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AP

ATI Physical Therapy, Inc. (ATIP)·Q3 2024 Earnings Summary

Executive Summary

  • Net revenue was $190.0M (+7.1% y/y) with Adjusted EBITDA of $12.1M (+28.8% y/y; 6.4% margin), landing near the top end of guidance as clinic utilization and visits per day per clinic improved, though rate per visit was essentially flat y/y .
  • GAAP net loss widened to $32.9M, and diluted EPS was –$9.38, driven largely by $19.0M of non-cash fair value remeasurement losses on the 2L notes and warrant/contingent share liabilities (vs. a gain in 3Q23) .
  • Q4 guide: Revenue $182–$192M and Adjusted EBITDA $9–$14M; management highlighted strong demand but noted one fewer business day and persistent wage inflation as near-term considerations .
  • Liquidity stands at $23.5M (cash and equivalents) and management stated the company will need additional capital or financing by early 2025 to fund operations, a key stock narrative overhang despite operational execution .

What Went Well and What Went Wrong

  • What Went Well

    • Volume and utilization gains: VPD per clinic rose to 28.3 (+2.4 y/y), with overall VPD at 24,860 (+6.1% y/y), reflecting higher clinical FTE and better productivity; CEO: “Our clinics are busier year-over-year, seeing over 2 more visits per day per clinic compared to Q3 of last year” .
    • Profitability improvement on an adjusted basis: Adjusted EBITDA increased 28.8% to $12.1M (6.4% margin) on higher revenue net cost of services; SG&A fell 5.2% y/y .
    • Quality and patient experience: Google rating remained 4.9/5; management emphasized clinician retention at pre-pandemic levels; ATI again achieved an “Exceptional” MIPS rating post-quarter, underscoring quality (supportive for payor discussions) .

  • What Went Wrong

    • GAAP loss widened on below-the-line marks: $19.0M in fair value remeasurement losses (vs. $1.9M gain in 3Q23) drove net loss to $32.9M and diluted EPS to –$9.38 despite improved operating trends .
    • Cost pressures: Wage inflation persisted; contractor reliance elevated rent/other per clinic (+6.7% y/y to ~$60.8K) and PT salaries per visit rose to $58.29 (+1.4% y/y); provision for doubtful accounts also rose (2.8% of PT revenue vs. 2.1% in 3Q23) .
    • Liquidity and going-concern overhang: Cash was $23.5M at quarter-end, and management stated a need for additional liquidity by early 2025, overshadowing otherwise solid operational execution .

Financial Results

Key P&L (oldest → newest)

MetricQ3 2023Q1 2024Q2 2024Q3 2024
Net Revenue ($M)$177.455 $181.472 $188.112 $189.987
Net Patient Revenue ($M)$162.258 $165.407 $172.755 $174.733
Adjusted EBITDA ($M)$9.429 $6.463 $16.579 $12.145
Adjusted EBITDA Margin (%)5.3% 3.6% 8.8% 6.4%
GAAP Net Loss ($M)$(14.611) $(13.523) $(2.552) $(32.869)
Diluted EPS ($)$(4.42) $(4.61) $(2.43) $(9.38)

Revenue breakdown (oldest → newest)

MetricQ3 2023Q1 2024Q2 2024Q3 2024
Net Patient Revenue ($M)$162.258 $165.407 $172.755 $174.733
Other Revenue ($M)$15.197 $16.065 $15.357 $15.254

Operational KPIs (oldest → newest)

KPIQ3 2023Q1 2024Q2 2024Q3 2024
Visits per Day (VPD)23,435 23,837 24,921 24,860
VPD per Clinic25.9 26.9 28.4 28.3
Rate per Visit ($)$109.90 $108.42 $108.32 $109.83
PT Salaries per Visit ($)$57.47 $56.68 $56.22 $58.29
PT Rent & Other per Clinic ($)$57,012 $60,800 $59,232 $60,818
PT Provision (% of PT Rev)2.1% 3.0% 1.4% 2.8%
Ending Clinic Count900 884 878 874

Balance sheet and liquidity (oldest → newest)

MetricQ1 2024Q2 2024Q3 2024
Cash & Cash Equivalents ($M)$23.727 $32.963 $23.460
Liquidity Disclosures$23.7M liquidity $33.0M liquidity $23.5M liquidity; need additional capital by early 2025

Context and drivers

  • Non-cash fair value remeasurement losses totaled $19.0M in 3Q24 (vs. $1.9M gain in 3Q23), reflecting share price increases and lower interest rates, materially impacting GAAP loss .
  • SG&A fell 5.2% y/y; salaries rose on added clinicians, wage inflation, and one more paid day; provision increased to 2.8% of PT revenue .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net RevenueQ4 2024N/A$182–$192M New
Adjusted EBITDAQ4 2024N/A$9–$14M New

Notes:

  • Q2 call set Q3 2024 guidance at revenue $180–$190M and Adjusted EBITDA $9–$14M; 3Q24 actuals landed near the top end of that range, per management commentary .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2 2024)Current Period (Q3 2024)Trend
Labor market and wagesTight labor; people strategies improved retention (Q1 turnover down to 16%) .Wage inflation persists; attrition ~21%; contractor use remains a cost headwind .Persistent headwind; stabilization but not easing .
Reimbursement/rate per visitRPV increased y/y on commercial wins and RCM execution (Q1/Q2) .RPV essentially flat y/y; commercial improvements offset Medicare headwinds; advocacy ongoing re: 2025 cuts .Mixed: stable overall; Medicare still a risk .
Clinic footprint optimizationQ1: closed 11, divested 1 (end 884) ; Q2: closed 2, divested 4 (end 878) .Q3: opened 5, closed 8, divested 1 (end 874) .Ongoing rationalization aligned to demand .
Demand/volume & utilizationQ1/Q2: VPD per clinic +1.9 to +2.7 vs y/y as capacity grew .VPD per clinic +2.4 y/y to 28.3; “clinics are busier” .Positive momentum; higher throughput .
Liquidity/financingLiquidity $23.7M (Q1) → $33.0M (Q2) .Liquidity $23.5M; additional capital/financing needed by early 2025 .Deteriorated; financing need is acute .
Quality and outcomesMIPS “Exceptional” noted in Q2; strong patient ratings .Google rating 4.9 maintained; MIPS “Exceptional” reaffirmed post-quarter .Consistently strong quality markers .

Management Commentary

  • “Our clinics are busier year-over-year, seeing over 2 more visits per day per clinic compared to Q3 of last year” – Sharon Vitti, CEO .
  • “We were pleased to report improved revenue and Adjusted EBITDA compared to Q3 of last year and results that were near the top end of our guidance… [but] our liquidity position requires us to pursue additional capital or financing in order to fund our operations and meet our liquidity needs in the near term” – Joe Jordan, CFO .
  • On wages: “I wish we were seeing a break in wage inflation, and we’re not” – Sharon Vitti; CFO added wage inflation is running low-to-mid single digits y/y with ongoing contractor pressure .
  • On rates: “Despite some Medicare cuts, slight improvement in rate if you were looking at it relative to… Q4 of last year,” with commercial increases offsetting Medicare .
  • On Q4 setup: One fewer business day y/y in Q4 reduces adjusted EBITDA flow-through despite stable wage trends .

Q&A Highlights

  • Wage inflation remains persistent; management characterized inflation as low-to-mid single digits y/y; contractor usage continues, pressuring per-clinic costs .
  • Guidance dynamics: Q4 margin compression at the midpoint partly reflects one fewer business day versus last year, not just wage inflation .
  • Rate environment: RPV flat y/y in Q3; commercial rate gains and RCM execution helped offset Medicare cuts; the company is advocating via industry groups to mitigate 2025 Medicare cuts; strong MIPS performance provides partial offset .
  • Liquidity and balance sheet: Management reiterated the need for additional capital/financing by early 2025 despite operational improvements .

Estimates Context

  • S&P Global consensus estimates for ATIP (Q3 2024) were unavailable via our system at the time of analysis; therefore, we cannot provide a beat/miss versus Wall Street consensus for revenue or EPS. Values retrieved from S&P Global were unavailable for this issuer at this time.
  • Management indicated 3Q24 results were near the top end of the company’s guidance ranges set the prior quarter, and set Q4 revenue of $182–$192M and Adjusted EBITDA of $9–$14M .

Key Takeaways for Investors

  • Operational execution continues: volumes and utilization improved, driving y/y revenue and Adjusted EBITDA growth, but RPV is stable and wage/contractor costs remain a drag .
  • GAAP optics masked operating progress: large non-cash fair value losses widened the GAAP net loss; focus on adjusted profitability and cash dynamics for the investment case .
  • Liquidity is the primary overhang: $23.5M quarter-end cash and explicit need for additional capital by early 2025 define near-term risk/reward and are likely to drive stock reaction and estimate revisions around capital structure scenarios .
  • Q4 guide implies continued volume strength but fewer business days and cost pressures temper margins; watch labor mix and contractor usage to gauge flow-through .
  • Quality credentials (MIPS, patient ratings) support commercial payor discussions and may help defend rates amid Medicare pressure into 2025 .
  • Footprint optimization is ongoing; monitor clinic closures/divestitures alongside VPD per clinic to assess sustained throughput and unit economics .

Supporting sources:

  • Q3 2024 press release and 8-K (financial statements, KPIs, guidance, liquidity) .
  • Q3 2024 earnings call transcript (qualitative context on wages, reimbursement, guidance cadence) .
  • Q2 and Q1 2024 press releases (trend analysis, prior guidance, KPIs, MIPS mention) .
  • Post-quarter MIPS “Exceptional” recognition (quality tailwind) .