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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For transition period from         to
Commission File Number 001-39439
ATI Physical Therapy, Inc.
(Exact name of registrant as specified in its charter)
Delaware85-1408039
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)
790 Remington Boulevard
Bolingbrook, IL 60440
(630) 296-2223
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Class A common stock, $0.0001 par valueATIPNew York Stock Exchange
Redeemable Warrants, each whole warrant exercisable for one share of Class A common stock at an exercise price of $11.50 per shareATIP WSNew York Stock Exchange
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes No
As of May 5, 2022, there were approximately 206,825,028 shares of the registrant's common stock legally outstanding.
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Table of Contents

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

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements included in this Form 10-Q that are not historical facts are forward-looking statements for purposes of the safe harbor provisions under the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of the words such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “should,” “would,” “plan,” “project,” “forecast,” “predict,” “potential,” “seem,” “seek,” “future,” “outlook,” “target” or similar expressions that predict or indicate future events or trends or that are not statements of historical matters. These forward-looking statements include, but are not limited to, statements regarding the impact of physical therapist attrition, anticipated visit and referral volumes and other factors on the Company's overall profitability, and estimates and forecasts of other financial and performance metrics and projections of market opportunity. These statements are based on various assumptions, whether or not identified in this Form 10-Q, and on the current expectations of the Company’s management and are not predictions of actual performance. These forward-looking statements are provided for illustrative purposes only and are not intended to serve as, and must not be relied on by any investor as, a guarantee, an assurance, a prediction or a definitive statement of fact or probability. Actual events and circumstances are difficult or impossible to predict and will differ from assumptions. Many actual events and circumstances are beyond the control of the Company.
These forward-looking statements are subject to a number of risks and uncertainties, including:
our dependence upon governmental and third-party private payors for reimbursement and that decreases in reimbursement rates or changes in payor and service mix may adversely affect our financial results;
federal and state governments’ continued efforts to contain growth in Medicaid expenditures, which could adversely affect the Company’s revenue and profitability;
payments that we receive from Medicare and Medicaid being subject to potential retroactive reduction;
further unfavorable shifts in payor, state and service mix;
risks associated with public health crises, including COVID-19 (and any existing and future variants) and its direct and indirect impacts on the business, which could lead to a decline in visit volumes and referrals;
risks related to the impact on our workforce of mandatory COVID-19 vaccination of employees;
our inability to compete effectively in a competitive industry subject to rapid technological change including competition that could impact our ability to recruit and retain skilled physical therapists;
failure of steps being taken to reduce attrition of physical therapists and increase hiring of physical therapists and the impact of unfavorable labor market dynamics and wage inflation;
failure or ineffectiveness of our strategies to improve patient referrals;
risks associated with future acquisitions, which may use significant resources, may be unsuccessful and could expose us to unforeseen liabilities;
failure of third-party customer service and technical support providers to adequately address customers’ requests;
3

our dependence upon the cultivation and maintenance of relationships with customers, suppliers, physicians and other referral sources;
the severity of climate change or the weather and natural disasters that can occur in the regions of the U.S. in which we operate, which could cause disruption to our business;
our failure to maintain financial controls and processes over billing and collections or disputes with third-parties could have a significant negative impact on our financial condition and results of operations;
our operations are subject to extensive regulation and macroeconomic uncertainty;
risks associated with applicable state laws regarding fee-splitting and professional corporation laws;
changes in or our failure to comply with existing federal and state laws or regulations or the inability to comply with new government regulations on a timely basis;
the outcome of any legal and regulatory matters, proceedings or investigations instituted against us or any of our directors or officers, and whether insurance coverage will be available and/or adequate to cover such matters or proceedings;
inspections, reviews, audits and investigations under federal and state government programs and payor contracts that could have adverse findings that may negatively affect our business, including our results of operations, liquidity, financial condition and reputation;
our ability to attract and retain talented executives and employees;
our facilities face competition for experienced physical therapists and other clinical providers that may increase labor costs and reduce profitability;
risks associated with our reliance on IT in critical areas of our operations;
risk resulting from the IPO Warrants, Earnout Shares and Vesting Shares being accounted for as liabilities;
further impairments of goodwill and other intangible assets, which represent a significant portion of our total assets, especially in view of the Company’s recent market valuation;
our inability to remediate the material weaknesses in internal control over financial reporting related to income taxes and to maintain effective internal control over financial reporting;
risks related to outstanding indebtedness, compliance with associated covenants and the potential need to incur additional debt in the future;
risks associated with liquidity and capital markets, including the Company's ability to generate sufficient cash flows, together with cash on hand, to cover liquidity and capital requirements;
costs related to operating as a public company and our ability to maintain the listing of our securities on the NYSE;
If any of these risks materialize or our assumptions prove incorrect, actual results could differ materially from the results implied by these forward-looking statements.
4

These and other factors that could cause actual results to differ from those implied by the forward-looking statements in this Form 10-Q are more fully described under the heading “Item 1A. Risk Factors” and elsewhere in this Form 10-Q. The risks described under the heading “Item 1A. Risk Factors” are not exhaustive. Other sections of this Form 10-Q describe additional factors that could adversely affect the business, financial condition or results of operations of the Company. New risk factors emerge from time to time and it is not possible to predict all such risk factors, nor can the Company assess the impact of all such risk factors on the business of the Company or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the foregoing cautionary statements. The Company undertakes no obligations to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
In addition, statements of belief and similar statements reflect the beliefs and opinions of the Company on the relevant subject. These statements are based upon information available to the Company, as applicable, as of the date of this Form 10-Q, and while the Company believes such information forms a reasonable basis for such statements, such information may be limited or incomplete, and statements should not be read to indicate that the Company has conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and you are cautioned not to unduly rely upon these statements.
5

