ATI Physical Therapy - Q4 2021
February 25, 2022
Transcript
Operator (participant)
Good morning, and welcome to ATI Physical Therapy's Q4 2021 year-end 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 would like to ask a question at this time, simply press star one on your telephone keypad. If you would like to withdraw your question, press the pound key. Please note this event is being recorded. On the call today are Jack Larsen, Executive Chairman, 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 statement.
Joanne Fong (SVP, Treasurer, and Head of Investor Relations)
Thank you, Lisa. Good morning, everyone. 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 beliefs, assumptions, and information currently available to us. Although we believe these expectations are reasonable, we undertake no obligation to revise any statements to reflect changes that occur after this call. Descriptions of some of the factors that could cause actual results to differ materially from these forward-looking statements can be found in the Risk Factors section in the company's filings with the 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 relationships between these non-GAAP measures to 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 (Executive Chairman)
Thanks, Joanne, and welcome to all of you joining us this morning. With me on the call today is Joe Jordan, our Chief Financial Officer, and Ray Wahl, our Chief Operating Officer. I'll begin with a few comments on our 2021 performance and move on to the more current and more interesting discussion of where our business is headed, as well as the activities we have underway that will set the foundation for growth in 2022 and beyond. I'll then pass the call over to Ray for a discussion on what's happening in our clinics and with our staff.
Finally, Joe will provide a detailed review of Q4 and full year 2021 financial results, along with our 2022 outlook. Of course, we'll take your questions. To start, I wanna thank all of our team members for their hard work and dedication.
Simply put, I could not be working with a better bunch of people. The team accomplished quite a bit in 2021, including standing up our company for the public markets, continuing to operate through the challenges and uncertainty presented by the multiple waves of COVID, and throughout all of that, staying true to delivering high-quality patient care that we're known for.
First, we achieved our revenue guidance for the year and generated approximately $40 million in adjusted EBITDA, which approximates the low end of our guided range that we shared with you during our last call. This marks a change from earlier quarters, and you should very much read into this a deep and sustaining commitment to our stakeholders to do our very best to deliver on what we say we will do. If not, we will be absolutely forthright about it.
For the year, we added 58 new clinics right on top of our earlier guidance. The new clinics consist of 51 open clinics and 7 acquired clinics located predominantly in the Southwest, Southeast, and Northeast. This brings our total clinic count to 910 clinics across 25 states. Now, in our last earnings call, I highlighted two areas that we're going to be laser-focused on. The first was to stabilize and grow our clinical workforce by both increasing retention and recruiting and onboarding new team members. Ray will discuss the really great things we've done in this area, and without stealing all his thunder, I'm happy to report that annualized turnover continues to decline, decreasing 400 basis points from 41% in the Q3 of 2021 to 37% in the Q4, and hiring remains strong in the Q4.
With this, we have nearly 2,500 clinical FTEs as of 2021 year-end, putting us just slightly ahead of our planned staffing levels going into 2022. During our last call, I also called out unacceptably low levels of visit volume, most acute in the Midwest and Northwest, and our need to drive higher referrals in order to realize more clinic visits. Since then, we've completed a top-to-bottom review of our sales strategy, conducting a market-by-market assessment of past, present, and potential referral sources and revamped their respective calling priorities. Equally as important, we've identified the gaps we have in our sales team's coverage of those referral sources. We created several new field-based sales positions in those gap areas and have already filled several of them with the remainder to be completed in the first half of 2022.
Our business development managers continue to serve as the main point of contact to referring providers, ensuring they have access to the right ATI clinicians and physical therapy expertise as needed to accelerate their patients' return to full health. While I think it's absolutely critical to build our market muscle back up again, I'm even more excited about our strategy of getting 600 or so of our clinical field leadership more actively in the mode of relationship building with referral sources, community event participation, and backing up their development managers with joint relationship calls focusing on the quality of their patient outcomes.
Moving from 50 or so salespeople to leveraging the 600 or so high-quality clinical leaders should move the growth needle in 2022. While it's early innings in bringing our development partners and clinicians together for joint selling opportunities, in recent weeks, we have returned to pre-Omicron visit per day volume levels, and Joe will have more to say on this in his section. I'd also like to point out that our patient sat metrics continue to remain very high with a Net Promoter Score of 78 and a Google star rating at 4.8 in the Q4 of 2021.
