Q1 2022 ATI Physical Therapy Inc Earnings Call
In Texas.
And we have the financial and people resources to capitalize on these immediate growth opportunities as we see them come out.
Finally <unk>.
All of our work comes to a fine point in the measurement of our patient satisfaction scores and they remain very high with an NPS of 74, and a Google Star rating of four nine in the first quarter of 2022.
We provide individualized NPS reports to each of our regions and clinics quarterly.
And to each of our therapists semi annually and our strong commitment to continuously raise the bar on what counts patient satisfaction with their overall experience and more importantly their outcomes.
With that I'll turn the call over to Ray.
Thank you Jack I'd like to take a moment to provide a detailed review of our operational performance in the first quarter and discuss some of our activities in the field.
As we started 2022 January in the first half of February included challenges from omicron impacting patient visits appointments.
Appointment schedules and therapist staffing at our clinics.
As the impact from the Covid very lessened patient visits steadily climbed from 19300 visits per day in January to 22600 visits per day by March.
And managing our clinical team one key metric that we track as visits per clinical FTE per day.
While always focusing on reducing turnover, we use this metric to adjust our hiring activities.
Jack mentioned.
<unk> clinician turnover was 28% in the first quarter of 2022, and the trend was positive each month within the quarter.
Our visits per day per clinical FTE was $8 five across the platform, while we consider full capacity utilization to be in the low to mid nines.
We do however have certain pockets of the country, where the labor market continues to be particularly constrained and we have relied on some contract labor to bridge the gap in these specific markets.
One area of focus for us in 2022 is rebuilding talent and growing our clinical team with.
With PT school graduations in May and our traditionally biggest hiring season right around the corner, we're excited to expand our already talented base of providers with new team members.
In addition to optimizing labor productivity and adding clinical FTE the third leg in the operational stool is driving referrals.
In the first quarter of 2022, we filled many of the new business development positions created under the refreshed sales strategy and are targeting to fill the remaining open positions in the second quarter.
Furthermore, we've completed a key project that provides our clinical leadership team unique visibility and allows them to play a more active role in relationship development, which will be key in growing the business.
As Jack mentioned, we're already seeing early results with the sales efforts referrals per day in January where 85% of the pre COVID-19 level in 2019 and increased by March to 96% of the fiscal year 2019 level.
It is essential that we continue to drive higher referral volumes in order to meet our short term goals and set ourselves up for long term success.
To wrap things up I am really proud of our clinical leadership team and more specifically all of our team members who are delivering a differentiated experience in the clinic Q1 was a challenge in the team rose to the occasion I'm excited to see our hard work pay off as we continue into Q2 and beyond and.
And with that said I'd like to turn the call over to Joe for a financial review.
And thanks to everyone for joining the call today.
I will cover our first quarter 2022 financial results and then I'll review the company's full year outlook.
<unk> with the first quarter.
Net operating revenue was $154 million of.
A three 2% increase year over year from $149 million in Q1 of 2021.
Net patient revenue was $139 million, increasing 5% year over year, driven by higher volumes, partially offset.
Offset by lower rate per visit.
Other revenue was 15 million declining 11, 3% year over year, primarily due to the sale of our home Health service line in the fourth quarter of 2021.
Visits per day per clinic during the quarter were 22, 9% sequentially, increasing 1% from $22 eight in the fourth quarter of 2021.
The quarter over quarter increase was muted by visit softness in January and the first half of February when Covid variances disrupted operations through increased cancellations a decline in scheduled appointments and increased clinician absences.
Compared to the prior year visits per day per clinic improved 7% from 22.2.
Rate per visit was $103 <unk> sequentially decreasing one 4% from $104 51 in the fourth quarter of 2021.
And four 2% year over year from $107 56 in the first quarter of 2021.
The decreases in rate were primarily driven by the 2022, Medicare physician fee schedule, having lower rates for reimbursement for physical therapy, and lower reimbursement rates for physical therapy assistants.
The decrease relative to Q1 of 2021 was also due to unfavorable mix shift in payer states in services.
Salaries and related costs in the first quarter of 2022 were $87 million and eight 4% increase year over year from $81 million due to both more clinical FTE and wage inflation.
PT salaries and related cost per visit during the quarter were $55 47.
Essentially flat compared to Q4, and increasing two 5% year over year from $54 14 in Q1 due to wage inflation.
Rent clinic supplies contract labor and other in the first quarter of 2022 was $52 million and 19, 2% increase year over year from $43 million due to having more clinics and higher cost per clinic.
