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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2023
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For transition period from         to
Commission File Number 001-39439
ATI Physical Therapy, Inc.
(Exact name of registrant as specified in its charter)
Delaware85-1408039
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)
790 Remington Boulevard
Bolingbrook, IL 60440
(630) 296-2223
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Class A common stock, $0.0001 par valueATIPNew York Stock Exchange
Redeemable Warrants, exercisable for Class A common stock at an exercise price of $575.00 per shareATIP WSOTC Market
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No
As of November 1, 2023, there were approximately 4,209,265 shares of the registrant's common stock legally outstanding.
1



Table of Contents

Page
PART I - FINANCIAL INFORMATION - UNAUDITED
PART II - OTHER INFORMATION

2

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements included in this Form 10-Q that are not historical facts are forward-looking statements for purposes of the safe harbor provisions under the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of the words such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “should,” “would,” “plan,” “project,” “forecast,” “predict,” “potential,” “seem,” “seek,” “future,” “outlook,” “target” or similar expressions that predict or indicate future events or trends or that are not statements of historical matters. These forward-looking statements include, but are not limited to, statements regarding the impact of physical therapist attrition and ability to achieve and maintain clinical staffing levels and clinician productivity, anticipated visit and referral volumes and other factors on the Company's overall profitability, and estimates and forecasts of other financial and performance metrics and projections of market opportunity. These statements are based on various assumptions, whether or not identified in this Form 10-Q, and on the current expectations of the Company’s management and are not predictions of actual performance. These forward-looking statements are provided for illustrative purposes only and are not intended to serve as, and must not be relied on by any investor as, a guarantee, an assurance, a prediction or a definitive statement of fact or probability. Actual events and circumstances are difficult or impossible to predict and will differ from assumptions. Many actual events and circumstances are beyond the control of the Company.
These forward-looking statements are subject to a number of risks and uncertainties, including:
our liquidity position raises substantial doubt about our ability to continue as a going concern;
risks associated with liquidity and capital markets, including the Company's ability to generate sufficient cash flows, together with cash on hand, to run its business, cover liquidity and capital requirements and resolve substantial doubt about the Company's ability to continue as a going concern;
our ability to meet financial covenants as required by our 2022 Credit Agreement, as amended;
risks related to outstanding indebtedness and preferred stock, rising interest rates and potential increases in borrowing costs, compliance with associated covenants and provisions and the potential need to seek additional or alternative debt or capital financing in the future;
risks related to the Company's ability to access additional financing or alternative options when needed;
our dependence upon governmental and third-party private payors for reimbursement and that decreases in reimbursement rates, renegotiation or termination of payor contracts, billing disputes with third-party payors or unfavorable changes in payor, state and service mix may adversely affect our financial results;
federal and state governments’ continued efforts to contain growth in Medicaid expenditures, which could adversely affect the Company’s revenue and profitability;
payments that we receive from Medicare and Medicaid being subject to potential retroactive reduction;
changes in Medicare rules and guidelines and reimbursement or failure of our clinics to maintain their Medicare certification and/or enrollment status;
compliance with federal and state laws and regulations relating to the privacy of individually identifiable patient information, and associated fines and penalties for failure to comply;
3

risks associated with public health crises, including COVID-19 (and any existing and future variants) and its direct and indirect impacts or lingering effects on the business, which could lead to a decline in visit volumes and referrals;
our inability to compete effectively in a competitive industry, subject to rapid technological change and cost inflation, including competition that could impact the effectiveness of our strategies to improve patient referrals and our ability to identify, recruit, hire and retain skilled physical therapists;
our inability to maintain high levels of service and patient satisfaction;
risks associated with the locations of our clinics, including the economies in which we operate, size and expected growth of our addressable markets, and the potential need to close clinics and incur closure costs;
our dependence upon the cultivation and maintenance of relationships with customers, suppliers, physicians and other referral sources;
the severity of climate change or the weather and natural disasters that can occur in the regions of the U.S. in which we operate, which could cause disruption to our business;
risks associated with future acquisitions, divestitures and other business initiatives, which may use significant resources, may be unsuccessful and could expose us to unforeseen liabilities;
failure of third-party vendors, including customer service, technical and IT support providers and other outsourced professional service providers to adequately address customers’ requests and meet Company requirements;
risks associated with our ability to secure renewals of current suppliers and other material agreements that the Company currently depends upon for business operations;
risks associated with our reliance on IT infrastructure in critical areas of our operations including, but not limited to, cyber and other security threats;
a security breach of our IT systems or our third-party vendors’ IT systems may subject us to potential legal action and reputational harm and may result in a violation of the Health Insurance Portability and Accountability Act of 1996 or the Health Information Technology for Economic and Clinical Health Act;
maintaining clients for which we perform management and other services, as a breach or termination of those contractual arrangements by such clients could cause operating results to be less than expected;
our failure to maintain financial controls and processes over billing and collections or disputes with third-party private payors could have a significant negative impact on our financial condition and results of operations;
our operations are subject to extensive regulation and macroeconomic uncertainty;
our ability to meet revenue and earnings expectations;
risks associated with applicable state laws regarding fee-splitting and professional corporation laws;
4

