ati-20231231

Certain statements included in this Form 10-K 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 and ability to achieve and maintain clinical staffing levels and clinician productivity, 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-K, 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 and other factors that could cause actual results to differ from those implied by the forward-looking statements in this Form 10-K are more fully described under the heading “Item 1A. Risk Factors” and elsewhere in this Form 10-K. The risks described under the heading “Item 1A. Risk Factors” are not exhaustive. Other sections of this Form 10-K 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. Readers should not place undue reliance on forward-looking statements. The Company undertakes no obligations to publicly update or revise any forward-looking statements after the date they are made or to reflect the occurrence of unanticipated events, whether as a result of new information, future events or otherwise, except as required by law.

In addition to providing services to physical therapy patients at outpatient rehabilitation clinics, we provide services through our ATI Worksite Solutions ("AWS") program, Management Service Agreements ("MSA"), and Sports Medicine arrangements. AWS provides an on-site team of healthcare professionals at employer worksites to promote work-related injury prevention, facilitate expedient and appropriate return-to-work follow-up and maintain the health and well-being of the workforce. Our MSA arrangements typically include the Company providing management and physical therapy-related services to physician-owned physical therapy clinics. Sports Medicine arrangements provide certified healthcare professionals to various schools, universities and other institutions to perform on-site physical therapy and rehabilitation services.

•Our People. Our business strategy relies on attracting, training, developing and retaining a skilled workforce. In recent years, we experienced elevated levels of attrition relative to historical levels and have taken actions to improve hiring and attrition levels. During 2023, attrition levels improved and were relatively consistent with historical levels. While we observed improvement in hiring and attrition levels since implementing these actions, we continue to monitor hiring and retention risk due to a continued tight labor market for available physical therapy and other healthcare providers in the workforce. We operate on a team-based approach that works to match physical therapists, physical therapy assistants and operational support specialists with patients based on acuity to ensure patients can be seen in a timely fashion and in compliance with healthcare laws and regulations and licensure requirements. Our employees' success is measured primarily by patient outcomes and customer satisfaction. We have invested in clinical and leadership development programs offering our clinical and support staff opportunities to enhance their clinical skills and take on increasing leadership responsibilities. Combined with a competitive compensation model, we strive to be an attractive employer in the physical therapy industry.

•Federal funding for Medicare and Medicaid. Federal and state funding of Medicare and Medicaid and the terms of access to these reimbursement programs affect demand for physical therapy services. In recent years, through legislative and regulatory actions, the federal government has made substantial changes to various payment systems under the Medicare program. In July 2022, the CMS released its proposed 2023 Medicare Physician Fee Schedule ("MPFS") which called for an approximate 4.5% reduction in the calendar year 2023 conversion factor. In December 2022, the Consolidated Appropriations Act (2023) was signed into law. The Consolidated Appropriations Act (2023) provides partial relief related to Medicare cuts including 2.5% relief in 2023 and 1.25% relief in 2024. As a result, the reimbursement rate reduction beginning in January 2023 was approximately 2.0%. In November 2023, the CMS released its final 2024 MPFS. The final fee schedule called for an approximate 3.4% reduction in the calendar year 2024 conversion factor which led to further reductions in reimbursement rates beginning in 2024, unless these reductions are otherwise mitigated through a Congressional measure.

We believe the principal competitive factors in the outpatient physical therapy market include the quality of care, cost of care, treatment outcomes, breadth of location and geographic convenience, breadth of patient insurance coverage accepted by clinics, brand awareness and relations with referral sources and key industry participants. We compete in our existing markets by leveraging our unified brand, advertising to increase patient awareness, utilizing sales efforts to establish new and enhance existing relationships with referral sources, applying our team-based approach to care, leveraging our proprietary EMR and data-driven operating platform and striving for high quality of care expectations. Beginning in 2019, physical therapy providers were included in the CMS Quality Payment Program and were eligible to report quality metrics for the Merit-based Incentive Payment System ("MIPS"). Since the inception of the MIPS program for physical therapy providers, we received an 'exceptional' rating every year based on the data submitted across our platform. As a result, we received quality 'bonuses' with respect to billed CMS payments beginning in 2021 and we expect to receive quality 'bonuses' with respect to 2024 billed CMS payments. We believe the 'exceptional' rating by CMS reflects our commitment to delivering a high quality of care. Additionally, in January 2022 we achieved Credentialing Accreditation status by the National Committee for Quality Assurance. As an accredited organization, we have demonstrated that our credentialing processes are in accordance with the highest quality standards.

We operate 896 clinics located in 24 states (as well as 18 clinics under management service agreements) as of December 31, 2023. We have historically expanded our clinic fleet by opening de novo and acqui-novo clinics and by acquiring physical therapy practices. De novo clinics represent organic new clinics based on sophisticated site selection analytics. Acqui-novo clinics represent new clinics opened that were existing clinic operations not previously owned by the Company in a target geography that provides the Company with an immediate presence, available staff and referral relationships of the former owner within the surrounding areas. We have built proprietary methods to identify future sites in urban and suburban, high-traffic areas. By incorporating various datasets, including CMS and census data, we are able to compile a comprehensive assessment of potential new locations. Through our proprietary site-selection tools, we believe there continues to be significant whitespace opportunity within our existing states, with further opportunity available beyond our existing states. We opened 13 and 36 standalone clinics during the years ended December 31, 2023 and 2022, respectively. Our capital expenditure, acquisition, de novo and acqui-novo spend depends on many factors, including, but not limited to, the targeted number of new clinic openings, patient volumes, clinician labor market, revenue growth rates and level of operating cash flows. As a result of negative operating cash flows, net losses and liquidity constraints, the number of new clinic openings has decreased in recent years relative to historical years and may continue at lower than historical levels. As a result of these and other factors, we also closed or sold 40 and 23 clinics in 2023 and 2022, respectively, and we may continue to right size our clinic fleet through clinic closures and divestitures.

Our business strategy relies on attracting, training, developing, and retaining a skilled workforce. Our clinicians are a driving force for favorable patient outcomes and are key to our success. The Company has focused on attempting to increase its clinical staffing levels by hiring clinicians, optimizing clinician hours based on available workforce and attempting to reduce levels of clinician attrition that were elevated in recent years relative to historical levels. The elevated levels of attrition were initially caused, in part, by changes made during the COVID-19 pandemic related to compensation, staffing levels and support for clinicians. We have implemented a range of actions related to compensation, staffing levels, clinical and professional development and other initiatives in an effort to retain and attract therapists across our platform. During 2023, attrition levels improved and were relatively consistent with historical levels. While we have observed improvements in hiring and attrition levels since implementing these actions, we continue to monitor hiring and retention risk due to a continued tight labor market for available physical therapy and other healthcare providers in the workforce.

We are subject to extensive federal, state and local government laws and regulations, including Medicare and Medicaid reimbursement rules and regulations, anti-kickback laws, self-referral prohibition statutes, false claims statutes, exclusions statutes, civil monetary penalty statutes and associated regulations, among others. We are also subject to federal and state laws that regulate the reimbursement of our services and that are designed to prevent fraud and abuse, and impose state licensure and corporate practice of medicine restrictions, as well as federal and state laws and regulations relating to the privacy of individually identifiable information. We maintain a robust compliance program, have made significant investments around our controls across the organization, and we periodically conduct compliance audits and reviews along with compliance training designed to keep our officers, directors and employees educated and up-to-date and to emphasize our policy of strict compliance.

We are subject to laws regulating reimbursement under various federal and state healthcare programs. The marketing, billing, documenting and other practices of healthcare companies are all subject to government scrutiny. To ensure compliance with Medicare, Medicaid and other regulations, health insurance carriers and state agencies often conduct audits and request customer records and other documents to support our claims submitted for payment of services rendered to customers. Similarly, government agencies and their contractors periodically open investigations and obtain information from us and from healthcare providers pursuant to the legal process. Violations of federal and state regulations can result in severe criminal, civil and administrative penalties and sanctions, including disqualification from Medicare and other reimbursement programs, which could significantly impact our financial condition and results of operations.

Various federal and state laws prohibit the submission of false or fraudulent claims, including claims to obtain payment under Medicare, Medicaid, and other government healthcare programs. These laws include the federal False Claims Act, which prohibits persons or entities from knowingly submitting or causing to be submitted a claim that the person knew or should have known (i) to be false or fraudulent; (ii) for items or services not provided or provided as claimed; or (iii) was provided by an individual not otherwise qualified or who was excluded from participation in federal healthcare programs. The False Claims Act also imposes penalties for requests for payment that otherwise violate conditions of participation in federal healthcare programs or other healthcare compliance laws. In recent years, federal and state government agencies have increased the level of enforcement resources and activities targeted at the healthcare industry. Additionally, the False Claims Act and similar state statutes allow individuals to bring lawsuits on behalf of the government, in what are known as qui tam or “whistleblower” actions, and can result in civil and criminal fines, imprisonment, and exclusion from participation in federal and state healthcare programs. The use of these private enforcement actions against healthcare providers has increased dramatically in recent years, in part because the individual filing the initial complaint is entitled to share in a portion of any settlement or judgment. Revisions to the False Claims Act enacted in 2009 expanded significantly the scope of liability, provided for new investigative tools, and made it easier for whistleblowers to bring and maintain False Claims Act suits on behalf of the government.

We are subject to federal and state laws regulating financial relationships involving federally-reimbursable healthcare services. These laws include Section 1128B(b) of the Social Security Act (the “Anti-Kickback Law”), under which civil and criminal penalties can be imposed upon persons who, among other things, offer, solicit, pay or receive remuneration in return for (i) the referral of patients for the rendering of any item or service for which payment may be made, in whole or in part, by a federal health care program (including Medicare and Medicaid); or (ii) purchasing, leasing, ordering, or arranging for or recommending purchasing, leasing, ordering any good, facility, service, or item for which payment may be made, in whole or in part, by a federal health care program (including Medicare and Medicaid). We believe that our business procedures and business arrangements are in compliance with these laws and regulations. However, the provisions are broadly written and the full extent of their specific application to specific facts and arrangements to which we are a party is uncertain and difficult to predict. In addition, several states have enacted state laws similar to the Anti-Kickback Law, many of which are more restrictive than the federal Anti-Kickback Law.

The Office of the Inspector General (“OIG”) of the Health and Human Services Department has issued regulations describing compensation arrangements that fall within a “Safe Harbor” and, therefore, are not viewed as illegal remuneration under the Anti-Kickback Law. Failure to fall within a Safe Harbor does not mean that the Anti-Kickback Law has been violated; however, the OIG has indicated that failure to fall within a Safe Harbor may subject an arrangement to increased scrutiny under a “facts and circumstances” test. Federal case law provides limited guidance as to the application of the Anti-Kickback Law to these arrangements. However, we believe our arrangements, including our compensation and financial arrangements, comply with the Anti-Kickback Law. If our arrangements are found to violate the Anti-Kickback Law, it could have an adverse effect on our business, financial condition and results of operations. Penalties for violations include denial of payment for the services, significant criminal and civil monetary penalties, and exclusion from the Medicare and Medicaid programs. In addition, claims resulting from a violation of the Anti-Kickback Law are considered false for purposes of the False Claims Act.

Provisions of the Omnibus Budget Reconciliation Act of 1993 (42 U.S.C. § 1395nn) (the “Stark Law”) prohibit referrals by a physician of “designated health services” which are payable, in whole or in part, by Medicare or Medicaid, to an entity in which the physician or the physician’s immediate family member has an investment interest or other financial relationship, subject to several exceptions. The Stark Law is a strict liability statute and proof of intent to violate the Stark Law is not required. Physical therapy services are among the “designated health services” subject to the Stark Law. Further, the Stark Law has application to our management contracts with individual physicians and physician groups, as well as, any other financial relationship between us and referring physicians, including medical advisor arrangements and any financial transaction resulting from a clinic acquisition. The Stark Law also prohibits billing for services rendered pursuant to a prohibited referral. Several states have enacted laws similar to the Stark Law. These state laws may cover all (not just Medicare and Medicaid) patients. As with the Anti-Kickback Law, we consider the Stark Law in planning our clinics, establishing contractual and other arrangements with physicians, marketing and other activities, and believe that our operations are in compliance with the Stark Law. If we violate the Stark Law or any similar state laws, our financial results and operations could be adversely affected. Penalties for violations include denial of payment for the services, significant civil monetary penalties, and exclusion from the Medicare and Medicaid programs.

We believe that each of our facilities and medical provider partners comply with any current corporate practice and fee-splitting laws of the state in which they are located. However, such laws and regulations vary from state to state and are enforced by governmental, judicial, law enforcement or regulatory authorities with broad discretion. We cannot be certain that our interpretation of certain laws and regulations is correct with respect to how we have structured our operations, service agreements and other arrangements with physical therapists in the states in which we operate. Future interpretations of corporate practice and fee-splitting laws, the enactment of new legislation, or the adoption of new regulations relating to these laws could cause us to have to restructure our business operations or close our facilities in a particular state.

The Health Insurance Portability and Accountability Act of 1996 ("HIPAA") required the Health and Human Services Department to adopt standards to protect the privacy and security of individually identifiable health-related information. HIPAA created a source of funding for fraud control to coordinate federal, state and local healthcare law enforcement programs, conduct investigations, provide guidance to the healthcare industry concerning fraudulent healthcare practices, and establish a national data bank to receive and report final adverse actions. HIPAA also criminalized certain forms of health fraud against all public and private payors. Additionally, HIPAA mandates the adoption of standards regarding the exchange of healthcare information in an effort to ensure the privacy and electronic security of patient information and standards relating to the privacy of health information. Sanctions for failing to comply with HIPAA include criminal penalties and civil sanctions. In February of 2009, the American Recovery and Reinvestment Act of 2009 (“ARRA”) was signed into law. Title XIII of ARRA, the Health Information Technology for Electronic and Clinical Health Act (“HITECH”), provided for substantial Medicare and Medicaid incentives for providers to adopt electronic health records (“EHRs”) and grants for the development of health information exchange (“HIE”). Recognizing that HIE and EHR systems will not be implemented unless the public can be assured that the privacy and security of patient information in such systems is protected, HITECH also significantly expanded the scope of the privacy and security requirements under HIPAA. Most notable are the mandatory breach notification requirements and a heightened enforcement scheme that includes increased penalties, and which now apply to business associates as well as to covered entities. In addition to HIPAA, a number of states have adopted laws and/or regulations applicable in the use and disclosure of individually identifiable health information that can be more stringent than comparable provisions under HIPAA.

Political, economic and regulatory influences are fundamentally changing the healthcare industry in the United States Congress, state legislatures and the private sector continue to review and assess alternative healthcare delivery and payment systems. Potential alternative approaches could include mandated basic healthcare benefits, controls on healthcare spending through limitations on the growth of private health insurance premiums and Medicare and Medicaid spending, the creation of large insurance purchasing groups, and price controls. Legislative debate is expected to continue in the future and market forces are expected to demand only modest increases or reduced costs. For instance, managed care entities are demanding lower reimbursement rates from healthcare providers and, in some cases, are requiring or encouraging providers to accept capitated payments that may not allow providers to cover their full costs or realize traditional levels of profitability. We cannot reasonably predict what impact the adoption of federal or state healthcare reform measures or future private sector reform may have on our business.

On June 15, 2023, the Company completed a debt restructuring transaction under its 2022 Credit Agreement including: (i) a delayed draw new money financing in an aggregate principal amount of $25.0 million, comprised of (A) second lien paid-in-kind ("PIK") convertible notes (the “2L Notes”) and (B) shares of Series B Preferred Stock (the "Series B Preferred Stock"), which will provide the holder thereof with voting rights such that the holders thereof will have the right to vote on an as-converted basis, (ii) the exchange of $100.0 million of the aggregate principal amount of the term loans under the 2022 Credit Agreement held by certain of the holders of its Series A Senior Preferred Stock (the "Preferred Equityholders") for 2L Notes and Series B Preferred Stock and (iii) certain other changes to the terms of the 2022 Credit Agreement, including modifications of the financial covenants thereunder and relief from the requirements related to the delivery of independent audit reports without a going concern explanatory paragraph. Holders of the 2L Notes will also receive additional 2L Notes upon the in-kind payment of interest on any outstanding 2L Notes. The 2L Notes are convertible into shares of Class A common stock at a fixed conversion price.