PT rent and other cost per clinic during the quarter was approximately 54000 sequentially, increasing six 9% from 51000 in the fourth quarter and 14, 1% from 48000 in the first quarter of 2021.
The increases were primarily due to greater use of contract labor in select markets, where it's taking longer to fill certain positions.
Our provision for doubtful accounts during the first quarter was $5 million or approximately three 7% of net patient revenue, which is trending favorably when compared to the first quarter of 2021 at five 4% of net patient revenue.
SG&A during the quarter was approximately $30 million or 21, 4% increase year over year from $25 million due to public company operating costs and non ordinary legal and regulatory expenses.
Impairment charges in the first quarter of 2022 or $116 million for goodwill and $39 million for our trade name both noncash charges.
The impairment was primarily due to an increase in market interest rates and our cost of capital along with the public market price of our stock as of the valuation date.
Operating loss in the first quarter of 2022 was $176 million increasing year over year from $7 million in Q2 of 2021.
The increase was primarily driven by the $156 million impairment charge that I just mentioned.
While visit volume and revenue were higher year over year.
Lower rate per visit combined with clinician wage inflation greater use of contractors and higher G&A led to lower margins driving the remaining $13 million increase in operating loss when compared to Q1 of the prior year.
Notable below the line expenses during the quarter included a decrease in the fair value of certain warrants and contingent <unk> liabilities totaling $26 million.
The mark to market adjustment to fair value was based on evaluation analysis as of March 31.
Interest expense during the quarter was $9 million compared to $16 million in the first quarter of 2021, which is consistent with the reduced principal debt outstanding as of the end of the first quarter.
Other expenses were approximately $3 million during the quarter and were primarily due to the loss on extinguishment of debt in connection with the refinancing of our credit agreement in February .
As discussed on our last call the refinance transaction added approximately $77 million to the balance sheet and pushed maturity out to 2028, providing liquidity and time to invest in our people and growth strategies as we work to continue to scale our business.
Income tax benefit for the quarter was $23 million compared to $11 million in the first quarter of the prior year and our net loss during the quarter was $138 million compared to $18 million in the first quarter of 2021.
Adjusted EBIT during the quarter was a loss of $5 million or negative three 1% margin decreasing year over year from adjusted EBIT of $6 million in Q1 of 2021 or three 8% margin.
Cash generated during the first quarter was $46 million broken down between $27 million used to fund operations 9 million used in investing activities and $82 million generated from financing activities.
Cash used in operations did include $4 million repaid in connection with the Medicare accelerated and advanced payment program under the cares Act.
As of March 31, 2022 available liquidity was approximately $144 million comprised of $95 million of cash on hand, and $49 million and available revolver capacity.
Looking ahead, we are maintaining our full year 2022 guidance expecting revenue to be in the range of $675 to $705 million.
In the first quarter of 2022, we ramped visit steadily as Jack mentioned visits per day or approximately 22600 in March was the highest volume month since pre COVID-19.
Furthermore, as Ray mentioned, our most significant hiring season is around the corner.
Maybe in the time, when most new physical therapists complete their academic programs and graduate.
As we drive referrals and convert to visits we will focus on adding new team members and growing clinical head count along with the growth in demand and in turn the growth in volume.
We are also maintaining our full year guidance for adjusted EBITDA to be in the range of $25 million to $35 million.
Traditionally the first quarter of the year is the lowest in profitability with inclement weather, causing patient cancellations and seasonally higher provision for doubtful accounts.
With our National leadership meeting held at the beginning of the fiscal year. The first quarter profit is also impacted by higher expenses.
And in 2022 as discussed on our last call. The first quarter was impacted by Covid variance during the first six weeks.
As the business continues to ramp during the remainder of the year, we will be able to better leverage our fixed costs.
And accordingly generate higher earnings, which we've already begun to see in March.
Okay.
Finally regarding new clinics as Jack mentioned, we opened 12 de novo clinics in the first quarter of 2022 and continue to expect to open between 20 and 30, new clinics for the full year 2022 focused on markets, where we see outsized opportunities for growth.
With that I'll turn the call over to Sharon.
Thank you Joe for the detailed discussion of financial performance and outlook.
It Hasnt evidence driven approach to improving function and helping us to get back to their best.
Companies systematically measures and reports patient outcomes and patient satisfaction, which is uncommon in the highly fragmented outpatient physical therapy sector.