This is to the full credit of our clinic leaders and our care teams. Finally, on a more financial note this morning, we announced the refinancing of our credit agreement and capital structure that reduced our leverage, extended maturities, and increased our liquidity.
This transaction provides a strong financial foundation to support our operations, continue to invest in our people, and pursue our growth strategies. Joe will provide more details on this recap as well as our 2022 outlook in the financial review. With that, Ray, would you let us know what's going on in the clinics and with our teams there?
Ray Wahl (COO)
Sure. Thank you, Jack, and good morning. I'd like to spend a moment providing some operational highlights for the Q4 as well as some more detail on the current environment and trends that we're seeing in the field. As a reminder, the labor market has been challenging over the last couple quarters. We made some, what I would consider, significant adjustments in our hiring practices, compensation model, and how we think overall about the individual provider. I'm excited to say we're seeing great traction, adding 131 net FTE in the Q4 of 2021 alone. What I'm most excited about is the results from my most recent round of market visits. This is really my opportunity to not only review the market quantitatively with the district director, but also discuss qualitatively how the business is progressing.
I'm getting various and very consistent examples of our providers reaching out and appreciating the changes we've made to their roles specifically. We're always gonna work hard towards being the employer of choice, but my conversations over the past few months solidify my thoughts that we're going down the right path when it comes to thinking about the individual first.
Let's touch briefly on Omicron. As you've probably seen, the number of COVID cases attributable to Omicron variant started to accelerate in December, particularly in the last two weeks of the year. Data collection from our patients regarding reasons for their cancellations show Omicron had up to a 4% impact on visits per day during that same time period. This led to volume softness, particularly in certain parts of the country like the Southeast and Northwest as we entered into the new year.
Omicron also impacted our team members throughout this period with over 100 clinical FTE in quarantine at the highest point. While Omicron continued into January, we started to see some normalization in February. Thankfully, we're starting to see Omicron's impact on both patients and our providers decrease significantly. Jack also mentioned a change in our sales strategy, which I'd like to add a little bit more color to. Our last call indicated an opportunity to drive more referrals. While investing further in our sales team is core to our strategy, we've been working hard to develop a platform where our in-clinic leadership team can play a more active role in relationship development. We believe not only adding additional coverage, but the clinical perspective provided will improve support from the medical community.
To sum things up overall from the operational perspective, our team has done a great job of persevering through another year of the pandemic. In 2021, we ramped hiring and integrated over 1,000 new team members, brought down attrition, and made improvements to our sales force structure. All of this sets a great foundation for 2022, and I couldn't be more excited about where we are and where we're heading. Now I'd like to turn the call over to Joe for a financial review.
Joseph Jordan (CFO)
Thank you, Ray. Thanks to everyone for joining the call today. I will cover our Q4 and full year 2021 financial results. I'll touch on the debt refinance that was announced this morning and review our 2022 outlook. Starting with 2021 results, net operating revenue in the Q4 was $156 million, a 1.7% increase year-over-year from $153 million in the Q4 of 2020. Net patient revenue was $140 million, increasing 2.5% year-over-year, while other revenue was $15 million, declining 4.8% year-over-year. Visits per day per clinic during the quarter was 22.8, sequentially decreasing 0.3 visits from 23.1 in the Q3.
While the Q4 is typically flat to marginally lower than the Q3 due to holidays, we were targeting the Q4 to increase as we made progress in stabilizing our workforce and continued to add clinical FTE. The quarter-over-quarter decline was primarily driven by visit volume softness during December when the Omicron variant disrupted operations through increased cancellations, a decline in scheduled appointments, and increased clinical absences. Visits per day per clinic was 22.2 and 29.8 in the Q4 of 2020 and 2019 respectively, with 2020 also significantly impacted by COVID, and 2019 representing our clinic level operations at normal capacity utilization.
Rate per visit during the quarter was $104.51, sequentially decreasing 1% from $105.56 in the Q3 and 5% year-over-year from $109.98 in the Q4 of 2020. The decreases in rate were due to a gradual mix shift from higher paying categories such as workers' compensation to commercial and government. Mix also shifted in 2021 towards lower reimbursing payers as our geographic footprint continues to broaden. Finally, the 2021 Medicare physician fee schedule reimbursement rate for physical therapy was approximately 3% lower than the 2020 rates. Salaries and related costs in the Q4 of 2021 was $88 million, an 11.3% increase year-over-year from $79 million in Q4 of 2020.