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

ATI Physical Therapy, Inc.
Condensed Consolidated Balance Sheets
($ in thousands, except share and per share data)
(unaudited)
March 31, 2022December 31, 2021
Assets:
Current assets:
Cash and cash equivalents$94,797 $48,616 
Accounts receivable (net of allowance for doubtful accounts of $51,519 and $53,533 at March 31, 2022 and December 31, 2021, respectively)
87,809 82,455 
Prepaid expenses8,706 9,303 
Other current assets6,658 3,204 
Total current assets197,970 143,578 
Property and equipment, net136,776 139,730 
Operating lease right-of-use assets255,372 256,646 
Goodwill, net492,240 608,811 
Trade name and other intangible assets, net372,090 411,696 
Other non-current assets2,811 2,233 
Total assets$1,457,259 $1,562,694 
Liabilities, Mezzanine Equity and Stockholders' Equity:
Current liabilities:
Accounts payable$12,264 $15,146 
Accrued expenses and other liabilities59,391 64,584 
Current portion of operating lease liabilities50,651 49,433 
Current portion of long-term debt 8,167 
Total current liabilities122,306 137,330 
Long-term debt, net477,817 543,799 
Warrant liability2,664 4,341 
Contingent common shares liability21,026 45,360 
Deferred income tax liabilities44,178 67,459 
Operating lease liabilities248,354 250,597 
Other non-current liabilities2,348 2,301 
Total liabilities918,693 1,051,187 
Commitments and contingencies (Note 17)
Mezzanine equity:
Series A Senior Preferred Stock, $0.0001 par value; 1.0 million shares authorized; $1,011.67 stated value per share and 0.2 million shares issued and outstanding at March 31, 2022; none issued and outstanding at December 31, 2021
140,340  
Stockholders' equity:
Class A common stock, $0.0001 par value; 470.0 million shares authorized; 207.4 million shares issued, 197.5 million shares outstanding at March 31, 2022; 207.4 million shares issued, 197.4 million shares outstanding at December 31, 2021
20 20 
Treasury stock, at cost, 0.04 million shares and 0.03 million shares at March 31, 2022 and December 31, 2021, respectively
(117)(95)
Additional paid-in capital1,373,282 1,351,597 
Accumulated other comprehensive income3,780 28 
Accumulated deficit(984,882)(847,132)
Total ATI Physical Therapy, Inc. equity392,083 504,418 
Non-controlling interests6,143 7,089 
Total stockholders' equity398,226 511,507 
Total liabilities, mezzanine equity and stockholders' equity$1,457,259 $1,562,694 
The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.
7

ATI Physical Therapy, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
Three Months Ended
March 31, 2022March 31, 2021
Net patient revenue$138,925 $132,271 
Other revenue14,897 16,791 
Net operating revenue153,822 149,062 
Cost of services:
Salaries and related costs87,415 80,654 
Rent, clinic supplies, contract labor and other51,615 43,296 
Provision for doubtful accounts5,105 7,171 
Total cost of services144,135 131,121 
Selling, general and administrative expenses30,024 24,726 
Goodwill and intangible asset impairment charges155,741  
Operating loss(176,078)(6,785)
Change in fair value of warrant liability (Note 12)
(1,677) 
Change in fair value of contingent common shares liability (Note 13)
(24,334) 
Interest expense, net8,656 16,087 
Interest expense on redeemable preferred stock 5,308 
Other expense, net2,781 153 
Loss before taxes(161,504)(28,333)
Income tax benefit(23,281)(10,515)
Net loss(138,223)(17,818)
Net (loss) income attributable to non-controlling interests(473)1,309 
Net loss attributable to ATI Physical Therapy, Inc.$(137,750)$(19,127)
Loss per share of Class A common stock:
Basic$(0.70)$(0.15)
Diluted$(0.70)$(0.15)
Weighted average shares outstanding:
Basic and diluted199,971 128,286 
The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.
8

ATI Physical Therapy, Inc.
Condensed Consolidated Statements of Comprehensive Loss
($ in thousands)
(unaudited)
Three Months Ended
March 31, 2022March 31, 2021
Net loss$(138,223)$(17,818)
Other comprehensive income:
Unrealized gain on interest rate swap3,752 561 
Comprehensive loss$(134,471)$(17,257)
Net (loss) income attributable to non-controlling interests(473)1,309 
Comprehensive loss attributable to ATI Physical Therapy, Inc.$(133,998)$(18,566)
The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.
9

ATI Physical Therapy, Inc.
Condensed Consolidated Statements of Changes in Stockholders' Equity
($ in thousands, except share data)
(unaudited)
Common Stock Treasury StockAdditional Paid-In CapitalAccumulated Other
Comprehensive Income
Accumulated DeficitNon-Controlling InterestsTotal Stockholders' Equity
SharesAmountSharesAmount
Balance at January 1, 2022197,409,964$20 29,791$(95)$1,351,597 $28 $(847,132)$7,089 $511,507 
Issuance of 2022 Warrants— — — 19,725 — — — 19,725 
Vesting of restricted shares distributed to holders of ICUs75,497— — — — — — — — 
Issuance of common stock upon vesting of restricted stock awards40,613— — — — — — — — 
Tax withholdings related to net share settlement of restricted stock awards(12,824)— 12,824 (22)— — — — (22)
Share-based compensation— — — 1,960 — — — 1,960 
Other comprehensive income (1)
— — — — 3,752 — — 3,752 
Distribution to non-controlling interest holders— — — — — — (473)(473)
Net loss attributable to non-controlling interests— — — — — — (473)(473)
Net loss attributable to ATI Physical Therapy, Inc. — — — — — (137,750)— (137,750)
Balance at March 31, 2022197,513,250$20 42,615$(117)$1,373,282 $3,780 $(984,882)$6,143 $398,226 
Common StockTreasury StockAdditional Paid-In CapitalAccumulated Other Comprehensive (Loss) IncomeAccumulated DeficitNon-Controlling InterestsTotal Stockholders' Equity
SharesAmountSharesAmount
Balance at January 1, 2021938,557 $9  $ $954,732 $(1,907)$(68,804)$17,087 $901,117 
Retrospective application of reverse recapitalization127,346,957 4   (4)    
Adjusted balance at January 1, 2021128,285,514 $13  $ $954,728 $(1,907)$(68,804)$17,087 $901,117 
Share-based compensation— — — — 504 — — — 504 
Other comprehensive income (1)
— — — — — 561 — — 561 
Distribution to non-controlling interest holders— — — — — — — (3,575)(3,575)
Net income attributable to non-controlling interests— — — — — — — 1,309 1,309 
Net loss attributable to ATI Physical Therapy, Inc.— — — — — — (19,127)— (19,127)
Balance at March 31, 2021128,285,514 $13  $ $955,232 $(1,346)$(87,931)$14,821 $880,789 
(1)Other comprehensive income related to unrealized gain on interest rate swap
The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.
10

ATI Physical Therapy, Inc.
Condensed Consolidated Statements of Cash Flows
($ in thousands)
(unaudited)
Three Months Ended
March 31, 2022March 31, 2021
Operating activities:
Net loss$(138,223)$(17,818)
Adjustments to reconcile net loss to net cash used in operating activities:
Goodwill and intangible asset impairment charges155,741  
Depreciation and amortization10,111 9,619 
Provision for doubtful accounts5,105 7,171 
Deferred income tax provision(23,281)(10,515)
Amortization of right-of-use assets11,807 11,055 
Share-based compensation1,960 504 
Amortization of debt issuance costs and original issue discount660 1,045 
Non-cash interest expense on redeemable preferred stock 5,308 
Loss on extinguishment of debt2,809  
(Gain) loss on disposal and impairment of assets(219)221 
Change in fair value of warrant liability(1,677) 
Change in fair value of contingent common shares liability(24,334) 
Changes in:
Accounts receivable, net(10,459)(11,148)
Prepaid expenses and other current assets588 (5,265)
Other non-current assets14 (112)
Accounts payable(928)1,060 
Accrued expenses and other liabilities(544)(5,686)
Operating lease liabilities(11,555)(15,984)
Other non-current liabilities(37)473 
Medicare Accelerated and Advance Payment Program Funds(4,269) 
Net cash used in operating activities(26,731)(30,072)
Investing activities:
Purchases of property and equipment(8,772)(8,376)
Purchases of intangible assets (650)
Proceeds from sale of property and equipment114 16 
Proceeds from sale of clinics 248 
Net cash used in investing activities(8,658)(8,762)


