ATI Physical Therapy Inc. Q1 2023 Earnings Call
Throughout the first quarter, our providers exceeded established targets with visits and visits per day per clinic, reaching a post pandemic high.
We recently completed Hei's management transformation, which occurred which started over the last five months, adding onto our experienced team of high performing health care leaders that are the basis for our new operating structure.
Yes.
As I reflect on my first year as CEO I am pleased we have had early successes to report and an incredibly strong foundation to drive our momentum.
While our central priority at ATI continues to be achieving our near term growth targets. We now have Scott Gregersen, our new Chief growth Officer, who is focused on ensuring we deliver on ati's long term potential in the musculoskeletal sector and that the decisions, we make today position us for the future.
So now turning to our near term growth drivers specifically, the three pieces of our practice, our pipeline provider base and provider productivity.
So firstly, if we look at pipeline referrals remained prepay.
Pre pandemic levels through the first quarter.
Our business development team continues to strengthen our existing referral relationships build new relationships and and they have they've done a nice job executing on market specific strategies.
For the second P provider productivity visits in the first quarter of 2023 were the highest since the pandemic began.
Additionally, our productivity per provider performed at an all time high even surpassing pre pandemic levels.
Our providers continue to focus on their commitment to our patients and meeting the high demand for care.
And the increased productivity to an impressive nine five visits per day per clinical FTE in March 2023 to finished the quarter at an average of $9 four visits per day.
Chris will talk more about this and provide details on how we achieved this milestone and what lies ahead.
For the therapy provider base, the labor market continues to be a headwind across the industry and at ATI with labor scarcity and elevated competition provide for providers at all time highs.
Emily our Chief people officer has thoroughly evaluated the overall provider landscape and has spent time with many of our teams listening.
And hearing about the dynamics at play in the current environment.
Our conclusion is aligned with many in the PT space, we do not foresee an immediate improvement in the labor market.
At the same time, we are hyper focused on involving our our people strategy to aggressively attract and retain vital providers.
Our newly formed talent acquisition team is making progress and is positioned ATI as an employer of choice for the new cohort of PT graduates entering the workforce.
Yeah.
The ATI culture is strong and Emily is leaving a multitude of tactics to support and engage our employees learning real time, what works and where to invest in our team members.
Yeah.
As we move forward, we're continuing to execute on our fleet review and geographic footprint optimization. The review of our footprint is designed to enhance convenience for our customers and optimize the underperforming clinics through consolidation closure and divestiture in.
In the first quarter of 2023, we opened four de Novo clinics, we've closed 12 clinics and divested six clinics as we executed on the plan.
We are continuously monitoring clinic performance and taking swift action when appropriate.
So as I said before 2023 is off to a good start and demand for ATI physical therapy services remains high.
Hei success is fueled by the contributions of every member of our team pulling in the same direction to deliver on the company's mission.
To exceed customer expectations by providing the highest quality of care in a friendly and encouraging environment with impactful outcomes.
As we move into 2023, we're acting with urgency to harness our recent momentum and continue driving improvements in the business.
Now I will turn the call over to Chris to discuss our operations and what he's seeing in the field.
Thank you Sharon.
I am excited about our strong operational start to the year and then even more encouraged by the tremendous opportunities ahead as different functions across our operations team are continuing to optimize workflows and processes, while elevating the patient experience.
As Sharon highlighted labor productivity during the quarter was at an all time high which goes hand in hand, with providing increased access to high quality physical therapy for our patients.
In addition to our frontline providers in the clinics there are multiple teams working in the background to allow us to reach this level of performance.
It starts with patient intake using technology to enable a seamless onboarding experience for both patients and agents.
For example, we recently deployed a new call center technology and are already seeing improvements in efficiency and customer interactions.
Net is patient scheduling.
We are working towards scheduling excellence intelligently matching patients with providers as we move toward an optimized centralized scheduling.
We have already implemented several tools that are provided clarity of focus on scheduling behaviors and demonstrate what good looks like which contributes to a predictable operating rhythm in our clinics.
Importantly, this enables clinic directors to keep their weeks more organized and efficient through upfront planning and coordination.
It also reduces stress on our providers and an important attribute as we focus on retention and new recruitment.