PT salaries and related costs per visit during the quarter was $55.73, sequentially increasing 3.8% from $53.70 in the Q3, and 6.9% year-over-year from $52.16 in the Q4 of 2020. The increases in cost per visit were primarily due to lower labor productivity as visits per day per clinical FTE was 8.3 during the quarter compared to 8.8 in each of Q3 2021 and Q4 of 2020 as we continue to train our influx of new team members while simultaneously seeking to increase referral volume. Rent, clinic supplies, contract labor, and other in the Q4 of 2021 was $48 million, an 11.6% increase year-over-year from $43 million in Q4 of 2020.
PT rent and clinic costs and other costs per clinic during the quarter was approximately $51,000, sequentially increasing 3% from $49,000 in the Q3 of 2021 and 8.1% year-over-year from $47,000 in the Q4 of 2020. The increases were primarily due to greater use of contract labor in select markets as we work to fill open positions. Provision for doubtful accounts during the quarter was $2 million or 1.5% of PT revenue and has continued to trend favorably when considering the Q4 of 2020 and 2019 at 2.4% and 2.1% of revenue, respectively. SG&A during the quarter was approximately $30 million, essentially flat as compared to Q4 of 2020.
Higher non-ordinary legal and regulatory spend was offset by lower transaction costs incurred and business optimization expenses. Operating loss in the Q4 of 2021 was $12 million, increasing year-over-year from $2 million as we maintained our clinical team and support structure in place in anticipation of increased visits, given the refresh sales and marketing strategy that Jack and Ray talked about and as the impact of Omicron variant wanes. Notable below-the-line items during the quarter included income resulting from the decrease in fair value of certain liabilities acquired in connection with our business combination in June, specifically warrants and contingent common shares totaling $10 million. The mark-to-market to fair value was based on a valuation analysis as of 12/31/2021.
Interest expense during the quarter was $7 million compared to $16 million in the Q4 of 2020, which is consistent with the reduced debt outstanding at year-end 2021 compared to the prior year. We also had other income of approximately $6 million during the quarter, which was primarily due to the gain on our home health services line. Income tax benefit for the quarter was $12 million compared to $2 million in the Q4 of 2020. Net income during the quarter was $9 million compared to $2 million in the prior year. Finally, revenue during the full year was $628 million, a 6% increase year-over-year from $592 million, and this compares to revenue guidance of $620 million-$630 million.
While visits per day increased 12.8% year-over-year, rate per visit declined 6% attributable mostly to unfavorable mix shifts in payer states and services. Additionally, there was an approximate 3% reduction in the Medicare physician fee schedule, as previously discussed. Adjusted EBITDA during the full year 2021 was approximately $40 million, decreasing year-over-year from $64 million in 2020. This approximates the low end of our adjusted EBITDA guidance of $40 million-$44 million, as Jack mentioned. We had certain non-recurring expenses in late Q4 2021, such that excluding these one-time costs, adjusted EBITDA would have been at the midpoint of our guided range. Specifically, due to rising COVID cases, we decided to cancel our annual leadership meeting planned for January when our nationwide team gathers each year to discuss strategy, share ideas and collaborate.
The non-refundable portion of this expense was booked in December. Additionally, during the Q4, we restructured our sales and marketing organization and engaged a consulting firm to allow us to more quickly complete the sales and marketing strategy refresh that both Jack and Ray touched on earlier, which resulted in incurring professional fees and one-time severance costs. Cash used during 2021 was $94 million, broken down between $42 million used to fund operations, $40 million used in investing activities, and $12 million used in financing activities.
Cash used in operations included $18 million of payments in connection with the CARES Act. As of December 31, 2021, we have 0 drawn against our revolver and available liquidity was approximately $68 million, which comprised of $48 million in cash and cash equivalents and $20 million in available revolver capacity. Moving on to the refinancing.