If the Company's plan does not result in improvement in these aspects in future periods that results in sufficient cash flow from operations, the Company will need to consider other alternatives, such as raising additional financing, obtaining funds from other sources, disposal of assets, or pursuing other strategic alternatives to improve its business, results of operations and financial condition. There can be no assurance that the Company will be successful in accessing such alternative options or financing if or when needed. Failure to do so could have a material adverse impact on our business, financial condition, results of operations and cash flows, and may lead to events including bankruptcy, reorganization or insolvency.

To the extent our operating cash flows, together with our cash on hand and access to our revolving credit facility, become insufficient to cover our liquidity and capital requirements, including funds for any future acquisitions and other corporate transactions, we may be required to seek third-party financing or an alternative liquidity or capital transaction. There can be no assurance that we would be able to obtain any required financing, or complete an alternative liquidity or capital transaction, on a timely basis or at all. Further, lenders and other financial institutions could require us to agree to more restrictive covenants, grant liens on our assets as collateral and/or accept other terms that are not commercially beneficial to us in order to obtain financing. Such terms could further restrict our operations and exacerbate any impact on our results of operations and liquidity.

We have outstanding indebtedness that could have detrimental consequences on our ability to obtain additional debt or other financing as needed for working capital, acquisition costs, other capital expenditures or general corporate purposes. We cannot be certain that cash flow from operations will be sufficient to allow us to pay principal and interest on the debt, support operations and meet other obligations. If we do not have the resources to meet our obligations, we may be required to refinance all or part of our outstanding debt, sell assets or borrow more money. We may not be able to do so on acceptable terms, in a timely manner, or at all. If we are unable to refinance our debt on acceptable terms, we may be forced to dispose of our assets on disadvantageous terms, potentially resulting in losses. Defaults under our debt agreement could have a material adverse effect on our business, prospects, liquidity, financial condition or results of operations.

Our 2022 Credit Agreement contains restrictive and financial covenants, and the Certificate of Designation for our Series A Senior Preferred Stock contains provisions that impose significant operating and financial restrictions that may limit our ability to take actions that may be in our long-term best interest. Our 2022 Credit Agreement contains customary representations and warranties, events of default, reporting and other affirmative covenants and negative covenants including, but not limited to, requirements related to the delivery of independent audit reports without certain going concern qualifications, limitations on indebtedness, liens, investments, negative pledges, dividends, junior debt payments, fundamental changes and asset sales and affiliate transactions. The Second Lien Note Purchase Agreement includes affirmative and negative covenants (other than financial covenants) that are substantially consistent with the 2022 Credit Agreement, as well as customary events of default. Based on the terms of the 2023 Debt Restructuring, the Company is temporarily relieved from the requirements related to the delivery of independent audit reports without a going concern explanatory paragraph. The financial covenants also require us to maintain minimum liquidity or a secured net leverage ratio as of each fiscal quarter end, which we may be unable to meet.

A significant portion of our net patient revenue is derived from governmental third-party payors. In 2023, approximately 23.2% of our net patient revenue was derived from Medicare and Medicaid. In recent years, through legislative and regulatory actions, the federal government has made substantial changes to various payment systems under the Medicare program. Additional reforms or other changes to these payment systems may be proposed or adopted, either by the U.S. Congress (“Congress”) or by the CMS, including bundled payments, outcomes-based payment methodologies and a shift away from traditional fee-for-service reimbursement. If revised regulations are adopted, the availability, methods and rates of Medicare reimbursements for services of the type furnished at our facilities could change. Some of these changes and proposed changes could adversely affect our business strategy, operations and financial results. The Medicare program reimburses outpatient rehabilitation providers based on the MPFS. In recent years, the physical therapy industry has observed reductions of Medicare reimbursement rates. Beginning in January 2022, the physical therapy industry observed a reduction of Medicare reimbursement rates of approximately 0.75%, as well as a 15% decrease in payments for services performed by physical therapy assistants. Additionally, sequestration reductions resumed at 1% after March 31, 2022, and by an additional 1% after June 30, 2022, which resulted in an overall reduction of 2% in reimbursement rates related to sequestration after June 30, 2022. In July 2022, the CMS released its proposed 2023 MPFS which called for an approximate 4.5% reduction in the calendar year 2023 conversion factor. In December 2022, the Consolidated Appropriations Act (2023) was signed into law. The Consolidated Appropriations Act (2023) provides partial relief related to Medicare cuts including 2.5% relief in 2023 and 1.25% relief in 2024. As a result, the reimbursement rate reduction beginning in January 2023 was approximately 2.0%. In November 2023, the CMS released its final 2024 MPFS. The final fee schedule called for an approximate 3.4% reduction in the calendar year 2024 conversion factor which led to further reductions in reimbursement rates beginning in 2024, unless these reductions are otherwise mitigated through a Congressional measure.

Medicaid spending has increased rapidly in recent years, becoming a significant component of state budgets. This, combined with slower state revenue growth, has led the federal government and many states to institute measures aimed at controlling the growth of Medicaid spending, and in some instances reducing aggregate Medicaid spending. We expect these state and federal efforts to continue for the foreseeable future. Furthermore, not all of the states in which we operate have elected to expand Medicaid as part of federal healthcare reform legislation. There can be no assurance that the program, on the current terms or otherwise, will continue for any particular period of time beyond the foreseeable future. Historically, state budget pressures have translated into reductions in state spending. In addition, an economic downturn, coupled with sustained unemployment, may also impact the number of enrollees in managed care programs as well as the profitability of managed care companies, which could result in reduced reimbursement rates. If Medicaid reimbursement rates are reduced or fail to increase as quickly as our costs, or if there are changes in the rules governing the Medicaid program that are disadvantageous to our business, our business and results of operations could be materially and adversely affected.

Payments we receive from Medicare and Medicaid can be retroactively adjusted during the claims settlement process or as a result of post-payment audits. Payors may disallow our requests for reimbursement, or recoup amounts previously reimbursed, based on determinations by the payors or their third-party audit contractors that certain costs are not reimbursable because the documentation provided was inadequate or because certain services were not covered or were deemed medically unnecessary. Significant adjustments, recoupments or repayments of our Medicare or Medicaid revenue, and the costs associated with complying with audits and investigations by regulatory and governmental authorities, could adversely affect our financial condition and results of operations.

Additionally, from time to time we become aware, either based on information provided by third-parties and/or the results of internal reviews, of payments from payor sources that were either wholly or partially in excess of the amount that we should have been paid for the services provided. We are also subject to regular post-payment inquiries, investigations and audits of the claims we submit to Medicare and Medicaid for payment for our services. These post-payment reviews have increased as a result of government cost-containment initiatives. Overpayments may result from a variety of factors, including insufficient documentation to support the services rendered or the medical necessity of such services, or other failures to document the satisfaction of the necessary conditions of payment. We are required by law in most instances to refund the full amount of the overpayment after becoming aware of it, and failure to do so within requisite time limits imposed by applicable law could lead to significant fines and penalties being imposed on us. Furthermore, initial billing of and payments for services that are unsupported by the requisite documentation and satisfaction of any other conditions of payment, regardless of our awareness of the failure at the time of the billing or payment, could expose us to significant fines and penalties. We and/or certain of our operating companies could also be subject to exclusion from participation in the Medicare or Medicaid programs in some circumstances, in addition to any monetary or other fines, penalties or sanctions that we may incur under applicable federal and/or state law. Our repayment of any overpayments, as well as any related fines, penalties or other sanctions that we may be subject to, and any costs incurred in responding to requests for records or pursuing the reversal of payment denials, could be significant and could have a material and adverse effect on our results of operations and financial condition.

From time to time we are also involved in various external governmental investigations, subpoenas, audits and reviews, including in connection with our claims for reimbursement and associated payments. Reviews, audits and investigations of this sort can lead to governmental subpoenas or other actions, which can result in the assessment of damages, civil or criminal fines or penalties, or other sanctions, including restrictions or changes in the way we conduct business, loss of licensure or exclusion from participation in government programs. Failure to comply with applicable laws, regulations and rules could have a material and adverse effect on our results of operations and financial condition. Furthermore, becoming subject to these governmental subpoenas, investigations, audits and reviews can require us to incur significant legal and document production expenses as we cooperate with the governmental authorities, regardless of whether the particular investigation, audit or review leads to the identification of underlying issues.

A significant portion of our revenue is derived from third-party payors. In 2023, approximately 58.6% of our net patient revenue was derived from commercial payors. These private third-party payors attempt to control healthcare costs by contracting with healthcare providers to obtain services on a discounted basis. We believe that this trend may continue and may limit reimbursement for healthcare services in the future. In addition, Company claims are closely scrutinized, and failure to submit accurate and complete clinical documentation, including specific documentation by the service provider, could result in adverse actions taken by the payor. Further, if insurers or managed care companies from whom we receive substantial payments were to reduce the amounts they pay for services, our profit margins may decline, or we may lose patients if we choose not to renew our contracts with these insurers at lower rates. In addition, in certain geographical areas, our clinics must be approved as providers by key health maintenance organizations and preferred provider plans. Failure to obtain or maintain these approvals would adversely affect our financial results.

In 2023, approximately 11.7% of our net patient revenue was derived from workers’ compensation payors. State workers’ compensation laws and regulations vary and changes to state laws could result in decreased reimbursement by third-party payors for physical therapy services, which could have an adverse impact on our revenue. Further, payments received under certain workers’ compensation arrangements may be based on pre-determined state fee schedules, which may be impacted by changes in state funding. Any modification to such schedules that reduces our ability to receive payments from workers’ compensation payors could be significant and could have a material adverse effect on our results of operations and financial condition. We may continue to experience unfavorable changes in rates and payor and service mix shifts toward lower reimbursing payor classes as opposed to higher reimbursing classes such as workers' compensation and auto personal injury. These changes may reflect longer term trends in our markets. Adverse changes in payor mix and/or payor rates are likely to adversely affect our results of operations in future periods, which effects may be material.

The majority of our payor contracts are subject to termination by either party. Such contracts are routinely amended (sometimes through unilateral action by payors with respect to payment policies), renegotiated, subjected to bidding processes with our competitors, or terminated altogether. Oftentimes in the renegotiation process, certain lines of business may not be renewed or a payor may enlarge its provider network or otherwise change the way it conducts its business in a way that adversely impacts our revenue. In other cases, a payor may reduce its provider network in exchange for lower payment rates. Our revenue from a payor may also be adversely affected if the payor alters its utilization management expectations and/or administrative procedures for payments and audits, changes its order of preference among the providers to which it refers business or imposes a third-party administrator, network manager or other intermediary.

If a third-party payor successfully challenges a payment to us for prior services provided was in breach of contract or otherwise contrary to policy or law, they may recoup payment, of which amounts could be significant and would impact our operating results and financial condition. We may also decide to negotiate and settle with a third-party payor in order to resolve an allegation of overpayment. In the past, we have negotiated and settled these types of claims with third-party payors in order to avoid the costs of potential litigation. We may be required to resolve further disputes in the future. We can provide no assurance that we will not receive similar claims for recoupment from other third-party payors in the future. Any of these outcomes, including recoupment or reimbursements, could have a material and adverse effect on our business, operating results, and financial condition.

Despite the World Health Organization declaring an end to the global health emergency associated with the COVID-19 pandemic in May 2023, the full extent of its future impact remains unknown and difficult to predict. The future impact of the COVID-19 pandemic and any direct or indirect resulting impacts on our performance will depend on certain developments, including the duration and spread of the virus and its newly identified strains, effectiveness and adoption rates of vaccines and other therapeutic remedies, the potential for continued or reinstated restrictive policies enforced by federal, state and local governments, and the impact of the virus on our workforce, all of which create uncertainty and cannot be predicted. 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.

The outpatient physical therapy market is rapidly evolving and highly competitive, and subject to vertical integration. Such vertical integration could reduce the market opportunity for our services. Competition may intensify in the future as existing competitors and new entrants introduce new physical therapy services and platforms. We currently face competition from a range of companies, including other incumbent providers of physical therapy consultation services, that are continuing to grow and enhance their service offerings and develop more sophisticated and effective service platforms. In addition, since there are limited capital expenditures required for providing physical therapy services, there are few financial barriers to enter the industry. Other companies could enter the healthcare industry in the future and divert some or all of our business. Competition from specialized physical therapy service providers, healthcare providers, hospital systems and other parties may result in continued pricing and volume pressures, which would be likely to lead to price and volume declines in certain of our services, all of which could negatively impact our sales, profitability and market share.

Some competitors may have greater name recognition, longer operating histories and significantly greater resources than us. Further, our current or potential competitors may be acquired by third-parties with greater available resources. As a result, our competitors may be able to respond more quickly and effectively than us to new or changing opportunities, technologies, standards or client requirements and may have the ability to initiate or withstand substantial price competition. In addition, current and potential competitors have established, and may in the future establish, cooperative relationships with vendors of complementary products, technologies or services to increase the availability of their services in the marketplace. Accordingly, new competitors or alliances may emerge that have greater market share, a larger client base, more widely adopted proprietary technologies, greater marketing expertise, greater financial resources or larger sales forces than ours, which could put us at a competitive disadvantage. Our competitors could also be better positioned to serve certain geographies or segments of the physical therapy market, which could create additional price and volume pressure. As we expand into new geographical areas, we may encounter competitors with stronger relationships or recognition in the community in such new areas, which could give those competitors an advantage in obtaining new patients or retaining existing ones.

We also compete for physical therapists and, in recent years, we experienced elevated levels of attrition relative to historical levels, which has had and may continue to have adverse effects on our business, financial condition, results of operations, as well as our ability to open new clinics. We have taken and are continuing to take actions to increase hiring, reduce attrition and optimize clinician hours based on available workforce, but the impact of hiring and attrition has impacted overall profitability through wage inflation, greater benefits, and increases in other employee costs, as well as required a higher use of contract labor in difficult to staff markets. These labor market dynamics and level of competition are likely to continue. The ultimate impact on our business and industry remains difficult to predict, but may have a material adverse impact on our results of operations, cash flows and financial condition.

The healthcare market is characterized by rapid technological change, changing consumer requirements, short product lifecycles and evolving industry standards. Our success will depend on our ability to enhance our brands with next-generation technologies and to develop, acquire and market new services to access new consumer populations. Moreover, we may not be successful in developing, using, selling or maintaining new technologies effectively or adapting solutions to evolving client requirements or emerging industry standards, and, as a result, our business, financial condition and results of operations could be materially adversely affected. In addition, we have limited insight into trends that might develop and later affect our business, and which could lead to errors in our analysis of available data or in predicting and reacting to relevant business, legal and regulatory trends and healthcare reform. Further, there can be no assurance that technological advances by one or more of our current or future competitors will not result in our present or future solutions and services becoming uncompetitive or obsolete. If any of these events occur, it could harm our business.

The success of any of our clinics depends in substantial part on their locations. There can be no assurance that the current locations will continue to be attractive as demographic patterns and trade areas change. For example, neighborhood or economic conditions where our clinics are located could decline in the future, thus resulting in potentially reduced patient visits. In addition, rising real estate prices in some areas may restrict our ability to lease new desirable locations or increase the cost of operating in such locations. If desirable locations cannot be obtained at reasonable prices, our ability to execute our growth strategies could be adversely affected, and we may be impacted by declines in patient visits as a result of the deterioration of certain locations, each of which could materially and adversely affect our business and results of operations.

Our revenues depend upon a number of factors, including, among others, the size and demographic characteristics of local populations and the economic condition of the communities that our locations serve. In the case of an economic downturn in a market, the utilization of physical therapy services by the local population of such market, and our resulting revenues and profitability in that market, could be adversely affected. Our revenues could also be affected by negative trends in the general economy that affect consumer spending, such as a recession or similar economic downturn. Furthermore, significant demographic changes in, or significant outmigration from, the neighborhoods where our clinics are located could reduce the demand for our services, all of which could materially and adversely affect our business and results of operations.

Our success is partially dependent upon referrals from physicians in the communities our clinics serve and our ability to maintain good relationships with these physicians and other referral sources. Physicians referring patients to our clinics are free to refer their patients to other therapy providers or to their own physician owned therapy practices. If we are unable to successfully cultivate and maintain strong relationships with such physicians and other referral sources (including as a result of negative publicity (whether true or not)), our business may be negatively impacted and our net revenues may decline. In addition, our relationships with referral sources are subject to extensive laws and regulations, and if those relationships with referral sources are found to be in violation of those requirements, we may be subject to significant civil, criminal and/or administrative penalties, exclusion from participation in government programs, such as Medicare and Medicaid, and/or reputational harm.