Additionally, centralized scheduling helps our clinic directors take more ownership of their business by reducing administrative burden and allowing them to focus on patient access and patient care.
It drives clinic, four wall performance and operational excellence.
We have been rolling out the centralized scheduling support across the country and we will continue to do so over the coming months.
As these practices have been implemented we have seen the significant increase in productivity that Sharon and I referenced.
But notably along with that increase we have not seen a decrease in engagement or an increase in burnout.
We are also seeing continued stability in our retention trends in Q1.
In the past few months I've had the opportunity to visit multiple clinics across all of our regions and met with hundreds of our providers.
Im energized by the passion, our providers have for delivering high quality patient care and all that entails.
And in fact on a recent clinic visits new England, one of our clinic directors remarks that they were surprised that they were seeing an extra patient per day per clinician, because they don't quote unquote field busier.
The tools practices and support we have provided have increased patient access and could given our providers a sense of calm and readiness.
On our last call I said that we have several opportunities to reduce costs in different areas enhance revenue and drive improved customer service and outcomes.
In addition to patient and taken scheduling one of these areas as revenue cycle management.
Accordingly during the quarter, we focused on collections of certain aged accounts receivables and drove Dale.
Drove days sales outstanding to below 45 days for the first time.
Additionally, we enhanced our pre visit authorization workflow and integration with our EMR system.
These two initiatives were initial quick wins and we are in the process of proceeding with a larger transformation to move our RCM function to best in class performance.
We believe there is an opportunity to unlock significant value with investments in technology and automation.
A priority of mine continues to be innovation of our processes and systems to support our clinic and field teams.
We are building more structuring capabilities to reduce non value add work and drive consistency.
While these actions have allowed us to increase patient access to high quality care that team has only begun to scratch the surface to identify ways to improve and drive new actions I look forward to keeping you apprised of our progress.
Now I'd like to turn the call over to Joe to provide a discussion of financial results. Thank you, Chris and thanks to everyone for joining the call today.
I will cover our first quarter 2023 financial results and provide a brief update on our key assay.
Starting with financial results net revenue in the first quarter was $167 million, which is an eight 5% increase year over year from $154 million in Q1 in the prior year.
Net patient revenue was $151 million.
Also increasing eight 5% year over year, while other revenue was $16 million and eight 6% increase year over year with the primary driver being management services agreement revenue.
Visits per day per clinic during the quarter was 25 at.
It increased <unk> nine visits quarter over quarter sequentially from $24. One in Q4 of 2022.
And it increased $2 one visits year over year.
Okay.
As we've discussed before.
One of the benefits of higher clinic capacity utilization and the associated increased leverage of fixed costs, such as rent will be higher clinic profit, which we experienced during the first quarter.
Rate per visit during the quarter was $103 76.
Sequentially sequentially decreased 2% from $103 99 in the fourth quarter of 2022.
And was up 7% year over year from 103.0 to six in the first quarter of 2022.
The year over year increase was primarily due to commercial rate per visit improvement, which was more than offset in Medicare rate cuts.
Salaries and related costs in the first quarter 2023 were $91 million, which is a three 8% increase year over year from $87 million in Q1 in the prior year, primarily due to wage inflation. In addition to a higher proportion of more senior level clinicians.
PT salaries and related cost per visit during the quarter was $52 98.
Sequentially, improving three 5% from $54 92 in the fourth quarter of 2022, and four 5% year over year from $55 47 in the first quarter of the prior year.
The improvements in cost per visit were primarily due to higher labor productivity as visits per day per clinical FTE was $9 four during the quarter, which is improved from nine in Q4 2022 and eight five in Q1 of the prior year.
These improvements were partially offset by higher per clinician labor costs.
Rent clinic supplies contract labor and other in the first quarter was $53 million or two 4% increase year over year from $52 million in Q1 of 2022.
Pte rent clinic supplies contract labor and other per clinic during the quarter was approximately $56000, which is an increase of nine 9% quarter over quarter from 51000 in Q4.
And three 4% increase year over year from 54000 in the first quarter of 2021.
The sequential increase in year over year increase were primarily driven by the cost of the annual National leadership event in January 2023, which approximated $3 million.