As Jack mentioned, we refinanced our first lien term loan and revolver this week. We paid off our existing debt and entered into a new credit agreement and issued preferred stock. Our new $500 million first lien term loan matures in 2028, and our new $50 million revolving credit facility matures in 2027. Additionally, we issued $165 million in preferred stock with detachable warrants. The transaction extends our debt maturity and enhances liquidity, adding approximately $77 million of cash to our balance sheet to support our operations and allow us to continue to invest in growth and scale the business.
Looking ahead to 2022, we expect revenue to be in the range of $675 million-$705 million, which equates to year-over-year growth of roughly 7.5%-12.5%. We anticipate continuing to ramp visits steadily throughout the year as we continue to grow clinical headcount and execute on the sales strategy put in place at the end of 2021. It'll take a few quarters to reignite prior referral re-relationships and to set the groundwork to build long-term connections with new target referral providers. Accordingly, we expect to return to pre-COVID visit volume levels at the end of 2022. For PT rates, we are modeling a slight 1% reduction in rates in 2022 forecast as compared to the Q3 of 2021.
This considers the 2022 Medicare physician fee schedule changes and anticipated onset of federal budget sequestration. We anticipate adjusted EBITDA to be depressed in 2022 while we continue to ramp to full clinic capacity and target labor productivity. As we act on the sales and marketing front that Jack and Ray outlined, we've opted to hire clinicians in advance, incurring higher labor holding costs in the meantime to ensure that we have the people in place to meet the increasing referrals and visits. While utilization of existing clinics is expected to steadily improve as we progress throughout the year, labor productivity may be uneven from quarter to quarter. Regardless, as the business continues to ramp, we will better leverage our fixed costs and generate increasing earnings.
With the anticipated visit ramp profile in 2022, adjusted EBITDA is expected to be in the range of $25 million-$35 million for the year. January got off to a slow start at 19,300 visits per day on average, with both weather and Omicron impacting volume. We are already experiencing ramping volumes, with mid-February increasing to nearly 22,000 visits per day on average. We have built time into our plan for sales initiatives to drive volume growth into our clinics, with higher earnings to follow as fixed costs are leveraged. Keep in mind, we believe our current clinic staffing levels has capacity to absorb approximately 1,500 more visits per day as seasonal trends and the aforementioned sales initiatives take hold. That additional volume would yield an incremental EBITDA of approximately $3 million per month at current staffing levels.
We intend to continue adding clinicians throughout 2022 as referral growth accelerates. Our marginal adjusted EBITDA flow-through per 1,000 visits per day beyond current staffing levels is roughly $1 million per month. To the extent our labor and sales strategies align and generate results quicker, there's an ability to outperform our guided range. Finally, in terms of new clinic growth plans, we expect to open approximately 35 new clinics in 2022. As we ramp our existing clinics, we also continue to see outsized growth opportunities in select markets. With that, I'd like to turn the call back over to Jack.
Jack Larsen (Executive Chairman)
Thanks, Joe. Before we open the call to your questions, I'd once again like to thank the entire ATI team for their hard work and efforts. 2021 was indeed a challenging year, and for me, I'm glad to be moving on. We made the necessary changes and investments to drive long-term growth, and ATI remains well positioned to gain share as the secular growth story for our industry continues to play out. Operator, we are now ready to open the call to questions and answers.
Operator (participant)
At this time, I would like to remind everyone if you would like to ask a question, please press star, then 1 on your telephone keypad. Your first question comes from the line of Steph Wissink with Jefferies.
Steph Wissink (Managing Director and Senior Research Analyst)
We have two questions. The first is related to the detail you gave on kind of the leverage in the business model. I think you said 1,000 visits per day above your existing capacity is about $1 million in EBITDA per month. How do you think about that leverage ability as you layer in clinicians? I understand that's based on your current capacity, but you're indicating you're going to be increasing your labor loads. How should we think about the incrementality potential as you go forward throughout the course of the year?
Jack Larsen (Executive Chairman)
Yeah, I think, thank you for the question. I think Joe did a good job explaining not only our incremental potential margin by using our current labor complement to its full capacity, but also once we get there, the additional incremental EBITDA available once we get to over that current staffing level. So Joe, would you-
Joseph Jordan (CFO)
Yeah.
Jack Larsen (Executive Chairman)
Maybe pick that up?
