ATI Physical Therapy - Q1 2022

Transcript

Operator (participant)

Good afternoon, and welcome to ATI Physical Therapy's first quarter 2022 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. If you do have a question, please press star one on your telephone keypad. Please note this event is being recorded. On the call today is Jack Larsen, Chairman of the Board, Sharon Vitti, Chief Executive Officer, Joseph Jordan, Chief Financial Officer, Ray Wahl, Chief Operating Officer, and Joanne Fong, Senior Vice President, Treasurer, and Head of investor relations. I would now like to turn the call over to Ms. Fong to read the safe harbor and forward-looking statements.

Joanne Fong (SVP, Treasurer, and Head of Investor Relations)

Thank you, Lisa. Good afternoon, everyone, and thank you for joining us for today's call. Before we begin, we'd like to remind you that certain statements made during this call will be forward-looking statements that are subject to various risks and uncertainties and reflect our current expectations based on our 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 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 Securities and Exchange Commission. In addition, please note that the company will be discussing certain non-GAAP financial measures that we believe are important in evaluating performance.

Details and the relationship between these non-GAAP measures and the most comparable GAAP measures and reconciliation of historical non-GAAP financial measures can be found in the press release as posted on ATI's website and filed with the SEC. With that, I'd like to turn the call over to Jack.

Jack Larsen (Chairman of the Board)

Thanks, Joanne, and welcome to all of you joining us this afternoon. I'm very pleased to welcome our new Chief Executive Officer, Sharon Vitti. By way of reminder, Sharon came from CVS Health, where she served as the President of MinuteClinic and led the company's clinical and consumer-centered strategy. Sharon is digging into our business, and I look forward to working with her as I continue my role as Chairman. Also on the call with us today is, of course, Joe Jordan, our Chief Financial Officer, and Ray Wahl, Chief Operating Officer. I'll start the discussion with some highlights of our first quarter 2022 business performance and then shift to the market trends we are currently seeing. Ray will then share an update on the activities in our clinics and with our teams.

Joe will review our first quarter financial results and outlook for full year 2022, and Sharon will wrap us up with remarks to close. Before we jump in, as always, I want to acknowledge and thank our entire team for their continuing dedication and efforts. Although the significant spike in COVID earlier this year feels like yesterday's news, it impacted our teams in a very meaningful way. In some parts of the country, it still continues to be a fact of life in a clinic. Nevertheless, our teams, both clinical and support, have tackled these challenges head-on. Most importantly, throughout this time, we continued to achieve high patient satisfaction scores and helped tens of thousands of people every day in their return to physical health.

Since we last spoke, patient appointments to our clinics have continued to grow, and we remain laser-focused on achieving visit volume at pre-COVID levels later this year and, of course, building from there. Ray will go over the specifics, but I'm pleased to report that in March, we delivered approximately 22,600 visits per day, representing the highest volume month since March of 2020. To keep this momentum going, we are executing on our referral growth strategy. Alongside an expanded business development team, our 600 or so clinical field leaders have started wading back into relationship building with local physicians and those in the communities that they serve. Understanding that building these relationships take time, we expect to see the full benefits of our market activities in the quarters and years to come.

Until then, referrals per day in the first quarter were approximately 91% of the pre-COVID level full year 2019, while visits per day in the first quarter were approximately 84% of the full year 2019 level. Referrals without enough high-quality clinical staff is just a non-starter. During the first quarter, we continued to focus on our people, again, both clinical and support. While COVID variants in January led us to conducting a virtual rather than in-person National Leadership Conference, it was great seeing our nationwide team taking part in leadership development and sharing clinical and management best practices, albeit at a distance. I have shared with you the many past actions we've taken to strengthen our position as the employer of choice for clinicians, and we continue to listen and quickly respond to further strengthening that reputation.

As a result, our annualized clinician turnover for the first quarter of 2022 decreased approximately 900 basis points to 28%, which approaches our historical levels. Moreover, while we work to balance growing our clinical staff and driving referrals across our nationwide footprint, there are markets in the Southwest and Southeast where our clinics are running near full capacity. In the first quarter of 2022, we opened 12 de novo clinics, with the majority in Arizona, Georgia, and Texas. We have the financial and people resources to capitalize on these immediate growth opportunities as we see them come up. Finally, all of our work comes to a fine point in the measurement of our patient satisfaction scores, and they remain very high with an NPS of 74 and a Google star rating of 4.9 in the first quarter of 2022.