I admire the energy and passion of our clinicians and I could not be more excited to be here at this pivotal time and a part of the team.
Over the past 30, plus years of dedicated my career to advancing high quality healthcare and increasing access.
And my last role I was very much focused on making health management available timely and convenient and affordable.
The bed rock of high quality care is the medical professionals in the field.
Equally important delivery of affordable healthcare it takes a village and my experience includes how to effectively coordinate patient care with other health care providers and in doing so lower system cost.
In the immediate term my plan is to focus on regaining market momentum and meeting our performance commitments as.
As I spend my first 100 days digging into the business I'll be looking for opportunities to increase patient access to high quality PK through various avenues, including de Novo clinic acquisition digital health and strategic partnerships and alliances.
<unk> has a strong platform and I look forward to new milestones ahead.
Operator, we are now ready to open the call for questions.
Yes.
Thank you and just a reminder, ladies and gentlemen, it is star one to ask a question.
We will take our first question today from Chris Pneumonitis Jeffrey.
Great. Thanks for the questions and welcome Sharon you guys talked about a reduction in attrition sequentially, which is great, but if I look at your clinical FTE slightly down quarter over quarter. So its hiring proving to be more challenging than you originally anticipated.
Hey, Chris This is Joe I can take that one so.
Two things to point out there, we actually have a decrease in turnover at 28% you probably also noticed that there is an increase in hiring at 39%. So hiring does outpace turnover. When you look at those two the clinical FTE metric is a bit nuance and it's a function of the number of hours that a clinician works and I would tell you the delta there.
Or is really the timing of when someone is termed or decides to attrit and the timing of when someone is hired on.
And maybe to cut through all of that noise. What I would say is if we look at our clinical FTE today, we're north of 2500, I think that reflects that there are a lot of terms at that calculated longer for a period versus hires.
Got it that makes sense and then you mentioned kind of PD graduation in May So how do you feel about in filling with new Grad do you feel like you're well positioned with kind of the maybe more seasons clinical staff at the hiring really does come down to more support our junior level staff.
Yes, Chris This is Jeff we do focus I would say most of our attention on new grad recruiting them and that's proven to be quite successful for us over the past few quarters, where we're able to source them, but really attractive offers in front of them and then bring them up the productivity curve pretty quick but I think we're.
Probably put a little more color on those on those remarks, yes, Chris we have a mentoring program that specifically for this situation of this environment that you are describing as we bring on new grads, we pair them up with experience providers not only to ask questions and deal with the actual diagnosis.
These are they are trading, but how do you handle caseload, how you interact with physicians interact with family members and such so we feel good about the support system that we're providing to these these new providers as they exit school and enter the workforce.
Great. That's helpful. And then one more for me if I may you talked about your labor and sales strategy last quarter, potentially taking hold and maybe driving outperformance, but with the guide reiterated today, how should we think about the progression of those strategy that you're feeling more or maybe less confident about winning back referral share versus where you're going.
During the fourth quarter call. Thanks.
Yes.
Yes.
The strategy, we put in really has two components one we have to rebuild.
People part of our of our business development team and I think we've done that very well where within less than a handful of our targeted business development team size. But then we also had to rebuild some of the sales and marketing datasets. If you will to point where referrals are.
Where they have been historically, and then where our development teams need to spend our time. So I think we have all those components in place where we have had some aging of our development teams in a particular market we are seeing growth.
At a higher rate than we are in some of the less mature sort of new areas. So put that all into the balance I feel pretty good that we've got.
Kind of a sales and referral resurgence program underway, but it takes time and I think as I've said in my prepared remarks, we will see a little bit now and increasingly more so in the quarters to come.
Very helpful. Thank you.
Question next.
Next question comes from Larry Solow CJS Securities.
Hi, This is stefanos crist, calling in for Larry Thanks for taking my questions.
In terms of the improvement on referrals are those predominantly new doctors or some of those lost referral sources coming back.
Yes.
I think it's a mix of both.
The existing referral sources are probably are our most.
Most fertile areas and we are beginning to knock on the door of.
Less traditional for us referrals and I think we're seeing some success, but at this point cant give you an exact percent, but it's it's a mix of both but still predominantly existing referral sources.
Got it thank you and just a follow up.
The pricing on the private side can you talk about the progression of rates just considering the inflationary environment.
Sure.
Couple of thoughts.
Ask Joe to jump in so we expected rate compression in 2022 is a function of the Medicare fee schedule cuts that we saw last year fully anticipated.