Joseph Jordan (CFO)
Yeah. Hey, Steph, thanks for the question. Just to reiterate what I said on the call and I know you're digesting it real time, we would actually have about 1,500 visits per day capacity with our current staff. That flow-through is about $3 million. Beyond that, once we absorb the capacity we have in our current staff, as we add additional clinicians and create more capacity, when you take into account the labor cost, the contribution is obviously slightly less. In that instance, the additional every 1,000 visits per day would give you about $1 million of flow-through. That latter number that you quoted is contemplating adding labor. Just to re-highlight the former number with the current capacity, about 1,500 visits per day and $3 million of adjusted EBITDA.
Steph Wissink (Managing Director and Senior Research Analyst)
Got it. Very helpful. Okay, then I wanted to skip over and just talk a little bit about your recruitment strategies and maybe help us think through the year. I don't know if you wanna talk about it as a sequential pathway or two semesters, first half, second half, but it does sound like the EBITDA is gonna be more depressed in the first half of the year as you layer in labor, and then you start to realize the benefits of that labor in the back half. Help us just think through kind of the cadence of how you'd like us best to model the EBITDA flow for the year.
Joseph Jordan (CFO)
Yeah.
Steph Wissink (Managing Director and Senior Research Analyst)
Thank you.
Joseph Jordan (CFO)
Yep. Yeah. Steph, you're right on that. It is gonna be.
Ray Wahl (COO)
More back half weighted. In particular, there's a lot of labor holding costs in the Q1. Not just because we're adding labor in advance of volume, but Omicron certainly had an impact, and we weren't going to make a decision to retract labor because of a blip that we thought would be temporary, and knowing that Omicron would wane. We plan to add labor kind of on an even pace throughout 2022, roughly, knowing that there are a few hiring windows where we may accelerate that hiring. We certainly know that the sales initiatives that we've kicked off will take time to take hold. We would expect those to manifest even more so in the back half of the year, but the labor would be there waiting.
Steph Wissink (Managing Director and Senior Research Analyst)
Okay, very helpful. I'm gonna throw one more in. Just because you give us NPS score, which is your customer satisfaction metric, do you have a similar internal metric that you use for your labor force? Is there a way to create a feedback loop, or do you have a feedback loop that reinforces that your clinicians are actually experiencing greater levels of satisfaction, enjoyment as well alongside your customers?
Jack Larsen (Executive Chairman)
Hey, Steph, this is Jack. We certainly measure very closely the rate of attrition and turnover in all of our clinics, and that's probably one of the more objective measures. On a more subjective basis, we intend to, starting this quarter, to begin to do quarterly pulse surveys of all of our clinicians and all of our support teams and begin to build that sort of foundation to understand where we're at and then measure progress going forward.
Steph Wissink (Managing Director and Senior Research Analyst)
That's encouraging to hear. Thank you so much.
Operator (participant)
Your next question comes from the line of Jason Cassorla with Citi.
Jason Cassorla (Managing Director, Equity Research)
Great. Thanks, guys. Good morning here. Just you know the guidance implies a return to pre-pandemic visit volumes by the end of the year. But is there a way to consider the pressure on volumes between the impact of COVID and then your other considerations around labor and referral sources in terms of getting towards that pre-pandemic baseline? You know, if you're at, call it 80% of pre-pandemic visit levels the remaining 15% is around labor and referral dynamics, or just trying to understand how that works as you think about the ramp for the rest of the year.
Jack Larsen (Executive Chairman)
Yeah. This is Jack. I'd say directionally that's probably feels about right. You know, Joe went through the math of marginal contribution on additional visits. You know, I think. In terms of the EBITDA performance, we are by and large a fixed cost organization. To the extent that we can raise, not by a lot, 1 or 2 visits per day per clinic, we get extraordinarily strong performance as an organization. Most of the difference I would say is at this point volume related, and it's something that we're really focused on with the refresh and reorganization of our sales teams and our sales strategy.
Jason Cassorla (Managing Director, Equity Research)
Okay, thanks. Maybe just my next question here. You know, I want to go to the clinician headcount turnover in the quarter, I guess. Back in Q3, you suggested that the annualized turnover kind of improved from 50% in July to 30% in September. You know, based on your disclosure, you saw some improvement, I guess, quarterly sequentially at 37% for the full quarter. You know, I guess that would suggest turnover maybe picked up from that 30% baseline in September. Am I thinking about that correctly? If so, maybe just help out on what's causing maybe the incremental pressure in the quarter. Thanks.
