ATI Physical Therapy Reports Fourth Quarter and Full Year 2021 Results

(i)

changes in domestic business, market, financial, political and legal conditions, including shifts and trends in payor mix;

(ii) 

the ability to execute on our sales and marketing strategies;

(iii) 

the ability to maintain the listing of the Company's securities on NYSE;

(iv) 

the ability of the Company to realize the anticipated benefits of the business combination;

(v) 

risks related to the rollout of ATI's business strategy, including but not limited to ramping of visits, growing clinical headcount, and opening new clinics, and the timing of expected business milestones;

(vi) 

the effects of competition on ATI's future business and the ability of ATI to grow and manage growth profitably, maintain relationships with customers and suppliers and retain its management and key employees;

(vii) 

the ability of the Company to retain and to hire physical therapists consistent with its business plan;

(viii) 

the ability of the Company to develop new and retain and expand relationships with referral sources;

(ix) 

the outcome of any legal proceedings or regulatory investigations that have or may be instituted against the Company or any of its directors or officers;

(x) 

the ability of the company to comply with its covenants in its credit facility and preferred stock financing arrangements or to redeem preferred stock;

(xi) 

the ability of the Company to issue equity or equity-linked securities or obtain debt financing in the future;

(xii) 

risks related to political and macroeconomic uncertainty;

(xiii) 

the impact of the global COVID-19 pandemic (and existing or emerging variants) on any of the foregoing risks;

(xiv) 

risks related to the impact on our workforce of mandatory COVID-19 vaccination of employees; and

ATI Physical Therapy

Condensed Consolidated Statements of Operations

($ in thousands)

(unaudited)

Three Months Ended

Year Ended

December 31, 2021

December 31, 2020

December 31, 2021

December 31, 2020

Net patient revenue

$

140,275

$

136,840

$

561,080

$        529,585

Other revenue

15,488

16,266

66,791

62,668

Net operating revenue

155,763

153,106

627,871

592,253

Clinic operating costs:

Salaries and related costs

88,087

79,117

336,496

306,471

Rent, clinic supplies, contract labor and other

47,792

42,824

180,932

166,144

Provision for doubtful accounts

2,099

3,332

16,369

16,231

Total clinic operating costs

137,978

125,273

533,797

488,846

Selling, general and administrative expenses

29,897

30,032

111,809

104,320

Goodwill and intangible asset impairment charges

—

—

962,303

—

Operating loss

(12,112)

(2,199)

(980,038)

(913)

Change in fair value of warrant liability

(2,171)

—

(22,595)

—

Change in fair value of contingent common shares liability

(7,875)

—

(175,140)

—

Loss on settlement of redeemable preferred stock

—

—

14,037

—

Interest expense, net

7,215

16,404

46,320

69,291

Interest expense on redeemable preferred stock

—

5,154

10,087

19,031

Other (income) expense, net

(5,590)

(23,914)

241

(91,002)

(Loss) income before taxes

(3,691)

157

(852,988)

1,767

Income tax (benefit) expense

(12,427)

(2,033)

(70,960)

2,065

Net income (loss)

8,736

2,190

(782,028)

(298)

ATI Physical Therapy

Condensed Consolidated Balance Sheets

($ in thousands)

(unaudited)

December 31, 2021

December 31, 2020

Assets:

Current assets:

Cash and cash equivalents

$                     48,616

$                   142,128

Accounts receivable (net of allowance for doubtful accounts of $53,533 and
$69,693 at December 31, 2021 and December 31, 2020, respectively)

82,455

90,707

Prepaid expenses

9,303

3,859

Other current assets

3,204

2,168

Total current assets

143,578

238,862

Non-current assets:

Property and equipment, net

139,730

137,174

Operating lease right-of-use assets

256,646

258,227

Goodwill, net

608,811

1,330,085

Trade name and other intangible assets, net

411,696

644,339

Other non-current assets

2,233

1,685

Total assets

$                1,562,694

$                2,610,372

Liabilities and Stockholders' Equity:

Current liabilities:

Accounts payable

$                     15,146

$                     12,148

Accrued expenses and other liabilities

64,584

70,690

Current portion of operating lease liabilities

49,433

52,395

Current portion of long-term debt

8,167

8,167

Total current liabilities

137,330

143,400

Long-term debt, net

543,799

991,418

Redeemable preferred stock

—

163,329

Warrant liability

4,341

—

Contingent common shares liability

45,360

—

Deferred income tax liabilities

67,459

138,547

Operating lease liabilities

250,597

253,990

Other non-current liabilities

2,301

18,571

Total liabilities

1,051,187

1,709,255

Commitments and contingencies

Stockholders' equity:

