022, with 22 new clinics opened, compared to $18.9 million in the first six months of 2021 and 20 new clinics opened.
Financing cash generation (use) was $81.4 million year-to-date 2022 compared to $(5.5) million in the first six months of 2021. In February 2022, the Company refinanced its first lien term loan with a new credit agreement and issued Series A preferred stock with detachable warrants, adding approximately $77 million to the balance sheet after payment of transaction fees.
Summary of key balance sheet items as of June 30, 2022 is as follows:
- Cash and cash equivalents totaled $79.7 million, and the revolving credit facility was undrawn with available capacity of $48.2 million, net of usage by letters of credit, equaling $127.9 million in available liquidity.
The Company’s credit agreement includes a minimum liquidity covenant of $30.0 million through the first quarter of 2024. Liquidity, as defined under the Company’s credit agreement, was $103.8 million as of June 30, 2022.
Other notable achievements in the second quarter of 2022 were as follows:
- Opened 10 new clinics in existing states, including Maryland and Pennsylvania; and 6 clinics were closed. This brings the total number of clinics to 926. 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 75 and Google Star Rating of 4.9, reflecting continued high customer satisfaction and brand loyalty.
2022 Guidance
ATI Physical Therapy revises full year 2022 guidance for net operating revenue to be in a range of $635 million to $655 million and Adjusted EBITDA1 to be in a range of $5 million to $15 million. The change in guidance is driven by the challenging labor market reducing the number of clinical FTE expected in the second half of 2022 along with increasing labor cost pressures.
ATI Physical Therapy maintains new clinic openings guidance to be approximately 35.
[Source(s): ATI Physical Therapy, PR Newswire]
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