We provide individualized NPS reports to each of our regions and clinics quarterly and to each of our therapists semiannually in our strong commitment to continuously raise the bar on what counts, patient satisfaction with their overall experience, and more importantly, their outcomes. With that, I'll turn the call over to Ray.

Ray Wahl (COO)

Thank you, Jack. I'd like to take a moment to provide a detailed review of our operational performance in the first quarter and discuss some of our activities in the field. As we started 2022, January and the first half of February included challenges from Omicron impacting patient visits, appointment schedules, and therapist staffing at our clinics. As the impact from the COVID variant lessened, patient visits steadily climbed from 19,300 visits per day in January to 22,600 visits per day by March. In managing our clinical team, one key metric that we track is visits per clinical FTE per day. While always focusing on reducing turnover, we use this metric to adjust our hiring activities. As Jack mentioned, annualized clinician turnover was 28% in the first quarter of 2022, and the trend was positive each month within the quarter.

Our visits per day per clinical FTE was 8.5 across the platform, while we consider full capacity utilization to be in the low- to mid-9s. We do, however, have certain pockets of the country where the labor market continues to be particularly constrained, and we have relied on some contract labor to bridge the gap in these specific markets. One area of focus for us in 2022 is rebuilding talent and growing our clinical team. With PT school graduations in May and our traditionally biggest hiring season right around the corner, we're excited to expand our already talented base of providers with new team members. In addition to optimizing labor productivity and adding clinical FTE, the third leg in the operational stool is driving referrals.

In the first quarter of 2022, we filled many of the new business development positions created under the refreshed sales strategy and are targeting to fill the remaining open positions in the second quarter. Furthermore, we've completed a key project that provides our clinical leadership team unique visibility and allows them to play a more active role in relationship development, which will be key in growing the business. As Jack mentioned, we are already seeing early results with the sales efforts. Referrals per day in January were 85% of the pre-COVID level in 2019 and increased by March to 96% of the fiscal year 2019 level. It is essential that we continue to drive higher referral volumes in order to meet both our short-term goals and set ourselves up for long-term success.

To wrap things up, I'm really proud of our clinical leadership team and more specifically, all of our team members who are delivering a differentiated experience in the clinic. Q1 was a challenge, and the team rose to the occasion. I'm excited to see our hard work pay off as we continue into Q2 and beyond. With that said, I'd like to turn the call over to Joe for a financial review.

Joseph Jordan (CFO)

Thank you, Ray, and thanks to everyone for joining the call today. I will cover our Q1 2022 financial results, and then I'll review the company's full-year outlook. Starting with the first quarter, net operating revenue was $154 million, a 3.2% increase year-over-year from $149 million in Q1 2021. Net patient revenue was $139 million, increasing 5% year-over-year, driven by higher volumes, partially offset by lower rate per visit. Other revenue was $15 million, declining 11.3% year-over-year, primarily due to the sale of our home health service line in Q4 2021. Visits per day per clinic during the quarter were 22.9, sequentially increasing 0.1 from 22.8 in Q4 2021.

The quarter-over-quarter increase was muted by visit softness in January and the first half of February when COVID variants disrupted operations through increased cancellations, a decline in scheduled appointments, and increased clinician absences. Compared to the prior year, visits per day per clinic improved 0.7 from 22.2. Rate per visit was $103.06, sequentially decreasing 1.4% from $104.51 in the fourth quarter of 2021 and 4.2% year-over-year from $107.56 in the first quarter of 2021. The decreases in rate were primarily driven by the 2022 Medicare Physician Fee Schedule having lower rates for reimbursement for physical therapy and lower reimbursement rates for physical therapy assistants.