Preferred stock, $0.0001 par value; 1.0 million shares authorized; none issued
and outstanding at December 31, 2021 and December 31, 2020

—

—

Class A common stock, $0.0001 par value; 470.0 million shares authorized;
207.4 million shares issued, 197.4 million shares outstanding at December 31,
2021; 138.9 million shares issued, 128.3 million shares outstanding at
December 31, 2020

20

13

Treasury stock, at cost, 0.03 million shares and none at December 31, 2021 and
2020, respectively

(95)

—

Additional paid-in capital

1,351,597

954,728

Accumulated other comprehensive income (loss)

28

(1,907)

Accumulated deficit

(847,132)

(68,804)

Total ATI Physical Therapy, Inc. equity

504,418

884,030

Non-controlling interests

7,089

17,087

Total stockholders' equity

511,507

901,117

Total liabilities and stockholders' equity

$                1,562,694

$                2,610,372

ATI Physical Therapy

Condensed Consolidated Statements of Cash Flows

($ in thousands)

(unaudited)

Year Ended

December 31, 2021

December 31, 2020

Operating activities:

Net loss

$    (782,028)

$           (298)

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

Goodwill and intangible asset impairment charges

962,303

—

Depreciation and amortization

37,995

39,700

Provision for doubtful accounts

16,369

16,231

Deferred income tax provision

(71,088)

1,814

Amortization of right-of-use assets

45,536

44,526

Share-based compensation

5,754

1,936

Amortization of debt issuance costs and original issue discount

3,252

4,109

Non-cash interest expense

—

6,335

Non-cash interest expense on redeemable preferred stock

10,087

19,031

Loss on extinguishment of debt

5,534

—

Loss on settlement of redeemable preferred stock

14,037

—

(Gain) loss on disposal and impairment of assets

(5,189)

469

Loss on lease terminations and impairment

—

3,863

Change in fair value of warrant liability

(22,595)

—

Change in fair value of contingent common shares liability

(175,140)

—

Changes in:

Accounts receivable, net

(10,201)

(3,307)

Prepaid expenses and other current assets

(6,688)

4,841

Other non-current assets

(284)

413

Accounts payable

1,831

798

Accrued expenses and other liabilities

(5,288)

9,174

Operating lease liabilities

(50,942)

(42,819)

Other non-current liabilities

861

5,056

Medicare Accelerated and Advance Payment Program Funds

(12,605)

26,732

Transaction-related amount due to former owners

(3,611)

—

Net cash (used in) provided by operating activities

(42,100)

138,604

Investing activities:

Purchases of property and equipment

(40,293)

(21,887)

Purchases of intangible assets

(1,675)

(250)

Proceeds from sale of property and equipment

223

328

Proceeds from sale of clinics

248

—

Proceeds from sale of Home Health service line

6,131

—

Business acquisitions, net of cash acquired

(4,523)

—

Net cash used in investing activities

(39,889)

(21,809)

Financing activities:

Deferred financing costs

—

(350)

Principal payments on long-term debt

(456,202)

(8,167)

Proceeds from revolving line of credit

—

68,750

Payments on revolving line of credit

—

(68,750)

Cash inflow from Business Combination

229,338

—

Payments to Series A Preferred stockholders

(59,000)

—

Proceeds from shares issued through PIPE investment

300,000

—

Payments for equity issuance costs

(19,233)

—

Taxes paid on behalf of employees for shares withheld

(128)

—

Distribution to non-controlling interest holder

(6,298)

(4,453)

Net cash used in financing activities

(11,523)

(12,970)

Changes in cash and cash equivalents:

Net (decrease) increase in cash and cash equivalents

(93,512)

103,825

Cash and cash equivalents at beginning of period

142,128

38,303

Cash and cash equivalents at end of period

$       48,616

$     142,128

Supplemental noncash disclosures:

Derivative changes in fair value

$        (1,935)

$            582

Purchases of property and equipment in accounts payable

$         4,177

$         3,010

Warrant liability recognized upon the closing of the Business Combination

$      (26,936)

$              —

Contingent common shares liability recognized upon the closing of the Business
Combination

$    (220,500)

$              —

Shares issued to Wilco Holdco Series A Preferred stockholders

$     128,453

$              —

Other supplemental disclosures:

Cash paid for interest

$       41,937

$       58,421

Cash paid for (received from) taxes

$              81

$        (1,098)

ATI Physical Therapy

Supplemental Tables of Key Performance Metrics

Financial Metrics ($ in 000's)

Net Patient Revenue

Other

Revenue

Net Operating Revenue

Adjusted EBITDA⁽¹⁾

Adj EBITDA margin⁽¹⁾

Q1 2019

$170,940

$16,277

$187,217

$25,989

13.9%

Q2 2019

$182,757

$16,015

$198,772

$33,342

16.8%

Q3 2019

$179,561

$16,624

$196,185

$29,455

15.0%

Q4 2019

$184,338

$18,946

$203,284

$39,606

19.5%

Q1 2020

$164,939

$17,799

$182,738

$26,487

14.5%

Q2 2020

$95,003

$12,751

$107,754

$1,189

1.1%

Q3 2020

$132,803

$15,852

$148,655

$17,321

11.7%

Q4 2020

$136,840

$16,266

$153,106

$18,622

12.2%

Q1 2021

$132,271

$16,791

$149,062

$5,590

3.8%

Q2 2021

$146,679

$17,354

$164,033

$23,999

14.6%

Q3 2021

$141,855

$17,158

$159,013

$8,539

5.4%

Q4 2021

$140,275

$15,488

$155,763

$1,643

1.1%

(1)

Excludes CARES Act Provider Relief Funds of $44.3 million in the second quarter of 2020, $23.1 million in the third quarter of 2020, and $24.1 million in the fourth quarter of 2020.

(1)

Equals patient visits divided by operating days.

(2)

Represents clinical staff hours divided by 8 hours divided by number of paid days.

(3)

Equals patient visits divided by operating days divided by clinical full-time equivalent employees.

(4)

Represents clinician headcount new hire adds divided by average clinician headcount, multiplied by 4 to annualize.

(5)

Represents clinician headcount separations divided by average clinician headcount, multiplied by 4 to annualize.

(1)

Equals Net Patient Revenue divided by average clinics over the quarter.

(2)

Equals patient visits divided by operating days divided by average clinics over the quarter

(3)

Equals Net Patient Revenue divided by patient visits.

(4)

Equals estimated patient-related portion of Salaries and Related Costs divided by patient visits.

(5)

Equals estimated patient-related portion of Rent, Clinic Supplies, Contract Labor and Other divided by average clinics over the quarter.

(6)

Equals estimated patient-related portion of Provision for Doubtful Accounts divided by Net Patient Revenue.

(1)

NPS measures customer experience from ATI patient survey responses. The score is calculated as the percentage of promoters less the percentage of detractors.

(2)

A Google Star rating is a five-star rating scale that ranks businesses based on customer reviews. Customers are given the opportunity to leave a business review after interacting with a business, which involves choosing from one star (poor) to five stars (excellent).

ATI Physical Therapy

Reconciliation of GAAP to Non-GAAP Financial Measures

($ in thousands)

(unaudited)

Year Ended

December 31, 2021

December 31, 2020

Net (loss) income

$           (782,028)

$                 (298)

Plus (minus):

Net loss (income) attributable to non-controlling interest

3,700

(5,073)

Interest expense, net

46,320

69,291

Interest expense on redeemable preferred stock

10,087

19,031

Income tax (benefit) expense 

(70,960)

2,065

Depreciation and amortization expense

37,995

39,700

EBITDA

$           (754,886)

$            124,716

Goodwill and intangible asset impairment charges⁽¹⁾

962,303

—

Goodwill and intangible asset impairment charges attributable to
non-controlling interest⁽¹⁾

(7,949)

—

Changes in fair value of warrant liability and contingent common
shares liability⁽²⁾

(197,735)

—

Loss on settlement of redeemable preferred stock⁽³⁾

14,037

—

Transaction and integration costs⁽⁴⁾

9,788

4,790

Gain on sale of Home Health service line, net

(5,846)

—

Share-based compensation

5,769

1,936

Loss on debt extinguishment⁽⁵⁾

5,534

—

Reorganization and severance costs⁽⁶⁾

3,913

7,512

Non-ordinary legal and regulatory matters⁽⁷⁾

2,914

—

Pre-opening de novo costs⁽⁸⁾

1,929

1,565

Business optimization costs⁽⁹⁾

—

10,377

Charges related to lease terminations⁽¹⁰⁾

—

4,253

Adjusted EBITDA

$               39,771

$            155,149

⁽¹⁾ 

Represents non-cash charges related to the write-down of goodwill and trade name indefinite-lived intangible assets.

