ATI Physical Therapy(US:ATIP)2024-05-06 20:13PART I - FINANCIAL INFORMATION - UNAUDITED This section presents the unaudited financial information, including statements, management's discussion, and disclosures on market risk and controls Financial Statements The company reported a reduced net loss in Q1 2024, but recurring losses and negative cash flows raise going concern doubts Condensed Consolidated Balance Sheets Total assets slightly decreased to $991.5 million, with significant long-term debt and mezzanine equity impacting the balance sheet Condensed Consolidated Balance Sheet Data (in thousands) | Balance Sheet Item | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $23,727 | $36,802 | | Total current assets | $166,171 | $168,638 | | Total assets | $991,493 | $1,003,281 | | Liabilities & Equity | | | | Total current liabilities | $139,723 | $156,447 | | Long-term debt, net | $439,274 | $433,578 | | 2L Notes due to related parties, at fair value | $95,615 | $79,472 | | Total liabilities | $879,883 | $878,743 | | Series A Senior Preferred Stock (Mezzanine equity) | $225,014 | $220,393 | | Total stockholders' equity | ($113,404) | ($95,855) | Condensed Consolidated Statements of Operations Net revenue increased to $181.5 million, narrowing operating and net losses, aided by a non-cash gain Statement of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2023 | | :--- | :--- | :--- | | Net revenue | $181,472 | $166,932 | | Total cost of services | $159,570 | $147,706 | | Operating loss | ($4,778) | ($11,369) | | Net loss | ($13,523) | ($25,210) | | Net loss attributable to ATI | ($14,651) | ($26,270) | | Loss per share (Basic & Diluted) | ($4.61) | ($7.70) | Condensed Consolidated Statements of Comprehensive Loss Comprehensive loss significantly improved to $13.7 million in Q1 2024, primarily due to a reduced net loss Comprehensive Loss (in thousands) | Metric | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2023 | | :--- | :--- | :--- | | Net loss | ($13,523) | ($25,210) | | Other comprehensive (loss) income | ($140) | ($3,456) | | Comprehensive loss | ($13,663) | ($28,666) | Condensed Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity deficit widened to $113.4 million due to net loss and preferred stock dividend adjustments - Total stockholders' equity deficit widened to $113.4 million as of March 31, 2024, from $95.9 million at the start of the year30 - The decrease was driven by a net loss of $14.7 million and $4.6 million in Series A Senior Preferred Stock dividends and redemption value adjustments30 Condensed Consolidated Statements of Cash Flows Net cash used in operations increased to $39.1 million, partially offset by $28.5 million from financing activities, leading to a cash decrease Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | ($39,066) | ($14,224) | | Net cash used in investing activities | ($2,492) | ($5,079) | | Net cash provided by (used in) financing activities | $28,483 | ($761) | | Net decrease in cash | ($13,075) | ($20,064) | - Financing activities in Q1 2024 included $25.0 million in proceeds from 2L Notes from related parties and a net $5.0 million draw on the revolving line of credit37 Notes to Condensed Consolidated Financial Statements Key notes include a going concern warning, details on debt restructuring, and a $26.5 million shareholder litigation settlement covered by insurance - The company's financial condition, including recurring negative operating cash flows ($39.1 million in Q1 2024), operating losses, and net losses, raises substantial doubt about its ability to continue as a going concern47 - Management's plans to improve operating results and seek additional liquidity have not been fully implemented and do not alleviate the substantial doubt50 - A global settlement in principle has been reached for shareholder class action and derivative litigations for an aggregate of $26.5 million, which is expected to be paid entirely by insurance164 - In Q1 2024, the company issued an additional $25.0 million of 2L Notes under its Delayed Draw Right, increasing the principal amount of 2L Notes to $135.3 million8991 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2024 revenue growth driven by patient volumes, ongoing liquidity challenges, and a going concern warning despite debt restructuring Trends and Factors Affecting Performance Improved patient volumes and revenue per visit were noted, but the company continues to face labor market challenges and wage inflation - Key positive trends in Q1 2024 include improved patient visit volumes and clinician retention186 - Net patient revenue per visit improved due to favorable payor contracting and lower denials, but was partially offset by Medicare rate cuts187 - The physical therapy industry continues to face a tight labor market, contributing to hiring challenges, elevated use of contract labor, and wage inflation186 Key Business Metrics Key performance indicators show increased patient visits and revenue per visit, with a 10.4% same clinic revenue growth rate Key Performance Indicators | Metric | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2023 | | :--- | :--- | :--- | | Number of clinics (end of period) | 884 | 909 | | Average visits per day | 23,837 | 22,701 | | Total patient visits | 1,525,556 | 1,452,848 | | Net patient revenue per visit | $108.42 | $103.76 | | Same clinic revenue growth rate | 10.4% | 8.7% | Results of Operations Net revenue grew 8.7% to $181.5 million, reducing operating and net losses, despite increased salaries, aided by lower SG&A - Net patient revenue increased by $14.7 million (9.7%) in Q1 2024 vs. Q1 2023, driven by a 5.0% increase in patient visits and a 4.5% increase in revenue per visit209210 - Salaries and related costs increased by $8.6 million (9.5%), primarily due to a higher number of clinicians, wage inflation, and higher incentive compensation213 - Selling, general and administrative (SG&A) expenses decreased by $4.4 million (14.4%) due to lower transaction and non-ordinary legal costs, and higher legal cost insurance reimbursements216 - A non-cash gain of $5.4 million was recognized from the change in fair value of 2L Notes, contributing to the reduced net loss217 Non-GAAP Financial Measures Adjusted EBITDA increased to $6.5 million in Q1 2024, with reconciliation detailing non-cash and non-ordinary adjustments EBITDA and Adjusted EBITDA Reconciliation (in thousands) | Metric | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2023 | | :--- | :--- | :--- | | Net loss | ($13,523) | ($25,210) | | EBITDA | $8,430 | ($2,708) | | Adjusted EBITDA | $6,463 | $4,790 | - Key adjustments to arrive at Adjusted EBITDA in Q1 2024 included a $5.4 million gain on the change in fair value of 2L Notes (subtracted), $2.3 million in share-based compensation, and $1.2 million in non-ordinary legal costs228 Liquidity and Capital Resources Critical liquidity challenges persist with negative operating cash flow and a going concern warning, despite recent debt restructuring and drawdowns - The company has continued to generate negative operating cash flows and net losses, raising substantial doubt about its ability to continue as a going concern235 - As of March 31, 2024, cash and cash equivalents were $23.7 million, and there was no available capacity under the revolving credit facility233 - During Q1 2024, the company utilized the full $25.0 million delayed draw new money financing available under its 2023 Debt Restructuring236 - The company was in compliance with its minimum liquidity covenant of $10.0 million as of March 31, 2024233265 Quantitative and Qualitative Disclosures About Market Risk This disclosure is not required as the company qualifies as a smaller reporting company - The company is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act, and therefore this item is not required292 Controls and Procedures Management concluded disclosure controls and procedures were effective, with no material changes to internal control over financial reporting - The Principal Executive Officer and Principal Financial Officer concluded that the company's disclosure controls and procedures were effective as of March 31, 2024294 - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls295 PART II - OTHER INFORMATION This section provides other required information, including legal proceedings, risk factors, and equity security sales Legal Proceedings The company is involved in various legal proceedings, with detailed information provided in Note 14 of the financial statements - The company refers to Note 14 of the financial statements for detailed information on legal proceedings297 Risk Factors No material changes to risk factors have occurred since the last Annual Report on Form 10-K - No material changes to risk factors have occurred since the last Annual Report on Form 10-K298 Unregistered Sales of Equity Securities and Use of Proceeds No unregistered equity sales occurred, but 78,412 shares were repurchased to cover employee tax withholding obligations - The company did not have any sales of unregistered equity securities in Q1 2024299 Issuer Purchases of Equity Securities (Q1 2024) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | March 1 - March 31, 2024 | 78,412 | $6.10 | | Total | 78,412 | $6.10 | - The shares were withheld to cover employee minimum tax withholding obligations upon vesting of stock awards and were not part of a publicly announced repurchase program302 Defaults Upon Senior Securities This item is not applicable for the reporting period - Not applicable302 Mine Safety Disclosures This item is not applicable for the reporting period - Not applicable302 Other Information No other information was required to be reported under this item during the quarter Exhibits The report includes standard filings such as CEO and CFO certifications and XBRL data files - Exhibits filed with the report include Certifications of the Principal Executive Officer and Principal Financial Officer pursuant to Sarbanes-Oxley Act Sections 302 and 906, and XBRL data files304 Signatures The report was signed on May 6, 2024, by Joseph Jordan, Chief Financial Officer - The Form 10-Q was signed on May 6, 2024, by Joseph Jordan, Chief Financial Officer306