We operate our business in regions that normally experience snow and ice during the winter months, and that are subject to severe weather and natural disasters, including hurricanes, floods, fires, earthquakes and other catastrophic events. A significant number of our clinics are located in states that are subject to periodic winter storms, hurricanes and other severe storm systems which have negatively impacted clinic operations in the past. Any natural disaster or impacts from climate change could adversely affect our ability to conduct business and provide services to our customers, and the insurance we maintain may not be adequate to cover losses resulting from any business interruption resulting from a natural disaster or other catastrophic event.

We have historically acquired outpatient physical therapy clinics and it is an important part of our long-term growth strategy. Failure to successfully identify and complete acquisitions would likely result in slower growth. Even if we are able to identify appropriate acquisition targets, we may not be able to execute transactions on favorable terms or integrate targets in a manner that allows us to fully realize the anticipated benefits of these acquisitions. Acquisitions may involve significant cash expenditures, potential debt incurrence and operational losses, dilutive issuances of equity securities and expenses that could have an adverse effect on our financial condition and results of operations. Acquisitions also involve numerous risks, including:

Our customers rely on our customer service support organization to resolve issues with our services. We outsource a portion of our customer service and technical support activities to third-party service providers. We depend on these third-party customer service and technical support representatives working on our behalf, and expect to continue to rely on third-parties in the future. This strategy presents risks to the business due to the fact that we may not be able to influence the quality of support as directly as we would be able to do if our own employees performed these activities. Our customers may react negatively to providing information to, and receiving support from, third-party organizations, especially if these third-party organizations are based overseas. If we encounter problems with our third-party customer service and technical support providers, our reputation may be harmed, our ability to sell our services could be adversely affected, and we could lose customers and associated revenue.

The collection of accounts receivable requires constant focus and involvement by management, as well as ongoing enhancements of information systems and billing center operating procedures. There can be no assurance that we will be able to improve upon or maintain our current levels of collectability and days sales outstanding in future periods. Further, some of our patients or payors may experience financial difficulties, or may otherwise fail to pay accounts receivable when due, resulting in increased write-offs. If we are unable to properly bill and collect our accounts receivable, our financial condition and results of operations will be adversely affected. In addition, from time to time we are involved in disputes with various parties, including our payors and their intermediaries regarding their performance of various contractual or regulatory obligations. These disputes sometimes lead to legal and other proceedings and cause us to incur costs or experience delays in collections, increases in our accounts receivable or loss of revenue. In addition, in the event such disputes are not resolved in our favor or cause us to terminate our relationships with such parties, there may be an adverse impact on our financial condition and results of operations.

In recent years, there have been heightened coordinated civil and criminal enforcement efforts by both federal and state government agencies relating to the healthcare industry, and physical therapy providers, in particular, have been subject to increased enforcement. We believe we are in substantial compliance with all laws, but differing interpretations or enforcement of these laws and regulations could subject our current practices to allegations of impropriety or illegality or could require us to make changes in our methods of operations, facilities, equipment, personnel, services and capital expenditure programs and increase our operating expenses. If we fail to comply with these extensive laws and government regulations, we could become ineligible to receive government program reimbursement, suffer civil or criminal penalties or be required to make significant changes to our operations. In addition, we could be forced to expend considerable resources responding to an investigation or other enforcement action under these laws or regulations. For a more complete description of certain of these laws and regulations, refer to "Governmental Regulations and Supervision" within Part I, Item 1. Business.

The enforcement environment in any state in which we operate could also change, leading to increased enforcement of existing laws and regulations. If a court or governing body determines that we, or the physical therapists whom we support, have violated any of the fee-splitting laws or regulations, or if new fee-splitting laws or regulations are enacted, we or the physical therapists whom we support could be subject to civil or criminal penalties, our contracts could be found legally invalid and unenforceable (in whole or in part), or we could be required to restructure our contractual arrangements with our licensed providers of physical therapy (which may not be completed on a timely basis, if at all, and may result in terms materially less favorable to us), all of which may have a material adverse effect on our business.

HIPAA required the Health and Human Services Department to adopt standards to protect the privacy and security of individually identifiable health-related information. The privacy regulations extensively regulate the use and disclosure of individually identifiable health-related information. The regulations also provide patients with significant rights related to understanding and controlling how their health information is used or disclosed. The security regulations require healthcare providers to implement administrative, physical and technical practices to protect the security of individually identifiable health information that is maintained or transmitted electronically. HITECH, which was signed into law in 2009, enhanced the privacy, security and enforcement provisions of HIPAA by, among other things establishing security breach notification requirements, allowing enforcement of HIPAA by state attorneys general and increasing penalties for HIPAA violations. Violations of HIPAA or HITECH could result in civil or criminal penalties.

In recent years, Congress and certain state legislatures have considered and passed a number of laws that are intended to result in significant changes to the healthcare industry. However, there is significant uncertainty regarding the future of the Patient Protection and Affordable Care Act (“ACA”), the most prominent of these reform efforts. The law has been subject to legislative and regulatory changes and court challenges, and the prior presidential administration and certain members of Congress have stated their intent to repeal or make additional significant changes to the ACA, its implementation or its interpretation. In 2017, the Tax Cuts and Jobs Acts was enacted, which, effective January 1, 2019, among other things, removed penalties for not complying with ACA’s individual mandate to carry health insurance. Because the penalty associated with the individual mandate was eliminated, a federal judge in Texas ruled in December 2018 that the entire ACA was unconstitutional. On December 18, 2019, the Fifth Circuit U.S. Court of Appeals upheld the lower court’s finding that the individual mandate is unconstitutional and remanded the case back to the lower court to reconsider its earlier invalidation of the full ACA. On March 2, 2020, the United States Supreme Court (the “Supreme Court”) granted the petitions for writs of certiorari to review this case and on June 17, 2021, the Supreme Court dismissed this case without specifically ruling on the constitutionality of the ACA. These and other efforts to challenge, repeal or replace the ACA may result in reduced funding for state Medicaid programs, lower numbers of insured individuals, and reduced coverage for insured individuals. There is uncertainty regarding whether, when and how the ACA will be further changed or challenged, what alternative provisions, if any, will be enacted, and the impact of alternative provisions on providers and other healthcare industry participants. Government efforts to repeal or change the ACA or to implement alternative reform measures could cause our revenues to decrease to the extent such legislation reduces Medicaid and/or Medicare reimbursement rates.

Worker health and safety (Occupational Safety and Health Administration and similar state and local agencies); family medical leave (the Family Medical Leave Act), wage and hour laws and regulations, equal employment opportunity and non-discrimination requirements, among other laws and regulations relating to employment, apply to us. Failure to comply with such laws and regulations could result in the imposition of consent orders or civil and criminal penalties, including fines, which could damage our reputation and have an adverse effect on our results of operations or financial condition. The regulatory framework for privacy issues is rapidly evolving and future enactment of more restrictive laws, rules or regulations and/or future enforcement actions or investigations could have a materially adverse impact on us through increased costs or restrictions on our business, and noncompliance could result in regulatory penalties and significant legal liability.

Such claims, legal proceedings, governmental audits and investigations may involve large claims and significant costs to defend. In such cases, coverage under our insurance programs would not be adequate to protect us. Additionally, our insurance policies are subject to annual renewal and our insurance premiums could be subject to material increases in the future. We cannot ensure that we will be able to maintain our insurance on acceptable terms in the future, or at all. A successful claim in excess of, or not covered by, our insurance policies could have a material adverse effect on our business, financial condition, results of operations, cash flow, capital resources and liquidity. Even where our insurance is adequate to cover claims against us, damage to our reputation in the event of a judgment against us, or continued increases in our insurance costs, could have an adverse effect on our business, financial condition, results of operations, cash flow, capital resources, liquidity, or prospects.

Our ability to retain and attract clinical talent is critical to our ability to provide high quality care to patients and successfully cultivate and maintain strong relationships in the communities we serve. If we cannot recruit and retain our base of experienced and clinically skilled therapists and other clinical providers, management and support personnel, our business may decrease and our revenues may decline and/or operating margins may decrease as a result of increased hiring, training and retention costs or higher use of contract labor in difficult to staff markets. We compete with other healthcare providers in recruiting and retaining qualified management, physical therapists and other clinical staff and support personnel responsible for the daily operations of our business, financial condition and results of operations and have observed a competitive labor market that is currently subject to inflationary and other pressure on wages. While we attempt to manage overall labor costs in the most efficient way, our efforts to manage them may have limited effectiveness and may lead to increased turnover, reduced profitability and other challenges.

We are dependent on our ability to retain and attract corporate talent. During 2022 and 2021, we experienced significant turnover in our senior management team and across our corporate organization. Our business may be adversely affected by the transitions in our senior management team, and turnover at the senior management level may create instability within the Company, which could disrupt and impede our day-to-day operations, internal controls and our ability to fully implement our business plan and initiatives. In addition, management transition inherently causes some loss of institutional knowledge, which can negatively affect strategy and execution, and our results of operations and financial condition could be negatively impacted as a result. We compete for corporate talent within the healthcare industry and more broadly. Competition for such personnel is intense, and we may not be able to attract, assimilate or retain other highly qualified corporate personnel in the future. The inability to attract and retain the necessary personnel could cause increased employee turnover and harm to our business, results of operations, cash flow and financial condition.

The Company adopted the ATI Physical Therapy 2021 Equity Incentive Plan (the "2021 Plan") under which it may grant equity interests of the Company, 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. We believe the granting of non-cash share-based compensation is important to our ability to attract and retain key personnel and employees. Additionally, the employment agreements for members of our senior leadership team include compensation terms in the form of share-based awards at specified amounts. The maximum number of shares reserved for issuance under the 2021 Plan is approximately 1.2 million. As of December 31, 2023, approximately 0.2 million shares were available for future grant. With the current number of shares available for future grant, the Company would need to amend, subject to stockholder approval, the 2021 Plan to increase the share reserve in order to fulfill the upcoming share-based compensation terms of its senior leadership employment agreements and provide share-based awards to other key personnel and employees. There can be no assurance that such stockholder approval would be obtained and, if we are unable to obtain such approval, we may be unable to retain our existing employees and attract additional qualified candidates, which could adversely impact our business and results of operations. If such stockholder approval were to be obtained, and if we were to grant future share-based awards to senior management, key personnel and employees, we would incur additional share-based compensation expense and the ownership of existing stockholders would be further diluted.

Furthermore, in light of our recent low market capitalization and decreases in share price, our non-cash share-based compensation incentives may not be effective in attracting, retaining and motivating our senior management team, key personnel and employees. If our share-based compensation incentives under the 2021 Plan are not effective, the Company may need to explore alternative cash or non-cash compensation to retain senior management, key personnel and employees, which may lead to incurring higher compensation costs or may otherwise prove less effective. The inability to appropriately compensate and motivate the necessary personnel could cause increased employee turnover and harm to our business, results of operations, cash flow and financial condition.

The scope of licensing laws differs from state to state, and the application of such laws to the activities of physical therapists and other clinical providers is often unclear. Given the nature and scope of the solutions and services that we provide, we are required to maintain physical therapy licenses and registrations for us and our providers in certain jurisdictions and to ensure that such licenses and registrations are in good standing. These licenses require us and our providers to comply with the rules and regulations of the governmental bodies that issued such licenses. Our providers are also required to be credentialed with payors prior to providing services to health plan patients, and completion of the credentialing process, if delayed, may delay our ability to provide services to health plan patients. Our providers’ failure to comply with such rules and regulations could result in significant administrative penalties or the suspension of a license or the loss of a license, as well as credentialing delays, all of which could negatively impact our business.

We rely on IT systems in critical areas of our operations, including our electronic medical records system and systems supporting revenue cycle management, and financial and operational reporting, among others. We have legacy IT systems that IT is continuing to upgrade and modernize. If one of these systems were to fail or cause operational or reporting interruptions, or if we decide to change these systems or hire outside parties to provide these systems, we may fail to execute on such system changes or suffer disruptions, which could have a material adverse effect on our operation, results of operations and financial condition. In addition, we may underestimate the costs, complexity and time required to develop and implement new systems.

Our ability to provide our services and support our operations requires that we work with certain third-party providers, including software vendors and network and cloud providers, and depends on such third-parties meeting our expectations in timeliness, quality, quantity and economics. Our third-party suppliers may be unable to meet such expectations due to a number of factors. We might incur significant additional liabilities if the services provided by these third-parties do not meet our expectations, if they terminate or refuse to renew their relationships with us or if they were to offer their services on less advantageous terms. We rely on internally developed software applications and systems to conduct our critical operating and administrative functions. We also depend on our software vendors to provide long-term software maintenance support for our information systems. In addition, while there are backup systems in many of our operating facilities, we may experience an extended outage of network services supplied by these vendors or providers that could impair our ability to deliver our solutions, which could have a material adverse effect on our business, financial condition and results of operations.

In the normal course of business, our IT systems hold sensitive patient information including patient demographic data, eligibility for various medical plans including Medicare and Medicaid and protected health information subject to HIPAA and HITECH. We also contract with third-party vendors to maintain and store our patients’ individually identifiable health information. Numerous state and federal laws and regulations address privacy and information security concerns resulting from our access to our patients’ and employees’ personal information. Additionally, we utilize those same systems to perform our day-to-day activities, such as receiving referrals, assigning clinicians to patients, documenting medical information and maintaining an accurate record of all transactions.

While we have not experienced any known, material attacks on our IT systems that have compromised patient data, our IT systems and those of our vendors that process, maintain and transmit such data are subject to computer viruses, cyber-attacks, including ransomware attacks, or breaches. We maintain our IT systems with safeguard protection against cyber-attacks including active intrusion protection, firewalls and virus detection software. We adhere to (and require our third-party vendors to adhere to) policies and procedures designed to ensure compliance with HIPAA and HITECH regulations. We have developed and tested a response plan in the event of a successful attack and maintain commercial insurance related to a cyber-attack. However, these safeguards do not ensure that a significant cyber-attack could not occur. A successful attack on our or our third-party vendors’ IT systems could have significant consequences to the business, including liability for compromised patient information, business interruption, significant civil and criminal penalties, lawsuits, reputational harm and increased costs to us, any of which could have a material adverse effect on our financial condition and results of operations.

In addition, insider or employee cyber and security threats are increasingly a concern for all large companies, including us. Our future results could be adversely affected due to the theft, destruction, loss, misappropriation or release of protected health information, other confidential data or proprietary business information, operational or business delays resulting from the disruption of IT systems and subsequent mitigation activities, or regulatory action taken as a result of such incidents. We provide our employees with training and regular reminders on important measures they can take to prevent breaches. We routinely identify attempts to gain unauthorized access to our systems. However, given the rapidly evolving nature and proliferation of cyber threats, there can be no assurance our training and network security measures or other controls will detect, prevent or remediate security or data breaches in a timely manner or otherwise prevent unauthorized access to, damage to, or interruption of our systems and operations. Accordingly, we may be vulnerable to losses associated with the improper functioning, security breach, or unavailability of our information systems, as well as any systems used in acquired company operations.

We currently, and from time to time in the future, may outsource portions of our internal business functions, including billing and administrative functions relating to revenue cycle management, to third-party providers. These third-party providers may not comply on a timely basis with all of our requirements, or may not provide us with an acceptable level of service. In addition, reliance on third-party providers could have significant negative consequences, including significant disruptions in our operations and significantly increased costs to undertake such operations, either of which could damage our relationships with our customers. We could experience a reduction in revenue due to inability to collect from patients, overpayments, claim denials, recoupments or governmental and third-party audits all of which may impact our profitability and cash flow.

The preparation of financial statements in conformity with U.S. generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes included elsewhere in this Form 10-K. The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities and equity, and the amount of revenue and expenses that are not readily apparent from other sources. Significant estimates and judgments used in preparing financial statements include those related to the determination of the revenue transaction price for current transactions and estimation of expected collections on our accounts receivable, assumptions and estimates related to realizability of deferred tax assets, assumptions and estimates related to the valuation of goodwill and intangible assets, among others. Our results of operations may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our results of operations to fall below the expectations of securities analysts and investors.