⁽²⁾ 

Represents non-cash amounts related to the change in the estimated fair value of Warrants, Earnout Shares and Vesting Shares.

⁽³⁾ 

Represents loss on settlement of redeemable preferred stock based on the value of cash and equity provided to preferred stockholders in relation to the outstanding redeemable preferred stock liability at the time of the closing of the Business Combination with FVAC II.

⁽⁴⁾

Represents costs related to the Business Combination with FVAC II, non-capitalizable debt transaction costs, clinic acquisitions and acquisition-related integration and consulting and planning costs related to preparation to operate as a public company.

⁽⁵⁾

Represents charges related to the derecognition of the proportionate amount of remaining unamortized deferred financing costs and original issuance discount associated with the partial repayment of the first lien term loan and derecognition of the unamortized original issuance discount associated with the full repayment of the subordinated second lien term loan.

⁽⁶⁾ 

Represents severance, consulting and other costs related to discrete initiatives focused on reorganization and delayering of the Company's labor model, management structure and support functions.

⁽⁷⁾ 

Represents non-ordinary course legal costs related to the previously-disclosed ATIP shareholder class action complaints, derivative complaint and SEC inquiry.

⁽⁸⁾   

Represents expenses associated with renovation, equipment and marketing costs relating to the start-up and launch of new locations incurred prior to opening.

⁽⁹⁾ 

Represents non-recurring costs to optimize our platform and ATI transformative initiatives. Costs primarily relate to duplicate costs driven by IT and Revenue Cycle Management conversions, labor related costs during the transition of key positions and other incremental costs of driving optimization initiatives.

⁽¹⁰⁾ 

Represents charges related to lease terminations prior to the end of term for corporate facilities no longer in use.

ATI Physical Therapy

Reconciliation of GAAP to Non-GAAP Financial Measures

($ in thousands)

(unaudited)

Three Months Ended

December 31,

September 30,

June 30,

March 31,

2021

2021

2021

2021

Net income (loss)

$8,736

($333,820)

($439,126)

($17,818)

Plus (minus):

Net (income) loss attributable to non-controlling interests

(869)

2,109

3,769

(1,309)

Interest expense, net

7,215

7,386

15,632

16,087

Interest expense on redeemable preferred stock

—

—

4,779

5,308

Income tax (benefit) expense

(12,427)

(28,287)

(19,731)

(10,515)

Depreciation and amortization expense

10,005

9,222

9,149

9,619

EBITDA

12,660

(343,390)

(425,528)

1,372

Goodwill and intangible asset impairment charges⁽¹⁾

—

508,972

453,331

—

Goodwill and intangible asset impairment charges
attributable to non-controlling interest⁽¹⁾

—

(2,928)

(5,021)

—

Changes in fair value of warrant liability and contingent
common shares liability⁽²⁾

(10,046)

(162,202)

(25,487)

—

Gain on sale of Home Health service line, net

(5,846)

—

—

—

Reorganization and severance costs⁽³⁾

—

3,551

—

362

Transaction and integration costs⁽⁴⁾

955

2,335

3,580

2,918

Share-based compensation

905

1,248

3,112

504

Pre-opening de novo costs⁽⁵⁾

543

511

441

434

Non-ordinary legal and regulatory matters⁽⁶⁾

2,472

442

—

—

Loss on debt extinguishment⁽⁷⁾

—

—

5,534

—

Loss on settlement of redeemable preferred stock⁽⁸⁾

—

—

14,037

—

Adjusted EBITDA

$1,643

$8,539

$23,999

$5,590

(1)

Represents non-cash charges related to the write-down of goodwill and trade name indefinite-lived intangible assets.

(2)

Represents non-cash amounts related to the change in the estimated fair value of Warrants, Earnout Shares and Vesting Shares.

(3)

Represents severance, consulting and other costs related to discrete initiatives focused on reorganization and delayering of the Company's labor model, management structure and support functions.

(4)

Represents costs related to the Company's business combination with FVAC II, non-capitalizable debt transaction costs, clinic acquisitions and acquisition-related integration and consulting and planning costs related to preparation to operate as a public company.

(5)

Represents expenses associated with renovation, equipment and marketing costs relating to the start-up and launch of new locations incurred prior to opening.