Ray Wahl (COO)
Yeah. Hey, Jason, this is Ray. Attrition has definitely improved, especially as we headed into the back half of the year. Like I mentioned earlier in my prepared comments, we spent a lot of time going out to the field, and ensuring that we're addressing the issues that they seem they wanna they care about and that are important to them. We've seen some changes in terms of what we're focusing on, and that's directly reflected into the number. What I think even more encouraging is that we step into January and so far in February, those numbers continue to improve. Now we're still getting our arms around those. Every month it continues to improve, and I think that's because of the changes that we made back in July.
It's just taking time to kind of settle in.
Jason Cassorla (Managing Director, Equity Research)
Okay, great. Thanks for the color.
Operator (participant)
Once again, if you would like to ask a question, please press star then the number one on your telephone keypad. Your next question comes from the line of Larry Solow with CJS Securities.
Larry Solow (Senior Equity Research Analyst)
Hi, good morning. Just a couple questions. On the planned openings of 35 new clinics, is that obviously down pretty significantly from initial expectations and expected. Is that a function of capital? Is it a function of not being able to the environment for hiring is difficult, so you don't wanna bite off too much more than you can chew? You know, I'm just trying to figure out the decrease and the outlook over the next multi years. I know I'm not looking for an exact outlook, but has that substantially changed from your 1,000 or 900 plus expected openings over the next 10 years?
Jack Larsen (Executive Chairman)
Hey, Larry, this is Jack. You're right. Our new clinic opening plan is arguably more conservative in 2022 than I think we've been staking out before. I think it's a mix of perhaps a little more conservatism in 2022 while we rebuild some of the capabilities in the company around sales and the like. I would tell you it's not a function of us doubting our underwriting model for new markets. I would tell you it's not a function of seeing plenty of white space out there to plant new flags.
It's really a function of us wanting to focus on what's really important in the next 6 to 12 months, and that's to make sure we get our sales strategy in place, keep our attrition in check, build out our clinical sales teams, and fill the clinics that we have more than they're filled today. Absolutely no commentary on the future of additional clinic expansion at all.
Larry Solow (Senior Equity Research Analyst)
Right. No commentary, but I mean, maybe you're not ready to even answer this question, but do you still see those general parameters haven't changed, right? I mean were those estimates you gave, were those the targets you had given, were they pie in the sky? Or are they still potentially? It would seem that they're still there, right? I mean or was that too aggressive of a plan? I'm just trying to figure that out.
Joseph Jordan (CFO)
Hey, Larry, it's Joe. The direct answer is no. The outlook for the future has not changed. The opportunities that exist in the market have not materially changed. Of course, demographics and geographies will change little by little year to year, but that pie still exists. To Jack's point, the focus for us in the short term isn't on taking away that growth. It's just paring it back a little bit while we focus on sales, marketing, growing the core business back to normal, and I think it's just a slowdown in the short term more than anything else.
Larry Solow (Senior Equity Research Analyst)
Okay. That makes sense. Then just lastly, just a follow-up on the previous question about the impact to volumes between COVID and labor issues. Maybe just said another way or asked another way. Sort of can you just give us a quick some color on some of the facilities or regions that are back to pre-COVID levels and versus some of the areas that are 20% or maybe more than that below pre-COVID levels? Is there, you know? Are these areas where labor was exceptionally worse? You know, is there any way to sort of break that out, if you will?
Jack Larsen (Executive Chairman)
Yeah. I'm gonna ask Ray to take us for a tour around the country on those. Ray?
Ray Wahl (COO)
Sure.
Joseph Jordan (CFO)
Great. Awesome.
Ray Wahl (COO)
As we think about and look at volumes and coming back from the pandemic, I mean, we do have a couple different regions that are performing really well. The Northeast portion is coming back and nearly at pre-pandemic levels, and we're really excited about our southwest region.