And we are working very diligently on the bulk of the other rates, primarily with commercial payers and the like but remember the Medicare rate cut fee schedule is only the starting point on top of that there are performance bonuses that I think we've said in prior calls that because of our success.
In reporting under the Medicare incentive programs, we get a little bit better rate than what the fee schedules would indicate so.
Not surprised to see some rate compression in Q1, and we anticipate that in the balance of your forecast.
And just to maybe add on to Jack's year, obviously, well aware stuff notes of the Medicare rate environment, We talked about Jack just hit on it when we step over to commercial there is a handful of payers not a material piece of our payer landscape in commercial that does attach their rates to Medicare and Medicare light contracts and as a result, there is a small dip.
Client and rates for those payers on what we've seen with other payers. Thus far this year is pretty consistent rates.
<unk>.
The rates are the agreements with those payers are generally evergreen and therefore they'll renew throughout the year. So we will have them coming up throughout the year, but to date.
Relatively consistent rates not going up or down.
Yes.
Thanks, so much.
That's fine.
As a reminder, it is star one if you have a question next up is Peter Chickering Deutsche Bank.
Yes, good afternoon, guys. Thank for taking my questions and sharing.
<unk>.
It's a question of are you.
Yes, I mean the telephone.
A question on on rates just on the sort of year over year decline of 450 <unk> provides a bridge of how much of that was from Medicare fee schedule, how much of that was from lower rates.
Is being performed by assistance.
And if possible the unfavorable mix shift in payer mix just to understand through all these different parts.
It's Joe.
I'm going to lump the two Medicare pieces together.
If you look at Q4 to Q1, we went $104 50 ish to the 103 and change in Q1 that I think you could pretty closely tied to the change in Medicare. It's a combination of PTA seen visits and Medicare PT and I don't have at my fingertips, how much is each of those two components.
The Delta between Q1 of last year and the remaining difference on breaking down to $104 50 is primarily.
State mix shift and.
Payer mix shift, meaning less workers' comp less API more commercial more Medicare and 170 to 104 is that and then $104 50 to 103 is Medicare change.
Okay and then.
Looking at March has that payer mix stabilized and kind of how should we be thinking about that going forward and what's the right.
From a modeling perspective, what's the right.
We should be modeling from here.
For 2019.
Generally the payer mix has stayed consistent in March although I want to be careful getting into month to month discussions, but generally stayed pretty consistent in March and as we look out going forward. What we had anticipated in 2022 is a stable payer mix of granite you want to focus on trying to grow some of those higher pain states.
Back and grow some of the.
Payer mix back to workers comp and API, where we can capture share, but we haven't modeled that out.
Okay shifting to guidance so.
Because it was what it was the first quarter and the and the PT cost per visit.
The pressure due to the.
These macro pressures that we're facing in Europe can you just a quick question for $8 5 billion slightly below where it was in 2018 pre COVID-19. So can you sort of walk us through what assumptions on which kpis. So youre assuming in order to get to the guidance is it.
I mean, just whats.
Keep your eyes should we be modeling to get to the guidance.
Okay.
Joe again.
The visits per clinical FTE to your point were about eight five for the first quarter.
Got it in the February call, but we certainly had labor early in the year January and February .
Visits weren't coming in because of Covid and the productivity as you can imagine as a result was significantly depressed from that $8 five average for the quarter. So again not to break out individual months, specifically, but if you can think about the trend that was happening there. When we were in March we were in the low nines as we think through the rest of the year, that's where we want to be is in the <unk>.
Low nines now we understand that as we add clinicians and Ray and Jack and I, all talked about needing to add labor throughout the year to grow our volume back the productivity could be uneven throughout the year, but generally we expect it to be somewhere in the low nines.
Okay and then.
Yes.
And our perspective is this sort of the right rate that you guys will be hiring throughout the year, what you've seen I guess to your point that you gave us some numbers.
Where we are today at a 2500 or so adding.
<unk> plus.
A question.
Quarter, plus getting to your low nines, that's that's how we got to sort of the guidance numbers.
So Peter this is Jack I think you have to think about a continuous upward progression in referrals turning into visits certainly everything flows from that.
I think the other thing about hiring.
Anticipate exiting the year at what level of emissions.
About 28 in 2000 2800, or so so it's not a it's not a linear progression.
We'll sort of see good growth here in May and June as we said that that's a bigger gratulation time, and then again in the fall but.
No.