inspections, reviews, audits and investigations under federal and state government programs and third-party private payor contracts that could have adverse findings that may negatively affect our business, including our results of operations, liquidity, financial condition and reputation;
changes in or our failure to comply with existing federal and state laws or regulations or the inability to comply with new government regulations on a timely basis;
our ability to maintain necessary insurance coverage at competitive rates;
the outcome of any legal and regulatory matters, proceedings or investigations instituted against us or any of our directors or officers, and whether insurance coverage will be available and/or adequate to cover such matters or proceedings;
general economic conditions, including but not limited to inflationary and recessionary periods;
changes in the political environment and events involving financial volatility, defaults or other adverse developments that affect the U.S. or global markets, resulting in liquidity problems which may have a material adverse effect on our results of operations;
our facilities face competition for experienced physical therapists and other clinical providers that may increase labor costs, result in elevated levels of contract labor and reduce profitability;
risks associated with our ability to attract and retain talented executives and employees amidst the impact of unfavorable labor market dynamics, wage inflation and recent reduction in value of our share-based compensation incentives, including potential failure of steps being taken to reduce attrition of physical therapists and increase hiring of physical therapists;
risks resulting from the 2L Notes, IPO Warrants, Earnout Shares and Vesting Shares being accounted for as liabilities at fair value and the changes in fair value affecting our financial results;
further impairments of goodwill and other intangible assets, which represent a significant portion of our total assets, especially in view of the Company’s recent market valuation;
our inability to remediate the material weaknesses in internal control over financial reporting related to income taxes and to maintain effective internal control over financial reporting;
risks related to dilution of Common Stock ownership interests and voting interests as a result of the issuance of 2L Notes and Series B Preferred Stock;
costs related to operating as a public company; and
risks associated with our efforts and ability to regain and sustain compliance with the listing requirements of our securities on the New York Stock Exchange ("NYSE").
If any of these risks materialize or our assumptions prove incorrect, actual results could differ materially from the results implied by these forward-looking statements.
5

These and other factors that could cause actual results to differ from those implied by the forward-looking statements in this Form 10-Q are more fully described under the heading “Item 1A. Risk Factors” in our Annual Report on Form 10-K filed with the SEC on March 16, 2023 and in this Form 10-Q. The risks described under the heading “Item 1A. Risk Factors” are not exhaustive. Other sections of this Form 10-Q describe additional factors that could adversely affect the business, financial condition or results of operations of the Company. New risk factors emerge from time to time and it is not possible to predict all such risk factors, nor can the Company assess the impact of all such risk factors on the business of the Company or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the foregoing cautionary statements. Readers should not place undue reliance on forward-looking statements. The Company undertakes no obligations to publicly update or revise any forward-looking statements after the date they are made or to reflect the occurrence of unanticipated events, whether as a result of new information, future events or otherwise, except as required by law.
In addition, statements of belief and similar statements reflect the beliefs and opinions of the Company on the relevant subject. These statements are based upon information available to the Company, as applicable, as of the date of this Form 10-Q, and while the Company believes such information forms a reasonable basis for such statements, such information may be limited or incomplete, and statements should not be read to indicate that the Company has conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and you are cautioned not to unduly rely upon these statements.
6

PART I - FINANCIAL INFORMATION - UNAUDITED
Item 1. Financial Statements

ATI Physical Therapy, Inc.
Condensed Consolidated Balance Sheets
($ in thousands, except share and per share data)
(unaudited)
September 30, 2023December 31, 2022
Assets:
Current assets:
Cash and cash equivalents$19,730 $83,139 
Accounts receivable (net of allowance for doubtful accounts of $50,789 and $47,620 at September 30, 2023 and December 31, 2022, respectively)
84,970 80,673 
Prepaid expenses12,458 13,526 
Other current assets6,367 10,040 
Assets held for sale 6,755 
Total current assets123,525 194,133 
Property and equipment, net109,652 123,690 
Operating lease right-of-use assets207,802 226,092 
Goodwill, net289,650 286,458 
Trade name and other intangible assets, net246,028 246,582 
Other non-current assets1,866 2,030 
Total assets$978,523 $1,078,985 
Liabilities, Mezzanine Equity and Stockholders' Equity:
Current liabilities:
Accounts payable$11,456 $12,559 
Accrued expenses and other liabilities55,618 53,672 
Current portion of operating lease liabilities52,351 47,676 
Liabilities held for sale 2,614 
Total current liabilities119,425 116,521 
Long-term debt, net (1)
417,379 531,600 
2L Notes due to related parties, at fair value95,448  
Warrant liability10 98 
Contingent common shares liability1,028 2,835 
Deferred income tax liabilities19,168 18,886 
Operating lease liabilities197,084 218,424 
Other non-current liabilities1,654 1,834 
Total liabilities851,196 890,198 
Commitments and contingencies (Note 16)
Mezzanine equity:
Series A Senior Preferred Stock, $0.0001 par value; 1.0 million shares authorized; 0.2 million shares issued and outstanding; $1,211.90 stated value per share at September 30, 2023; $1,108.34 stated value per share at December 31, 2022
217,072 140,340 
Stockholders' equity:
Class A common stock, $0.0001 par value; 470.0 million shares authorized; 4.2 million shares issued, 4.0 million shares outstanding at September 30, 2023; 4.1 million shares issued, 4.0 million shares outstanding at December 31, 2022
  
Treasury stock, at cost, 0.006 million shares and 0.002 million shares at September 30, 2023 and December 31, 2022, respectively
(217)(146)
Additional paid-in capital1,309,166 1,378,716 
Accumulated other comprehensive income550 4,899 
Accumulated deficit(1,403,683)(1,339,511)
Total ATI Physical Therapy, Inc. equity(94,184)43,958 
Non-controlling interests4,439 4,489 
Total stockholders' equity(89,745)48,447 
Total liabilities, mezzanine equity and stockholders' equity$978,523 $1,078,985 
(1) Includes $16.9 million of principal amount of debt due to related parties as of September 30, 2023.
The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.
8