We account for the potential Earnout Shares and the Vesting Shares as liabilities in accordance with the guidance in ASC Topic 480, Distinguishing Liabilities from Equity, and ASC Topic 815-40, Derivatives and Hedging - Contracts on an Entity’s Own Equity, which provide for the remeasurement of the fair value of such shares at each balance sheet date and changes in fair value are recognized in our consolidated statements of operations. As a result of the recurring fair value measurement, our financial statements and results of operations may materially fluctuate quarterly, based on factors which are outside of our control. Due to the recurring fair value measurement, we expect to recognize non-cash gains or losses each reporting period and the amount of such gains or losses could be material and variable.

As of December 31, 2023, we had $289.7 million of goodwill and $245.9 million of trade name and other intangible assets recorded on our consolidated balance sheet. We test such assets for impairment at least annually on the first day of the fourth quarter of each year or on an interim basis whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Impairment may result from, among other things, increased attrition, adverse market conditions, adverse changes in applicable laws or regulations, including changes that affect the services we offer, lower visit volumes, lower revenue reimbursement rates, compressed operating margins and a variety of other factors. The amount of any quantified impairment must be expensed immediately as a charge to results of operations. Depending on future circumstances, it is possible that we may never realize the full value of our intangible assets.

In recent periods, we recognized impairments of our goodwill and other intangible assets, which represent a significant portion of our total assets. As the carrying amounts of goodwill and the Company's trade name indefinite-lived intangible asset were impaired as of December 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. Further impairments of all or part of our goodwill or other identifiable assets may have a material adverse effect on our business, financial condition or results of operations. Refer to Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 5 - Goodwill, Trade Name and Other Intangible Assets to our consolidated financial statements included in Part II, Item 8, of this Form 10-K for further discussion of our goodwill and intangible assets.

On June 15, 2023, we experienced an ownership change for purposes of Section 382 of the Internal Revenue Code of 1986, as amended. The net operating losses and interest expense carryovers in existence as of the date of the ownership change remain available to offset future taxable income during the carryforward periods based on limitations under Section 382. We may experience an additional “ownership change” as a result of future changes in our stock ownership (including the impact of issuance or conversion of new shares, or other transactions or events impacting our stock ownership), some of which changes may not be within our control. If we are unable to use NOL carryforwards before they expire or they become subject to limitation, it could have a material adverse effect on our business, financial condition and results of operations.

We are required to produce consolidated financial statements in accordance with the requirements of U.S. GAAP. Effective internal controls are necessary for us to provide reliable financial reports and prevent fraud. We are required by federal securities laws to document and test our internal control procedures in order to satisfy the requirements of the Sarbanes-Oxley Act of 2002, which requires annual management assessments of the effectiveness of our internal control over financial reporting. As a non-accelerated filer as defined by Rule 12b-2 of the Exchange Act, our independent registered public accounting firm will not be required to issue an annual report that addresses the effectiveness of the Company's internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002 until we are no longer a non-accelerated filer.

We may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with applicable law, or our independent registered public accounting firm may not be able to issue an unqualified attestation report if we conclude that our internal control over financial reporting is not effective. We have found material weaknesses in our internal control over financial reporting in the past and cannot assure that in the future we will not find additional material weaknesses. If we fail to maintain effective internal control over financial reporting, or our independent registered public accounting firm is unable to provide us with an unqualified attestation report on our internal control, we could be required to take costly and time-consuming corrective measures, be required to restate the affected historical financial statements, be subjected to investigations and/or sanctions by federal and state securities regulators, and be subjected to civil lawsuits by security holders. Any of the foregoing could also cause investors to lose confidence in our reported financial information and in us and would likely result in a decline in the market price of our stock and in our ability to raise additional financing if needed in the future.

We intend to retain future earnings, if any, for future operations, expansion and debt repayment and there are no current plans to pay any cash dividends for the foreseeable future. The declaration, amount and payment of any future dividends on shares of our common stock will be at the sole discretion of our Board. We have no direct operations and no significant assets other than our ownership of our subsidiaries from whom we will depend on for distributions, and whose ability to pay dividends may be limited by covenants of our current and any future indebtedness we or our subsidiaries incur. As a result, you are unlikely to receive any return on an investment in our common stock unless you sell our common stock for a price greater than that which you paid for it.

The trading market for our common stock will rely in part on the research and reports that industry or financial analysts publish about us or our business. We will not control these analysts. In addition, some financial analysts may have limited expertise with our model and operations. Furthermore, if one or more of the analysts who do cover us downgrade our stock or industry, or the stock of any of our competitors, or publish inaccurate or unfavorable research about our business, the price of our stock could decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, we could lose visibility in the market, which in turn could cause our stock price or trading volume to decline.

The common stock reserved for future issuance under our equity incentive plans will become eligible for sale in the public market once those shares are issued, subject to provisions relating to various vesting agreements, lock-up agreements and, in some cases, limitations on volume and manner of sale applicable to affiliates under Rule 144. As of December 31, 2023, the aggregate number of shares of common stock reserved for future issuance under our equity incentive plans is 0.2 million. The compensation committee of our Board may determine the exact number of shares to be reserved for future issuance under our equity incentive plans, subject to shareholder approval. We have filed a registration statement on Form S-8 under the Securities Act to register shares of common stock issuable pursuant to our equity incentive plans and, accordingly, such shares are available for sale in the open market.

Pursuant to the terms of the Second Lien Note Purchase Agreement, holders of the 2L Notes may convert their 2L Notes into common stock at their option. Additionally, on or after June 15, 2025 and subject to certain conditions, the Company may, at its option, elect to convert (a “Forced Conversion”) a portion of the outstanding 2L Notes into the number of shares of common stock based on the Conversion Price then in effect. Any issuance by us of our common stock upon conversion of our 2L Notes will dilute the ownership interest of our existing stockholders and could have a dilutive effect on our earnings per share. Furthermore, any sales in the public market of our common stock issuable upon conversion of the 2L Notes could adversely affect prevailing market prices of our common stock.

In order to maintain our listing on the NYSE, we are required to comply with certain rules and listing standards of the NYSE, including those regarding minimum stockholders' equity, minimum share price, minimum market value of publicly held shares and various additional requirements. The NYSE previously notified the Company that, due to the average closing price of the Company's common stock, it was below the trading price criteria of the NYSE. The notice had no immediate impact on the listing of the Company's common stock on the NYSE, subject to the Company's compliance with the NYSE's other continued listing requirements. The Company submitted a plan of compliance to the NYSE addressing how we intended to regain compliance.

In connection with regaining compliance, on June 14, 2023, the Company effected the Reverse Stock Split. The Reverse Stock Split was approved by the Company’s stockholders at the Company’s 2023 Annual Meeting of Stockholders held on June 13, 2023, and the final reverse split ratio was subsequently approved by the Company’s board of directors on June 14, 2023. The Company's common stock commenced trading on a reverse split-adjusted basis on June 15, 2023. On August 1, 2023, we were notified by the NYSE that the calculation of the Company's average stock price for the 30 trading days ended July 31, 2023, indicated that the Company's average stock price was above the NYSE's minimum requirement of $1. The Company is no longer considered below the minimum share price continued listing criterion. The Reverse Stock Split may adversely affect the liquidity of the shares of our common stock given the reduced number of shares outstanding following the reverse split, especially if the reverse split-adjusted market price of our common stock does not generate greater investor interest. Furthermore, there can be no assurance that such reverse split will continue to be sufficient to satisfy the minimum share price requirement.

On June 28, 2023, the NYSE notified the Company that, due to the Company's average market capitalization, it was below the minimum market capitalization criteria of the exchange. The notice had no immediate impact on the listing of the Company's common stock on the NYSE, subject to the Company's compliance with the NYSE's other continued listing requirements. In accordance with applicable NYSE procedures, the Company submitted a plan of compliance (the "Plan") advising the NYSE of the definitive action(s) the Company has taken, or is taking, that would bring it into compliance with the continued listing standards within the 18 months of receipt of the notice. The NYSE reviewed and accepted the Plan as a reasonable demonstration of an ability to conform to the relevant standards in the 18-month period. The Company’s common stock will continue to be listed and traded on the NYSE during the 18-month period, subject to the Company’s compliance with the other continued listing standards of the NYSE and continued periodic review by the NYSE of the Company’s progress with respect to its Plan. There can be no assurance that the Company will be able to meet its goals set forth in the Plan.

These anti-takeover provisions could make it more difficult for a third-party to acquire us, even if the third-party’s offer may be considered beneficial by many of our stockholders. As a result, our stockholders may be limited in their ability to obtain a premium for their shares. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing and to cause us to take other corporate actions you desire. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law (“DGCL”), which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any “interested” stockholder for a period of three years following the date on which the stockholder became an “interested” stockholder.

Our Amended and Restated Bylaws provide that, subject to limited exceptions, any (i) derivative action or proceeding brought on our behalf, (ii) action asserting a claim of breach of a fiduciary duty owed by any director, officer, stockholder or employee to us or our stockholders, (iii) action asserting a claim arising pursuant to any provision of the DGCL, our Third Amended and Restated Certificate of Incorporation, as amended, or our Amended and Restated Bylaws or (iv) action asserting a claim governed by the internal affairs doctrine shall, to the fullest extent permitted by law, be exclusively brought in the Court of Chancery of the State of Delaware ("Delaware Court of Chancery" or the "Court of Chancery") or, if such court does not have subject matter jurisdiction thereof, another state or federal court located within the State of Delaware. Our Amended and Restated Bylaws also provide that, to the fullest extent permitted by law, the federal district courts of the United States will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and to have consented to the provisions of the Amended and Restated Bylaws described above. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and employees. This exclusive forum provision does not apply to claims under the Exchange Act but does apply to other state and federal law claims including actions arising under the Securities Act. Section 22 of the Securities Act, however, creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. Accordingly, there is uncertainty as to whether a court would enforce such a forum selection provision as written in connection with claims arising under the Securities Act, and investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. If a court were to find these provisions of our Amended and Restated Bylaws inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business and financial condition.

As long as the Preferred Equityholders own or control a significant percentage of our outstanding voting power, they will have the ability to significantly influence all corporate actions requiring stockholder approval, including the election and removal of directors and the size of our Board, any amendment to our certificate of incorporation or bylaws, or the approval of any merger or other significant corporate transaction, including a sale of substantially all of our assets, subject to any applicable restrictions set forth in the Company's 2022 Credit Agreement. The Preferred Equityholders influence over our management could have the effect of delaying or preventing a change in control or otherwise discouraging a potential acquirer from attempting to obtain control of us, which could cause the market price of our common stock to decline or prevent stockholders from realizing a premium over the market price for our common stock.

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). Based on the voting rights associated with the Series B Preferred Stock attached to the 2L Notes issued as part of the 2023 Debt Restructuring, the Company determined that redemption of the Series A Senior Preferred Stock is no longer solely within the control of the Company. If the Series A Senior Preferred Stock were to be redeemed prior to certain dates, the Company would have to pay certain redemption price premiums related to early redemption, which could be greater than the stated value, may not be economically favorable to the Company and may lead to material adverse consequences for the Company or its other stakeholders.

The Company’s cybersecurity function resides within the information technology department which is led by our Chief Information Officer ("CIO") and who reports to our CEO. The Company’s cybersecurity function is led by our Chief Information Security Officer ("CISO") who reports to the CIO and who also works closely with the Company’s executive leadership team and senior management team. Our CISO has over 20 years of combined experience with cybersecurity and information technology, has been with the Company for more than five years, and has previous experience working with large public and private companies. Our cybersecurity team includes broad experience and expertise in the area of cybersecurity and information technology.

Our CIO and CISO provide information technology and cybersecurity updates to the Company’s Audit Committee which has oversight for enterprise risks including cybersecurity. Our legal and compliance department also provides updates on enterprise risks to the Audit Committee. These information technology, cybersecurity, and enterprise risk updates typically occur four times per year in conjunction with the quarterly board and committee meeting process. Our CISO also provides periodic cybersecurity updates and cybersecurity tabletop practice exercises with the Board of Directors and executive leadership team. A cybersecurity executive debrief is also shared on a quarterly basis with the Company’s executive leadership team, senior management team, senior clinic leaders, the information technology department, and other key leaders.

In addition to providing services to physical therapy patients at outpatient rehabilitation clinics, we provide services through our ATI Worksite Solutions (“AWS”) program, Management Service Agreements (“MSA”) and Sports Medicine arrangements. AWS provides an on-site team of healthcare professionals at employer worksites to promote work-related injury prevention, facilitate expedient and appropriate return-to-work follow-up and maintain the health and well-being of the workforce. Our MSA arrangements typically include the Company providing management and physical therapy-related services to physician-owned physical therapy clinics. Sports Medicine arrangements provide certified healthcare professionals to various schools, universities and other institutions to perform on-site physical therapy and rehabilitation services.

As a result of the Reverse Stock Split, every fifty (50) shares of common stock either issued and outstanding or held as treasury stock were combined into one new share of common stock. Any fractional shares of common stock resulting from the Reverse Stock Split were rounded up to the nearest whole share. All outstanding securities entitling their holders to purchase or acquire shares of common stock, including stock options, warrants, Earnout Shares, Vesting Shares and shares of common stock subject to vesting were adjusted as a result of the Reverse Stock Split, as required by the terms of those securities. The Reverse Stock Split did not change the par value of the common stock or the number of shares authorized for issuance.

The coronavirus ("COVID-19") pandemic in the United States resulted in changes to our operating environment. Although the direct impact on our business has decreased since the peak impact in 2020, we continue to closely monitor the remaining impacts from the pandemic, including its direct or indirect effects on macroeconomic factors, the labor markets in which we operate, and the physical therapy and broader healthcare landscape. Throughout the duration of the pandemic and declared public health emergency, and continuing hereafter, our priorities have been 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.

As a result of the COVID-19 pandemic, visits per day ("VPD") decreased to a low point of 12,643 during the quarter ended June 30, 2020. The Company has experienced relative increases in quarterly VPD following the low point, as local restrictions in certain markets, referral levels and individual routines evolved compared to prior periods. During the beginning of 2022, we observed volume softness caused, in part, by an increase in COVID-19 cases due to the outbreak of additional variants. Through the remainder of the first half of 2022, we experienced increases in visit volumes relative to the beginning of 2022. While we observed volume softness during the third quarter of 2022 due, in part, to seasonality, we experienced increases in quarterly VPD through the fourth quarter of 2022 which has continued through 2023.

As demand for physical therapy services has increased in the market since its low point during the quarter ended June 30, 2020, the Company has focused on attempting to increase its clinical staffing levels by hiring clinicians, optimizing clinician hours based on available workforce and attempting to reduce levels of clinician attrition that were elevated in recent years relative to historical levels. The elevated levels of attrition were initially caused, in part, by changes made during the COVID-19 pandemic related to compensation, staffing levels and support for clinicians. We have implemented a range of actions related to compensation, staffing levels, clinical and professional development and other initiatives in an effort to retain and attract therapists across our platform, which has increased our expectations for labor costs. During 2023, attrition levels improved and were relatively consistent with historical levels. While the Company has observed improvement in hiring and attrition levels since implementing these actions, the Company continues to monitor hiring and retention risk due to a continued tight labor market for available physical therapy and other healthcare providers in the workforce which may impede our progress toward increasing visit volumes. In an effort to drive more volume and visits per day, in addition to focusing on clinical staffing levels and clinician productivity, we are working to establish relationships with new referral sources and strengthen relationships with our partner providers and existing referral sources across our geographic footprint.

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 receipt of Medicare Accelerated and Advance Payment Program ("MAAPP") funds and deferral of depositing the employer portion of Social Security taxes, interest-free and penalty-free. During the year ended December 31, 2022, the Company applied $12.3 million in MAAPP funds against the outstanding liability at that time. During the year ended December 31, 2022, the remaining obligations related to these benefits were applied and repaid.

To better understand geographical and location-based trends, the Company evaluates metrics based on the 896 clinics (excluding clinics under management service agreements) and 18 managed clinic locations as of December 31, 2023. De novo clinics represent organic new clinics opened during the current period based on sophisticated site selection analytics. Acqui-novo clinics represent new clinics opened during the current period, that were existing clinic operations not previously owned by the Company, in a target geography that provides the Company with an immediate presence, available staff and referral relationships of the former owner within the surrounding areas. Acquired clinics represent new clinics from purchases of physical therapy practices. Same clinic revenue growth rate identifies revenue growth year over year on clinics that have been owned and operating for over one year. This metric is determined by isolating the population of clinics that have been open for at least 12 months and calculating the percentage change in revenue of this population between the current and prior comparable periods.