Volume growing productivity mirroring what we saw in March and then hiring up to our ending level is probably the three key kpis you want to keep an eye on as you model out rest of year.
Okay, Great and then last quick question for me.
Obviously, we're going to launch on the referral numbers that you said, 96%.
In in March.
On a per center or on a per clinic is I think you guys added 40 clinics here and Youre trying to get a feeling for sugar.
With the numbers.
This is Ryan that's for the platform the entire platform.
Got it alright, great. Thanks, so much guys.
Thanks for the questions.
We will take the next question from Mike <unk> Barrington.
Okay.
Good afternoon.
Joe can I have the share count for the quarter I don't think it was in the release.
Yes, I have it here.
Give me one second let me just pull that up.
Alright.
Yes.
Yes.
197 five.
Alright.
Obviously.
Balance sheet continues to be really lever.
Free cash flow in the first quarter understanding that the first quarter is always the weakest.
You guys listed the refinance can you talk about where the balance sheet. This lever generating positive free cash has to be a priority that you guys have given a lot of thought and analysis.
Can you share what you all are targeting or what you told your lenders youre targeting in terms of where you sort of break through and start generating consistent positive free cash.
Yes, yes, I can talk to that a little bit I mean, one of the things that we've talked about with lenders and I think we've talked about on some of the previous earnings calls is as we ramp back. This year, we knew it would be a year, where we're still in a cash outflow.
Particularly with the financing transaction in Q1 and carrying carrying labor in advance of seeing volume. So Q1 was obviously, a big outflow quarter for US I would expect Q2, and Q3 to still be a cash outflow and get closer to breakeven as we get into the fourth quarter and then beyond that obviously not prepared to comment on 2023.
At this point.
But that's the journey that we see ourselves on for the remainder of 2022.
Okay. So.
Obviously, no positive free cash this year and no comment on whether you might find a quarter in 23 of them.
You can generate positive cash.
Yes.
Q4, Q4, I would say you could be right around that right around positive.
Okay.
Opex.
Yes.
In 'twenty and 2023 really the reason, we don't want to comment on that yet as it comes down to the determination made on Capex and the investments that you make back in the business. So.
Sure and just on board and obviously Theres a lot of evaluation that she will want to do and we will want to do as a team to figure out how we strategize around 2023.
Okay.
One quick one for Sharon Sharon, obviously, youre coming into a situation that has struggled in its history as a public company.
What about this situation did you sort of a SaaS and say hey, I can really bring value to this area. This area of the theory. This is this is how I can help sort of turn this around.
It sort of aligns with <unk> can you just talk about as you I'm sure you gave a lot of thought to taking this position.
Sure. Thanks for the question.
I'd say, a few things one that the.
Hei practicing a national practice, having a national footprint and the number of clinics.
And being able to deliver on a national brand similar to what I came from that Cvs health.
From a key key perspective, I was really excited about <unk>, when we think about where healthcare is going around wellness and prevention.
Think about.
Increasing clinical outcomes quality of life and reducing cost of care are more invasive treatments that peak here and it was really very interesting to me and then I would say as we look at where we are.
Right now as the keen pointed out.
With the blocking and tackling mode.
Looking at.
Our providers looking at our pipeline looking at our productivity and so that work needs to continue.
I am pretty bullish to that work.
Then I would say in parallel how do we think about as with all health care organizations.
Once the transformation is and what we need today to stay up with how the health care landscape is changing and so again very similar to a lot of the dynamic nature of the work in minute clinic and really reading the landscape and that is helping the business to perform and to meet the needs of patients.
I might add on top of Sharon's comments, you all have followed.
Our journey over the last year year, and a half or so just post COVID-19 with our clinical workforce and some of the things that we did that we wish we didn't do have done and then our remediation steps and I think.
Sharon with her leadership of a highly intensive clinical organization with a national footprint.
Really is in tune with the provider perspective, and that was something I think that was certainly key on my list that Sharon Sharon brings uniquely so.
Alright, Thank you I appreciate it.
Thanks for the question.
Next question.
At that time that does conclude all the questions I will hand, the conference back to our speakers for any additional or closing remarks.
Well I want to extend a thank you to everyone that prepared the materials for our call today and to all participants.
Im eager to work with the ATI team board in strategic partners to capitalize on the current momentum and deliver on our performance goals and bringing ATI to the next level and I look forward to our next earnings call. Thank you.
And that will conclude today's conference I would like to thank you all for your participation you may now.