ATI Physical Therapy(ATIP) - 2024 Q4 - Annual Report

Liquidity and Financial Condition - The company's liquidity position raises substantial doubt about its ability to continue as a going concern due to negative operating cash flows and net losses[72] - Future liquidity needs are expected to require additional sources beyond operating results, with potential options including raising additional debt or equity capital[77] - The company has outstanding indebtedness that could hinder its ability to obtain additional financing for working capital or acquisitions[80] - The company has not fully implemented management's plans to alleviate doubts about its ability to continue as a going concern[78] - The company is at risk of insufficient funding to meet its obligations within twelve months, raising substantial doubt about its ability to continue as a going concern[398] Revenue Sources and Reimbursement - Approximately 22.2% of the company's net patient revenue in 2024 was derived from Medicare and Medicaid, with recent reductions in reimbursement rates impacting financial results[88] - Medicare reimbursement rates for the physical therapy industry were reduced by approximately 2.0% in January 2023 and are expected to decrease by approximately 3.4% in 2024[88] - In 2024, approximately 58.7% of the company's net patient revenue was derived from commercial payors, indicating a reliance on third-party reimbursement[96] - The company derived approximately 11.8% of its net patient revenue from workers' compensation payors, highlighting potential vulnerability to changes in state laws affecting reimbursement rates[97] - The company anticipates continued pressure on Medicaid expenditures from federal and state governments, which could adversely affect revenue and profitability[92] - Significant adjustments or recoupments from Medicare and Medicaid could adversely impact the company's financial condition and results of operations[93] Operational Challenges and Strategies - The company plans to improve operating results through increases in clinical staffing levels and patient visit volumes, although success is not guaranteed[76] - The company has faced challenges related to interest rate fluctuations, with variable rates potentially increasing future interest payment obligations[81] - The company operates in a highly competitive industry, with potential threats from new entrants and existing competitors enhancing their service offerings[107] - The company must maintain high levels of service and patient satisfaction to avoid adverse effects on its reputation and financial condition[115] - The company relies on maintaining strong relationships with physicians for referrals, which are critical for revenue generation[120] - Future acquisitions are a key part of the company's growth strategy, but they may involve significant cash expenditures and operational risks[122] Regulatory and Compliance Risks - The company is subject to various governmental laws and regulations, with non-compliance potentially leading to fines or exclusion from Medicare and Medicaid programs[89] - The company is subject to extensive federal, state, and local regulations, which could impact operations and result in penalties if not complied with[129] - Compliance with privacy regulations such as HIPAA is crucial, as violations could lead to severe penalties and damage to reputation[137] - The company may face adverse impacts from healthcare reform efforts, particularly changes to the Affordable Care Act (ACA), which could lead to reduced funding for Medicaid programs and lower insured individual numbers[140] - The company is subject to significant legal proceedings and investigations, which could result in large claims and substantial costs, potentially affecting its financial condition[142] Financial Performance and Results - For the year ended December 31, 2024, net patient revenue was $690.0 million, an increase from$636.1 million in 2023, representing an 8.5% growth[372] - The company reported a net loss of $54.0 million for the year ended December 31, 2024, compared to a net loss of$66.1 million in 2023, indicating a 18.5% improvement[372] - Operating income for the year ended December 31, 2024, was $2.3 million, a significant recovery from an operating loss of$27.5 million in 2023[372] - Comprehensive loss attributable to ATI Physical Therapy, Inc. for 2024 was $58,691 thousand, compared to$74,288 thousand in 2023, indicating a 21% decrease[375] - The company's total liabilities increased to $883.3 million as of December 31, 2024, compared to$878.7 million in 2023[370] Management and Governance - The company has experienced significant turnover in its senior management team, which could disrupt operations and negatively impact financial performance[145] - Preferred Equityholders own more than 50.0% of the common stock votes, significantly influencing corporate actions requiring stockholder approval[197] - The Series B Preferred Stock provides voting rights that dilute the voting interests of existing stockholders[190] - Anti-takeover provisions may delay or prevent a change of control, limiting stockholders' ability to obtain a premium for their shares[194] Market and Stock Performance - The company's common stock is currently quoted on the OTC Pink Open Market, and there is no assurance of an active, liquid, and orderly trading market for its common stock[172] - The market price of the company's common stock is less than $5.00 per share, which may classify it as a "penny stock," potentially restricting the ability of brokers to sell its shares[174] - The company may experience significant price volatility, which could result in rapid and substantial losses for stockholders[176] Risks and Uncertainties - The company faces risks associated with public health crises, such as the COVID-19 pandemic, which previously caused significant disruptions to operations and patient visits[103] - The company is exposed to risks from rapid technological changes, which could impact its ability to compete effectively in the market[113] - The company faces risks from third-party customer service providers, which could impact customer satisfaction and revenue[124] - The company must continuously monitor and develop its IT infrastructure to mitigate risks from cyber threats, which could lead to significant legal and reputational harm[151] - The company relies on third-party providers for critical operations, and any failure in their service could lead to significant operational disruptions and increased costs[155] Asset Management - As of December 31, 2024, the company had$289.7 million of goodwill and $245.5 million of trade name and other intangible assets recorded on its consolidated balance sheet, representing a significant portion of total assets[162] - The company has incurred cumulative net taxable losses, with deferred tax assets including federal net operating losses (NOLs) of$89.5 million and state NOLs of $45.0 million as of December 31, 2024[164] - An ownership change occurred on June 15, 2023, which may limit the company's ability to utilize its pre-change NOL carryforwards and other tax attributes[166] Cash Flow and Financing Activities - The company generated cash flows used in operating activities of$19.2 million for the year ended December 31, 2024, contributing to ongoing negative operating cash flows[398] - The net cash provided by financing activities in 2024 was $35,695 thousand, a significant recovery from a net cash used of$16,605 thousand in 2023[382] - The Company issued $26.0 million of Fourth Amendment 2L Notes on March 3, 2025, with an interest rate of 8.0% per annum, maturing on August 24, 2028[386]