The decrease relative to Q1 of 2021 was also due to unfavorable mix shifts in payer states and services. Salaries and related costs in the first quarter of 2022 were $87 million, an 8.4% increase year-over-year from $81 million due to both more clinical FTE and wage inflation. PT salaries and related costs per visit during the quarter were $55.47, essentially flat compared to Q4 and increasing 2.5% year-over-year from $54.14 in Q1 due to wage inflation. Rent, clinic supplies, contract labor, and other in the first quarter of 2022 was $52 million. A 19.2% increase year-over-year from $43 million due to having more clinics and higher cost per clinic.

PT rent and other costs per clinic during the quarter was approximately $54,000, sequentially increasing 6.9% from $51,000 in the fourth quarter and 14.1% from $48,000 in the first quarter of 2021. The increases were primarily due to greater use of contract labor in select markets where it's taking longer to fill certain positions. Our provision for doubtful accounts during the first quarter was $5 million or approximately 3.7% of net patient revenue, which is trending favorably when compared to the first quarter of 2021 at 5.4% of net patient revenue. SG&A during the quarter was approximately $30 million, a 21.4% increase year-over-year from $25 million due to public company operating costs and non-ordinary legal and regulatory expenses.

Impairment charges in the first quarter of 2022 were $116 million for goodwill and $39 million for our trade name, both non-cash charges. The impairment was primarily due to an increase in market interest rates and our cost of capital, along with the public market price of our stock as of the valuation date. Operating loss in the first quarter of 2022 was $176 million, increasing year-over-year from $7 million in Q2 of 2021. The increase was primarily driven by the $156 million impairment charge that I just mentioned.

While visit volume and revenue were higher year-over-year, a lower rate per visit, combined with clinician wage inflation, greater use of contractors, and higher G&A led to lower margins, driving the remaining $13 million increase in operating loss when compared to Q1 of the prior year. Notable below-the-line expenses during the quarter included a decrease in the fair value of certain warrants and contingent share liabilities totaling $26 million. The mark-to-market adjustment to fair value was based on a valuation analysis as of March 31st. Interest expense during the quarter was $9 million, compared to $16 million in the first quarter of 2021, which is consistent with the reduced principal debt outstanding as of the end of the first quarter.

Other expenses were approximately $3 million during the quarter and were primarily due to the loss on extinguishment of debt in connection with the refinancing of our credit agreement in February. As discussed on our last call, the refinance transaction added approximately $77 million to the balance sheet and pushed maturity out to 2028, providing the liquidity and time to invest in our people and growth strategies as we work to continue to scale our business. Income tax benefit for the quarter was $23 million, compared to $11 million in the first quarter of the prior year. Our net loss during the quarter was $138 million, compared to $18 million in the first quarter of 2021.

Adjusted EBITDA during the quarter was a loss of $5 million or -3.1% margin, decreasing year-over-year from adjusted EBITDA of $6 million in Q1 of 2021 or 3.8% margin. Cash generated during the first quarter was $46 million, broken down between $27 million used to fund operations, $9 million used in investing activities, and $82 million generated from financing activities. Cash used in operations did include $4 million repaid in connection with the Medicare Accelerated and Advance Payment Program under the CARES Act. As of March 31st, 2022, available liquidity was approximately $144 million, comprised of $95 million of cash on hand and $49 million in available revolver capacity.

Looking ahead, we are maintaining our full year 2022 guidance, expecting revenue to be in the range of $675 million-$705 million. In the first quarter of 2022, we ramped visits steadily. As Jack mentioned, visits per day of approximately 22,600 in March was the highest volume month since pre-COVID. Furthermore, as Ray mentioned, our most significant hiring season is around the corner. May being the time when most new physical therapists complete their academic programs and graduate. As we drive referrals and convert to visits, we will focus on adding new team members and growing clinical headcount, along with the growth in demand and in turn, the growth in volume. We are also maintaining our full year guidance for adjusted EBITDA to be in the range of $25 million-$35 million.

Traditionally, the first quarter of the year is the lowest in profitability, with inclement weather causing patient cancellations and seasonally higher provision for doubtful accounts. With our National Leadership Conference held at the beginning of the fiscal year, the first quarter profit is also impacted by higher expenses. In 2022, as discussed on our last call, the first quarter was impacted by COVID variants during the first six weeks. As the business continues to ramp during the remainder of the year, we will be able to better leverage our fixed costs and accordingly generate higher earnings, which we've already begun to see in March.