Larry Solow (Senior Equity Research Analyst)
Mm-hmm
Ray Wahl (COO)
We have quite a bit of momentum there in terms of growth in that market, and we've exceeded our pre-pandemic levels there. As we said earlier, we've had some challenges in the central Illinois market and in the Northwest as well. Some of that is related to a larger impact on COVID, but some of it's also impacted by our staffing levels. You know, we're obviously working on that both through bringing on talent and then also our sales strategy that we've mentioned. Then finally, in the Southeast, the Southeast is continued to grow, particularly over the last quarter here in Q4, and we're back up to pre-pandemic levels down in that market as well.
Larry Solow (Senior Equity Research Analyst)
Ray, I appreciate the color. Thanks a lot.
Operator (participant)
Your next question comes from the line of Bill Sutherland with Benchmark.
Bill Sutherland (Equity Research Analyst and Director of Research)
Hey. Yeah. Thanks. Good morning, everybody. I was curious back to the attrition question, the 37% that you're at right now. What is the kind of comfort range that you guys would like to be in?
Jack Larsen (Executive Chairman)
Yeah. This is Jack. Maybe I'll start and ask Ray to jump in. I just wanna echo his comments that the 37% is obviously a quarterly average, and we were starting much higher than the rate we were coming out of in the quarter for full-time equivalents. You know, in terms of a target long-term rate we tend to circle something in the 20%-25% range would be, I think, ideal. We're gonna have normal turnover just based on the demographics of our clinical teams. I think we're trending certainly not there yet in the first quarter, but I think our attrition is continuing to improve. Ray, what would you say?
Ray Wahl (COO)
Yeah. I would just add to that. I mean, I don't think we have a number pegged, but I think you're right. Like, that mid-20s is a realistic goal for us. You know, prior to the pandemic, we had attrition rates that were lower than that, but I don't think we're gonna return to that environment. I think that's not only for physical therapy. I think that's healthcare and possibly other industries as well. Like I said, we've implemented a lot of different programs. We're driving towards that number. We're making progress month-over-month, quarter-over-quarter. That's directionally the number we're looking for, is where we think we should be as an employer.
Bill Sutherland (Equity Research Analyst and Director of Research)
Okay. One more labor question. Are you trying to implement an extender strategy in certain situations to just improve the productivity of the PT?
Ray Wahl (COO)
Yeah. Yeah, Bill. When you say extender, I'm gonna assume that you're referring to PTAs. When we think about-
Bill Sutherland (Equity Research Analyst and Director of Research)
Right. Techs. Yeah. Mm-hmm.
Ray Wahl (COO)
Okay. You got it. Yes. We have a right now we sit roughly at about a 2-to-1 PT to PTA ratio, which is right where we want it in terms of our care model, ensuring that patients are getting not only the right care, but they're getting care at the right time, so we're able to get them in quickly. Our budget will build us a little bit higher than that, where we are now, that 2-to-1, but directionally, I think we're where we want to be.
In regards to rehab techs, we call them OSSs, and right now we sit right around 20-to-1, 20 visits per day to 1 OSS, and we're finding out that that's the right ratio for us. We're where we want to be when it comes to ancillary staff and having the right support in the clinic so providers can do what they love to do, and that's treating patients. We feel good about that number.
Bill Sutherland (Equity Research Analyst and Director of Research)
Great. On the go-to-market strategy, as you, I know there's a heavy emphasis, obviously, your primary channel is the referral channel from the physician community, any resumed focus or has it changed in terms of just direct to consumer and also direct to employer?
Jack Larsen (Executive Chairman)
Let me start on the primary channel. I'll ask Ray to jump in on the direct to employer side. You know, as we prioritize where we think we can be most successful near-term, we think we can be most impactful by focusing on the primary channel, as we've said. You know, we characterize the work we've done in sales as a refresh, but let me assure you, it was more than a refresh. It was a rebuild in terms of hiring new people.
We've selected the best athletes from the existing sales team, armed them with far better data and far better tools as they make their referral calls, not only on prior referral sources, but also on new referral sources that we know have referrals to give that we may not have focused on in the past. That's really kind of a top to bottom redo.
Bill Sutherland (Equity Research Analyst and Director of Research)
Mm-hmm.
Jack Larsen (Executive Chairman)
On the direct to employer side, we've also got a very interesting business, and we have not lost focus on that. Ray, would you jump in on that one?