ATI Physical Therapy, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
Three Months Ended
Nine Months Ended
September 30, 2023September 30, 2022September 30, 2023September 30, 2022
Net patient revenue$162,258 $142,313 $469,950 $429,744 
Other revenue15,197 14,479 46,774 44,163 
Net revenue177,455 156,792 516,724 473,907 
Cost of services:
Salaries and related costs97,089 90,309 283,119 267,330 
Rent, clinic supplies, contract labor and other52,699 51,417 156,014 153,437 
Provision for doubtful accounts3,346 2,797 9,831 11,408 
Total cost of services153,134 144,523 448,964 432,175 
Selling, general and administrative expenses25,085 25,263 92,253 87,095 
Goodwill, intangible and other asset impairment charges 106,663  390,224 
Operating loss(764)(119,657)(24,493)(435,587)
Change in fair value of 2L Notes(1,485) (8,495) 
Change in fair value of warrant liability(88)(790)(88)(3,651)
Change in fair value of contingent common shares liability(306)(6,930)(1,807)(32,760)
Interest expense, net15,478 11,780 46,096 31,815 
Other expense, net117 195 1,089 3,181 
Loss before taxes(14,480)(123,912)(61,288)(434,172)
Income tax expense (benefit)131 (7,218)282 (43,532)
Net loss(14,611)(116,694)(61,570)(390,640)
Net income (loss) attributable to non-controlling interests586 (376)2,602 (1,026)
Net loss attributable to ATI Physical Therapy, Inc.(15,197)(116,318)(64,172)(389,614)
Less: Series A Senior Preferred Stock redemption value adjustments(2,927) 41,769  
Less: Series A Senior Preferred Stock cumulative dividend6,075 5,274 17,087 12,263 
Net loss available to common stockholders$(18,345)$(121,592)$(123,028)$(401,877)
Loss per share of Class A common stock:
Basic$(4.42)$(29.76)$(29.83)$(99.13)
Diluted$(4.42)$(29.76)$(29.83)$(99.13)
Weighted average shares outstanding:
Basic and diluted4,154 4,086 4,125 4,054 
The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.
9

ATI Physical Therapy, Inc.
Condensed Consolidated Statements of Comprehensive Loss
($ in thousands)
(unaudited)
Three Months Ended
Nine Months Ended
September 30, 2023September 30, 2022September 30, 2023September 30, 2022
Net loss$(14,611)$(116,694)$(61,570)$(390,640)
Other comprehensive (loss) income:
Cash flow hedges(43)655 (4,349)7,115 
Comprehensive loss(14,654)(116,039)(65,919)(383,525)
Net income (loss) attributable to non-controlling interests586 (376)2,602 (1,026)
Comprehensive loss attributable to ATI Physical Therapy, Inc.$(15,240)$(115,663)$(68,521)$(382,499)
The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.
10

ATI Physical Therapy, Inc.
Condensed Consolidated Statements of Changes in Stockholders' Equity
($ in thousands, except share data)
(unaudited)
Common Stock Treasury StockAdditional Paid-In CapitalAccumulated Other
Comprehensive Income (Loss)
Accumulated DeficitNon-Controlling InterestsTotal Stockholders' Equity
SharesAmountSharesAmount
Balance at January 1, 20233,967,146$ 1,540$(146)$1,378,716 $4,899 $(1,339,511)$4,489 $48,447 
Vesting of restricted shares distributed to holders of ICUs751— — — — — — — — 
Issuance of common stock upon vesting of restricted stock units and awards25,387— — — — — — — — 
Tax withholdings related to net share settlement of restricted stock units and awards(3,163)— 3,163 (51)— — — — (51)
Non-cash share-based compensation— — — 1,454 — — — 1,454 
Other comprehensive loss— — — — (3,456)— — (3,456)
Distribution to non-controlling interest holders— — — — — — (710)(710)
Net income attributable to non-controlling interests— — — — — — 1,060 1,060 
Net loss attributable to ATI Physical Therapy, Inc. — — — — — (26,270)— (26,270)
Balance at March 31, 20233,990,121$ 4,703$(197)$1,380,170 $1,443 $(1,365,781)$4,839 $20,474 
Series A Senior Preferred Stock dividends and redemption value adjustments(73,584)(73,584)
Capital contribution from recognition of delayed draw right asset690690 
Vesting of restricted shares distributed to holders of ICUs737— 
Issuance of common stock upon vesting of restricted stock units and awards10,824— 
Tax withholdings related to net share settlement of restricted stock units and awards(1,206)1,206(15)(15)
Issuance of common stock for fractional adjustments related to Reverse Stock Split26,346— 
Non-cash share-based compensation2,7542,754 
Other comprehensive loss(850)(850)
Distribution to non-controlling interest holders(965)(965)
Net income attributable to non-controlling interests956956 
Net loss attributable to ATI Physical Therapy, Inc.(22,705)(22,705)
Balance at June 30, 20234,026,822$ 5,909$(212)$1,310,030 $593 $(1,388,486)$4,830 $(73,245)
Series A Senior Preferred Stock dividends and redemption value adjustments(3,148)(3,148)
Vesting of restricted shares distributed to holders of ICUs701— — — — 
Issuance of common stock upon vesting of restricted stock units and awards3,974— 
Tax withholdings related to net share settlement of restricted stock units and awards(581)581(5)(5)
Non-cash share-based compensation2,284— — — 2,284 
Other comprehensive loss
— — (43)— — (43)
Distribution to non-controlling interest holders— — — — (977)(977)
Net income attributable to non-controlling interests
— — — — 586 586 
Net loss attributable to ATI Physical Therapy, Inc.— — — (15,197)— (15,197)
Balance at September 30, 20234,030,916$ 6,490$(217)$1,309,166 $550 $(1,403,683)$4,439 $(89,745)
11