(6)

Represents non-ordinary course legal costs related to the previously-disclosed ATIP shareholder class action complaints, derivative complaint and SEC inquiry.

(7)

Represents charges related to the derecognition of the proportionate amount of remaining unamortized deferred financing costs and original issuance discount associated with the partial repayment of the first lien term loan and derecognition of the unamortized original issuance discount associated with the full repayment of the subordinated second lien term loan.

(8)

Represents loss on settlement of redeemable preferred stock based on the value of cash and equity provided to preferred stockholders in relation to the outstanding redeemable preferred stock liability at the time of the closing of the business combination with FVAC II.

ATI Physical Therapy

Reconciliation of GAAP to Non-GAAP Financial Measures

($ in thousands)

(unaudited)

Three Months Ended

December 31,

September 30,

June 30,

March 31,

2020

2020

2020

2020

Net income (loss)

$2,190

$1,022

$4,596

($8,106)

Plus (minus):

Net income attributable to non-controlling interests

(987)

(901)

(1,855)

(1,330)

Interest expense, net

16,404

17,346

17,683

17,858

Interest expense on redeemable preferred stock

5,154

4,896

4,604

4,377

Income tax (benefit) expense

(2,033)

2,322

3,568

(1,792)

Depreciation and amortization expense

10,072

9,880

9,763

9,985

EBITDA

30,800

34,565

38,359

20,992

Reorganization and severance costs⁽¹⁾

679

4,436

1,255

1,142

Transaction and integration costs⁽²⁾

3,747

75

100

868

Share-based compensation

503

473

466

494

Pre-opening de novo costs⁽³⁾

335

368

268

594

Business optimization costs⁽⁴⁾

2,450

519

5,011

2,397

Charges related to lease terminations⁽⁵⁾

4,253

—

—

—

Adjusted EBITDA

$42,767

$40,436

$45,459

$26,487

(1)

Represents severance, consulting and other costs related to discrete initiatives focused on reorganization and delayering of the Company's labor model, management structure and support functions.

(2)

Represents costs related to the Company's business combination with FVAC II, clinic acquisitions and acquisition-related integration and consulting and planning costs related to preparation to operate as a public company.

(3)

Represents expenses associated with renovation, equipment and marketing costs relating to the start-up and launch of new locations incurred prior to opening.

(4)

Represents non-recurring costs to optimize our platform and ATI transformative initiatives. Costs primarily relate to duplicate costs driven by IT and Revenue Cycle Management conversions, labor related costs during the transition of key positions and other incremental costs of driving optimization initiatives.

(5)

Represents charges related to lease terminations prior to the end of term for corporate facilities no longer in use.

ATI Physical Therapy

Reconciliation of GAAP to Non-GAAP Financial Measures

($ in thousands)

(unaudited)

Three Months Ended

December 31,

September 30,

June 30,

March 31,

2019

2019

2019

2019

Net income (loss)

$31,914

($6,046)

($4,816)

($11,303)

Plus (minus):

Net income attributable to non-controlling interests

(1,234)

(878)

(933)

(1,355)

Interest expense, net

18,022

19,263

19,927

19,760

Interest expense on redeemable preferred stock

4,206

4,000

3,763

3,542

Income tax benefit

(36,095)

(2,055)

(1,825)

(4,044)

Depreciation and amortization expense

9,884

9,567

9,635

10,018

EBITDA

26,697

23,851

25,751

16,618

Reorganization and severance costs⁽¹⁾

3,401

120

775

4,035

Transaction and integration costs⁽²⁾

3,998

198

310

29

Share-based compensation

(57)

559

795

525

Pre-opening de novo costs⁽³⁾

438

757

487

593

Business optimization costs⁽⁴⁾

5,129

3,970

5,224

4,189

Adjusted EBITDA

$39,606

$29,455

$33,342

$25,989

(1)

Represents severance, consulting and other costs related to discrete initiatives focused on reorganization and delayering of the Company's labor model, management structure and support functions.

(2)

Represents costs related to the Company's business combination with FVAC II, clinic acquisitions and acquisition-related integration and consulting and planning costs related to preparation to operate as a public company.

(3)

Represents expenses associated with renovation, equipment and marketing costs relating to the start-up and launch of new locations incurred prior to opening.

(4)

Represents non-recurring costs to optimize our platform and ATI transformative initiatives. Costs primarily relate to duplicate costs driven by IT and Revenue Cycle Management conversions, labor related costs during the transition of key positions and other incremental costs of driving optimization initiatives.