Yes.
Our provision for doubtful accounts during the quarter was approximately $4 million or two 7% of PT revenue compared to $5 million or three 7% of <unk> revenue in the first quarter of the prior year.
The favorable performance in the first quarter of 2023 was the result of the Companys focus collection efforts and process improvements, which Chris talked about earlier within RCM.
Yeah.
SG&A during the quarter was approximately $31 million or one point or one 9% increase year over year from $30 million in Q1 in the prior year, primarily due to transaction costs from completing the TSA and the definitive documents in the first quarter 2023.
And those costs were partially offset by lower professional fees and non ordinary legal expenses.
Operating loss, excluding impairment charges in the first quarter 2023 was $11 million, which improved year over year from $20 million in Q1 in the prior year, reflecting higher revenue. In addition to early results of our multiyear business improvement initiatives that we started implementing in the second half of 2022.
Interest expense during the quarter was $14 million compared to $9 million in the first quarter of the prior year with the increase primarily driven by higher interest rates under the company's credit agreement, which we closed in February 2022, compared to the previous credit agreement.
As well as the higher interest rate environment overall.
And those increases were partially offset by payments received from our interest rate cap edge.
Income tax expense for the quarter was $100000 compared to income tax benefit of $23 million in the first quarter of 2022 net loss during the quarter was $25 million compared to $138 million in the first quarter of the prior year.
Okay.
Our adjusted EBIT during the quarter was $5 million or a margin of two 9%.
And that was a substantial increase over last year, where we had an adjusted EBITDA loss in the first quarter of $4 7 million.
Similar to the year over year change in operating loss I talked about earlier the year over year increase in adjusted EBITDA was primarily due to higher revenue combined with the impact from business improvement initiatives.
Our cash flow used year to date was $20 million with $14 million used to fund operations 5 million used in investing activities and 1 million used in financing activity.
As of March 31, 2023 available liquidity was approximately $63 million consisting.
Consisting of cash and cash equivalents with no available revolver capacity.
Okay.
Finally, I'd like to provide an update on the transaction support agreement.
We completed drafting a substantially final form documents, which we filed just over two weeks ago with the SEC on form 8-K.
And I'm pleased to report that the key economic terms, we're finalizing the definitive documents as outlined during our last call.
Subject to shareholder approval the transactions are expected to close in mid June .
We look forward to keeping you updated.
Given the significant progress <unk> made over the last quarter.
And the multitude of changes, we have made to our business, including our upcoming transactions, we're not providing guidance at this time.
We believe that today's quarterly update and the key Kpis provided as part of our 8-K are the most appropriate for the time being.
And we look forward to providing guidance at a later date.
With that I'll turn the call back over to Sharon.
Thanks, Joe.
So as you can see our first quarter results demonstrate that our strategy is working.
I am proud and grateful to the entire ACI family for their focus and efforts in Q1, allowing us to care for more patients.
I look forward to keeping you up to date on our progress as we continue optimizing our operations implementing our talent enhancement initiatives investing in innovation and streamlining our geographic footprint.
While we remain confident in our ability to sustained progress and execute on our roadmap. We are looking to close the TSA transactions ahead of providing formal earnings guidance as Joe stated completion.
Completion of these transactions will provide ATI with additional financial flexibility to support our future facing facing value creation initiatives.
I remain optimistic for the year to go and our future.
Thank you again for joining us today now we will open up the line for Q&A.
Thank you and everyone. If you would like to ask the question again that is star one on your telephone keypad.
Your first question today comes from Brian 10-Kilo Jefferies.
Hi, good afternoon, and thank you for taking my question you have to <unk> on for Brian today. So just as I look at your Kpis in terms of visits per day per clinic I'm. Just curious if you can break that out between some of the operational efficiencies that Chris had called out on the call versus it being a function of increased.
Patient demand for physical therapy services.
Great question. Thank you Pasha.
That's a.
Moving quickly and Theres a lot going on at once.
And I would say that we are able to capitalize on the demand by creating more efficiencies in the clinics and then supporting our providers. So that they can increase their productivity. So that's the executive summary level, let me, let Chris add some commentary I think it's difficult to tease it out.