11

Financing activities:
Proceeds from long-term debt500,000  
Deferred financing costs(12,952) 
Original issue discount(10,000) 
Principal payments on long-term debt(555,048)(2,042)
Proceeds from issuance of Series A Senior Preferred Stock144,667  
Proceeds from issuance of 2022 Warrants20,333  
Equity issuance costs and original issue discount(4,935) 
Taxes paid on behalf of employees for shares withheld(22) 
Distribution to non-controlling interest holders(473)(3,575)
Net cash provided by (used in) financing activities81,570 (5,617)
Changes in cash and cash equivalents:
Net increase (decrease) in cash and cash equivalents46,181 (44,451)
Cash and cash equivalents at beginning of period48,616 142,128 
Cash and cash equivalents at end of period$94,797 $97,677 
Supplemental noncash disclosures:
Derivative changes in fair value$(3,752)$(561)
Purchases of property and equipment in accounts payable$2,223 $2,161 
Other supplemental disclosures:
Cash paid for interest$3,932 $14,990 
Cash paid for taxes$35 $1 
The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.
12


Note 1. Overview of the Company
ATI Physical Therapy, Inc., together with its subsidiaries (herein referred to as “we,” “the Company,” “ATI Physical Therapy” and “ATI”), is a nationally recognized healthcare company, specializing in outpatient rehabilitation and adjacent healthcare services. The Company provides outpatient physical therapy services under the name ATI Physical Therapy and, as of March 31, 2022, had 922 clinics (as well as 20 clinics under management service agreements) located in 25 states. The Company offers a variety of services within its clinics, including physical therapy to treat spine, shoulder, knee and neck injuries or pain; work injury rehabilitation services, including work conditioning and work hardening; hand therapy; and other specialized treatment services. The Company’s direct and indirect wholly-owned subsidiaries include, but are not limited to, Wilco Holdco, Inc., ATI Holdings Acquisition, Inc. and ATI Holdings, LLC.
On June 16, 2021 (the “Closing Date”), a Business Combination transaction (the “Business Combination”) was finalized pursuant to the Agreement and Plan of Merger ("Merger Agreement"), dated February 21, 2021 between the operating company, Wilco Holdco, Inc. (“Wilco Holdco”), and Fortress Value Acquisition Corp. II (herein referred to as "FAII" and "FVAC"), a special purpose acquisition company. In connection with the closing of the Business Combination, the Company changed its name from Fortress Value Acquisition Corp. II to ATI Physical Therapy, Inc. The Company’s common stock is listed on the New York Stock Exchange ("NYSE") under the symbol “ATIP.”
The Business Combination was accounted for as a reverse recapitalization in accordance with U.S. generally accepted accounting principles ("GAAP"). Under this method of accounting, FAII is treated as the acquired company and Wilco Holdco is treated as the acquirer for financial statement reporting and accounting purposes. As a result, the historical operations of Wilco Holdco are deemed to be those of the Company. Therefore, the financial statements included in this report reflect (i) the historical operating results of Wilco Holdco prior to the Business Combination; (ii) the combined results of FAII and Wilco Holdco following the Business Combination on June 16, 2021; (iii) the assets and liabilities of Wilco Holdco at their historical cost; and (iv) the Company’s equity structure for all periods presented. The recapitalization of the number of shares of common stock attributable to the Business Combination is reflected retroactively to the earliest period presented and will be utilized for calculating earnings per share in all prior periods presented. No step-up basis of intangible assets or goodwill was recorded in the Business Combination consistent with the treatment of the transaction as a reverse recapitalization of Wilco Holdco, Inc. Refer to Note 3 - Business Combinations and Divestiture for additional information.
Impact of COVID-19 and CARES Act
The coronavirus ("COVID-19") pandemic in the United States resulted in changes to our operating environment. We continue to closely monitor the impact of COVID-19 on all aspects of our business, and our priorities remain protecting the health and safety of employees and patients, maximizing the availability of services to satisfy patient needs and improving the operational and financial stability of our business. While we expect the disruption caused by COVID-19 and resulting impacts to diminish over time, we cannot predict the length of such impacts, and if such impacts continue for an extended period, it could have a continued effect on the Company’s results of operations, financial condition and cash flows, which could be material.
13

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law providing reimbursement, grants, waivers and other funds to assist health care providers during the COVID-19 pandemic. The Company has realized benefits under the CARES Act including, but not limited to, the following:
The Company applied for and obtained approval to receive $26.7 million of Medicare Accelerated and Advance Payment Program ("MAAPP") funds during the quarter ended June 30, 2020. During the three months ended March 31, 2022, the Company applied $4.3 million in MAAPP funds against the outstanding liability. Because the Company has not yet met all required performance obligations or performed the services related to the remaining funds, as of March 31, 2022 and December 31, 2021, $8.0 million and $12.3 million of the funds are recorded in accrued expenses and other liabilities, respectively.
The Company elected to defer depositing the employer portion of Social Security taxes for payments due from March 27, 2020 through December 31, 2020, interest-free and penalty-free. Related to these payments, as of March 31, 2022 and December 31, 2021, $5.9 million is included in accrued expenses and other liabilities.
Note 2. Basis of Presentation and Recent Accounting Standards
The accompanying unaudited condensed consolidated financial statements of the Company were prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading.
Management believes the unaudited condensed consolidated financial statements for interim periods presented contain all necessary adjustments to state fairly, in all material respects, the Company's financial position, results of operations and cash flows for the interim periods presented.
Operating results for the three months ended March 31, 2022 are not necessarily indicative of the results the Company expects for the entire year. In addition, the influence of seasonality, changes in payor contracts, changes in rate per visit, changes in referral and visit volumes, strategic transactions, labor market dynamics and wage inflation, changes in laws and general economic conditions in the markets in which the Company operates and other factors impacting the Company's operations may result in any period not being comparable to the same period in previous years. Preparation of the condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts during the reporting period. Actual results could differ from those estimates.
The Company reports segment information based on the management approach. The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of the Company’s reportable segments. All of the Company’s operations are conducted within the United States. Our chief operating decision maker (“CODM”) is our Chief Executive Officer, who reviews financial information presented on a consolidated basis for purposes of making decisions, assessing financial performance and allocating resources. We operate our business as one operating segment and therefore we have one reportable segment.
For further information regarding the Company's accounting policies and other information, the condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto for the year ended December 31, 2021 included in our Annual Report on Form 10-K filed with the SEC on March 1, 2022.
14

