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Earnings call: ATI Physical Therapy reports growth amid market challenges

EditorEmilio Ghigini
Published 05/11/2024, 08:36
© Reuters.
ATIP
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ATI Physical Therapy (ticker not provided), a prominent provider of outpatient rehabilitation services, has reported increased revenues and patient visits in its Q3 2024 earnings call. The company highlighted a 7.1% rise in net revenue to $190 million, compared to $177 million in the same quarter of the previous year.

Adjusted EBITDA also saw an improvement to $12 million, up from $9 million in Q3 2023. Despite a challenging labor market, ATI Physical Therapy managed to grow its clinician headcount and maintain a high patient satisfaction rating.

Key Takeaways

  • Net revenue increased by 7.1% to $190 million in Q3 2024 from $177 million in Q3 2023.
  • Adjusted EBITDA improved to $12 million, up from $9 million the previous year.
  • Patient visits per day per clinic rose to 28.3, a 2.4 visit increase year-over-year.
  • Clinician headcount expanded by 3%, with a clinician attrition rate of 21%.
  • ATI Physical Therapy maintained a high Google (NASDAQ:GOOGL) star rating of 4.9 for patient satisfaction.

Company Outlook

  • Q4 2024 revenue is projected to be between $182 million and $192 million, with adjusted EBITDA between $9 million and $14 million.
  • The company’s guidance accounts for wage inflation pressures and one less business day compared to the previous year.
  • ATI Physical Therapy is engaging with payers to improve reimbursement rates in anticipation of Medicare cuts in 2025.

Bearish Highlights

  • Wage inflation remains a concern, with low to mid-single digit increases expected year-over-year.
  • Upcoming Medicare cuts for 2025 are a potential headwind, although the company is working to mitigate the impact.

Bullish Highlights

  • Cash used in investing activities decreased to $9 million from $15 million due to fewer new clinic openings.
  • Financing cash generated was $27 million, a significant improvement from the $31 million used the previous year.

Misses

  • The company closed eight clinics and divested one as part of its strategic real estate plan.
  • Patient revenue per visit remained flat, with efforts to improve reimbursement from commercial payers ongoing.

Q&A Highlights

  • There is no significant wage increase expected in Q4 compared to Q3.
  • ATI Physical Therapy is working with organizations like APTA and APTQI to address the scheduled Medicare payment cuts for 2025.
  • Despite a Medicare rate cut this year, there have been commercial rate increases, and overall performance has shown slight improvements compared to Q4 of the previous year.

ATI Physical Therapy's Q3 performance demonstrates resilience in the face of labor market challenges and ongoing wage inflation. The company's strategic adjustments and proactive engagement with payers are aimed at sustaining growth and mitigating potential headwinds from policy changes. With a positive outlook for the future, ATI Physical Therapy continues to focus on its mission to enhance the value of physical therapy in musculoskeletal care.

InvestingPro Insights

ATI Physical Therapy's (ATIP) Q3 2024 earnings report reveals a company navigating challenges while showing signs of improvement. To complement the earnings data, InvestingPro provides additional insights that paint a more comprehensive picture of the company's financial health.

According to InvestingPro data, ATI Physical Therapy's revenue for the last twelve months as of Q2 2024 stood at $717.15 million, with a revenue growth of 11.0% over the same period. This aligns with the positive revenue trend reported in the Q3 earnings call, indicating consistent growth despite market challenges.

However, investors should note that ATI Physical Therapy operates with a significant debt burden, as highlighted by one of the InvestingPro Tips. This factor may impact the company's financial flexibility and ability to invest in growth initiatives. Additionally, the company is not profitable over the last twelve months, which is reflected in its negative P/E ratio of -0.37.

On a more positive note, management has been aggressively buying back shares, which could signal confidence in the company's future prospects. This action may also help support the stock price, which has taken a significant hit over the last week, with a 1-week price total return of -11.89% as of the latest data.

For investors seeking a deeper understanding of ATI Physical Therapy's financial position, InvestingPro offers 8 additional tips, providing a more comprehensive analysis of the company's strengths and challenges. These insights can be particularly valuable given the company's complex financial situation and the evolving healthcare landscape.

Full transcript - ATI Physical Therapy Inc (ATIP) Q3 2024:

Operator: Good afternoon. And welcome to ATI Physical Therapy’s Third Quarter 2024 Earnings Conference Call and Webcast. All participants will be in a listen-only mode. After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note that this event is being recorded. On the call today is Sharon Vitti, Chief Executive Officer; Eimile Tansey, Chief People Officer; and Joseph Jordan, Chief Financial Officer. I will now turn the call over to Ms. Fong. Please go ahead.