Because everything's happening at once and both are moving in the right direction, but let me, let Chris comment I think the other key thing I would add is as we look quarter one of 2023 versus quarter. One of 2022, we have seen approximately the same improvement in productivity in every region across the country some of those regions referrals starved.
Those reasons have referral surpluses, so I think we're definitely seeing that improvement.
Both with and without the increase in patient demand.
Great. Thanks, just a quick follow up I know that you had called out.
The percentage of contract labor use can you tease out how much that is this quarter as a percentage of.
Revenue spend.
Yes.
Joe it's roughly 6%.
Thank you and then just last question two I guess, how do you foresee that trending throughout the year I know, it's a high priority for companies to try and.
Tease out that contract labor, just curious whats the balance between optimizing those patient volumes.
But also making sure that you are controlling costs.
No. It's a great. It's a it's certainly a balance of <unk> for sure.
We see our talent acquisition strategies really ramping up we rebuilt the whole group in Q1 or during Q1, I should say and so we're starting to see some traction there. So my hope would be that as we continue to both retain and recruit more full time or <unk>.
Providers will be able to move away from the contractors.
For the for the first quarter.
We certainly had some good progress, but we would rather have a provider even if it's a contracted and not have a provider and given the demand that we're seeing.
Contrary to your strategy so contractors.
We'd rather have an old line provider because contractors and David friend for any company is more expensive.
It is important to note that it's still profitable visit and.
And there is demand out there for physical therapy services at ATI, and we want to be able to meet that demand.
Great. Thanks for taking my questions.
Thank you.
Next we will hear from Peter Chickering Deutsche Bank.
Hey, guys you got Benjamin on for Peter I was just wondering if you could.
Maybe a little more color around that.
The expectations for the labor Kpis, most notably hiring and turnover going forward.
Yes.
Sure Benjamin Thanks for the question.
We are gearing up for the busy season.
We have certainly been seeing.
The combination of the hiring.
Attrition that give us put some numbers on the board.
We're certainly seeing that hiring and.
We've seen the attrition stabilize over the course of that over the course of the actually the last six months.
And so we've got a lot of tactics and a lot of fun.
New initiatives, we're constantly looking at adjusting those as we learn.
And I think we're positioned well for the graduates coming out of the programs, which we call. This the busy season.
We have some indications April was a strong month for us and we have some indications as we look 90 days ahead that we positioned ourselves to get our fair share.
Chris I don't know if you want to talk about some of the work we're doing around the retention of our our colleagues.
Yes, I think I think it goes back to number one just how we're focusing on patient access and really making it about.
High quality patient care, showing our providers how.
What best practices look like as it relates to the scheduling and providing them playbooks and kind of that upfront planning I mentioned in my prepared comments that really allows them to feel more prepared more at ease about about their workload.
At the core of it with the operations, but then also focusing on market by market engagement plans understanding the various cultures that exist within the different hei clinics across the country looking at compensation on a market by market level, where there may be discrepancies in.
And the market level.
As well as really taking a coordinated approach with our field leaders to have a discussion with every single one of our clinicians across the country to understand what's on their mind right.
Talk about basically doing an interview with our existing employees to say.
What are you concerned about what feedback you have.
And what is what is currently on your mind that could be a concern that we can address and then taking that feedback centrally and saying okay. What are the additional things we can do focusing on things like our Cte programs and continued professional development and education.
Benjamin I'd say very deliberate actions on both sides.
The equation thats on the recruitment and the retention and Im really quite honestly listening listening to let new grads are looking for listening to what our in place are looking for and then.
Certainly meetings trying to meet the needs of what's important to them and I would say are our culture.
Is really strong here and so.
I think we've got we've got a lot to offer and where.
A lot of what we're doing is getting that message out there whether it be through our recruiting team or through our existing in place.
Sure sure. So just a quick quick follow up is there any way you could quantify either of those metrics and then just one more so you mentioned.
Is that your.
You had more senior clinicians and you also mentioned some wage increases can you maybe break down a little bit how much of those wage increases are coming from the market rate increasing versus.
Just having more of the senior clinicians that demand a higher wage okay. Thank you so much.
So let's start with the retention.