Recently adopted accounting guidance
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. This standard was subsequently amended by ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope. This standard is optional and may be applied by entities after March 12, 2020, but no later than December 31, 2022. As of March 31, 2022, the Company has derivative instruments for which the interest rates are indexed to the London InterBank Offered Rate (“LIBOR”). During the period ended March 31, 2022, the Company modified the reference rate index on its hedged items from LIBOR to the Secured Overnight Financing Rate ("SOFR"). The Company elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives, which is LIBOR. The guidance allows for different expedient elections to be made at different points in time. As of March 31, 2022, the Company does not anticipate that this guidance will have a material impact on its consolidated financial statements, however, the Company will continue to assess the potential impact on its future hedging relationships and expedient elections, as applicable.
Recent accounting pronouncements
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Liabilities from Contracts with Customers, which provides guidance to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice. This ASU is effective for the Company on January 1, 2023, with early adoption permitted, and shall be applied on a prospective basis to business combinations that occur on or after the adoption date. The Company is evaluating the effect that the implementation of this standard may have on the Company's consolidated financial statements, but does not currently expect the impact to be material.
In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance, which provides guidance to increase the transparency of government assistance transactions with business entities that are accounted for by applying a grant or contribution accounting model. This ASU is effective for the Company's annual financial statements to be issued for the year ended December 31, 2022, with early adoption permitted. The Company expects to adopt this new accounting standard in its Annual Report on Form 10-K for the year ended December 31, 2022, and does not expect the adoption of this standard to have a material impact on the Company's consolidated financial statements.
Note 3. Business Combinations and Divestiture
The Business Combination
As discussed in Note 1 - Overview of the Company, on June 16, 2021, a business combination between Wilco Holdco and FAII was consummated, which was accounted for as a reverse recapitalization of Wilco Holdco, Inc. At the time of the Business Combination, stockholders of Wilco Holdco, Inc. received 130.3 million shares of the Company’s Class A common stock, par value $0.0001 per share (the “Common Stock”), for the outstanding shares of Wilco Holdco common stock, par value $0.01 per share, that such stockholders owned. Upon distribution of shares of Common Stock to holders of vested and unvested Incentive Common Units (“ICUs”) granted prior to the Business Combination under the Wilco Acquisition, LP 2016 Equity Incentive Plan, 2.0 million of these shares were restricted subject to vesting requirements, resulting in total unrestricted shares of 128.3 million and an exchange ratio of 136.7 unrestricted shares of ATI Physical Therapy, Inc. for every previously outstanding Wilco Holdco share.
15

Immediately following the Business Combination, there were 207.3 million shares issued and 196.6 million outstanding shares of common stock of ATI Physical Therapy, Inc., consisting of the following (in thousands):
Class A Common Shares
FAII Class A common stock prior to Business Combination34,500
FAII Class F common stock prior to Business Combination(1)
8,625
Less: FAII Class A common stock redemptions(8,988)
FAII common shares (Class A and Class F)34,137
Add: Shares issued to Wilco Holdco stockholders(2, 3)
130,300
Add: Shares issued through PIPE investment30,000
Add: Shares issued to Wilco Holdco Series A Preferred stockholders12,845
Total shares issued as of the Closing Date of the Business Combination(4)
207,282
Less: Vesting Shares(1)
(8,625)
Less: Restricted shares(3)
(2,014)
Total shares outstanding as of the Closing Date of the Business Combination(4)
196,643
(1) Per the Merger Agreement, as of the closing of the Business Combination, all Class F shares converted into the equivalent number of Class A common shares and became subject to certain vesting and forfeiture provisions ("Vesting Shares") as detailed in Note 13 - Contingent Common Shares Liability.
(2) Includes 1.2 million unrestricted shares upon distribution to holders of vested ICUs under the Wilco Acquisition, LP 2016 Equity Incentive Plan.
(3) Includes 2.0 million restricted shares upon distribution to holders of unvested ICUs under the Wilco Acquisition, LP 2016 Equity Incentive Plan.
(4) Excludes 15.0 million Earnout Shares, 6.9 million Public Warrants and 3.0 million Private Placement Warrants to purchase Class A common stock. Refer to Note 12 - IPO Warrant Liability and Note 13 - Contingent Common Shares Liability for further details.
PIPE investment
Concurrently with the closing of the Business Combination, pursuant to Subscription Agreements executed between FAII and certain investors, 30.0 million shares of Class A common stock (the “PIPE” investment) were newly issued in a private placement at a purchase price of $10.00 per share for an aggregate purchase price of $300.0 million. The initial PIPE investment included 7.5 million shares of Class A common stock newly issued to certain investment funds managed by affiliates of Fortress Investment Group LLC (“Fortress”) at a purchase price of $10.00 per share for an aggregate purchase price of $75.0 million.
Wilco Holdco Series A Preferred Stock
Immediately following the Business Combination, all holders of the previously outstanding shares of Wilco Holdco Series A Preferred Stock received a proportionate share of $59.0 million and 12.8 million shares of ATI Physical Therapy, Inc. Class A common stock based on the terms of the Merger Agreement. Refer to Note 11 - Wilco Holdco Redeemable Preferred Stock for further details.
16

Earnout Shares
Subject to the terms and conditions of the Merger Agreement, certain stockholders of Wilco Holdco, Inc. were provided the contingent right to receive, in the aggregate, up to 15.0 million shares of Class A common stock that may be issued pursuant to an earnout arrangement if certain Class A common stock price targets are achieved between the Closing Date and the 10 year anniversary of the Closing Date (“Earnout Shares”). The Earnout Shares are subject to acceleration in the event of a sale or other change in control if the holders of Class A common stock would receive a per share price in excess of the applicable Earnout Shares price target.
Refer to Note 13 - Contingent Common Shares Liability and Note 14 - Fair Value Measurements for further details.
Vesting Shares
Pursuant to the Sponsor Letter Agreement executed in connection with the Merger Agreement, 8.6 million shares of Class F common stock of FAII outstanding immediately prior to the Business Combination converted to potential Class A common shares and became subject to certain vesting and forfeiture provisions (“Vesting Shares”). The Vesting Shares are subject to acceleration in the event of a sale or other change in control if the holders of Class A common stock would receive a per share price in excess of the applicable Vesting Shares price target.
Refer to Note 13 - Contingent Common Shares Liability and Note 14 - Fair Value Measurements for further details.
IPO Warrants
Immediately following the Business Combination, the Company had outstanding Public Warrants to purchase an aggregate of 6.9 million shares of the Company’s Class A common stock ("Public Warrants") and outstanding Private Placement Warrants to purchase an aggregate of 3.0 million shares of the Company's Class A common stock ("Private Placement Warrants") (collectively, the “IPO Warrants”). In conjunction with the Business Combination, 3.0 million Private Placement Warrants were transferred and surrendered for no consideration based on terms of the Sponsor Letter Agreement.
Refer to Note 12 - IPO Warrant Liability and Note 14 - Fair Value Measurements for further details.
The following table reflects the components of cash movement related to the Business Combination, PIPE investment and debt repayments (in thousands):
Cash in trust with FAII as of the Closing Date of the Business Combination$345,036 
Cash used for redemptions of FAII Class A common stock(89,877)
FAII transaction costs paid at closing
(25,821)
Cash inflow from Business Combination229,338 
Wilco Holdco, Inc. transaction costs offset against proceeds
(19,233)
Net proceeds from FAII in Business Combination210,105 
Cash proceeds from PIPE investment300,000 
Repayment of second lien subordinated loan(231,335)
Partial repayment of 2016 first lien term loan(216,700)
Cash payment to Wilco Holdco Series A Preferred stockholders(59,000)
Wilco Holdco, Inc. transaction costs expensed during 2021
(5,543)
Net decrease in cash related to Business Combination, PIPE investment and debt repayments$(2,473)
17