Finally, regarding new clinics, as Jack mentioned, we opened 12 de novo clinics in the first quarter of 2022 and continue to expect to open between 20 and 30 new clinics for the full year 2022, focused on markets where we see outsized opportunities for growth. With that, I turn the call over to Sharon.

Sharon Vitti (CEO)

Thank you, Joe, for the detailed discussion of financial performance and outlook. ATI has an evidence-driven approach to improving function and helping our patients get back to their best. The company systematically measures and reports patient outcomes and patient satisfaction, which is uncommon in the highly fragmented outpatient physical therapy sector. I admire the energy and passion of our clinicians, and I could not be more excited to be here at this pivotal time and a part of the team. Over the past 30+ years, I've dedicated my career to advancing high-quality health care and increasing access. In my last role, I was very much focused on making health management available, timely and convenient, and affordable. The bedrock of high-quality care is the medical professional in the field.

Equally important, delivery of affordable health care takes a village, and my experience includes how to effectively coordinate the patient's care with other healthcare providers and in doing so lower system costs. In the immediate term, my plan is to focus on regaining market momentum and meeting our performance commitments. As I spend my first 100 days digging into the business, I'll be looking for opportunities to increase patient access to high-quality PT through various avenues, including de novo clinics, acquisitions, digital health, and strategic partnerships and alliances. ATI is a strong platform, and I look forward to new milestones ahead. Operator, we are now ready to open the call for questions-and-answers.

Operator (participant)

Thank you. Just a reminder, ladies and gentlemen, it is star one to ask a question. We'll take our first question today from Chris Neamonitis, Jefferies.

Chris Neamonitis (Equity Research Analyst)

Great. Thanks for the questions and welcome, Sharon. You guys talked about a reduction in attrition sequentially, which is great. If I look at your clinical FTE, it's actually down quarter over quarter. Is hiring proving to be more challenging than you originally anticipated?

Joseph Jordan (CFO)

Hey, Chris, this is Joe. I can take that one. Two things to point out there. We actually have a decrease in turnover at 28%. You probably also noticed that there's an increase in hiring at 39%. Hiring does outpace turnover when you look at those two. The clinical FTE metric is a bit nuanced, and it's a function of the number of hours that a clinician works. I would tell you the delta there is really the timing of when someone is termed or decides to attrit and the timing of when someone is hired on. Maybe to cut through all of that noise, what I would say is if we look at our clinical FTE today, we're north of 2,500.

I think that reflects that there are a lot of terms that calculated longer for a period versus hires.

Chris Neamonitis (Equity Research Analyst)

Got it. That makes sense. You mentioned kind of PT graduation in May. How do you feel about infilling with new grads? Do you feel like you're well positioned with kind of the maybe more seasoned clinical staff, and that the hiring really does come down to more support or junior level staff?

Jack Larsen (Chairman of the Board)

Yeah. Chris, this is Jack. We do focus, I would say, most of our attention on new grad recruiting, and that's proven to be quite successful for us over the past few quarters. We're able to source them, put really attractive offers in front of them, and then bring them up the productivity curve pretty quick. I think Ray can probably put a little more color on those remarks.

Ray Wahl (COO)

Yeah, Chris, we have a mentoring program that's specifically for this situation or this environment that you're describing. As we bring on new grads, we pair them up with experienced providers, not only to, you know, ask questions and deal with the actual diagnoses that they're treating, but how do you handle a caseload, how do you interact with physicians, how do you interact with family members and such. We feel good about the support system that we're providing to these new providers as they exit school and enter the workforce.

Chris Neamonitis (Equity Research Analyst)

Great. That's helpful. Then one more from me, if I may. You talked about your labor and sales strategies last quarter potentially taking hold and maybe driving out performance. With the guide reiterated today, how should we think about the progression of those strategies? Are you feeling more or maybe less confident about winning back referral share versus where you guys were at during the fourth quarter call? Thanks.