	Year Ended December 31,
	2023				2022				Increase/(Decrease)
($ in thousands, except percentages)	$		% of Revenue		$		% of Revenue		$		%
Net patient revenue	$	636,095	91.0	%	$	575,940	90.6	%	$	60,155	10.4	%
Other revenue	62,921		9.0	%	59,731		9.4	%	3,190		5.3	%
Net revenue	699,016		100.0	%	635,671		100.0	%	63,345		10.0	%
Cost of services:
Salaries and related costs	382,370		54.7	%	357,982		56.3	%	24,388		6.8	%
Rent, clinic supplies, contract labor and other	208,593		29.8	%	202,568		31.9	%	6,025		3.0	%
Provision for doubtful accounts	11,251		1.6	%	13,869		2.2	%	(2,618)		(18.9)	%
Total cost of services	602,214		86.2	%	574,419		90.4	%	27,795		4.8	%
Selling, general and administrative expenses	118,728		17.0	%	114,724		18.0	%	4,004		3.5	%
Goodwill, intangible and other asset impairment charges	5,591		0.8	%	486,262		76.5	%	(480,671)		n/m
Operating loss	(27,517)		(3.9)	%	(539,734)		(84.9)	%	512,217		n/m
Change in fair value of 2L Notes	(24,471)		(3.5)	%	—		—	%	(24,471)		n/m
Change in fair value of warrant liability	(95)		—	%	(4,243)		(0.7)	%	4,148		(97.8)	%
Change in fair value of contingent common shares liability	(2,257)		(0.3)	%	(42,525)		(6.7)	%	40,268		(94.7)	%

Interest expense, net	61,039		8.7	%	45,278		7.1	%	15,761		34.8	%

Other expense, net	1,777		0.3	%	3,333		0.5	%	(1,556)		(46.7)	%
Loss before taxes	(63,510)		(9.1)	%	(541,577)		(85.2)	%	478,067		(88.3)	%
Income tax expense (benefit)	2,568		0.4	%	(48,530)		(7.6)	%	51,098		(105.3)	%
Net loss	$	(66,078)	(9.5)	%	$	(493,047)	(77.6)	%	$	426,969	(86.6)	%

The increase in net patient revenue was primarily driven by increased visit volumes as a result of higher clinician productivity and higher clinician staffing as well as favorable net patient revenue per visit in the current period, partially offset by one less business day in the current period. In addition, visit volumes during the year ended December 31, 2022 were negatively impacted by an increase in COVID-19 cases due to the outbreak of additional variants in the beginning of 2022. Total patient visits increased by approximately 0.4 million visits, or 7.0%, driving an increase in average visits per day of 1,626, or 7.5%. Net patient revenue per visit increased $3.29, or 3.2%, to $106.82 for the year ended December 31, 2023 compared to $103.53 for the year ended December 31, 2022. The increase in net patient revenue per visit during the year ended December 31, 2023 compared to the year ended December 31, 2022 was primarily driven by improved collections experience, lower denials experience, favorable service mix shift and favorable payor contracting, partially offset by unfavorable mix shifts related to states and payor classes and Medicare rate cuts that became effective on January 1, 2023.

Salaries and related costs. Salaries and related costs for the year ended December 31, 2023 were $382.4 million compared to $358.0 million for the year ended December 31, 2022, an increase of approximately $24.4 million or 6.8%. Salaries and related costs as a percentage of net revenue was 54.7% and 56.3% for the year ended December 31, 2023 and 2022, respectively. The increase of $24.4 million was primarily driven by higher compensation due to higher number of clinicians and support staff, wage inflation and higher incentive compensation for clinic labor and support staff. The decrease as a percentage of net revenue was primarily driven by lower cost per visit due to higher clinician productivity and higher net patient revenue per visit, partially offset by higher compensation during the year ended December 31, 2023.

Rent, clinic supplies, contract labor and other. Rent, clinic supplies, contract labor and other costs for the year ended December 31, 2023 were $208.6 million compared to $202.6 million for the year ended December 31, 2022, an increase of approximately $6.0 million or 3.0%. Rent, clinic supplies, contract labor and other costs as a percentage of net revenue was 29.8% and 31.9% for the year ended December 31, 2023 and 2022, respectively. The increase of $6.0 million was primarily driven by higher contract labor costs and higher employee relations costs related to ATI's National Leadership Event held during the year ended December 31, 2023, partially offset by a lower clinic count, and the decrease as a percentage of net revenue was primarily driven by higher net revenue and a lower clinic count, partially offset by higher contract labor costs and employee relations costs during the year ended December 31, 2023.

Selling, general and administrative expenses. Selling, general and administrative expenses for the year ended December 31, 2023 were $118.7 million compared to $114.7 million for the year ended December 31, 2022, an increase of $4.0 million or 3.5%. Selling, general and administrative expenses as a percentage of net revenue was 17.0% and 18.0% for the year ended December 31, 2023 and 2022, respectively. The increase of $4.0 million was primarily due to higher transaction costs, non-ordinary legal and regulatory costs and employee incentive awards, partially offset by legal cost insurance reimbursements and lower legal settlement, severance costs, corporate insurance costs and professional fees during the year ended December 31, 2023. The decrease as a percentage of net revenue was primarily driven by increased costs related to the items noted above, which were offset by the more significant impact of higher net revenue during the year ended December 31, 2023.

Other expense, net. Other expense, net for the year ended December 31, 2023 was $1.8 million compared to $3.3 million for the year ended December 31, 2022, a decrease of approximately $1.6 million. The decrease was primarily driven by $2.8 million in loss on debt extinguishment related to the derecognition of the unamortized deferred financing costs and original issuance discount associated with the full repayment of the 2016 First Lien Term Loan during the year ended December 31, 2022, partially offset by $0.5 million in loss on the change in fair value of the Company's non-designated derivative instrument and $0.4 million in loss on debt extinguishment related to the 2023 Debt Restructuring during the year ended December 31, 2023.

The following table reconciles the supplemental non-GAAP financial measures, as defined under the rules of the U.S. Securities and Exchange Commission ("SEC"), presented herein to the most directly comparable financial measures calculated and presented in accordance with U.S. generally accepted accounting principles ("GAAP"). The Company has provided the non-GAAP financial measures, which are not calculated or presented in accordance with GAAP, as supplemental information and in addition to the financial measures that are calculated and presented in accordance with GAAP. EBITDA and Adjusted EBITDA are defined as net income (loss) from continuing operations calculated in accordance with GAAP, less net income attributable to non-controlling interests, plus the sum of income tax expense, interest expense, net, depreciation and amortization (“EBITDA”) and further adjusted to exclude certain items of a significant or unusual nature, including but not limited to, goodwill, intangible and other asset impairment charges, change in fair value of 2L Notes, changes in fair value of warrant liability and contingent common shares liability, transaction and integration costs, non-ordinary legal and regulatory matters, share-based compensation, legal cost insurance reimbursements, non-recurring labor related credits, change in fair value of non-designated derivative instrument, loss on debt extinguishment, pre-opening de novo costs, reorganization and severance costs, loss on legal settlement, and gain on sale of Home Health service line (“Adjusted EBITDA”).


	Year Ended
($ in thousands)		December 31, 2023		December 31, 2022
Net loss		$	(66,078)	$	(493,047)
Plus (minus):
Net (income) loss attributable to non-controlling interests		(3,717)		668
Interest expense, net		61,039		45,278

Income tax expense (benefit)		2,568		(48,530)
Depreciation and amortization expense		36,844		39,841
EBITDA		$	30,656	$	(455,790)
Goodwill, intangible and other asset impairment charges(1)		5,591		486,262
Goodwill, intangible and other asset impairment charges attributable to non-controlling interests(1)		—		(2,415)
Change in fair value of 2L Notes(2)		(24,471)		—
Changes in fair value of warrant liability and contingent common shares liability(3)		(2,352)		(46,768)
Transaction costs(4)		14,468		3,289
Non-ordinary legal and regulatory matters(5)		10,729		6,408
Share-based compensation		8,793		7,432
Legal cost insurance reimbursements(6)		(7,871)		—
Non-recurring labor related credits(7)		(702)		(105)
Change in fair value of non-designated derivative instrument(8)		475		—
Loss on debt extinguishment(9)		444		2,809
Pre-opening de novo costs(10)		342		992
Reorganization and severance costs(11)		130		1,797
Loss on legal settlement(12)		—		3,000
Gain on sale of Home Health service line, net		—		(199)


Adjusted EBITDA		$	36,232	$	6,712

The Company also has the right to cause to be issued an additional $25.0 million of aggregate principal in the form of second lien paid-in-kind ("PIK") convertible notes (the “2L Notes”) under its delayed draw right ("Delayed Draw Right”), which is governed by the Second Lien Note Purchase Agreement. If drawn, the notes under the Delayed Draw Right will be subject to the same terms as the convertible 2L Notes with associated shares of Series B Preferred Stock (the "Series B Preferred Stock") allowing for voting rights on an as-converted basis prior to conversion. The right to draw will terminate approximately 18 months after the Closing Date. The Company may request two draws in an amount of $12.5 million each, separately or together, subject to, for each draw, (a) projected liquidity at any time during the 6-month period following the date of the relevant draw being below certain thresholds, and (b) the consent of the board of directors. On January 30, 2024, the Company issued $25.0 million of aggregate principal in the form of 2L Notes under its Delayed Draw Right, which are subject to the same terms as the convertible 2L Notes and associated shares of Series B Preferred Stock allowing for voting rights on an as-converted basis prior to conversion.

The Company also has the right to cause to be issued to Knighthead Capital Management, LLC (“Knighthead”), Marathon Asset Management LP (“Marathon”) and Caspian Capital L.P. ("Caspian") (collectively the "Delayed Draw Purchasers") an additional $25.0 million of aggregate principal in the form of 2L Notes under its Delayed Draw Right, which is governed by the Second Lien Note Purchase Agreement. If drawn, the notes under the Delayed Draw Right will be subject to the same terms as the convertible 2L Notes with associated shares of Series B Preferred Stock allowing for voting rights on an as-converted basis prior to conversion. The right to draw will terminate approximately 18 months after the Closing Date. The Company may request two draws in an amount of $12.5 million each, separately or together, subject to, for each draw, (a) projected liquidity at any time during the 6-month period following the date of the relevant draw being below certain thresholds, and (b) the consent of the board of directors. On January 30, 2024, the Company issued $25.0 million of aggregate principal in the form of 2L Notes under its Delayed Draw Right, which are subject to the same terms as the convertible 2L Notes and associated shares of Series B Preferred Stock allowing for voting rights on an as-converted basis prior to conversion.

The Company has negative operating cash flows, operating losses and net losses. For the year ended December 31, 2023, the Company had cash flows used in operating activities of $12.4 million, operating loss of $27.5 million and net loss of $66.1 million. These results are, in part, due to our current capital structure and trends experienced by the Company in recent years including a tight labor market for available physical therapy and other healthcare providers in the workforce, visit volume softness, decreases in rate per visit and increases in interest costs. If results of operations in the coming twelve months do not improve relative to the previous twelve months, the Company is at risk of insufficient funding to meet its obligations as they become due as well as non-compliance with its minimum liquidity financial covenant under its 2022 Credit Agreement.

On June 15, 2023, the Company completed a debt restructuring transaction under its 2022 Credit Agreement including: (i) a delayed draw new money financing in an aggregate principal amount of $25.0 million, comprised of (A) 2L Notes and (B) shares of Series B Preferred Stock (as defined in Note 8), which will provide the holder thereof with voting rights such that the holders thereof will have the right to vote on an as-converted basis, (ii) the exchange of $100.0 million of the aggregate principal amount of the term loans under the 2022 Credit Agreement held by certain of the holders of its Series A Senior Preferred Stock (the "Preferred Equityholders") for 2L Notes and Series B Preferred Stock and (iii) certain other changes to the terms of the 2022 Credit Agreement, including modifications of the financial covenants thereunder and relief from the requirements related to the delivery of independent audit reports without a going concern explanatory paragraph. Holders of the 2L Notes will also receive additional 2L Notes upon the in-kind payment of interest on any outstanding 2L Notes. The 2L Notes are convertible into shares of Class A common stock at a fixed conversion price.

The Company accounted for the exchange as a debt extinguishment and recognized $0.4 million in loss on debt extinguishment during the year ended December 31, 2023. The loss on debt extinguishment consisted of various offsetting components, including the derecognition of $4.3 million of unamortized deferred financing costs and original issue discount on the Senior Secured Term Loan and the recognition of $0.7 million of fair value premium at issuance on the 2L Notes, offset by the recognition of $2.8 million in delayed draw right assets related to the commitment provided by certain lenders and the recognition of $1.8 million of incremental original issue discount on the Senior Secured Term Loan. The loss on debt extinguishment associated with the 2023 Debt Restructuring has been reflected in other expense, net in the consolidated statements of operations.

Pursuant to Amendment No. 2 to the Credit Agreement, the terms of the remaining unexchanged $407.8 million principal amount of the Senior Secured Term Loan as of the Signing Date were revised to: (i) increase the interest rate in the form of paid-in-kind interest by 1.0% per annum until the achievement of certain financial metrics, (ii) reset the prepayment premiums with respect to any repayment of the Senior Secured Term Loan, and (iii) amend certain covenants. At the completion of the 2023 Debt Restructuring, $391.0 million principal of amended Senior Secured Term Loan was outstanding with HPS Investment Partners, LLC (“HPS”), $16.3 million principal was outstanding with Onex Credit Partners, LLC (“Onex”), $0.3 million principal was outstanding with Knighthead, and the remaining $0.2 million principal was outstanding with Marathon. Additionally, the terms of the Company's Revolving Loans were revised to increase the cash interest rate by 1.0% until the achievement of certain financial metrics.

Amendment No. 2 to the Credit Agreement also provides, among other terms, (i) a reduction of the thresholds applicable to the minimum liquidity financial covenant under the 2022 Credit Agreement for certain periods, (ii) a waiver of the requirement to comply with the Secured Net Leverage Ratio financial covenant under the 2022 Credit Agreement for the fiscal quarters ending June 30, 2024, September 30, 2024 and December 31, 2024 and a modification of the levels and certain component definitions applicable thereto in the fiscal quarters ending after December 31, 2024, (iii) an extension of the minimum liquidity financial covenant for the fiscal quarters in which the Secured Net Leverage Ratio financial covenant was waived, (iv) a waiver of the requirement for the Company to deliver audited financial statements without a going concern explanatory paragraph for the years ended December 31, 2022, December 31, 2023, and December 31, 2024, and (v) board representation and observer rights and other changes to the governance of the Company.

Knighthead, Marathon, and Onex collectively exchanged a principal amount of $100.0 million of Senior Secured Term Loan for $100.0 million of 2L Notes stapled with a number of shares of Series B Preferred Stock. Of the $100.0 million of 2L Notes issued, approximately $50.8 million were issued to Knighthead, $40.4 million were issued to Marathon, and $8.8 million were issued to Onex. The 2L Notes are subordinated in right of payment and lien priority to the 2022 Credit Facility and mature on August 24, 2028, unless earlier converted, accrue interest at an annual rate of 8.0% payable in-kind on a quarterly basis in the form of additional 2L Notes, and are convertible into shares of common stock, at the holder’s option, at a fixed conversion price of $12.50, subject to certain adjustments in the agreement (the "Conversion Price"). Upon conversion of the 2L Notes, the Company shall deliver to the holder a number of shares of common stock equal to (i) the principal amount of such 2L Notes plus any accrued and unpaid interest divided by (ii) the Conversion Price.