During 2021, the Company expensed $5.5 million in transaction costs related to the Business Combination, which were classified as selling, general and administrative expenses in the consolidated statement of operations. In addition, $19.2 million of Wilco Holdco, Inc. transaction costs related to the Business Combination were offset against additional paid-in capital in the consolidated statements of changes in stockholders’ equity as these costs were determined to be directly attributable to the recapitalization.
Home Health divestiture
On August 25, 2021, the Company entered into an agreement to divest its Home Health service line. On October 1, 2021, the transaction closed with a sale price of $7.3 million. The major classes of assets and liabilities associated with the Home Health service line consisted of predominantly accounts receivable, accrued expenses and other liabilities which were not material.
2021 acquisitions
During 2021, the Company completed 3 acquisitions consisting of 7 total clinics. The Company paid approximately $4.5 million in cash and $1.4 million in future payment consideration, subject to certain time or performance conditions set out in the purchase agreements, to complete the acquisitions. The acquisitions qualified for purchase accounting treatment under ASC Topic 805, Business Combinations, whereby the purchase price was allocated to the assets acquired and liabilities assumed based upon their estimated fair values on the respective acquisition dates. Of the total amount of consideration, $5.5 million was allocated to goodwill based on management's valuations, which were preliminary and subject to completion of the Company's valuation analysis through the 12 month measurement period. Management finalized its valuation analysis at March 31, 2022 and valuation adjustments to the assets acquired and liabilities assumed were not material. Goodwill represents the future economic benefits arising from the other assets acquired that could not be individually identified and separately recognized, such as assembled workforce, synergies, and location. The entire amount of goodwill recorded from these purchases will be deductible for income tax purposes. Acquisition-related costs to complete the transactions, net operating revenue and net income recognized in 2021 related to the acquisitions were not material, individually and in the aggregate. Unaudited proforma consolidated financial information for the acquisitions have not been included as the results are not material, individually and in the aggregate.
Note 4. Revenue from Contracts with Customers
The following table disaggregates net operating revenue by major service line for the periods indicated below (in thousands):
Three Months Ended
March 31, 2022March 31, 2021
Net patient revenue$138,925 $132,271 
ATI Worksite Solutions (1)
8,651 8,493 
Management Service Agreements (1)
3,155 3,497 
Other revenue (1)
3,091 4,801 
$153,822 $149,062 
(1)ATI Worksite Solutions, Management Service Agreements and Other revenue are included within other revenue on the face of the condensed consolidated statements of operations.
18

The following table disaggregates net patient revenue for each associated payor class as a percentage of total net patient revenue for the periods indicated below:
Three Months Ended
March 31, 2022March 31, 2021
Commercial56.8 %55.4 %
Government23.6 %22.6 %
Workers’ compensation13.2 %16.0 %
Other (1)
6.4 %6.0 %
100.0 %100.0 %
(1) Other is primarily comprised of net patient revenue related to auto personal injury.
Note 5. Goodwill, Trade Name and Other Intangible Assets
Changes in the carrying amount of goodwill consisted of the following (in thousands):

Total Goodwill
Goodwill at December 31, 2021 (1)
$608,811 
Impairment charges(116,335)
Acquisitions (2)
(236)
Goodwill at March 31, 2022
$492,240 
(1) Net of accumulated impairment losses of $726.8 million.
(2) Represents final valuation adjustments related to 2021 acquisitions. Refer to Note 3 - Business Combinations and Divestiture for additional information.
The table below summarizes the Company’s carrying amount of trade name and other intangible assets at March 31, 2022 and December 31, 2021 (in thousands):
March 31, 2022December 31, 2021
Gross intangible assets:
ATI trade name (1)
$369,954 $409,360 
Non-compete agreements2,395 2,405 
Other intangible assets640 640 
Accumulated amortization:
Accumulated amortization – non-compete agreements(604)(425)
Accumulated amortization – other intangible assets(295)(284)
Total trade name and other intangible assets, net$372,090 $411,696 
(1) Not subject to amortization. The Company recorded $39.4 million of impairment charges related to the trade name indefinite-lived intangible asset during the three months ended March 31, 2022.
Amortization expense for the three months ended March 31, 2022 and 2021 was immaterial. The Company estimates that amortization expense related to intangible assets is expected to be immaterial over the next five fiscal years and thereafter.
19

Interim impairment testing as of March 31, 2022
During the quarter ended March 31, 2022, the Company identified an interim triggering event as a result of factors including potential changes in discount rates and the recent decrease in share price. The Company determined that the combination of these factors constituted an interim triggering event that required further analysis with respect to potential impairment to goodwill, trade name indefinite-lived intangible and other assets.
As it was determined that it was more likely than not that the fair value of our trade name indefinite-lived intangible asset was below its carrying value, the Company performed an interim quantitative impairment test as of the March 31, 2022 balance sheet date. The Company utilized the relief from royalty method to estimate the fair value of the trade name indefinite-lived intangible asset. The key assumptions associated with determining the estimated fair value include projected revenue growth rates, the royalty rate, the discount rate and the terminal growth rate. As a result of the analysis, the Company recognized a $39.4 million non-cash interim impairment in the line item goodwill and intangible asset impairment charges in its condensed consolidated statements of operations, which represents the difference between the estimated fair value of the Company’s trade name indefinite-lived intangible asset and its carrying value.
The Company evaluated its asset groups, including operating lease right-of-use assets that were evaluated based on clinic-level cash flows and clinic-specific market factors, noting no material impairment.
As it was determined that it was more likely than not that the fair value of our single reporting unit was below its carrying value, the Company performed an interim quantitative impairment test. In order to determine the fair value of our single reporting unit, the Company utilized an average of a discounted cash flow analysis and comparable public company analysis. The key assumptions associated with determining the estimated fair value include projected revenue growth rates, earnings before interest, taxes, depreciation and amortization ("EBITDA") margins, the terminal growth rate, the discount rate and relevant market multiples. As a result of the analysis, the Company recognized a $116.3 million non-cash interim impairment in the line item goodwill and intangible asset impairment charges in its condensed consolidated statements of operations, which represented the difference between the estimated fair value of the Company’s single reporting unit and its carrying value.
Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates and market factors. Estimating the fair value of the Company’s reporting unit and indefinite-lived intangible assets requires us to make assumptions and estimates regarding our future plans, as well as industry, economic, and regulatory conditions. These assumptions and estimates include projected revenue growth rates, EBITDA margins, terminal growth rates, discount rates, relevant market multiples, royalty rates and other market factors. If current expectations of future growth rates, margins and cash flows are not met, or if market factors outside of our control change significantly, then our reporting unit or indefinite-lived intangible assets might become impaired in the future, negatively impacting our operating results and financial position. As the carrying amounts of goodwill and the Company’s trade name indefinite-lived intangible asset have been impaired as of March 31, 2022 and written down to fair value, those amounts are more susceptible to an impairment risk if there are unfavorable changes in assumptions and estimates.
20