Jack Larsen (Chairman of the Board)

Yeah. The strategy we put in really has two components. One, we had to rebuild the people part of our business development team, and I think we've done that very well. We're within less than a handful of our targeted business development team size. We also had to rebuild some of the sales and marketing data sets, if you will, to the point where referrals are where they have been historically, and then where our development teams need to spend our time. I think we have all those components in place, where we have had some aging of our development teams in a particular market. We are seeing growth at a higher rate than we are in some of the less mature sort of new areas. You know, put that all into the balance.

I feel pretty good that we've got, kind of a sales and referral resurgence program underway. It takes time, and I think as I said in my prepared remarks, we'll see a little bit now and then increasingly more so in the quarters to come.

Chris Neamonitis (Equity Research Analyst)

Very helpful. Thank you.

Jack Larsen (Chairman of the Board)

Next question.

Operator (participant)

Next question comes from Larry Solow, CJS Securities.

Stefanos Crist (Equity Research Analyst)

Hi, this is Stefanos Crist calling in for Larry. Thanks for taking our questions. In terms of the improvement on referrals, are those predominantly new doctors or some of those lost referral sources coming back?

Jack Larsen (Chairman of the Board)

Yeah, I think it's a mix of both. You know, the existing referral sources are probably our most fertile areas, and we are beginning to knock on the door of less traditional for us referrals. I think we're seeing some success. At this point, can't give you an exact percent, but it's a mix of both, but still predominantly existing referral sources.

Stefanos Crist (Equity Research Analyst)

Got it. Thank you. Just for follow-up, in terms of pricing on the private side, can you talk about the progression of rates just considering the inflationary environment we're in?

Jack Larsen (Chairman of the Board)

Sure. A couple of thoughts, and I'll ask Joe to jump in. We expected rate compression in 2022 as a function of the Medicare fee schedule cuts that we saw last year, fully anticipated. We are working very diligently on the bulk of the other rates, primarily with commercial payers and the like. Remember, the Medicare rate cut fee schedule is only the starting point. On top of that, there are performance bonuses that I think we've said in prior calls that because of our success in reporting under the Medicare incentive programs, we get a little bit better rate than what the fee schedules would indicate. Not surprised to see some rate compression in Q1, and we anticipated that in the balance of year forecast.

Joseph Jordan (CFO)

Yeah. Just to maybe add on to Jack's, you're obviously well aware. Stefanos knows of the Medicare rate environment. We talked about. Jack just hit on it. When we step over to commercial, there's a handful of payers, not a material piece of our payer landscape in commercial that does attach the rates to Medicare, so they're Medicare-like contracts. As a result, there's a small decline in rates for those payers. What we've seen with other payers thus far this year is pretty consistent rates. The rates or the agreements with those payers are generally evergreen, and therefore, they'll renew throughout the year. We'll have them coming out throughout the year. To date, relatively consistent rates, not going up or down.

Stefanos Crist (Equity Research Analyst)

Thanks so much.

Jack Larsen (Chairman of the Board)

Next question.

Operator (participant)

As a reminder, it is star one if you have a question. Next up is Pito Chickering, Deutsche Bank.

Pito Chickering (Director and Senior Equity Research Analyst)

Hey, good afternoon, guys. Thanks for taking my questions and sharing. It's a pleasure to meet you via the telephone. A question on rates, just on the sort of year-over-year decline of 450. Can you just provide us a bridge of how much of that was from the Medicare Fee Schedule, how much that was from lower rates because it is being performed by assistants? If possible, the unfavorable mix shift and payer mix, just to understand sort of all those moving parts.

Joseph Jordan (CFO)

Hey, Pito, it's Joe. I'm gonna lump the two Medicare pieces together. If you look at Q4 to Q1, we went $104.50-ish to the $103 and change in Q1. That, I think you could pretty closely tie to the change in Medicare. It's a combination of PTA seen visits and Medicare PT, and I don't have at my fingertips how much is each of those two components. The delta between Q1 of last year and the remaining difference of bridging down to $104.50 is primarily state mix shift and payer mix shift, meaning less workers' comp, less API, more commercial, more Medicare. The $107-$104 is that, and then $104.50-$103 is Medicare change.