Common StockTreasury StockAdditional Paid-In CapitalAccumulated Other Comprehensive IncomeAccumulated DeficitNon-Controlling InterestsTotal Stockholders' Equity
SharesAmountSharesAmount
Balance at January 1, 20223,948,199 $ 596 $(95)$1,351,617 $28 $(847,132)$7,089 $511,507 
Issuance of 2022 Warrants— — — — 19,725 — — — 19,725 
Vesting of restricted shares distributed to holders of ICUs1,510 — — — — — — — — 
Issuance of common stock upon vesting of restricted stock awards812 — — — — — — — — 
Tax withholdings related to net share settlement of restricted stock awards(256)— 256 (22)— — — — (22)
Non-cash share-based compensation— — — — 1,960 — — — 1,960 
Other comprehensive income— — — — — 3,752 — — 3,752 
Distribution to non-controlling interest holders— — — — — — — (473)(473)
Net loss attributable to non-controlling interests— — — — — — — (473)(473)
Net loss attributable to ATI Physical Therapy, Inc.— — — — — — (137,750)— (137,750)
Balance at March 31, 20223,950,265 $ 852 $(117)$1,373,302 $3,780 $(984,882)$6,143 $398,226 
Vesting of restricted shares distributed to holders of ICUs2,377 — — — — — — — — 
Issuance of common stock upon vesting of restricted stock units and awards6,608 — — — — — — — — 
Tax withholdings related to net share settlement of restricted stock units and awards(132)— 132 (12)— — — — (12)
Non-cash share-based compensation— — — — 1,959 — — — 1,959 
Other comprehensive income— — — — — 2,708 — — 2,708 
Distribution to non-controlling interest holders— — — — — — — (139)(139)
Net loss attributable to non-controlling interests— — — — — — — (177)(177)
Net loss attributable to ATI Physical Therapy, Inc.— — — — — — (135,546)— (135,546)
Balance at June 30, 20223,959,118 $ 984 $(129)$1,375,261 $6,488 $(1,120,428)$5,827 $267,019 
Vesting of restricted shares distributed to holders of ICUs1,176 — — — — — — — — 
Issuance of common stock upon vesting of restricted stock units and awards2,190 — — — — — — — — 
Tax withholdings related to net share settlement of restricted stock awards(125)— 125 (7)— — — — (7)
Non-cash share-based compensation— — — — 1,911 — — — 1,911 
Other comprehensive income— — — — — 655 — — 655 
Distribution to non-controlling interest holders— — — — — — — (517)(517)
Net loss attributable to non-controlling interests— — — — — — — (376)(376)
Net loss attributable to ATI Physical Therapy, Inc.— — — — — — (116,318)— (116,318)
Balance at September 30, 20223,962,359 $ 1,109 $(136)$1,377,172 $7,143 $(1,236,746)$4,934 $152,367 
The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.

12

ATI Physical Therapy, Inc.
Condensed Consolidated Statements of Cash Flows
($ in thousands)
(unaudited)

Nine Months Ended
September 30, 2023September 30, 2022
Operating activities:
Net loss$(61,570)$(390,640)
Adjustments to reconcile net loss to net cash used in operating activities:
Goodwill, intangible and other asset impairment charges 390,224 
Depreciation and amortization28,341 30,477 
Provision for doubtful accounts9,831 11,408 
Deferred income tax provision282 (43,532)
Non-cash lease expense related to right-of-use assets35,844 36,155 
Non-cash share-based compensation6,492 5,830 
Amortization of debt issuance costs and original issue discount2,200 1,934 
Non-cash interest expense6,020 889 
Loss on extinguishment of debt444 2,809 
Loss (gain) on disposal and sale of assets1,519 (42)
Change in fair value of 2L Notes(8,495) 
Change in fair value of warrant liability(88)(3,651)
Change in fair value of contingent common shares liability(1,807)(32,760)
Change in fair value of non-designated derivative instrument
(67) 
Changes in:
Accounts receivable, net(13,642)(11,276)
Prepaid expenses and other current assets(549)(5,507)
Other non-current assets94 52 
Accounts payable(1,109)(2,100)
Accrued expenses and other liabilities9,015 (702)
Operating lease liabilities(34,694)(36,431)
Other non-current liabilities73 52 
Medicare Accelerated and Advance Payment Program Funds (12,269)
Proceeds from legal cost insurance reimbursements
4,091  
Net cash used in operating activities(17,775)(59,080)
Investing activities:
Purchases of property and equipment(14,592)(22,091)
Proceeds from sale of property and equipment91 152 
Proceeds from sale of clinics355 77 
Payment of holdback liabilities related to acquisitions(490) 
Net cash used in investing activities(14,636)(21,862)