Note 6. Property and Equipment
Property and equipment consisted of the following at March 31, 2022 and December 31, 2021 (in thousands):

March 31, 2022December 31, 2021
Equipment
$37,067 $36,278 
Furniture and fixtures
17,300 17,141 
Leasehold improvements
187,489 183,542 
Automobiles
19 19 
Computer equipment and software
95,855 95,362 
Construction-in-progress
4,134 3,793 

341,864 336,135 
Accumulated depreciation and amortization
(205,088)(196,405)
Property and equipment, net
$136,776 $139,730 
The following table presents the amount of depreciation expense recorded in rent, clinic supplies, contract labor and other and selling, general and administrative expenses in the Company’s condensed consolidated statements of operations for the periods indicated below (in thousands):

Three Months Ended

March 31, 2022March 31, 2021
Rent, clinic supplies, contract labor and other
$7,086 $6,506 
Selling, general and administrative expenses
2,835 3,058 
Total depreciation expense
$9,921 $9,564 
Note 7. Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consisted of the following at March 31, 2022 and December 31, 2021 (in thousands):

March 31, 2022December 31, 2021
Salaries and related costs
$17,174$27,257
CARES Act funds (1)
13,91018,179
Accrued professional fees8,993

5,649
Credit balance due to patients and payors4,0494,240
Accrued interest
4,046
Accrued contract labor3,5202,057
Transaction-related costs (2)
303349
Other payables and accrued expenses7,3966,853
Total
$59,391$64,584
(1) Includes current portion of MAAPP funds received and deferred employer Social Security tax payments.
(2) Represents costs related to public readiness initiatives and corporate transactions.
21

Note 8. Borrowings
Long-term debt consisted of the following at March 31, 2022 and December 31, 2021 (in thousands):
March 31, 2022December 31, 2021
Senior Secured Term Loan (1) (due February 24, 2028)
$500,000 $ 
2016 first lien term loan (2)
 555,048 
Less: unamortized debt issuance costs
(12,303)(1,935)
Less: unamortized original issue discount
(9,880)(1,147)
Total debt, net
477,817 551,966 
Less: current portion of long-term debt
 (8,167)
Long-term debt, net
$477,817 $543,799 
(1) Interest rate of 8.25% at March 31, 2022, with interest payable in designated installments at a variable interest rate. The effective interest rate for the Senior Secured Term Loan was 9.2% at March 31, 2022.
(2) Loan balance was repaid in its entirety on February 24, 2022. The effective interest rate for the 2016 first lien term loan was 4.9% at December 31, 2021.
2016 first and second lien credit agreements
In connection with the Business Combination on June 16, 2021, the Company paid down $216.7 million of its 2016 first lien term loan. The Company recognized $1.7 million in loss on debt extinguishment related to the derecognition of the proportionate amount of remaining unamortized deferred financing costs and unamortized original issue discount associated with the partial debt repayment.
In connection with the Business Combination on June 16, 2021, the Company paid $231.3 million to settle its second lien subordinated term loan. The Company recognized $3.8 million in loss on debt extinguishment related to the derecognition of the remaining unamortized deferred financing costs in conjunction with the debt repayment.
On February 24, 2022, the Company paid $555.0 million to settle its existing term loan (the "2016 first lien term loan"). The Company accounted for the transaction as a debt extinguishment and recognized $2.8 million in loss on debt extinguishment related to the derecognition of the remaining unamortized deferred financing costs and unamortized original issue discount in conjunction with the debt repayment. The loss on debt extinguishment associated with the repayment of the 2016 first lien term loan has been reflected in other expense, net in the condensed consolidated statements of operations.
2022 Credit Agreement
On February 24, 2022 (the "Refinancing Date"), the Company entered into various financing arrangements to refinance its existing long-term debt (the "2022 Debt Refinancing"). As part of the 2022 Debt Refinancing, ATI Holdings Acquisition, Inc. (the "Borrower"), an indirect subsidiary of ATI Physical Therapy, Inc., entered into a credit agreement among the Borrower, Wilco Intermediate Holdings, Inc. ("Holdings"), as loan guarantor, Barclays Bank PLC, as administrative agent and issuing bank, and a syndicate of lenders (the "2022 Credit Agreement"). The 2022 Credit Agreement provides a $550.0 million credit facility (the "2022 Credit Facility") that is comprised of a $500.0 million senior secured term loan (the "Senior Secured Term Loan") which was fully funded at closing and a $50.0 million "super priority" senior secured revolver (the "Revolving Loans") with a $10.0 million letter of credit sublimit. The 2022 Credit Facility refinanced and replaced the Company's prior credit facility for which Barclays Bank PLC served as administrative agent for a syndicate of lenders.
22