Pito Chickering (Director and Senior Equity Research Analyst)

Okay. You know, looking at March, has that payer mix stabilized? Kind of, you know, how should we be thinking about that going forward? What's the right, you know, from a modeling perspective, what's the right, you know, amount that we should be modeling from here for 2022?

Joseph Jordan (CFO)

Generally, the payer mix has stayed pretty consistent in March, although I wanna be careful getting into month-to-month discussions. As we look out going forward, what we had anticipated in 2022 is a stable payer mix. Granted, you wanna focus on trying to grow some of those higher paying states back and grow some of the payer mix back to workers' comp and API where we can capture share, but we haven't modeled that out.

Pito Chickering (Director and Senior Equity Research Analyst)

Okay. Shifting to guidance, you know, so the rate per, you know, per visit was, you know, what it was in first quarter, and the PT cost per visit is obviously being pressured due to, you know, these macro pressures that we're facing. Your visits per clinician of 8.5 is only slightly below where it was, you know, in 2019 pre-COVID. Can you sort of walk me through what assumptions and which KPIs sort of you're assuming in order to get to the guidance? I mean, just, you know, like, which KPIs should we be, you know, modeling to get to the guidance?

Joseph Jordan (CFO)

Sure, Pito. It's Joe again. The visits per clinical FTE, to your point, were about 8.5 for the first quarter. We talked about it in the February call, but we certainly had labor early in the year, January and February, when visits weren't coming in because of COVID. The productivity, as you can imagine, as a result, was significantly depressed from that 8.5 average for the quarter. Again, not to break out individual months specifically, but if you can think about the trend that was happening there when we were in March, we were in the low nines. As we think through the rest of the year, that's where we wanna be, is in the low nines.

Now, we understand that as we add clinicians, and Ray Wahl and Jack Larsen and I all talked about needing to add labor throughout the year to grow our volume back, the productivity could be uneven throughout the year. Generally, we expect it to be somewhere in the low nines.

Pito Chickering (Director and Senior Equity Research Analyst)

Okay. You know, I guess from a hiring perspective, is this sort of the right, you know, rate that you'll be hiring throughout the year? What you've seen, I guess, you know, to your point, I think you gave us the numbers of where you are today at 2,500. Adding, you know, 50+ clinicians a quarter plus getting to your low nines, that's how we get to sort of the guidance numbers?

Jack Larsen (Chairman of the Board)

Pito, this is Jack. I think you have to think about a continuous upward progression in referrals turning into visits. Certainly, everything flows from that. I think the other thing about hiring, we anticipate exiting the year at what level of clinicians? 20-

Joseph Jordan (CFO)

About 2,800.

Jack Larsen (Chairman of the Board)

2,800 or so. It's not a linear progression. We'll sort of see good growth here in May and June. As we said, that's a big graduation time, and then again in the fall. Volume growing, productivity mirroring what we saw in March, and then hiring up to our ending level is probably the three key KPIs you wanna keep an eye on as you model out rest of the year.

Pito Chickering (Director and Senior Equity Research Analyst)

Okay, great. Last quick question for me, apologies for going this long. On the referral numbers, I think you said you're 96% in March. Is that on a sort of per center or on a per clinic? Because I think you guys added 40 clinics year-over-year. Just trying to get a feeling for sort of, you know, where the number is.

Ray Wahl (COO)

Hey, Pito, this is Ray. That's for the platform, the entire platform.

Pito Chickering (Director and Senior Equity Research Analyst)

Got it. All right, great. Thanks so much, guys.

Jack Larsen (Chairman of the Board)

Thanks for the question, Pito.

Operator (participant)

We'll take the next question from Mike Petusky, Barrington Research.

Mike Petusky (Managing Director and Senior Research Analyst)

Yeah, good afternoon. Joe, can I have the share count for the quarter? I don't think it was in the release.

Joseph Jordan (CFO)

Yeah, I have it here. Give me one second, Mike. Let me just pull that up. 1,975.