Joseph Jordan: Good afternoon, everyone, and thank you for joining us today. Before we begin, I'd like to remind you everyone that certain statements made during this call will be forward-looking and subject to various risks and uncertainties. The statements reflect our current expectations based on beliefs, assumptions and information currently available to us. Although we believe these expectations are reasonable, we undertake no obligation to revise any statements to reflect changes that occur after this call. Descriptions of some of the factors that could cause actual results to differ materially from these forward-looking statements can be found in the Risk Factors section in the Company's filings with the SEC. In addition, we will be discussing certain non-GAAP financial measures that we believe are important to evaluating performance. Details on the relationships between these non-GAAP financial measures to the most comparable GAAP measures as well as reconciliation between the two can be found the earnings press release that is posted on ATI's website and filed the SEC. With that, I turn the call over to Sharon to take us off.

Sharon Vitti: Thank you, Joe. Good afternoon, everyone. I apricate you taking you taking time to join us today. So, I will present to day along with Joe Jordan and Eimile Tansey and we also Chris Cox, Erik Kantz and Scott Gregerson on the call today. Earlier today, we reported our third quarter 2024 results and provided financial guidance for the fourth quarter. I am super exited to share that ATI delivered another strong quarter. Let me start by providing an overview of our key performance highlights and ongoing initiatives before handing it over to Joe to cover our financials in more detail and to discuss our expectations on the remainder of the year. To begin, we saw revenue and adjusted EBITDA grow year-over-year. We continue to see positive momentum across the business and are pleased to once again achieve both our revenue and adjusted EBITDA guidance for the third quarter. This demonstrates the continued strength of our business and the growing demand for ATI services. The trust we have built with referring physicians and patients remains a key driver of our performance. Our patient referrals per day in the quarter grew more than 5% year-over-year. Our clinic saw over 1400 more patient visits per day compared to Q3 of last year and this uptick in patient volume is truly a testament to the strength of our clinical teams and the value we're able to provide to the communities we serve, driving access to high quality patient care. One of the key highlights of this quarter was the continued expansion of our clinical teams supported by our ongoing people strategies and culture refresh. Eimile Tansey, our chief people officer, will share more on this later. Though our attention remains fixed on continuous operational improvements. With robust demand and more stability around our workforce, we continue to build on our insights and fine tune our operations. Clinician productivity improved by more than 0.1 when compared to Q3 of last year. This is driven by operational enhancements such as better resource allocation and streamlined clinic workflows. We improved access for patients without sacrificing quality of care. Our clinics are busier year-over-year seeing over two more visits per day per clinic compared to Q3 of last year and while some clinics still have excess capacity, we strive to match demand with supply and to leverage our clinical real estate and fixed costs. In the quarter, we continued to execute on our strategic real estate plan to refine our geographic footprint, align with patient population needs. We closed eight clinics and divested one as part of that plan. Our strategies have clearly delivered results in the third quarter. I'm pleased about how our teams have maintained our standard of care throughout this growth. Our Google star rating remains an impressive 4.9 out of 5, which speaks to the high level of patient satisfaction we consistently achieve. Patient experience is important and at the heart of our purpose. This rating is a direct reflection of our commitment to deliver exceptional care at every visit to every patient. I'm very proud of the incredible people we have at ATI who are committed to enhancing the lives of our patients every day. They are the foundation of what we've achieved. I'm honored to be a part of this outstanding organization that continues to lead in the musculoskeletal care space and is driven by our shared purpose of making every life an active life. With that, I'll turn the call over to Eimile.

Eimile Tansey: Thanks, Sharon. I'd like to take a moment to discuss the current labor market and highlight the progress we've made with our initiatives to attract and retain skilled providers, enabling us to expand access to high quality care. While the labor market remains challenging and we expect these headwinds to persist for the foreseeable future, we are navigating them with determination. Every local market has its own unique characteristics. On a macro level, the mismatch between the supply of physical therapists and the growing demand for PT services will take time to balance out. Despite these challenges, we continue to make progress. In the third quarter, we grew our clinician headcount by 3% year-over-year and annualized clinician attrition held steady at 21%, which we believe is in line with the industry. I am confident that we will continue to grow by focusing on what we can control, such as staying attuned to the market trends, listening to our employees and nurturing our culture, a culture that stands for excellence in care delivery, a strong provider experience and exceptional customer service. These values were reflected in our recent employee engagement survey, where we received overwhelmingly positive feedback, particularly in areas such as rewarding work, supportive leadership, and fostering an inclusive environment. We also identified opportunities for improvement and we're eager to use this feedback to enhance the employee experience further and solidify ATI as the employer of choice. These achievements show that we are doing the right things for both our providers and our patients, helping us fulfill our purpose to make every life an active life. I want to extend my gratitude to the entire HR team for their hard work and dedication. We have many exciting opportunities ahead of us and we remain focused on improvements that allow our clinicians to operate at the top of their license. I'm incredibly proud of ATI's strong brand, our vibrant culture and the progress we've made this year in strengthening that culture. ATI is truly defined by its people and I'm excited to continue building on the work we've done to ensure ATI remains a place where people can learn, grow and thrive. Now I'd like to turn the call over to Joe to discuss our financial performance in the quarter.