13

Financing activities:
Proceeds from long-term debt 500,000 
Proceeds from 2L Notes from related parties3,243  
Financing transaction costs(6,287) 
Deferred financing costs(84)(12,952)
Original issue discount (10,000)
Principal payments on long-term debt (555,048)
Proceeds from issuance of Series A Senior Preferred Stock 144,667 
Proceeds from issuance of 2022 Warrants 20,333 
Proceeds from revolving line of credit20,000  
Payments on revolving line of credit(44,750) 
Equity issuance costs and original issue discount (4,935)
Payment of contingent consideration liabilities(397) 
Taxes paid on behalf of employees for shares withheld(71)(41)
Distribution to non-controlling interest holders(2,652)(1,129)
Net cash (used in) provided by financing activities(30,998)80,895 
Changes in cash and cash equivalents:
Net decrease in cash and cash equivalents
(63,409)(47)
Cash and cash equivalents at beginning of period83,139 48,616 
Cash and cash equivalents at end of period$19,730 $48,569 
Supplemental noncash disclosures:
Derivative changes in fair value (1)
$4,349 $(7,115)
Purchases of property and equipment in accounts payable$1,644 $2,230 
Exchange of Senior Secured Term Loan for related party 2L Notes$100,000 $ 
Debt discount on Senior Secured Term Loan$(1,797)$ 
Capital contribution from recognition of delayed draw right asset$690 $ 
Series A Senior Preferred Stock dividends and redemption value adjustments$76,732 $ 
Other supplemental disclosures:
Cash paid for interest$38,998 $29,453 
Cash received from hedging activities$5,247 $1,080 
Cash paid for taxes$1 $82 
(1) Derivative changes in fair value related to unrealized loss (gain) on cash flow hedges, including the impact of reclassifications.
The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.
14


Note 1. Overview of the Company
ATI Physical Therapy, Inc., together with its subsidiaries (herein referred to as “we,” "our," “the Company,” “ATI Physical Therapy” and “ATI”), is a nationally recognized healthcare company, specializing in outpatient rehabilitation and adjacent healthcare services. The Company provides outpatient physical therapy services under the name ATI Physical Therapy and, as of September 30, 2023, had 900 clinics located in 24 states (as well as 18 clinics under management service agreements). The Company offers a variety of services within its clinics, including physical therapy to treat spine, shoulder, knee and neck injuries or pain; work injury rehabilitation services, including work conditioning and work hardening; hand therapy; and other specialized treatment services. The Company’s direct and indirect wholly-owned subsidiaries include, but are not limited to, Wilco Holdco, Inc., ATI Holdings Acquisition, Inc. and ATI Holdings, LLC.
Impact of COVID-19 and CARES Act
The coronavirus ("COVID-19") pandemic in the United States resulted in changes to our operating environment. Although the direct impact on our business has decreased since the peak impact in 2020, we continue to closely monitor the remaining impacts from the pandemic including its direct or indirect effects on macroeconomic factors, the labor markets in which we operate, and the physical therapy and broader healthcare landscape. Throughout the duration of the pandemic and declared public health emergency, and continuing hereafter, our priorities have been protecting the health and safety of employees and patients, maximizing the availability of services to satisfy patient needs and improving the operational and financial stability of our business. While we expect the disruption caused by COVID-19 and resulting impacts to diminish over time, we cannot predict the length of such impacts, and if such impacts continue for an extended period, it could have a continued effect on the Company’s results of operations, financial condition and cash flows, which could be material.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law providing reimbursement, grants, waivers and other funds to assist health care providers during the COVID-19 pandemic. The Company realized benefits under the CARES Act including, but not limited to, the receipt of Medicare Accelerated and Advance Payment Program ("MAAPP") funds and deferral of depositing the employer portion of Social Security taxes, interest-free and penalty-free. During the nine months ended September 30, 2022, the Company applied $12.3 million in MAAPP funds against the outstanding liability at that time. During the year ended December 31, 2022, the remaining obligations related to these benefits were applied and repaid.
Note 2. Basis of Presentation and Recent Accounting Standards
Basis of presentation
The accompanying unaudited condensed consolidated financial statements of the Company were prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading.
Management believes the unaudited condensed consolidated financial statements for interim periods presented contain all necessary adjustments to state fairly, in all material respects, the Company's financial position, results of operations and cash flows for the interim periods presented. Such adjustments are of a normal recurring nature.
15

Operating results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results the Company expects for the entire year. In addition, the influence of seasonality, changes in payor contracts, changes in rate per visit, changes in referral and visit volumes, strategic transactions and initiatives, labor market dynamics and wage inflation, changes in laws and general economic conditions in the markets in which the Company operates and other factors impacting the Company's operations may result in any period not being comparable to the same period in previous years.
For further information regarding the Company's accounting policies and other information, the condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto for the year ended December 31, 2022 included in our Annual Report on Form 10-K filed with the SEC on March 16, 2023.
Reverse Stock Split
On June 14, 2023, the Company effected a one-for-fifty (1-for-50) reverse stock split of its Class A common stock (the “Reverse Stock Split”). The Reverse Stock Split was approved by the Company’s stockholders at the Company’s 2023 Annual Meeting of Stockholders held on June 13, 2023, and the final reverse split ratio was subsequently approved by the Company’s board of directors on June 14, 2023. The Company's common stock commenced trading on a reverse split-adjusted basis on June 15, 2023.
As a result of the Reverse Stock Split, every fifty (50) shares of common stock either issued and outstanding or held as treasury stock were combined into one new share of common stock. Any fractional shares of common stock resulting from the Reverse Stock Split were rounded up to the nearest whole share. All outstanding securities entitling their holders to purchase or acquire shares of common stock, including stock options, warrants, Earnout Shares, Vesting Shares and shares of common stock subject to vesting were adjusted as a result of the Reverse Stock Split, as required by the terms of those securities. The Reverse Stock Split did not change the par value of the common stock or the number of shares authorized for issuance.
All information included in these condensed consolidated financial statements and related notes has been adjusted, on a retrospective basis, to reflect the Reverse Stock Split, unless otherwise stated.
Liquidity and going concern
The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business within twelve months after the date that these condensed consolidated financial statements are issued.
The Company has negative operating cash flows, operating losses and net losses. For the nine months ended September 30, 2023, the Company had cash flows used in operating activities of $17.8 million, operating loss of $24.5 million and net loss of $61.6 million. These results are, in part, due to trends experienced by the Company in recent years including a tight labor market for available physical therapy and other healthcare providers in the workforce, visit volume softness, decreases in rate per visit and increases in interest costs.
As previously disclosed, these conditions and events raise substantial doubt about the Company's ability to continue as a going concern. In response to these conditions, management plans included refinancing the Company's debt under its 2022 Credit Agreement (as defined in Note 8) and improving operating results and cash flows.
16