Mike Petusky (Managing Director and Senior Research Analyst)

Got it. All right. You know, obviously, balance sheet continues to be really levered, free cash flow in the first quarter, understanding that the first quarter is always the weakest. You know, you guys just did the refinance. Can you talk about, you know, with a balance sheet this levered, generating positive free cash has to be a priority that you guys have given a lot of thought and analysis to. Can you share, you know, what you all are targeting or what you told your lenders you're targeting in terms of where you sort of break through and start generating consistent positive free cash? Thanks.

Joseph Jordan (CFO)

Yeah. I can talk to that a little bit. I mean, one of the things that we've talked about with lenders, and I think we've talked about on some of the previous earnings calls, is as we ramp back this year, we knew it would be a year where we're still in a cash outflow, particularly with the financing transaction in Q1 and carrying labor in advance of seeing volume. Q1 was obviously a big outflow quarter for us. I'd expect Q2 and Q3 to still be a cash outflow and get closer to break even as we get into the fourth quarter. Beyond that, obviously not prepared to comment on 2023 at this point. That's the journey that we see ourselves on for the remainder of 2022.

Mike Petusky (Managing Director and Senior Research Analyst)

Okay. Obviously, no positive free cash this year and no comments on whether you might find a quarter in 2023 that you can generate positive cash.

Joseph Jordan (CFO)

Yeah. I mean, Q4, I'd say you could be right around that, right around positive, in twenty-

Mike Petusky (Managing Director and Senior Research Analyst)

Including CapEx?

Joseph Jordan (CFO)

Yes. In 2023, really the reason, you know, we don't wanna comment on that yet is it comes down to the determination made on CapEx and the investments that you make back in the business. Sharon's just on board, and obviously there's a lot of evaluation that she'll wanna do and we'll wanna do as a team to figure out how we strategize around 2023.

Mike Petusky (Managing Director and Senior Research Analyst)

Okay. One quick one for Sharon. Sharon, obviously, you're coming into a situation that has struggled in its history as a public company. What about this situation did you sort of assess and say, "Hey, I can really bring value to this area. This is how I can help sort of turn this sucker around and, you know, it sort of aligns with my skill set." Can you just talk about as you, I'm sure you gave a lot of thought to taking this position. Thanks.

Sharon Vitti (CEO)

Sure. Thanks for the question. I'd say a few things. One, the ATI practice being a national practice, having a national footprint in all the number of clinics, and being able to deliver on a national brand is very similar to what I came from at CVS Health. From a PT perspective, I was really excited about PT. When we think about where healthcare is going around wellness and prevention, we think about increasing clinical outcomes, quality of life, and reducing cost of care or more invasive treatments. The PT area was really very interesting to me. I would say as we look at where we are right now, as the team pointed out, you know, we're in the blocking and tackling mode of looking at our providers, looking at our pipeline, looking at our productivity.

That work needs to continue, and I'm pretty used to that work. I would say in parallel, how do we think about, as with all healthcare organizations, what the transformation is and what we need to be to stay up with how the healthcare landscape is changing. Very similar to a lot of the dynamic nature of the work in MinuteClinic and really reading the landscape and then evolving the business to perform and to meet the needs of patients.

Jack Larsen (Chairman of the Board)

Mike, I might add on top of Sharon's comments. You all have followed our journey over the last, well, gosh, year and a half or so, just post COVID, with our clinical workforce and some of the things that we did that we wish we didn't do, or have done, and then our remediation steps. I think Sharon, with her leadership of a highly intensive clinical organization with a national footprint, really is in tune with the provider perspective. That was something I think that was, you know, certainly key on my list that Sharon brings uniquely, so.

Mike Petusky (Managing Director and Senior Research Analyst)

All right. Thank you. Appreciate it.

Jack Larsen (Chairman of the Board)

Thanks for the question. Next question.

Operator (participant)

At that time, that does conclude all the questions. I'll hand the conference back to our speakers for any additional or closing remarks.

Sharon Vitti (CEO)

Well, I wanna extend a thank you to everyone that prepared the materials for our call today and to all participants. I'm eager to work with the ATI team, the board, and strategic partners to capitalize on the current momentum to deliver on our performance goals and bring ATI to the next level. I look forward to our next earnings call. Thank you.

Operator (participant)

That will conclude today's conference. We would like to thank you all for your participation. You may now -.