Joseph Jordan: Thank you, Eimile. As Eimile mentioned, I'll talk about our third quarter 2024 financial performance and I'll also talk about Q4 guidance. Starting out with third quarter results. Our net revenue in the quarter was $190 million which is a 7. 1% increase year-over-year from $177 million and if we dive down deeper, our net patient revenue was $175 million which is a 7.7% increase year-over-year, while other revenue was $15 million essentially flat over the prior year. Visits per day per clinic, which Sharon talked about a little bit earlier was 28.3 during the quarter, which increased 2.4 visits year-over-year from 25.9 in Q3 of the prior year and that does reflect our continued efforts to improve utilization of clinic capacity. Our rate per visit during the quarter was 109.83 dollars which is essentially flat year-over-year from $109.90 in the third quarter of 2023. Salaries and related costs in the third quarter were $106 million which is an 8.7% increase year-over-year from $97 million in the prior year, and that's primarily due to more clinical and support staff, some wage inflation and having one more paid day in Q3 of 2024 when compared to the prior year. PT salaries and related costs per visit during the quarter were $58.29 which increased 1.4% year-over-year from $57.47 with the increase driven primarily by wage inflation and partially offset by the higher labor productivity that Sharon touched on earlier, which moved from 9.3 in Q3 of last year to 9.4 in Q3 of this year. Rent, clinic supplies, contract, labor and other in the third quarter was $54 million which is a 3.4% increase year-over-year from $53 million and on a per clinic basis, these costs were approximately $61,000 increasing 6.7% year-over-year from $57,000 in the third quarter of the prior year, which is due to increased contractor usage and higher spend on outside services. Our provision for doubtful accounts during the quarter was approximately $5 million which is 2.8% of PT revenue compared to 2.1% of PT revenue last year. SG&A during the quarter was approximately $24 million decreasing $1million from $25 million in the prior year due to lower corporate insurance costs and lower spend on third party services. Non-cash long-lived impairment charges were $0.1 million during the quarter and operating income during the quarter was $1 million which increased from a loss of $1 million in the prior year and reflects higher revenue earned and the flow through to earnings. Notable below-the-line items during the quarter included losses resulting from an increase in fair value of second lien PIK notes, contingent common shares and warrants totaling $19 million. These instruments are mark-to-market to fair value each quarter with a valuation analysis done as of quarter end. Interest expense during the quarter was $15 million which decreased 4.7% year-over-year and is primarily due to lower interest rates, partially offset by higher principal outstanding balance. Income tax benefit for the quarter was $0.1 million compared to income tax expense in the prior year of 0.1 million. Net loss during the quarter was $33 million compared to $15 million in the Q3 of 2023. And adjusted EBITDA during the quarter was $12 million which is a 6.4% margin and that increased from $9 million or 5.3% margin in the prior year with the year-over-year increase in adjusted EBITDA primarily driven by higher revenue and then the associated earnings that flow through to the bottom line. Cash used year-to-date was approximately $13 million compared to $63 million in the prior year. Breaking that down further, operating cash used was $31 million compared to $18 million in the prior year. The year-over-year increase was primarily driven by higher accounts receivable and higher revenue and higher payout of accrued annual incentive payments. Cash used in investing activities was $9 million compared to $15 million last year, with the decrease primarily due to fewer new clinic openings and financing cash generated was $27 million in the current year, compared to financing cash used of $31 million last year. The increase in 2025 is primarily driven by the $25 million delayed draw term loan, which was fully drawn in January and higher net revolver borrowings. As of September 30, 2024, available liquidity was approximately $23 million which consists of cash and cash equivalents. And with that, I'll turn to 2024 Q4 guidance. Our outlook for Q4 includes anticipated revenue to be in the range of $182 million to $192 million and adjusted EBITDA to be in the range of $9 million to $14 million. This guidance reflects the dynamics that we're seeing in the market and the strategies and tactics that we're employing to navigate and grow clinical FTE and in turn revenue and advance the overall clinic operations. With that, I'll turn the call back over to Sharon for closing remarks.