Ray Wahl (COO)
Sure. Our direct to employer, part of that is what we call our AWS service line, where we're providing employers, healthcare providers, athletic trainers, exercise physiologists, physical therapy assistants on the floor of their the different plants and companies to ensure that it's a safe environment. That service line continues to grow. There's a lot of opportunity there. We also have some very interesting relationships partnering with primary care, occ-med companies in terms of helping them control their MSK spend, which is what our AWS service line specializes in. We've always focused on it. We're gonna continue to focus on it, and we think that there's a lot of opportunity as we further our relationships with some of those other companies I mentioned.
Bill Sutherland (Equity Research Analyst and Director of Research)
Okay. The last one for you, Joe. On cash and cash strategy, how should we think about just the trending cash and what your plans are for management? Thanks.
Joseph Jordan (CFO)
Hey, Bill. From a cash perspective, I talked about on the call the change in capital structure that we announced today, meaning the refinancing transaction. That refinancing transaction added $77 million of cash to our balance sheet. We had a high burn last year at about $94 million. There's some unique items in that burn. We were pretty heavy on new clinics last year. We had CARES Act dollars of roughly 25-ish million that we were repaying. Some of that repeats this year. We still have about $20 million of CARES Act runoff that will happen in 2022. That's discrete to 2022. It runs out primarily in the first half. There is a Social Security piece of that payment of $5.5 million in December, but that will run on for EBITDA in 2022.
You can imagine there's gonna be more of a cash burn in the first half of the year, but as we exit the year, getting closer to sort of that cash flow neutral and then cash flow positive beyond 2022.
Bill Sutherland (Equity Research Analyst and Director of Research)
You're comfortable with this expansion plan that you have in terms of the cash required for investment?
Joseph Jordan (CFO)
Yeah.
Bill Sutherland (Equity Research Analyst and Director of Research)
To-
Joseph Jordan (CFO)
Yep, absolutely. The cash that we put on the balance sheet with the transactions that closed yesterday certainly give us liquidity that allows us to support the operations while we move through 2022, but I think also get a little bit on our front foot and invest in growth.
Bill Sutherland (Equity Research Analyst and Director of Research)
Mm-hmm. Okay. Thanks for all the color, guys.
Jack Larsen (Executive Chairman)
Thank you. Next question.
Operator (participant)
Your next question comes from the line of Steph Wissink with Jefferies.
Steph Wissink (Managing Director and Senior Research Analyst)
I wanted to just ask about the CEO search. I don't believe you talked about it in your prepared remarks, so would really appreciate any update there, if it's update on progress or even just characterizations of, the type of individual you're looking for to lead the company at this time. Thank you.
Jack Larsen (Executive Chairman)
Yeah, Steph, good catch. I did not speak about it in my prepared comments, but fully expecting it here. Let me answer that in reverse. What are the expectations and how are we speccing out the role? You know, most importantly, we're looking for somebody who has a really good understanding, more than just an indirect exposure, but really direct hands-on experience in field-based clinical management, clinical organizations, distributed operations. I think I've spoken to a lot of potential candidates who somewhere in their backgrounds have been exposed to that, but I'm really interested in bringing somebody on who's really in the vernacular been there, done that. I think for me, that's first and foremost.
You know, I think the second and third and fourth would be certainly skilled around finance, public companies, have a good background in the economic dynamics of running a very large distributed organization. I would say that's the general specification. Specifically, we've spoken with a lot of really qualified candidates and I guess I'm qualifiedly saying that I'm thinking we're coming nearer to completion on our search. I have nothing really to offer in particular today, but I think we're down to near the end, and I hope to have something to announce here in the near future. That's about all the zeroing in on timing I can give you at this point.
Bill Sutherland (Equity Research Analyst and Director of Research)
Very helpful. Thank you so much.
Jack Larsen (Executive Chairman)
You bet. Next question.
Operator (participant)
There are no further questions at this time.
Jack Larsen (Executive Chairman)
Okay. Well, if there are no further questions, I wanna thank you all for your time. We appreciate your attention. As I said earlier, I hope our performance in 2021 is a starting point on the meeting the commitments we make and keeping those commitments as we go. I'm looking forward to working with all of you as we go into 2022. Thank you so much.
Operator (participant)
This concludes today's conference. You may now disconnect.