On June 15, 2023, the Company completed a debt restructuring transaction under its 2022 Credit Agreement including: (i) a delayed draw new money financing in an aggregate principal amount of $25.0 million, comprised of (A) second lien paid-in-kind ("PIK") convertible notes (the “2L Notes”) and (B) shares of Series B Preferred Stock (as defined in Note 8), which will provide the holder thereof with voting rights such that the holders thereof will have the right to vote on an as-converted basis, (ii) the exchange of $100.0 million of the aggregate principal amount of the term loans under the 2022 Credit Agreement held by certain of the holders of its Series A Senior Preferred Stock (the "Preferred Equityholders") for 2L Notes and Series B Preferred Stock and (iii) certain other changes to the terms of the 2022 Credit Agreement, including modifications of the financial covenants thereunder and relief from the requirements related to the delivery of independent audit reports without a going concern explanatory paragraph. Holders of the 2L Notes will also receive additional 2L Notes upon the in-kind payment of interest on any outstanding 2L Notes. The 2L Notes are convertible into shares of Class A common stock at a fixed conversion price.
Additionally, the Company experienced improvements in operations that resulted in reduced levels of operating cash outflows during the nine months ended September 30, 2023 relative to the same period in the prior year. A continued improvement in business results is necessary as there remains a risk that the Company may fail to meet its minimum liquidity covenant or be unable to fund anticipated cash requirements and obligations as they become due in the future.
The Company's plan is to continue its efforts to improve its operating results and cash flow through increases to clinical staffing levels, improvements in clinician productivity, controlling costs and capital expenditures and increases in patient visit volumes, referrals and rate per visit. There can be no assurance that the Company's plan will be successful in any of these respects.
If the Company's plan does not result in improvement in these aspects in future periods that results in sufficient cash flow from operations, the Company will need to consider other alternatives, such as raising additional financing, obtaining funds from other sources, disposal of assets, or pursuing other strategic alternatives to improve its business, results of operations and financial condition. There can be no assurance that the Company will be successful in accessing such alternative options or financing if or when needed. Failure to do so could have a material adverse impact on our business, financial condition, results of operations and cash flows, and may lead to events including bankruptcy, reorganization or insolvency.
Management plans have not been fully implemented and, as a result, the Company has concluded that management's plans do not alleviate substantial doubt about the Company's ability to continue as a going concern.
The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.
Use of estimates
The preparation of the condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The effect of any change in estimates will be recognized in the current period of the change.
17

