ATI Physical Therapy(US:ATIP)2023-08-07 16:00Part I - Financial Information - Unaudited Financial Statements The unaudited condensed consolidated financial statements for the six months ended June 30, 2023, reflect a net loss of $47.0 million, a significant decrease in cash, and a $73.2 million stockholders' deficit, raising substantial doubt about the company's going concern ability Condensed Consolidated Statements of Operations Highlights (Six Months Ended June 30) | Financial Metric | 2023 (in thousands) | 2022 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Net Revenue | $339,269 | $317,115 | +7.0% | | Operating Loss | $(23,729) | $(315,930) | -92.5% | | Net Loss | $(46,959) | $(273,946) | -82.9% | | Loss per Share (Basic & Diluted) | $(25.47) | $(69.41) | -63.3% | Condensed Consolidated Balance Sheet Highlights | Account | June 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :--- | :--- | :--- | | Cash and cash equivalents | $37,679 | $83,139 | | Total Assets | $1,010,273 | $1,078,985 | | Long-term debt, net | $415,068 | $531,600 | | 2L Notes due to related parties | $96,933 | $0 | | Total Liabilities | $869,594 | $890,198 | | Total Stockholders' Equity | $(73,245) | $48,447 | Condensed Consolidated Statements of Cash Flows Highlights (Six Months Ended June 30) | Cash Flow Activity | 2023 (in thousands) | 2022 (in thousands) | | :--- | :--- | :--- | | Net cash used in operating activities | $(5,319) | $(32,737) | | Net cash used in investing activities | $(10,125) | $(17,618) | | Net cash (used in) provided by financing activities | $(30,016) | $81,419 | | Net (decrease) increase in cash | $(45,460) | $31,064 | - The Company's financial condition, including negative operating cash flows and recurring losses, raises substantial doubt about its ability to continue as a going concern414246 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses a 7.0% increase in net revenue driven by higher patient visits, alongside challenges like wage inflation and interest rate pressures, with a significant debt restructuring completed in June 2023, yet substantial doubt about going concern persists - Key operational trends in Q2 2023 include improved patient visit volumes, a continued tight labor market for clinicians leading to wage inflation, and stabilization in the rate per visit208 - On June 15, 2023, the company completed a debt restructuring to improve liquidity, exchanging $100.0 million of Senior Secured Term Loans for 2L Notes and amending credit agreement terms203292293 Key Business Metrics (Six Months Ended June 30) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Number of clinics (end of period) | 911 | 926 | | Average visits per day | 23,056 | 21,733 | | Total patient visits | 2,951,217 | 2,781,793 | | Net patient revenue per visit | $104.26 | $103.33 | | Same clinic revenue growth rate | 7.5% | 2.1% | Reconciliation of Net Loss to Adjusted EBITDA (Six Months Ended June 30) | Metric (in thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Net Loss | $(46,959) | $(273,946) | | EBITDA | $569 | $(269,620) | | Adjusted EBITDA | $14,128 | $741 | Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk stems from interest rate variability on its variable-rate debt, partially mitigated by interest rate cap derivatives, with a 100 basis point change impacting annual cash interest expense by approximately $2.4 million - The company's main market risk is interest rate volatility on its variable-rate debt, partially hedged with interest rate caps346 - A 100 basis point (1%) change in interest rates would alter the company's annual cash interest expense by approximately $2.4 million346 Controls and Procedures Management concluded that disclosure controls and procedures were not effective as of June 30, 2023, due to previously identified material weaknesses in internal control over financial reporting related to income tax processes, with remediation efforts underway - The Principal Executive Officer and Principal Financial Officer concluded that disclosure controls and procedures were not effective as of June 30, 2023350 - The ineffectiveness stems from previously reported material weaknesses in internal control over financial reporting, specifically concerning income taxes350 - Remediation efforts are underway, including revising the tax staffing model, implementing new technology, and enhancing controls over the income tax provision process, with full remediation pending effective operation of new controls for a sufficient period351353 Part II - Other Information Legal Proceedings The company is involved in various legal proceedings and claims arising in the ordinary course of business, including stockholder class action and derivative complaints, with details cross-referenced to Note 16 of the financial statements - The company is party to various legal proceedings, including stockholder class action and derivative complaints, and an SEC investigation, with details in Note 16 of the financial statements179185188356 Risk Factors The company highlights material risk factors related to its recent debt restructuring and financial condition, including earnings volatility from 2L Notes, stockholder dilution, significant Preferred Equityholder influence, and the ongoing risk of NYSE delisting - The 2L Notes are accounted for at fair value, potentially causing material, non-cash fluctuations in quarterly financial results due to external factors357358 - Conversion of 2L Notes into common stock and the voting rights of Series B Preferred Stock will dilute existing stockholders' ownership and voting interests358359360 - Preferred Equityholders exert significant influence, controlling over 50% of voting power, potentially affecting corporate actions and not aligning with other stockholders' interests361362 - The company faces a delisting risk from the NYSE for failing to meet the minimum market capitalization requirement, as notified on June 28, 2023372 - A low stock price may render share-based compensation ineffective for retaining key employees, with limited shares available for future grants under the 2021 Equity Incentive Plan366367368 Unregistered Sales of Equity Securities and Use of Proceeds During the quarter ended June 30, 2023, the company reported no unregistered sales of equity securities beyond prior disclosures and withheld 1,206 shares of common stock for employee tax obligations - No unregistered sales of equity securities occurred in Q2 2023, except as previously disclosed in the Form 8-K filed on June 15, 2023376 - The company withheld 1,206 shares of common stock to cover employee tax withholding obligations from vested stock awards during the quarter377378 Defaults Upon Senior Securities No defaults upon senior securities were reported for the period - No defaults upon senior securities were reported for the period379 Mine Safety Disclosures The company has no mine safety disclosures to report - The company has no mine safety disclosures to report379 Other Information No other information was reported for this item during the quarter Exhibits This section lists all exhibits filed with the Form 10-Q, including amended corporate governance documents, agreements related to the recent debt restructuring, and officer certifications - Exhibits filed include amendments to the Certificate of Incorporation, the First Amended and Restated Certificate of Designation of Series A Senior Preferred Stock, and various agreements related to the April/June 2023 debt restructuring381