In connection with the 2022 Debt Refinancing, the Company also entered into a preferred stock purchase agreement, consisting of senior preferred stock with detachable warrants to purchase common stock for an aggregate stated value of $165.0 million (collectively, the “Preferred Stock Financing”). See Note 10 - Mezzanine and Stockholders' Equity for further information regarding the Preferred Stock Financing.
The Company capitalized debt issuance costs totaling $12.5 million related to the 2022 Credit Facility as well as an original issue discount of $10.0 million, which are amortized over the terms of the respective financing arrangements.
The Senior Secured Term Loan matures on February 24, 2028 and bears interest, at the Company's election, at a base interest rate of the Alternate Base Rate ("ABR"), as defined in the agreement, plus an applicable credit spread, or the Adjusted Term SOFR Rate, as defined in the agreement, plus an applicable credit spread. The credit spread is determined based on a pricing grid and the Company's Secured Net Leverage Ratio. As of March 31, 2022, borrowings on the Senior Secured Term Loan bear interest at 3-month SOFR, subject to a 1.0% floor, plus 7.25%. The Company may elect to pay 2.0% interest in-kind at a 0.5% premium during the first year under the agreement.
The Revolving Loans are subject to a maximum borrowing capacity of $50.0 million and mature on February 24, 2027. Borrowings on the Revolving Loans bear interest, at the Company's election, at a base interest rate of the ABR, as defined in the agreement, plus an applicable credit spread, or the Adjusted Term SOFR Rate, as defined in the agreement, plus an applicable credit spread. The credit spread is determined based on a pricing grid and the Company's Secured Net Leverage Ratio. The Company capitalized issuance costs of $0.5 million related to the Revolving Loans. Unamortized issuance costs of $0.2 million related to the revolving loans under the 2016 credit agreement were added to the balance of unamortized issuance costs to be amortized over the term of the Revolving Loans pursuant to debt extinguishment accounting guidance. Commitment fees on the Revolving Loans are payable quarterly at 0.5% per annum on the daily average undrawn portion for the quarter and are expensed as incurred. The balances of unamortized issuance costs related to the Revolving Loans and the revolving loans under the 2016 credit agreement, respectively, were $0.7 million as of March 31, 2022, and $0.3 million as of December 31, 2021.
The 2022 Credit Facility is guaranteed by certain of the Company’s subsidiaries and is secured by substantially all of the assets of Holdings, the Borrower and the Borrower’s wholly owned subsidiaries, including a pledge of the stock of the Borrower, in each case, subject to customary exceptions.
The 2022 Credit Agreement contains customary covenants and restrictions, including financial and non-financial covenants. The financial covenants require the Company to maintain $30.0 million of minimum liquidity at each test date through the first quarter of 2024. Additionally, beginning in the second quarter of 2024, the Company must maintain a Secured Net Leverage Ratio, as defined in the agreement, not to exceed 7.00:1.00. The net leverage ratio covenant decreases in the third quarter of 2024 to 6.75:1.00 and further decreases in the first quarter of 2025 to 6.25:1.00, which remains applicable through maturity. The financial covenants are tested as of each fiscal quarter end for the respective periods.
The 2022 Credit Facility contains customary representations and warranties, events of default, reporting and other affirmative covenants and negative covenants, including limitations on indebtedness, liens, investments, negative pledges, dividends, junior debt payments, fundamental changes and asset sales and affiliate transactions. Failure to comply with these covenants and restrictions could result in an event of default under the 2022 Credit Facility, subject to customary cure periods. In such an event, all amounts outstanding under the 2022 Credit Facility, together with any accrued interest, could then be declared immediately due and payable.
23

Under the 2022 Credit Facility the Company may be required to make certain mandatory prepayments upon the occurrence of certain events, including: an event of default, a Prepayment Asset Sale or receipt of Net Insurance Proceeds (as defined in the 2022 Credit Agreement) in excess of $15.0 million, or excess cash flows exceeding certain thresholds (as defined in the 2022 Credit Agreement).
The Company had letters of credit totaling $1.2 million under the letter of credit sub-facility on the revolving credit facilities as of March 31, 2022 and December 31, 2021, respectively. The letters of credit auto-renew on an annual basis and are pledged to insurance carriers as collateral.
Aggregate maturities of long-term debt at March 31, 2022 are as follows (in thousands):
2022 (remainder of year)$ 
2023 
2024 
2025 
2026 
Thereafter500,000 
Total future maturities
500,000 
Unamortized original issue discount and debt issuance costs
(22,183)
Total debt, net
$477,817 
Note 9. Share-Based Compensation
The Company recognizes compensation expense for all share-based compensation awarded to employees, net of forfeitures, using a fair value-based method. The grant-date fair value of each award is amortized to expense on a straight-line basis over the award’s vesting period. Compensation expense associated with share-based awards is included in salaries and related costs and selling, general and administrative expenses in the accompanying condensed consolidated statements of operations, depending on whether the award recipient is a clinic-level or corporate employee, respectively. Share-based compensation expense is adjusted for forfeitures as incurred.
ATI 2021 Equity Incentive Plan
The Company adopted the ATI Physical Therapy 2021 Equity Incentive Plan (the "2021 Plan") under which it may grant equity interests of ATI Physical Therapy, Inc., in the form of stock options, stock appreciation rights, restricted stock awards and restricted stock units, to members of management, key employees and independent directors of the Company and its subsidiaries. The Compensation Committee is authorized to make grants and to make various other decisions under the 2021 Plan. The maximum number of shares reserved for issuance under the 2021 Plan is approximately 20.7 million. As of March 31, 2022, approximately 9.4 million shares were available for future grant.
2022 grants
During the first quarter of 2022, the Company granted stock options and restricted stock units ("RSUs") to certain employees and independent directors of the Company. For the three months ended March 31, 2022, approximately 5.2 million stock options and 4.5 million RSUs were granted under the 2021 Plan. The weighted average grant date fair values related to the 2022 grants were $1.01 and $2.23 for the stock options and RSUs, respectively.
24

The fair values of each stock option granted was determined using the Black-Scholes option-pricing model. As the Company does not have sufficient historical share option exercise experience for such "plain-vanilla" awards, the expected option term was determined using the simplified method, which is the average of the option's vesting and contractual term. Volatility is measured using the historical volatility of certain comparable companies, using daily log-returns of stock prices, as adjusted for the impact of financial leverage. The risk-free interest rate reflects the U.S. Treasury yield curve in effect at the time of the grant. The following weighted-average assumptions were used for the options granted in 2022:
2022
Weighted-average grant-date fair value of options$1.01
Risk-free interest rate1.74%
Term (years)6.2
Volatility61.20%
Expected dividend%
As of March 31, 2022, the unrecognized compensation expense related to stock options was $6.2 million, to be recognized over a weighted-average period of 3.6 years, and the unrecognized compensation expense related to RSUs was $9.8 million, to be recognized over a weighted-average period of 2.5 years.
Total share-based compensation expense recognized in the three months ended March 31, 2022 was approximately $2.0 million.
Note 10. Mezzanine and Stockholders' Equity
ATI Physical Therapy, Inc. Series A Senior Preferred Stock
In connection with the 2022 Debt Refinancing, the Company issued 165,000 shares of non-convertible preferred stock (the "Series A Senior Preferred Stock") plus 5.2 million warrants to purchase shares of the Company's common stock at an exercise price of $3.00 per share (the "Series I Warrants") and warrants to purchase 6.3 million shares of the Company's common stock at an exercise price equal to $0.01 per share (the "Series II Warrants"). The shares of the Series A Senior Preferred Stock have a par value of $0.0001 per share and an initial stated value of $1,000 per share, for an aggregate initial stated value of $165.0 million. The Company is authorized to issue 1.0 million shares of preferred stock per the Certificate of Designation. As of March 31, 2022, there was 0.2 million shares of Series A Senior Preferred Stock issued and outstanding.
The gross proceeds received from the issuance of the Series A Senior Preferred Stock and the Series I and Series II Warrants were $165.0 million, which was allocated among the instruments based on the relative fair values of each instrument. Of the gross proceeds, $144.7 million was allocated to the Series A Senior Preferred Stock, $5.1 million to the Series I Warrants and $15.2 million to the Series II Warrants. The resulting discount on the Series A Senior Preferred Stock will be recognized as a deemed dividend when those shares are subsequently remeasured upon becoming redeemable or probable of becoming redeemable. The Company recognized $2.9 million in issuance costs and $1.4 million of original issue discount related to the Series A Senior Preferred Stock.
25