The 2L Notes are effectively stapled with one share of the Company’s Series B Preferred Stock for every $1,000 principal amount of the 2L Notes. The Series B Preferred Stock represents voting rights only, with the number of votes being equal to the number of shares of common stock that each share of Series B Preferred Stock would convert into at a conversion price of $12.87 per share (the "Voting Rights Conversion Price"). Additional voting rights accrue to the lenders through the deemed issuance of the annual 8.0% paid-in-kind 2L Notes with stapled shares of Series B Preferred Stock. The Series B Preferred Stock does not have any dividend or redemption rights. Upon conversion of 2L Notes to common stock, the stapled shares of Series B Preferred Stock would be canceled in an amount commensurate with the portion of 2L Notes converted. Based on the voting rights associated with the Series B Preferred Stock attached to the 2L Notes as well as other terms to the 2023 Debt Restructuring, the Company determined that Knighthead, Marathon, and Onex became related parties on the Closing Date.

The 2L Notes are accounted for as a liability in the Company's consolidated balance sheets. The Company has made an irrevocable election to account for the 2L Notes under the fair value option in accordance with ASC Topic 825, Financial Instruments, in lieu of bifurcating certain features in the Second Lien Note Purchase Agreement. As such, the 2L Notes are initially recorded as a liability at estimated fair value and are subject to re-measurement at each balance sheet date with changes in fair value recognized in the Company's statements of operations. The interest cost associated with the 2L Notes is accounted for as part of the change in fair value of the 2L Notes. As a result of applying the fair value option, direct costs and fees related to the issuance of the 2L Notes were expensed as incurred. As of December 31, 2023, the principal amount and estimated fair value of the 2L Notes were approximately $107.8 million and $79.5 million, respectively. Refer to Note 14 - Fair Value Measurements for further details on the fair value of the 2L Notes. Additionally, as of December 31, 2023, the effective interest rate on the 2L Notes was 8.0%.

The Company also has the right to cause to be issued to Knighthead, Marathon and Caspian an additional $25.0 million of aggregate principal in the form of 2L Notes under its Delayed Draw Right, which is governed by the Second Lien Note Purchase Agreement. If drawn, the notes under the Delayed Draw Right will be subject to the same terms as the convertible 2L Notes with associated shares of Series B Preferred Stock allowing for voting rights on an as-converted basis prior to conversion. The right to draw will terminate approximately 18 months after the Closing Date. The Company may request two draws in an amount of $12.5 million each, separately or together, subject to, for each draw, (a) projected liquidity at any time during the 6-month period following the date of the relevant draw being below certain thresholds, and (b) the consent of the board of directors.

Upon issuance, the Company accounted for the Delayed Draw Right as an asset at fair value, which represents the Company's option to draw funds subject to certain conditions. For Knighthead's and Marathon's portion of the Delayed Draw Right, the asset was recognized as part of the calculation of loss on debt extinguishment. For Caspian, the Delayed Draw Right was recognized as a capital contribution as there was no previous lender relationship with the Company with respect to the Senior Secured Term Loan. At the Closing Date, the Company recognized approximately $3.5 million in Delayed Draw Right assets, which is included in other current assets on the Company's consolidated balance sheets. Subsequently, the asset will be monitored for impairment. As of December 31, 2023, no impairment indicators were identified.

On February 24, 2022 (the "Refinancing Date"), the Company entered into various financing arrangements to refinance its previous long-term debt. 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. The Company paid $555.0 million to settle its previous 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 during the year ended December 31, 2022 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 consolidated statements of operations.

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 Secured Overnight Financing Rate ("SOFR"), 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 was able to elect to pay 2.0% interest in-kind at a 0.5% premium during the first year under the agreement. The Company elected to pay a portion of its interest in-kind beginning in the third quarter of 2022 through the completion of the first year under the agreement. As of December 31, 2023, borrowings on the Senior Secured Term Loan bear interest at 12.7%, consisting of 12-month SOFR, subject to a 1.0% floor, plus a credit spread of 7.25%. As of December 31, 2023, the effective interest rate on the Senior Secured Term Loan was 13.9% and the outstanding principal amount was $410.0 million, of which $17.0 million was due to related parties and is primarily attributable to Onex. Beginning in October 2023, the Company is no longer incurring the incremental 1.0% paid-in-kind interest on its Senior Secured Term Loan based on its achievement of the required financial metrics under the terms of the 2023 Debt Restructuring.

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. In December 2022, the Company drew $48.2 million in Revolving Loans. During 2023, the Company repaid $44.8 million in Revolving Loans and drew an additional $35.0 million in Revolving Loans. As of December 31, 2023, $38.5 million in Revolving Loans were outstanding and bearing interest at a weighted average rate of 9.5%, consisting of 3-month SOFR plus a credit spread of approximately 4.1%. Beginning in October 2023, the Company is no longer incurring the incremental 1.0% interest on its Revolving Loans based on its achievement of the required financial metrics under the terms of the 2023 Debt Restructuring.

The 2022 Credit Agreement contains customary covenants and restrictions, including financial and non-financial covenants. In accordance with Amendment No. 2 to the Credit Agreement, the financial covenants require the Company to maintain $30.0 million of minimum liquidity, as defined in the agreement, at each test date through the first quarter of 2023, $25.0 million of minimum liquidity for the second quarter of 2023, $15.0 million of minimum liquidity through the fourth quarter of 2023 and $10.0 million of minimum liquidity through the fourth quarter of 2024. Additionally, beginning in the first quarter of 2025, the Company must maintain a Secured Net Leverage Ratio, as defined in the agreement, not to exceed 11.00:1.00. The net leverage ratio covenant decreases each subsequent quarter through the second quarter of 2026 to 7.00:1.00, which remains applicable through maturity. The financial covenants are tested as of each fiscal quarter end for the respective periods. As of December 31, 2023, the Company is in compliance with its minimum liquidity financial covenant.

The 2022 Credit Agreement contains provisions restricting payments from the Borrower to ATI Physical Therapy, Inc. (the “Parent”), except for payments specifically outlined, such as those related to reasonable and customary administrative expenses of the Parent up to $0.5 million; certain reasonable and customary indemnification claims; certain tax payments; customary fees and expenses related to debt or equity offerings, investments or acquisitions; certain salaries and related amounts for any directors, officers, employees or consultants of the Parent; payments related to certain transactions related to Parent capital stock not to exceed $5.0 million in cash in any fiscal year unless funded through certain other sources such as the sale, issuance or exercise of certain other capital stock or similar instruments; repayment or redemption of the Series A Senior Preferred Stock under certain conditions; and other categories outlined in the agreement. The 2022 Credit Agreement effectively results in restricted net assets of substantially all of the Parent's subsidiaries, which limits transferability to the Parent in the form of dividends, distributions, loans or advances.

The 2022 Credit Facility contains customary representations and warranties, events of default, reporting and other affirmative covenants and negative covenants, including requirements related to the delivery of independent audit reports without a going concern explanatory paragraph beginning with the report covering fiscal year 2025, limitations on indebtedness, liens, investments, negative pledges, dividends, junior debt payments, fundamental changes and asset sales and affiliate transactions. The Second Lien Note Purchase Agreement includes affirmative and negative covenants (other than financial covenants) that are substantially consistent with the 2022 Credit Agreement, as well as customary events of default. Failure to comply with the 2022 Credit Facility and Second Lien Note Purchase Agreement covenants and restrictions could result in an event of default under the respective borrowing agreements, subject to customary cure periods. In such an event, all amounts outstanding under the 2022 Credit Facility and Second Lien Note Purchase Agreement, together with any accrued interest, could then be declared immediately due and payable.

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 during the year ended December 31, 2022, 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. 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, during the year ended December 31, 2022.

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 Senior Preferred Stock were $23.2 million and $17.9 million for the year ended December 31, 2023 and 2022, respectively. As of December 31, 2023, the accumulated paid-in-kind dividends related to the Series A Senior Preferred Stock were $41.1 million and the aggregate stated value was $206.1 million.

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. 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, such as a change in control, and since such events are not currently deemed certain to occur, the Series A Senior Preferred Stock is classified as mezzanine equity in the Company's consolidated balance sheets.

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, 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 certain 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.

As part of the 2022 Debt Refinancing, the Preferred Equityholders, voting as a separate class, had 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 $100.0 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. As part of the 2023 Debt Restructuring, (1) the Preferred Equityholders’ preexisting rights as holders of the Company’s Series A Senior Preferred Stock to designate and elect one director to the Company’s board of directors (the “Board”) was revised to provide that (a) the Preferred Equityholders have the right to appoint three additional directors to the Board (resulting in the right of the Preferred Equityholders to appoint a total of four directors to the Board) until such time after the Closing Date that the Lead Purchaser (as defined in certain of the transaction agreements entered into in connection with the original issuance of the Series A Senior Preferred Stock) ceases to hold at least 50.1% of the Series A Senior Preferred Stock held by it as of the Closing Date, one of whom must be unaffiliated with (and independent of) the Preferred Equityholders and who must meet the definition of “independent” under the listing standards of the NYSE, and by the SEC; and (b) all such designee directors of the Preferred Equityholders will be subject to consideration by the Board (acting in good faith and consistent with their review of other Board candidates) and (2) the provision in the Certificate of Designation of the Company’s Series A Senior Preferred Stock that eliminated the Preferred Equityholders’ director designation rights upon the Company’s achievement of certain amounts of EBITDA was deleted.

Prior to the closing of the 2023 Debt Restructuring, because the Series A Senior Preferred Stock is classified as mezzanine equity and was not considered redeemable or probable of becoming redeemable, the paid-in-kind dividends that were added to the stated value did not impact the carrying value of the Series A Senior Preferred Stock in the Company’s consolidated balance sheets. Based on the voting rights associated with the Series B Preferred Stock attached to the 2L Notes issued as part of the 2023 Debt Restructuring, the Company determined that redemption of the Series A Senior Preferred Stock is no longer solely within the control of the Company. As a result, the Company determined that the Series A Senior Preferred Stock is probable of becoming redeemable based on the accounting guidance in ASC Topic 480, Distinguishing Liabilities from Equity. Following the 2023 Debt Restructuring, since the Series A Senior Preferred Stock is 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 as if redemption were to occur at the end of the reporting period. As of December 31, 2023, the redemption value of the Series A Senior Preferred Stock was $220.4 million, which includes the aggregate stated value at December 31, 2023, inclusive of paid-in-kind dividends, and an incremental redemption value adjustment to reflect the carrying amount equal to what the redemption amount would be as if redemption were to occur at the end of the reporting period, based on the terms of the Certificate of Designation.

Net cash used in operating activities for the year ended December 31, 2023 was $12.4 million compared to $65.5 million for the year ended December 31, 2022, a decrease in cash used of $53.1 million. The decrease was primarily the result of margin on higher revenue with approximately $15.5 million lower net losses as adjusted for non-cash items such as goodwill, intangible and other asset impairment charges and changes in fair value of 2L Notes, warrant liability and contingent common shares liability during the year ended December 31, 2023, approximately $21.9 million lower net cash outflows from changes in current assets and current liabilities related to timing of collections and payments during the year ended December 31, 2023, $6.6 million lower cash outflows from operating leases and $12.3 million of partial application of MAAPP funds during the year ended December 31, 2022 not recurring in 2023.

The discussion and analysis of the Company’s financial condition and results of operations is based upon the Company’s consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of the Company’s consolidated financial statements requires its management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosures. The Company’s management bases its estimates, assumptions and judgments on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Different assumptions and judgments would change the estimates used in the preparation of the Company’s consolidated financial statements which, in turn, could change the results from those reported. In addition, actual results may differ from these estimates and such differences could be material to the Company’s financial position and results of operations.

There is a contract between the Company and the patient upon each visit resulting in the Company’s performance obligation to provide services to the patient. Generally, the performance obligation is satisfied as the patient receives physical therapy services provided by the Company, as each service provided is distinct and future services rendered are not dependent on previously rendered services. The Company has separate contractual agreements (written or implied) with third-party payors (e.g., insurers, managed care programs, government programs, workers' compensation) that provide for payments to the Company at amounts different from its established rates; the difference between the Company's established rates and amounts paid by third-party payors represent explicit price concessions in the form of contractual allowances or denials allowances. While these agreements are not considered contracts with the customer, they are used for determining the transaction price for services provided to the patients covered by the third-party payors. The payor contracts do not indicate performance obligations of the Company but indicate reimbursement rates for patients who are covered by those payors when the services are provided.

To determine the transaction price associated with the contract, the Company includes the estimated effects of any variable consideration, such as contractual allowances, denials allowances and implicit price concessions. When the Company has written payment contracts with third-party payors with negotiated prices for services (contracted payors), the Company determines the transaction price using the negotiated contractual rates to estimate contractual allowances as compared to established rates; additional variable consideration for denial allowances is estimated using a portfolio approach that incorporates whether or not the Company has historical differences from negotiated contractual rates due to non-compliance with contract provisions.

In its evaluation of the transaction price, management assesses historical collection experience in relation to contracted rates, or for non-contracted payors, established rates. The practice of applying historical collection experience to determine the revenue transaction price for current transactions involves significant judgment and estimation. Management subsequently monitors the appropriateness of its estimates for claims on a date of service basis as cash collections on previous periods mature. Actual cash collections upon maturity may differ from the transaction price estimated upon initial recognition, and such differences could be material. If initial revenue recognition estimates increased or decreased by 100 basis points relative to an annual period, the impact to collections of the annual net patient revenue would be approximately $6.4 million. Management believes subsequent changes in estimate as a result of maturity of claims with dates of service in 2021 and 2022 have not been material to the consolidated statements of operations.

Goodwill and intangible assets with indefinite lives are not amortized but must be reviewed at least annually for impairment. If the impairment test indicates that the carrying value of the reporting unit exceeds its fair value, then a goodwill impairment loss should be recognized in the consolidated statements of operations in an amount equal to the excess carrying value over fair value. If the impairment test indicates that the carrying value of an intangible asset exceeds its fair value, then an impairment loss should be recognized in the consolidated statements of operations in an amount equal to the excess carrying value over fair value. Fair value is determined using valuation techniques based on estimates, judgments and assumptions the Company believes are appropriate in the circumstances. The Company completed the annual impairment analysis of goodwill as of October 1, 2023 by estimating its fair value using an average of a discounted cash flow analysis and comparable public company analysis. The Company concluded that no goodwill impairment occurred during the year ended December 31, 2023. The key assumptions associated with determining the estimated fair value include projected revenue growth rates and EBITDA margins, the terminal growth rate, the discount rate and relevant market multiples. The Company completed the annual impairment analysis of the indefinite-lived intangible asset as of October 1, 2023 by estimating its fair value using the relief from royalty method. The Company concluded that no indefinite-lived intangible asset impairment occurred during the year ended December 31, 2023. 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.

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 the indefinite-lived intangible asset 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 and 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, including discount rates, relevant market multiples, company share price and other market factors, then our reporting unit or the indefinite-lived intangible asset might become impaired in the future, negatively impacting our operating results and financial position. Factors that could result in the cash flows being lower than the current estimates include decreased revenue caused by unforeseen changes in the healthcare market or the Company's business, or the inability to achieve the estimated operating margins in the forecasts due to unforeseen factors. Additionally, changes in the broader economic environments could cause changes to the estimated discount rates and comparable company valuation indicators which may impact the estimated fair values. As the carrying amounts of goodwill and the Company’s trade name indefinite-lived intangible asset were impaired as of December 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. Additionally, goodwill and indefinite-lived intangible assets associated with acquisitions that may occur in the future are recorded on the balance sheet at their estimated acquisition date fair values, those amounts are more susceptible to impairment risk if business operating results or market conditions deteriorate.

The Company completed the annual impairment analysis of goodwill by estimating the fair value of the reporting unit using 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 and EBITDA margins, the terminal growth rate, the discount rate and relevant market multiples. Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates and market factors. The Company concluded that no goodwill impairment occurred during the year ended December 31, 2023. The Company completed the annual impairment analysis of the trade name indefinite-lived intangible asset by estimating its fair value using the relief from royalty method. 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. Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates and market factors. The Company concluded that no trade name indefinite-lived intangible asset impairment occurred during the year ended December 31, 2023. As of December 31, 2023, the goodwill and trade name indefinite-lived intangible asset balances were $289.7 million and $245 million, respectively.

We identified goodwill and trade name indefinite-lived intangible asset impairment assessments as a critical audit matter because of the significant judgements made by management to estimate the respective fair values. This required a high degree of auditor judgement and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to (1) the selection of the discount rate, relevant market multiples, and forecasts of future revenues and EBITDA margins in estimating the fair value of the reporting unit and (2) the selection of the discount rate, royalty rate, and forecasts of future revenue in estimating the fair value of the trade name indefinite-lived intangible asset.