So we've seen we're at Q1, we're at.
We're at about 27% annualized.
Which is.
I guess, the right turnover turnover I'm sorry, yes.
Which we have struggled with retention in the past so we've seen that stabilize and.
Where we're continuing to work to improve that but thats, what our number is right now.
And again much improved from what it has been in the past.
So our compensation I mean, I don't know Joe if we can break that down but our comp is up.
Yes, it's roughly.
The $3, 5% to 5% is what we'd expect.
As far as breaking down how much of that is attributable to more senior hires versus non that that level of detail we.
Have at some level, but not at the granularity to share around here yes.
It's been a combination of two things clearly wanting to.
Certainly reward our more senior providers and then as everyone knows to attract new folks.
There is a pretty aggressive.
Package that is put out there for new hires. So I think we're I think it's a combination of the two when we look at this center boasts causing that.
That increase and then may be the only other thing I'd say is linked to the extent youre trying to think about modeling now three.
3% to 5% wage inflation that we're seeing.
Well around what we expect for the rest of the year, but.
What you saw in our release if youre looking at the Kpis enables a lower labor cost per visit because of the productivity has been up and beneficial so to the extent that we're able to hold that and that helps to offset some of the inflation that we're seeing.
Yes, we're certainly not leading the market.
We're definitely trying not to.
To over index, there where possible.
Alright.
Really helpful guys. Thank you.
Thank you.
Your next question comes from Mike Petrowski Barrington.
Yes.
Yeah, Hi, Mike.
Hi.
So I guess.
And with the clinician.
Clinician Labor force.
Hi, Adam.
Guys, who have been tracking between 'twenty six 'twenty 700 clinical.
Folks for less.
Several quarters and it's actually gone down the last on a net basis has gone down about 60 or so the last two quarters.
I mean.
Assuming you were.
Facility count stayed around 900.
Should be the number I mean is it 2800 is the 3000 like what number is the right number.
That's sort of aspirational in terms based on the number of clinics you have thanks.
Hey, Mike, It's Joe, it's probably somewhere between 2008 and 2900, maybe closer to 2900.
Yeah.
And then Mike.
The end of the year.
Q4 is.
It's usually a month, where we I mean, a quarter or a time of year, where we do see.
Our larger attrition than we normally do and so then recovering from that at the beginning of the year is always a.
A little bit of an uphill for us.
So.
I will say that.
April was a good month for us and so we haven't seen a consistent trend yet we certainly are hiring and we're watching the return.
Yes.
<unk>.
Retention, but we haven't seen the level of traction to get to those numbers, yet and we certainly have the demand to support that.
Okay I was curious.
You are public.
Publicly traded competitor made comments around the labor market, suggesting that they'd seen strong improvement in at really in dramatically shorter time to fill openings.
Retention was super high.
I guess, one what are you aware of those comments and to any sense of why maybe you guys are not are not seeing that.
Okay.
Yes.
Can't speak for U S th Im not sure what what there what's going on over there, but I will say at a national level, having attended some of the national conferences. This is the hottest topic.
And I feel like we're in pretty good company with some of these other organizations that have very similar.
Very similar challenges and approaches to the workforce.
So I would say I mean, our our challenges.
We're not only trying to to keep up with attrition. We're trying to as you pointed out we've got a large number that we're trying to move back to pre COVID-19.
So that's been our biggest challenge that we can keep us up with attrition that's not the problem.
Adding significant numbers to get back to where we were pre COVID-19, but.
Theres nothing Theres nothing I've heard from any of our competitors that leads me to believe that.
Theyre not in a similar situation around challenging the workforce wage inflation and just.
Just a very very tight workforce.
Okay.
Okay, I think thats.
I think thats all Ive got for now thanks.
Thanks, Mike.
And everyone. At this time there are no further questions I'll hand, the call back to Ms. Sharon <unk> for any additional or closing remarks.
Just wanted to thank everyone for joining us today as we look forward to keeping folks up to date to date in our next quarterly earnings call. Thank.
Thank you.
Once again, everyone that does conclude today's conference. Thank you all for your participation you may now disconnect.
Okay.
Okay.
This does conclude today's conference. Thank you all for your participation you may.
Okay.