Sharon Vitti: Thank you, Joe and Eimile. Appreciate all your remarks. As we look toward the final quarter of 2024 and beyond, we remain focused on continuing to grow the business through the expansion of clinical workforce and the execution of our people and operational strategies. I want to take a moment to thank our entire team, the clinicians, support teams, and leadership. Your dedication and hard work have made these results possible. We're confident in our ability to build on this momentum and to drive long term value for our patients, employees and shareholders alike. I'll now hand it back to the operator to open the call for Q&A.

Operator: Thank you. [Operator Instructions]. Great. Thank you. Thank you. Your first question comes from the line of Brian Tanquilut from Jefferies. Your line is open.

Brian Tanquilut: Hi, this is Nur Robleh in for Brian. Thanks for taking my questions. Looking at the salaries and related cost line, curious if you can provide some insights into what you're seeing in terms of wage inflation. Are you guys seeing any signs of moderation or is there some persistence you're seeing in those elevated costs? And then relatedly, how much of the slight margin compression implied it in the midpoint of your Q4 guidance boils down to elevated wage inflation? Thank you.

Sharon Vitti: Thanks for the question, Nur. Yeah. Joe, you can jump in. I just, I wish we were seeing a break in wage inflation and we're not. Joe can provide the numbers, but it's a headwind that continues for us on the number, many of the other PT providers. Joe, do you want to add some numbers to that?

Joseph Jordan: Yes, absolutely. Maybe a little bit of color. What we've seen year-over-year is low to mid-single digit wage inflation, continue to see pressure from a contractor to full time clinician perspective, meaning we're still leveraging contractors and you can see that in our KPI tables in the back of the press release. We are seeing throughout the year wage inflation remaining relatively stable. We certainly see year-over-year increases, but don't expect to see a big lift in wages in Q4 relative to Q3. Part of the driver of Q4 guidance is having one less business day when you look year-over-year. So one less business day, same amount of paid days. That's not wage inflation per se, but obviously there is less of a flow through to adjusted EBITDA.

Brian Tanquilut: Great. As a follow-up, looking at patient revenue per visit coming in roughly flat in the quarter, curious if you can provide an update on the reimbursement landscape on the commercial side of the business and any expectations for remediation of the recently announced Medicare rule?

Sharon Vitti: Good set of questions. So I think on the commercial side they do have a great team that goes out, has great relationships with the commercial payers, and I'd say we are seeing, certainly some progress from some of the commercial payers and then, that's probably balanced out by some of the commercial payers that are more likely to follow, CMS guidance. So, I think the team is doing a fantastic job, and I would say we will continue to work with payers, and try to, either one, look at our rates and move those in the right direction or two, come up with creative ways that we can work with payers around valuing the impact of PT as it relates to musculoskeletal care and the cost of care. I would say on the Medicare side, we are hopeful and by working with, some of the larger organizations like an APTA, APTQI to certainly educate CMS and MedPAC and also to, one in the short term, have them revisit the upcoming cut for scheduled decrease in payment for 2025. In subsequent years, we've had good luck with that and so we are working hard to push that and see if we can have a favorable response for 2025 and then I'd say at the ATI level, we are fortunate to have, again, very good scores in our MIPS -- in our MIPS performance with CMS, and so that helps to soften the blow. It doesn't, it certainly doesn't compensate for it fully, but that's an offset that helps us as we move into 2025 and see why our CMS lands on their on their rate cuts. Joe, do you want to add anything to that?

Joseph Jordan: The only thing I'd add is just a reminder, when you're comparing year over year, we were coming into this year with a Medicare rate cut. So to have a flat rate year over year on the quarter, still involve some improvements elsewhere throughout the organization. We were seeing commercial rate increases and the other thing I'd say is, if you go back to Q3 of last year, it was our peak rate. We had talked about last year some one-time items, but I would think of the 109 that we had this year more compared to even our Q4 rate of high 108. So I would say kind of stepping back despite some Medicare cuts, slight improvement in rate, if you were looking at it relative to like Q4 of last year.

Brian Tanquilut: Okay. Thank you.

Operator: [Operator Instructions].

Operator: Okay. And with no further questions, I'd like to turn the call back over to Sharon Vitti.

Sharon Vitti: All right. Thanks everyone for your participation in our third quarter earnings call today. We look forward to connecting with you in the New Year and wishing everyone a happy holiday season. Thank you.

Operator: This concludes today's conference call. [Operator Closing Remarks].

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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