To determine the transaction price associated with the contract with the patient, the Company includes the estimated effects of any variable consideration, such as contractual allowances, denials allowances and implicit price concessions. When the Company has written payment contracts with third-party payors with negotiated prices for services (contracted payors), the Company determines the transaction price using the negotiated contractual rates to estimate contractual allowances as compared to established rates; additional variable consideration for denial allowances is estimated using a portfolio approach that incorporates whether or not the Company has historical differences from negotiated contractual rates due to non-compliance with contract provisions. When the Company does not have written payment contracts with third-party payors (non-contracted payors), the Company determines the transaction price using a portfolio approach to estimate variable consideration for contractual allowances, denial allowances and implicit price concessions based on historical collections experience for claims with similar characteristics, such as location of service and type of third-party payor, in relation to its established rates. In its evaluation of the transaction price, management assesses historical collection experience in relation to contracted rates, or for non-contracted payors, established rates. The practice of applying historical collection experience to determine the revenue transaction price for current transactions involves significant judgment and estimation.


	December 31, 2023		December 31, 2022
Assets:
Current assets:
Cash and cash equivalents	$	36,802	$	83,139
Accounts receivable (net of allowance for doubtful accounts of $48,055 and $47,620 at December 31, 2023 and December 31, 2022, respectively)	88,512		80,673
Prepaid expenses	12,920		13,526
Insurance recovery receivable	23,981		933
Other current assets	4,367		9,107
Assets held for sale	2,056		6,755
Total current assets	168,638		194,133

Property and equipment, net	100,422		123,690
Operating lease right-of-use assets	194,423		226,092
Goodwill, net	289,650		286,458
Trade name and other intangible assets, net	245,858		246,582
Other non-current assets	4,290		2,030
Total assets	$	1,003,281	$	1,078,985

Liabilities, Mezzanine Equity and Stockholders' Equity:
Current liabilities:
Accounts payable	$	14,704	$	12,559
Accrued expenses and other liabilities	88,435		53,672
Current portion of operating lease liabilities	51,530		47,676

Liabilities held for sale	1,778		2,614
Total current liabilities	156,447		116,521

Long-term debt, net (1)	433,578		531,600
2L Notes due to related parties, at fair value	79,472		—
Warrant liability	3		98
Contingent common shares liability	578		2,835
Deferred income tax liabilities	21,367		18,886
Operating lease liabilities	185,602		218,424
Other non-current liabilities	1,696		1,834
Total liabilities	878,743		890,198
Commitments and contingencies (Note 17)
Mezzanine equity:
Series A Senior Preferred Stock, $0.0001 par value; 1.0 million shares authorized; 0.2 million shares issued and outstanding; $1,249.06 stated value per share at December 31, 2023; $1,108.34 stated value per share at December 31, 2022	220,393		140,340
Stockholders' equity:
Class A common stock, $0.0001 par value; 470.0 million shares authorized; 4.2 million shares issued, 4.0 million shares outstanding at December 31, 2023; 4.1 million shares issued, 4.0 million shares outstanding at December 31, 2022	—		—
Treasury stock, at cost, 0.007 million shares and 0.002 million shares at December 31, 2023 and December 31, 2022, respectively	(219)		(146)
Additional paid-in capital	1,308,119		1,378,716
Accumulated other comprehensive income	406		4,899
Accumulated deficit	(1,409,306)		(1,339,511)
Total ATI Physical Therapy, Inc. equity	(101,000)		43,958
Non-controlling interests	5,145		4,489
Total stockholders' equity	(95,855)		48,447
Total liabilities, mezzanine equity and stockholders' equity	$	1,003,281	$	1,078,985


	Year Ended
		December 31, 2023		December 31, 2022

Net patient revenue		$	636,095	$	575,940
Other revenue		62,921		59,731
Net revenue		699,016		635,671

Cost of services:
Salaries and related costs		382,370		357,982
Rent, clinic supplies, contract labor and other		208,593		202,568
Provision for doubtful accounts		11,251		13,869
Total cost of services		602,214		574,419
Selling, general and administrative expenses		118,728		114,724
Goodwill, intangible and other asset impairment charges		5,591		486,262
Operating loss		(27,517)		(539,734)
Change in fair value of 2L Notes		(24,471)		—
Change in fair value of warrant liability		(95)		(4,243)
Change in fair value of contingent common shares liability		(2,257)		(42,525)

Interest expense, net		61,039		45,278

Other expense, net		1,777		3,333
Loss before taxes		(63,510)		(541,577)
Income tax expense (benefit)		2,568		(48,530)
Net loss		(66,078)		(493,047)
Net income (loss) attributable to non-controlling interests		3,717		(668)
Net loss attributable to ATI Physical Therapy, Inc.		(69,795)		(492,379)
Less: Series A Senior Preferred Stock redemption value adjustments		38,958		—
Less: Series A Senior Preferred Stock cumulative dividend		23,219		17,876
Net loss available to common stockholders		$	(131,972)	$	(510,255)

Loss per share of Class A common stock:
Basic		$	(31.93)	$	(125.59)
Diluted		$	(31.93)	$	(125.59)
Weighted average shares outstanding:
Basic and diluted		4,133		4,063


	Common Stock			Treasury Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Non-Controlling Interests		Total Stockholders' Equity
	Shares	Amount		Shares	Amount
















Balance at January 1, 2022	3,948,199	$	—	596	$	(95)	$	1,351,617	$	28	$	(847,132)	$	7,089	$	511,507
Issuance of 2022 Warrants	—	—		—	—		19,725		—		—		—		19,725
Vesting of restricted shares distributed to holders of ICUs	7,207	—		—	—		—		—		—		—		—
Issuance of common stock upon vesting of restricted stock awards	12,684	—		—	—		—		—		—		—		—
Tax withholdings related to net share settlement of restricted stock awards	(944)	—		944	(51)		—		—		—		—		(51)
Non-cash share-based compensation	—	—		—	—		7,374		—		—		—		7,374
Other comprehensive income	—	—		—	—		—		4,871		—		—		4,871
Distribution to non-controlling interest holders	—	—		—	—		—		—		—		(1,932)		(1,932)
Net loss attributable to non-controlling interests	—	—		—	—		—		—		—		(668)		(668)
Net loss attributable to ATI Physical Therapy, Inc.	—	—		—	—		—		—		(492,379)		—		(492,379)
Balance at December 31, 2022	3,967,146	$	—	1,540	$	(146)	$	1,378,716	$	4,899	$	(1,339,511)	$	4,489	$	48,447
































Series A Senior Preferred Stock dividends and redemption value adjustments	—	—		—	—		(80,053)		—		—		—		(80,053)
Capital contribution from recognition of delayed draw asset	—	—		—	—		690		—		—		—		690
Vesting of restricted shares distributed to holders of ICUs	2,873	—		—	—		—		—		—		—		—
Issuance of common stock upon vesting of restricted stock units and awards	41,510	—		—	—		—		—		—		—		—
Tax withholdings related to net share settlement of restricted stock units and awards	(5,254)	—		5,254	(73)		—		—		—		—		(73)
Issuance of common stock for fractional adjustments related to Reverse Stock Split	26,346	—		—	—		—		—		—		—		—
Non-cash share-based compensation	—	—		—	—		8,766		—		—		—		8,766
Other comprehensive loss	—	—		—	—		—		(4,493)		—		—		(4,493)
Distribution to non-controlling interest holders	—	—		—	—		—		—		—		(3,061)		(3,061)
Net income attributable to non-controlling interests	—	—		—	—		—		—		—		3,717		3,717
Net loss attributable to ATI Physical Therapy, Inc.	—	—		—	—		—		—		(69,795)		—		(69,795)
Balance at December 31, 2023	4,032,621	$	—	6,794	$	(219)	$	1,308,119	$	406	$	(1,409,306)	$	5,145	$	(95,855)


	Year Ended
	December 31, 2023		December 31, 2022
Operating activities:
Net loss	$	(66,078)	$	(493,047)
Adjustments to reconcile net loss to net cash used in operating activities:
Goodwill, intangible and other asset impairment charges	5,591		486,262
Depreciation and amortization	37,412		40,590
Provision for doubtful accounts	11,251		13,869
Deferred income tax provision	2,481		(48,573)
Non-cash lease expense related to right-of-use assets	47,926		48,253
Non-cash share-based compensation	8,766		7,374
Amortization of debt issuance costs and original issue discount	2,889		2,873
Non-cash interest expense	6,567		3,481

Loss on extinguishment of debt	444		2,809

Loss on disposal and sale of assets	1,743		9

Change in fair value of 2L Notes	(24,471)		—
Change in fair value of warrant liability	(95)		(4,243)
Change in fair value of contingent common shares liability	(2,257)		(42,525)
Change in fair value of non-designated derivative instrument	475		—
Changes in:
Accounts receivable, net	(18,604)		(12,573)
Insurance recovery receivable	(23,048)		7
Prepaid expenses and other current assets	3,595		(5,031)
Other non-current assets	(2,413)		39
Accounts payable	1,138		(48)
Accrued expenses and other liabilities	42,017		854
Operating lease liabilities	(47,732)		(53,628)
Other non-current liabilities	37		28
Medicare Accelerated and Advance Payment Program Funds	—		(12,288)



Net cash used in operating activities	(12,366)		(65,508)

Investing activities:
Purchases of property and equipment	(17,322)		(28,147)

Proceeds from sale of property and equipment	91		157
Proceeds from sale of clinics	355		77


Payment of holdback liabilities related to acquisitions	(490)		(135)
Net cash used in investing activities	(17,366)		(28,048)


Financing activities:
Proceeds from long-term debt	—		500,000
Proceeds from 2L Notes from related parties	3,243		—
Financing transaction costs	(6,287)		—
Deferred financing costs	(84)		(12,952)
Original issue discount	—		(10,000)
Principal payments on long-term debt	—		(555,048)
Proceeds from issuance of Series A Senior Preferred Stock	—		144,667
Proceeds from issuance of 2022 Warrants	—		20,333
Proceeds from revolving line of credit	35,000		48,200
Payments on revolving line of credit	(44,750)		—



Equity issuance costs and original issue discount	—		(4,935)

Payment of contingent consideration liabilities	(593)		(203)
Taxes paid on behalf of employees for shares withheld	(73)		(51)
Distribution to non-controlling interest holders	(3,061)		(1,932)
Net cash (used in) provided by financing activities	(16,605)		128,079

Changes in cash and cash equivalents:
Net decrease in cash and cash equivalents	(46,337)		34,523
Cash and cash equivalents at beginning of period	83,139		48,616
Cash and cash equivalents at end of period	$	36,802	$	83,139

Supplemental noncash disclosures:
Derivative changes in fair value (1)	$	4,493	$	(4,871)
Purchases of property and equipment in accounts payable	$	2,645	$	1,660
Exchange of Senior Secured Term Loan for related party 2L Notes	$	100,000	$	—
Debt discount on Senior Secured Term Loan	$	(1,797)	$	—
Capital contribution from recognition of delayed draw right asset	$	690	$	—
Series A Senior Preferred Stock dividends and redemption value adjustments	$	80,053	$	—





Other supplemental disclosures:
Cash paid for interest	$	52,893	$	41,617
Cash received from hedging activities	$	5,380	$	3,497
Cash (received from) paid for taxes	$	(45)	$	84

Our management, including our Principal Executive Officer and Principal Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting is a process designed by, or under the supervision of, our principal executive and principal financial officers, or persons performing similar functions, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that: (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets, (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of management and our directors and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.


Exhibit Number						Description
3.1						Third Amended and Restated Certificate of Incorporation (filed as Exhibit 3.1 to the Current Report on Form 8-K of the Company on June 13, 2023 and incorporated herein by reference)
3.2						Certificate of Amendment to Third Amended and Restated Certificate of Incorporation (filed as Exhibit 3.1 to the Current Report on Form 8-K of the Company on June 14, 2023 and incorporated herein by reference)
3.3						Amended and Restated Bylaws of ATI Physical Therapy, Inc. (filed as Exhibit 3.2 to the Current Report on Form 8-K of the Company on June 23, 2021 and incorporated herein by reference)
3.4						First Amended and Restated Certificate of Designation of Series A Senior Preferred Stock of ATI Physical Therapy, Inc. (filed as Exhibit 3.1 to the Current Report on Form 8-K of the Company on June 15, 2023 and incorporated herein by reference)
3.5						Certificate of Designation of Series B Preferred Stock of ATI Physical Therapy, Inc. (filed as Exhibit 3.2 to the Current Report on Form 8-K of the Company on June 15, 2023 and incorporated herein by reference)
4.1*						Description of Securities
4.2						Warrant Agreement between Fortress Value Acquisition Corp. II and Continental Stock Transfer & Trust Company (filed as Exhibit 4.4 to the Registration Statement on Form S-1 on July 24, 2020 and incorporated herein by reference)
4.3						Warrant Agreement, dated as of February 24, 2022, between ATI Physical Therapy, Inc. and Continental Stock Transfer & Trust Company, as Warrant Agent (filed as Exhibit 4.1 to the Current Report on Form 8-K of the Company on February 24, 2022 and incorporated herein by reference)
10.1†						ATI Physical Therapy 2021 Equity Incentive Plan (filed as Annex L to the Definitive Proxy Statement of the Company filed on May 14, 2021 and incorporated herein by reference)
10.2†						First Amendment to 2021 Equity Incentive Plan (filed as Exhibit 10.2 to the Current Report on Form 8-K of the Company on June 6, 2022 and incorporated herein by reference)
10.3†						Second Amendment to 2021 Equity Incentive Plan (filed as Exhibit 10.3 to the Current Report on Form 8-K of the Company on June 13, 2023 and incorporated herein by reference)
10.4						Credit Agreement, dated as of February 24, 2022, by and among ATI Holdings Acquisition, Inc., Wilco Intermediate Holdings, Inc., Barclays Bank PLC, as Administrative Agent and Issuing Bank and the other lenders party thereto (filed as Exhibit 10.1 to the Current Report on Form 8-K of the Company on February 25, 2022 and incorporated herein by reference)
10.5						Amendment No. 1 to Credit Agreement, dated as of March 30, 2022, by and among ATI Holdings Acquisition, Inc., Wilco Intermediate Holdings, Inc., HPS Investment Partners, LLC, as Lender Representative and Barclays Bank PLC, as Administrative Agent (filed as Exhibit 10.24 to the Post-Effective Amendment to the Registration Statement on Form S-1 filed on April 1, 2022 and incorporated herein by reference)