Segment reporting
The Company reports segment information based on the management approach. The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of the Company’s reportable segments. All of the Company’s operations are conducted within the United States. Our chief operating decision maker is our Chief Executive Officer, who reviews financial information presented on a consolidated basis for purposes of making decisions, assessing financial performance and allocating resources. We operate our business as one operating segment and therefore we have one reportable segment.
Cash, cash equivalents and restricted cash
Cash and cash equivalents include all cash balances and highly liquid investments with original maturities of three months or less when issued. Restricted cash consists of cash held as collateral in relation to the Company's corporate card agreement. Restricted cash included within cash and cash equivalents as presented within our condensed consolidated balance sheets as of September 30, 2023 and December 31, 2022, and our condensed consolidated statements of cash flows for the nine months ended September 30, 2023 was $0.8 million. There was no change in restricted cash for the nine months ended September 30, 2022.
2L Notes
The guidance in Accounting Standards Codification ("ASC") Topic 825, Financial Instruments, provides a fair value option that allows companies to make an irrevocable election of fair value as the initial and subsequent measurement attribute for certain eligible financial assets and liabilities. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. The decision to elect the fair value option is determined on an instrument-by-instrument basis, must be applied to an entire instrument and is irrevocable once elected. Assets and liabilities measured at fair value pursuant to this guidance are required to be reported separately in the Company's condensed consolidated balance sheets from those instruments using another accounting method.
The 2L Notes are accounted for as a liability in the Company's condensed consolidated balance sheets. The Company has made an irrevocable election to account for the 2L Notes under the fair value option in accordance with ASC Topic 825, Financial Instruments, in lieu of bifurcating certain features in the Second Lien Note Purchase Agreement. As such, the 2L Notes are initially recorded as a liability at estimated fair value and are subject to re-measurement at each balance sheet date with changes in fair value recognized in change in fair value of 2L Notes in the Company’s condensed consolidated statements of operations. Any changes in fair value related to changes in the Company's credit risk is recognized as a component of accumulated other comprehensive income (loss).
Recently adopted accounting guidance
In October 2021, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Liabilities from Contracts with Customers, which provides guidance to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice. This ASU is effective for the Company on January 1, 2023, with early adoption permitted, and shall be applied on a prospective basis to business combinations that occur on or after the adoption date. The Company adopted this new accounting standard effective January 1, 2023. The adoption of this standard did not have a material impact on the Company's condensed consolidated financial statements.
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Note 3. Divestitures
Clinics held for sale
During the fourth quarter of 2022, the Company classified the assets and liabilities of certain clinics as held for sale as a result of the Company's decision to sell the clinics. The divestiture transactions were anticipated to be completed within twelve months. The clinics did not meet the criteria to be classified as discontinued operations. During the first quarter of 2023, the Company completed a portion of its anticipated divestiture transactions, which were immaterial. During the second quarter of 2023, the Company concluded the remaining anticipated divestiture transactions were no longer probable due to the Company's decision to retain the clinics. As a result, the assets and liabilities previously classified as held for sale were reclassified as held and used into the respective line items within the condensed consolidated balance sheet.
There were no assets or liabilities classified as held for sale as of September 30, 2023. Major classes of assets and liabilities classified as held for sale as of December 31, 2022 were as follows (in thousands):
December 31, 2022
Accounts receivable, net$486 
Prepaid expenses23 
Property and equipment, net1,113 
Operating lease right-of-use assets1,929 
Goodwill, net3,192 
Other non-current assets12 
Total assets held for sale$6,755 
Accounts payable$22 
Accrued expenses and other liabilities201 
Current portion of operating lease liabilities685 
Operating lease liabilities1,706 
Total liabilities held for sale$2,614 
Note 4. Revenue from Contracts with Customers
The following table disaggregates net revenue by major service line for the periods indicated below (in thousands):
Three Months EndedNine Months Ended
September 30, 2023September 30, 2022September 30, 2023September 30, 2022
Net patient revenue$162,258 $142,313 $469,950 $429,744 
ATI Worksite Solutions (1)
9,289 9,053 27,874 26,429 
Management Service Agreements (1)
3,664 3,251 11,159 9,671 
Sports Medicine and other revenue (1)
2,244 2,175 7,741 8,063 
$177,455 $156,792 $516,724 $473,907 
(1)ATI Worksite Solutions, Management Service Agreements and Sports Medicine and other revenue are included within other revenue on the face of the condensed consolidated statements of operations.
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The following table disaggregates net patient revenue for each associated payor class as a percentage of total net patient revenue for the periods indicated below:
Three Months EndedNine Months Ended
September 30, 2023September 30, 2022September 30, 2023September 30, 2022
Commercial58.5 %57.7 %58.4 %57.2 %
Government23.3 %24.7 %23.5 %24.3 %
Workers’ compensation11.6 %12.0 %11.7 %12.7 %
Other (1)
6.6 %5.6 %6.4 %5.8 %
100.0 %100.0 %100.0 %100.0 %
(1) Other is primarily comprised of net patient revenue related to auto personal injury reimbursement.
Note 5. Goodwill, Trade Name and Other Intangible Assets
Changes in the carrying amount of goodwill during the current year consisted of the following (in thousands):
Goodwill at December 31, 2022 (1)
$286,458 
Impairment charges (2)
 
Reclassifications to held and used3,192 
Goodwill at September 30, 2023
$289,650 
(1) Net of accumulated impairment losses of $1,045.7 million.
(2) The Company did not note any triggering events during the nine months ended September 30, 2023 that resulted in the recording of an impairment loss.
The table below summarizes the Company’s carrying amount of trade name and other intangible assets at September 30, 2023 and December 31, 2022 (in thousands):
September 30, 2023December 31, 2022
Gross intangible assets:
ATI trade name (1)
$245,000 $245,000 
Non-compete agreements2,395 2,395 
Other intangible assets640 640 
Accumulated amortization:
Accumulated amortization – non-compete agreements(1,647)(1,126)
Accumulated amortization – other intangible assets(360)(327)
Total trade name and other intangible assets, net$246,028 $246,582 
(1) Not subject to amortization.
Amortization expense for the three and nine months ended September 30, 2023 and 2022 was immaterial. The Company estimates that amortization expense related to intangible assets will be immaterial over the next five fiscal years and thereafter.
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Interim impairment testing during 2022
During the quarters ended March 31, 2022, June 30, 2022 and September 30, 2022, the Company identified interim triggering events as a result of factors including potential changes in discount rates and decreases in share price. The Company determined that the combination of these factors constituted interim triggering events that required further analysis with respect to potential impairment to goodwill, trade name indefinite-lived intangible and other assets.
As it was determined that it was more likely than not that the fair value of our trade name indefinite-lived intangible asset was below its carrying value, the Company performed an interim quantitative impairment test as of the March 31, 2022, June 30, 2022 and September 30, 2022 balance sheet dates. The Company utilized the relief from royalty method to estimate the fair value of the trade name indefinite-lived intangible asset. The key assumptions associated with determining the estimated fair value included projected revenue growth rates, the royalty rate, the discount rate and the terminal growth rate. As a result of the analyses, during the nine months ended September 30, 2022, the Company recognized $119.4 million in non-cash interim impairments in goodwill, intangible and other asset impairment charges in its condensed consolidated statements of operations, which represented the difference between the estimated fair value of the Company’s trade name indefinite-lived intangible asset and its carrying value.
The Company assessed its long-lived asset groups, including operating lease right-of-use assets that were evaluated based on clinic-specific cash flows and clinic-specific market factors, noting no material impairment.
As it was determined that it was more likely than not that the fair value of our single reporting unit was below its carrying value, the Company performed an interim quantitative impairment test with respect to goodwill. In order to determine the fair value of our single reporting unit, the Company utilized an average of a discounted cash flow analysis and comparable public company analysis. The key assumptions associated with determining the estimated fair value included projected revenue growth rates, earnings before interest, taxes, depreciation and amortization ("EBITDA") margins, the terminal growth rate, the discount rate and relevant market multiples. As a result of the analyses, during the nine months ended September 30, 2022, the Company recognized $270.6 million in non-cash interim impairments in goodwill, intangible and other asset impairment charges in its condensed consolidated statements of operations, which represented the difference between the estimated fair value of the Company’s single reporting unit and its carrying value.
Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates and market factors. Estimating the fair value of the Company’s reporting unit and the indefinite-lived intangible asset requires us to make assumptions and estimates regarding our future plans, as well as industry, economic, and regulatory conditions. These assumptions and estimates include projected revenue growth rates, EBITDA margins, terminal growth rates, discount rates, relevant market multiples, royalty rates and other market factors. If current expectations of future growth rates, margins and cash flows are not met, or if market factors outside of our control change significantly, including discount rates, relevant market multiples, company share price and other market factors, then our reporting unit or the indefinite-lived intangible asset might become impaired in the future, negatively impacting our operating results and financial position. As the carrying amounts of goodwill and the Company’s trade name indefinite-lived intangible asset were impaired as of December 31, 2022 and written down to fair value, those amounts are more susceptible to an impairment risk if there are unfavorable changes in assumptions and estimates.
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Note 6. Property and Equipment
Property and equipment consisted of the following at September 30, 2023 and December 31, 2022 (in thousands):