The following table reflects the components of proceeds related to the Series A Senior Preferred Stock (in thousands):
Gross proceeds allocated to Series A Senior Preferred Stock$144,667 
Less: original issue discount(1,447)
Less: issuance costs(2,880)
Net proceeds received from issuance of Series A Senior Preferred Stock$140,340 
The Series A Senior Preferred Stock has priority over the Company's Class A common stock and all other junior equity securities of the Company, and is junior to the Company's existing or future indebtedness and other liabilities (including trade payables), with respect to payment of dividends, distribution of assets, and all other liquidation, winding up, dissolution, dividend and redemption rights.
The Series A Senior Preferred Stock carries an initial dividend rate of 12.0% per annum (the "Base Dividend Rate"), payable quarterly in arrears. Dividends will be paid in-kind and added to the stated value of the Series A Senior Preferred Stock. The Company may elect to pay dividends on the Series A Senior Preferred Stock in cash beginning on the third anniversary of the Refinancing Date and, with respect to any such dividends paid in cash, the dividend rate then in effect will be decreased by 1.0%.
The Base Dividend Rate is subject to certain adjustments, including an increase of 1.0% per annum on the first day following the fifth anniversary of the Refinancing Date and on each one-year anniversary thereafter, and 2.0% per annum upon the occurrence of either an Event of Noncompliance (as defined in the Certificate of Designation) or a failure by the Company to redeem in full all Series A Senior Preferred Stock upon a Mandatory Redemption Event, which includes a change of control, liquidation, bankruptcy or certain restructurings. The paid in-kind dividends related to the Series A Preferred Stock were $1.9 million as of March 31, 2022.
The following table presents the change in the aggregate stated value and stated value per share of the Series A Senior Preferred Stock since the Refinancing Date (in thousands, except per share data):
Series A Senior Preferred Stock
Aggregate stated value as of February 24, 2022$165,000 
Accumulated paid in-kind dividends as of March 31, 2022
1,925 
Aggregate stated value as of March 31, 2022
$166,925 
Preferred shares issued and outstanding as of March 31, 2022
165
Stated value per share as of March 31, 2022
$1,011.67
The Company has the right to redeem the Series A Senior Preferred Stock, in whole or in part, at any time (subject to certain limitations on partial redemptions). The Redemption Price (as defined in the Certificate of Designation) for each share of Series A Senior Preferred Stock depends on when such optional redemption takes place, if at all.
26

The Series A Senior Preferred Stock is perpetual and is not mandatorily redeemable at the option of the holders, except upon the occurrence of a Mandatory Redemption Event (as defined in the Certificate of Designation). Upon the occurrence of a Mandatory Redemption Event, to the extent not prohibited by law, the Company is required to redeem all Series A Senior Preferred Stock, in cash, at a price per share equal to the then applicable Redemption Price. Because the Series A Senior Preferred Stock is mandatorily redeemable contingent on certain events outside the Company’s control, the Series A Senior Preferred Stock is classified as mezzanine equity in the Company's condensed consolidated balance sheets. Based on the Company’s assessment of the conditions which would trigger the redemption of the Series A Senior Preferred Stock, the Company has determined that the Series A Senior Preferred Stock is neither currently redeemable nor probable of becoming redeemable. Because the Series A Senior Preferred Stock is classified as mezzanine equity and is not considered redeemable or probable of becoming redeemable, the paid in-kind dividends that are added to the stated value do not impact the carrying value of the Series A Senior Preferred Stock in the Company’s condensed consolidated balance sheets. Should the Series A Senior Preferred Stock become probable of becoming redeemable, the Company will recognize changes in the redemption value of the Series A Senior Preferred Stock immediately as they occur and adjust the carrying amount accordingly at the end of each reporting period. As of March 31, 2022, the redemption value of the Series A Senior Preferred Stock was $166.9 million, which is the stated value.
If an Event of Noncompliance occurs, then the holders of a majority of the then outstanding shares of Series A Senior Preferred Stock (the “Majority Holders”) have the right to demand that the Company engage in a sale/refinancing process to consummate a Forced Transaction (as defined in the Certificate of Designation). A Forced Transaction includes a refinancing of the Series A Senior Preferred Stock or a sale of the Company. Upon consummation of any Forced Transaction, to the extent not prohibited by law, the Company is required to redeem all Series A Senior Preferred Stock, in cash, at a price per share equal to the then applicable Redemption Price.
Holders of shares of Series A Senior Preferred Stock have no voting rights with respect to the Series A Senior Preferred Stock except as set forth in the Certificate of Designation, other documents entered into in connection with the Purchase Agreement and the transactions contemplated thereby (collectively, the “Transaction Documents”), or as otherwise required by law. For so long as any Series A Senior Preferred Stock is outstanding, the Company is prohibited from taking certain actions without the prior consent of the Majority Holders as set forth in the Certificate of Designation which include: issuing equity securities ranking senior to or pari passu with the Series A Senior Preferred Stock, incurring indebtedness or liens, engaging in affiliate transactions, making restricted payments, consummating investments or asset dispositions, consummating a change of control transaction unless the Series A Senior Preferred Stock is redeemed in full, altering the Company’s organizational documents, and making material changes to the nature of the Company’s business.
Holders of Series A Senior Preferred Stock, voting as a separate class, have the right to designate and elect one director to serve on the Company’s board of directors until such time after the Refinancing Date that (i) as of any applicable fiscal quarter end, the Company’s trailing 12-month Consolidated Adjusted EBITDA (as defined in the Certificate of Designation) exceeds $100 million, or (ii) the Lead Purchaser ceases to hold at least 50.1% of the Series A Senior Preferred Stock held by it as of the Refinancing Date.
27

2022 Warrants
In connection with the Preferred Stock Financing, the Company agreed to issue to the preferred stockholders the Series I Warrants entitling the holders thereof to purchase 5.2 million shares of the Company's common stock at an exercise price equal to $3.00 per share, exercisable for 5 years from the Refinancing Date; and the Series II Warrants entitling holders thereof to purchase 6.3 million shares of the Company's common stock, at an exercise price equal to $0.01 per share, exercisable for 5 years from the Refinancing Date (collectively, the "2022 Warrants"). Such number of shares of common stock purchasable pursuant to the 2022 Warrant Agreement (the "2022 Warrant Shares") may be adjusted from time to time as set forth in the 2022 Warrant Agreement.
The 2022 Warrants are classified as equity instruments and were initially recorded at an amount equal to the proceeds received from the Preferred Stock Financing allocated among the Series A Senior Preferred Stock, the Series I Warrants, and the Series II Warrants based upon their relative fair values. Of the gross proceeds, $5.1 million was allocated to the Series I Warrants and $15.2 million was allocated to the Series II Warrants. The Company recognized total issuance costs and original issue discount of approximately $0.2 million and $0.5 million related to the Series I Warrants and Series II Warrants, respectively.
The following table reflects the components of proceeds related to the 2022 Warrants (in thousands):
Series I WarrantsSeries II WarrantsTotal
Gross proceeds allocated to 2022 Warrants$5,101 $15,232 $20,333 
Less: original issue discount(51)(152)(