10.6						Amendment No. 2 to Credit Agreement, dated April 17, 2023, by and among ATI Holdings Acquisition, Inc., Wilco Intermediate Holdings, Inc., HPS Investment Partners, LLC, as Lender Representative and Barclays Bank PLC, as Administrative Agent (filed as Exhibit 10.2 to the Current Report on Form 8-K of the Company on April 21, 2023 and incorporated herein by reference)
10.7						Consent to Amendment No. 2 to Credit Agreement, dated June 15, 2023, by and among ATI Holdings Acquisition, Inc., Wilco Intermediate Holdings, Inc., HPS Investment Partners, LLC, as Lender Representative and Barclays Bank PLC as Administrative Agent (filed as Exhibit 10.3 to the Current Report on Form 8-K of the Company on June 15, 2023 and incorporated herein by reference)
10.8						Second Lien Note Purchase Agreement, dated April 17, 2023, by and among ATI Physical Therapy, Inc., Wilco Holdco, Inc., Wilco Intermediate Holdings, Inc., ATI Holdings Acquisition, Inc., the Purchasers party thereto and Wilmington Savings Fund Society, FSB (filed as Exhibit 10.3 to the Current Report on Form 8-K of the Company on April 21, 2023 and incorporated herein by reference)
10.9						First Amendment to Note Purchase Agreement, dated June 15, 2023, by and among ATI Physical Therapy, Inc., Wilco Holdco, Inc., Wilco Intermediate Holdings, Inc., ATI Holdings Acquisition, Inc., the Subsidiary Guarantors party thereto, the other Purchasers party thereto and Wilmington Savings Fund Society, FSB (filed as Exhibit 10.7 to the Current Report on Form 8-K of the Company on June 15, 2023 and incorporated herein by reference)
10.10						Series A Senior Preferred Stock Purchase Agreement, dated as of February 24, 2022, by and between ATI Physical Therapy, Inc. and the Purchasers signatory thereto (filed as Exhibit 10.2 to the Current Report on Form 8-K of the Company on February 25, 2022 and incorporated herein by reference)
10.1 1						Investors' Rights Agreement, dated as of February 24, 2022, by and among ATI Physical Therapy, Inc. and the Holders party thereto from time to time (filed as Exhibit 10.3 to the Current Report on Form 8-K of the Company on February 25, 2022 and incorporated herein by reference)
10.1 2						First Amendment to the Investors’ Rights Agreement, dated June 15, 2023, by and among ATI Physical Therapy, Inc. and the Preferred Equityholders party thereto (filed as Exhibit 10.5 to the Current Report on Form 8-K of the Company on June 15, 2023 and incorporated herein by reference)
10.13						Amended and Restated Registration Rights Agreement, dated as of February 21, 2021, by and among Fortress Value Acquisition Corp. II, Fortress Acquisition Sponsor II LLC and the other parties thereto (filed as Exhibit 10.4 to the Current Report on Form 8-K of the Company on June 23, 2021 and incorporated herein by reference)
10.14						First Amendment to Amended and Restated Registration Rights Agreement, dated as of June 16, 2021, by and among Fortress Value Acquisition Corp. II, Fortress Acquisition Sponsor II LLC and the other parties thereto (filed as Exhibit 10.5 to the Current Report on Form 8-K of the Company on June 23, 2021 and incorporated herein by reference)
10.1 5						Registration Rights Agreement, dated June 15, 2023, by and among ATI Physical Therapy, Inc. and certain Preferred Equityholders (filed as Exhibit 10.6 to the Current Report on Form 8-K of the Company on June 15, 2023 and incorporated herein by reference)
10.16†						Employment Agreement by and between ATI Physical Therapy, Inc. and Sharon A. Vitti dated March 30, 2022, effective April 28, 2022 (filed as Exhibit 10.1 to the Current Report on Form 8-K of the Company on April 28, 2022 and incorporated herein by reference)


10.17†						Employment Agreement by and between ATI Physical Therapy, Inc. and Chris Cox effective December 16, 2022 (filed as Exhibit 10.1 to the Current Report on Form 8-K of the Company on December 14, 2022 and incorporated herein by reference)
10.1 8†						Employment Agreement by and between ATI Physical Therapy, Inc. and Scott Gregerson effective December 16, 2022 (filed as Exhibit 10.1 to the Current Report on Form 8-K of the Company on December 22, 2022 and incorporated herein by reference)
10.1 9†						Employment Agreement, dated as of February 21, 2021, between Fortress Value Acquisition Corp. II and Joseph Jordan (filed as Exhibit 10.6 to the Current Report on Form 8-K of the Company on February 22, 2021 and incorporated herein by reference)
10.2 0†						Employment Agreement by and between ATI Physical Therapy, Inc. and Erik Kantz effective November 4, 2022 (filed as Exhibit 10.1 to the Current Report on Form 8-K of the Company on November 7, 2022 and incorporated herein by reference)
10.21†						Employment Agreement, dated as of May 14 2021, between Fortress Value Acquisition Corp. II and Augustus Oakes (filed as Exhibit 10.16 to the Annual Report on Form 10-K of the Company on March 1, 2022 and incorporated herein by reference)
10.2 2†						First Amendment to Employment Agreement by and between ATI Physical Therapy, Inc. and Augustus Oakes effective June 20, 2022 (filed as Exhibit 10.1 to the Current Report on Form 8-K of the Company on June 24, 2022 and incorporated herein by reference)
10.2 3†						Employment Agreement by and between ATI Physical Therapy, Inc. and Eimile Tansey dated June 28, 2022, effective August 29, 2022 (filed as Exhibit 10.1 to the Quarterly Report on Form 10-Q of the Company on August 9, 2022 and incorporated herein by reference)
1 9 .1*						Insider Trading Policy
21.1*						Subsidiaries of the Registrant
23.1*						Consent of Deloitte & Touche, LLP
23.2*						Consent of PricewaterhouseCoopers LLP
31.1*						Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15(d)-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*						Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15(d)-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*						Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
97 .1*						ATI Physical Therapy, Inc. Clawback Policy
101.INS*						XBRL Instance Document
101.SCH*						XBRL Taxonomy Extension Schema Document
101.CAL*						XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*						XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*						XBRL Taxonomy Extension Label Linkbase Document
101.PRE*						XBRL Taxonomy Extension Presentation Linkbase Document


Delaware						85-1408039
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification Number)


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐


			Page
PART I
I tem 1. Business			7
I tem 1A. Risk Factors			17
I tem 1B. Unresolved Staff Comments			49
I tem 1C. Cybersecurity			49
I tem 2. Properties			50
Item 3 . Legal Proceedings			50
Item 4. Mine Safety Disclosures			50
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			51
Item 6. Reserved			51
Item 7 . Management's Discussion and Analysis of Financial Condition and Results of Operations			52



Item 7A . Quantitative and Qualitative Disclosures About Market Risk			83
Item 8. Financial Statements and Supplementary Data			84
Report of Independent Registered Public Accounting Firm			85
C onsolidated Balance Sheets			91
C onsolidated Statements of Operations			92
C on solidated Statements of Compre hensive Loss			93
Consolidated Statements of Changes in Stockholders' Equity			94
Consolidated Statements of Cash Flows			95
Notes to Consolidated Financial Statements			97
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure			145
Item 9A . Controls and Procedures			145
Item 9B . Other Information			146
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections			146
PART III
Item 10. Directors, Executive Officers and Corporate Governance			147
Item 11. Executive Compensation			147
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			147
Item 13. Certain Relationships and Related Transactions, and Director Independence			147
Item 14. Principal Accountant Fees and Services			147
PART IV
Item 15. Exhibits and Financial Statement Schedules			148
Item 16. Form 10-K Summary			151
Signatures			151


									December 31, 2023
Series B Preferred Stock, shares at Closing Date									103
Increase (decrease) in shares during period									5
Series B Preferred Stock, shares at end of period									108

Common stock voting rights, as converted basis(1)									8,377


	December 31, 2023
2L Notes, principal amount at Closing Date	$	103,243
Paid-in-kind interest added during period	4,569
2L Notes, principal amount at end of period	$	107,812


☒			ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


	Total Number of Shares Purchased(1)	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
October 1 - October 31, 2023	—	$	—	—	—
November 1 - November 30, 2023	215	$	7.40	—	—
December 1 - December 31, 2023	89	$	6.79	—	—
Total	304	$	7.22	—	—


	December 31, 2023
Carrying value, beginning of period	$	140,340
Write off original issue discount	1,447
Write off issuance costs	2,880
Deemed dividend from discount on initial gross proceeds allocation	20,333
Paid-in-kind dividends recognized to carrying value	41,095
Redemption value adjustment	14,298
Carrying value, end of period	$	220,393


	December 31, 2023		December 31, 2022
Commercial	39.0	%	43.9	%
Government	13.8	%	13.7	%
Workers’ Compensation	13.7	%	15.5	%
Other (1)	33.5	%	26.9	%
	100.0	%	100.0	%


	Discount rate		Terminal growth rate(1)		EBITDA margin		Royalty rate
	50 basis points		100 basis points		100 basis points		50 basis points
	Increase	Decrease	Increase	Decrease	Increase	Decrease	Increase	Decrease
Goodwill	$(40,000)	$45,000	$45,000	$(35,000)	$55,000	$(55,000)
Trade name	$(10,000)	$15,000	$10,000	$(10,000)			$35,000	$(35,000)


			Page
Report of Independent Registered Public Accounting Firm (Deloit te & Touche LLP, PCAOB ID 34)			85
R eport of Independ en t Registered Public Accounting Firm (Price waterhouse Coopers LLP, PCAOB ID 238)			90

Financial Statements:
Consolidated Balance Sheets			91
Consolidated Statements of Operations			92
Consolidated Statements of Comprehensive Loss			93
Consolidated Statements of Changes in Stockholders' Equity			94
Consolidated Statements of Cash Flows			95
Notes to Consolidated Financial Statements			97


Equipment			3 - 5 years
Furniture & fixtures			5 - 7 years
Automobiles			3 - 5 years
Software			3 - 5 years
Buildings			40 years
Leasehold improvements			Lesser of lease term or estimated useful lives of the assets (generally 5 - 15 years)


ATI Physical Therapy trade name/trademark			Indefinite
Non-compete agreements			2 - 5 years
Other intangible assets			15 years


Goodwill at December 31, 2022 (1)	$	286,458
Impairment charges (2)	—


Reclassifications to held and used	3,192
Goodwill at December 31, 2023 (1)	$	289,650


	December 31, 2023		December 31, 2022
Gross intangible assets:
ATI trade name (1)	$	245,000	$	245,000
Non-compete agreements	2,395		2,395
Other intangible assets	640		640
Accumulated amortization:
Accumulated amortization – non-compete agreements	(1,807)		(1,126)
Accumulated amortization – other intangible assets	(370)		(327)
Total trade name and other intangible assets, net	$	245,858	$	246,582


	December 31, 2023		December 31, 2022
Senior Secured Term Loan (1, 2) (due February 24, 2028)	$	410,048	$	503,481
Revolving Loans (3) (due February 24, 2027)	38,450		48,200
Less: unamortized debt issuance costs	(7,395)		(11,137)
Less: unamortized original issue discount	(7,525)		(8,944)
Total debt, net	433,578		531,600
Less: current portion of long-term debt	—		—
Long-term debt, net	$	433,578	$	531,600


2024	$	—
2025	—
2026	—
2027	38,450
2028	517,860

Thereafter	—
Total future maturities(1)	556,310
Unamortized original issue discount and debt issuance costs	(14,920)
2L Notes due to related parties, principal amount(1, 2)	(107,812)
Long-term debt, net(1)	$	433,578


	Number of Options	Weighted-Average Exercise Price		Weighted-Average Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding, January 1, 2023	106,495	$	92.14	9.1	$	—
Granted	—	—		N/A	N/A
Adjustments	2,676	87.00		N/A	N/A
Exercised	—	—		N/A	—
Forfeited/Cancelled	(9,886)	96.46		N/A	N/A
Outstanding, December 31, 2023	99,285	$	91.73	8.2	$	—

Exercisable, December 31, 2023	32,181	$	99.93	8.1	$	—
Unvested, December 31, 2023	67,104	$	87.80	8.2	$	—


									2022
Weighted-average grant-date fair value of options									$48.79
Risk-free interest rate									1.74%
Term (years)									6.2
Volatility									61.19%
Expected dividend									—%


	2023
	RSUs	Weighted-Average Grant Date Fair Value
Outstanding and unvested, beginning of year	84,283	$	99.46
Granted	762,201	16.58
Vested	(39,145)	101.33
Forfeited	(39,975)	30.22
Outstanding and unvested, end of year	767,364	$	20.56


	2023
	RSAs	Weighted-Average Grant Date Fair Value
Outstanding and unvested, beginning of year	3,391	$	171.00
Granted	—	—
Vested	(2,233)	171.00
Forfeited	(83)	171.00
Outstanding and unvested, end of year	1,075	$	171.00


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


	December 31, 2023		December 31, 2022
Aggregate stated value, beginning of period	$	182,876	$	165,000
Paid-in-kind dividends(1)	23,219		17,876
Aggregate stated value, end of period	$	206,095	$	182,876

Preferred shares issued and outstanding, end of period	165		165

Stated value per share, end of period	$	1,249.06	$	1,108.34


	Series I Warrants		Series II Warrants		Total
Gross proceeds allocated to 2022 Warrants	$	5,101	$	15,232	$	20,333
Less: original issue discount	(51)		(152)		(203)
Less: issuance costs	(102)		(303)		(405)
Net proceeds received from issuance of 2022 Warrants	$	4,948	$	14,777	$	19,725


			December 31, 2023
2L Notes(1)			8,625
Shares available for grant under the 2021 Plan			241
2021 Plan share-based awards outstanding			868
Earnout Shares reserved			300
2022 Warrant shares reserved			230
IPO Warrant shares reserved			197
Vesting Shares reserved(2)			173
Restricted shares(2)			5
Total shares of common stock reserved			10,639


	2L Notes
	December 31, 2023	June 15, 2023
Risk-free interest rate	3.83%	3.90%
Volatility	45.00%	50.00%
Selected yield	20.50%	20.00%
Expected term (years)	4.7	5.3
Share price	$6.14	$10.21


	Year Ended
		December 31, 2023
Fair value, beginning of period(1)		$	103,943
Decrease in fair value(1)		(24,471)
Fair value, end of period		$	79,472


	IPO Warrants		Earnout Shares and Vesting Shares
	December 31, 2023	December 31, 2022	December 31, 2023	December 31, 2022
Risk-free interest rate	4.09%	N/A	3.84%	3.88%
Volatility	98.10%	N/A	77.20%	74.60%
Dividend yield	—%	N/A	—%	—%
Expected term (years)	2.5	N/A	7.5	8.5
Share price	$6.14	N/A	$6.14	$15.50


	Cash Flow Hedges
Balance as of December 31, 2022	$	4,899









Unrealized gain recognized in other comprehensive income before reclassifications	801
Reclassification to interest expense, net	(5,294)
Balance as of December 31, 2023	$	406

Balance as of December 31, 2021	$	28









Unrealized gain recognized in other comprehensive income before reclassifications	8,310
Reclassification to interest expense, net	(3,439)
Balance as of December 31, 2022	$	4,899


	December 31, 2023				December 31, 2022
	Assets		Liabilities		Assets		Liabilities
Derivatives not designated as cash flow hedging instruments:
Other current assets	$	33	—		—		—
Other non-current assets	—		—		—		—
Accrued expenses and other liabilities	—		—		—		—
Other non-current liabilities	—		$	62	—		—
Derivatives designated as cash flow hedging instruments:
Other current assets	—		—		$	5,028	—
Other non-current assets	—		—		—		—
Accrued expenses and other liabilities	—		—		—		—
Other non-current liabilities	—		—		—		$	73


	2023		2022
Current:
Federal	$	—	$	6
State	87		37
Total current	87		43
Deferred:
Federal	745		(37,634)
State	1,736		(10,939)
Total deferred	2,481		(48,573)
Total income tax expense (benefit)	$	2,568	$	(48,530)


	2023				2022
Federal income tax benefit at statutory rate	$	(13,337)	21.0	%	$	(113,731)	21.0	%
State income tax benefit, net of federal tax benefit	(5,847)		9.2	%	(16,827)		3.1	%
Change in state tax rate	(576)		0.9	%	5		—	%
Share-based compensation	1,410		(2.2)	%	(304)		0.1	%
Prior period adjustments and other	1,685		(2.7)	%	471		(0.1)	%
Valuation allowance	20,235		(31.9)	%	31,595		(5.8)	%
Changes in fair value of warrant liability and contingent common shares liability	(494)		0.8	%	(9,821)		1.8	%
Goodwill impairment charges	—		—	%	59,893		(11.1)	%
Other permanent differences, net	(508)		0.9	%	189		—	%
Total income tax expense (benefit)	$	2,568	(4.0)	%	$	(48,530)	9.0	%


	2023		2022
Deferred income tax assets:
Accrued liabilities	$	8,895	$	7,112
Provision for bad debt	12,097		11,828
Operating lease liabilities	56,661		64,288
Acquisition and transaction costs	2,699		3,186
Net operating losses	116,834		104,419
Interest expense	54,796		43,323
Other deferred tax assets	6,429		6,335
Total gross deferred income tax assets	258,411		240,491
Valuation allowance	(110,142)		(89,907)
Total gross deferred income tax assets, net of valuation allowance	148,269		150,584
Deferred income tax liabilities:
Goodwill	32,498		26,251
Trade name/trademark	66,183		66,445
Operating lease right-of-use assets	46,106		54,360
Depreciation	14,158		20,039
Deferred debt issuance costs and original issue discount	8,708		—
Other deferred tax liabilities	1,983		2,375
Total gross deferred income tax liabilities	169,636		169,470
Net deferred income tax liabilities	$	21,367	$	18,886


	December 31, 2023	December 31, 2022
Weighted-average remaining lease term:
Operating leases	5.4 years	5.9 years
Weighted-average discount rate:
Operating leases	7.4%	6.9%