September 30, 2023December 31, 2022
Equipment
$39,328 $38,102 
Furniture and fixtures
17,948 17,215 
Leasehold improvements
194,636 191,182 
Automobiles
19 19 
Computer equipment and software
106,642 102,651 
Construction-in-progress
2,952 3,727 

361,525 352,896 
Accumulated depreciation and amortization
(251,873)(229,206)
Property and equipment, net (1)
$109,652 $123,690 
(1) Excludes $1.1 million reclassified as held for sale as of December 31, 2022. Refer to Note 3 - Divestitures for additional information.
The following table presents the amount of depreciation and amortization expense related to property and equipment recorded in rent, clinic supplies, contract labor and other and selling, general and administrative expenses in the Company’s condensed consolidated statements of operations for the periods indicated below (in thousands):

Three Months EndedNine Months Ended

September 30, 2023September 30, 2022September 30, 2023September 30, 2022
Rent, clinic supplies, contract labor and other
$6,343 $6,876 $19,152 $20,785 
Selling, general and administrative expenses
2,772 3,048 8,635 9,133 
Total depreciation expense
$9,115 $9,924 $27,787 $29,918 
Note 7. Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consisted of the following at September 30, 2023 and December 31, 2022 (in thousands):

September 30, 2023December 31, 2022
Salaries and related costs
$26,128$28,949
Accrued professional fees7,677

5,551
Credit balances due to patients and payors7,4256,117
Accrued interest
5,011762
Accrued contract labor3,2714,483
Accrued occupancy costs2,424

2,410
Other payables and accrued expenses3,6825,400
Total
$55,618$53,672
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Note 8. Borrowings
Long-term debt, net consisted of the following at September 30, 2023 and December 31, 2022 (in thousands):
September 30, 2023December 31, 2022
Senior Secured Term Loan (1, 2) (due February 24, 2028)
$409,500 $503,481 
Revolving Loans (3) (due February 24, 2027)
23,450 48,200 
Less: unamortized debt issuance costs
(7,718)(11,137)
Less: unamortized original issue discount
(7,853)(8,944)
Total debt, net
417,379 531,600 
Less: current portion of long-term debt
  
Long-term debt, net
$417,379 $531,600 
(1) Interest rate of 13.7% and 12.1% at September 30, 2023 and December 31, 2022, respectively, with interest payable in designated installments at a variable interest rate. The effective interest rate for the Senior Secured Term Loan was 13.9% and 13.1% at September 30, 2023 and December 31, 2022, respectively.
(2) The Company has paid a portion of its interest in-kind on its Senior Secured Term Loan by capitalizing and adding such interest to the principal amount of the debt. As of September 30, 2023 and December 31, 2022, the Company has recognized total paid-in-kind interest in the amount of $9.5 million and $3.5 million, respectively.
(3) Weighted average interest rate of 10.5% and 8.3% at September 30, 2023 and December 31, 2022, respectively, with interest payable in designated installments at a variable interest rate.
2L Notes due to related parties, at fair value consisted of the following at September 30, 2023 and December 31, 2022 (in thousands):
September 30, 2023December 31, 2022
2L Notes due to related parties, at fair value
$95,448 $ 
2023 Debt Restructuring Transaction
On June 15, 2023 (the "Closing Date"), the Company completed a debt restructuring transaction to improve the Company's liquidity (the "2023 Debt Restructuring"). On the Closing Date, certain previously executed agreements became effective, including (i) Amendment No. 2 to the Credit Agreement, (ii) a Second Lien Note Purchase Agreement and (iii) certain other definitive agreements relating to the 2023 Debt Restructuring (such documents referred to collectively as the "Signing Date Definitive Documents").
As part of the 2023 Debt Restructuring, the Company exchanged a principal amount of $100.0 million of the $507.8 million then outstanding Senior Secured Term Loan for an equal amount of 2L Notes, which are convertible into shares of the Company's common stock, stapled with a number of shares of Series B Preferred Stock (the "Series B Preferred Stock"), which represent voting interests only. The exchange was consummated through the Intercreditor and Subordination Agreement and Second Lien Note Purchase Agreement dated April 17, 2023 (the "Signing Date").
The Company accounted for the exchange as a debt extinguishment and recogni