Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of ATI Physical Therapy, Inc.
Opinion on the Financial Statements
We have
audited the accompanying consolidated balance sheets of ATI Physical Therapy, Inc. and its subsidiaries (the Company) as of December 31, 2021 and 2020, and the related consolidated statements of operations, of comprehensive income
(loss), of changes in stockholders equity, and of cash flows for each of the three years in the period ended December 31, 2021, including the related notes and schedule of valuation and qualifying accounts for each of the three years in
the period ended December 31, 2021 listed under Item 15 (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the
financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 in conformity with accounting principles generally
accepted in the United States of America.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2020.
Basis for Opinion
These consolidated financial
statements are the responsibility of the Companys management. Our responsibility is to express an opinion on the Companys consolidated financial statements based on our audits. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those
standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or
fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters
communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are
material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial
statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Valuation of patient service revenue and related accounts receivablecontractual allowances
As described in Notes 2 and 4 to the consolidated financial statements, net patient revenue is recognized at an amount equal to the consideration the Company
expects to receive from third-party payors, patients and others
F-2
for services rendered when the performance obligations under the terms of the contract are satisfied. For the year ended December 31, 2021, net patient service revenue was
$561.1 million and related accounts receivable was $82.5 million as of December 31, 2021. There is an implied contract between the Company and the patient upon each patient visit resulting in the Companys patient service
performance obligation. To determine the transaction price associated with the implied contract, management includes the estimated effects of any variable consideration, such as contractual allowances and implicit price concessions. When the Company
has contracts with negotiated prices for services provided, management considers the contractual rates when recording revenue and adjusts for any variable consideration to the transaction price to arrive at revenue. For non-contracted payors, management determines the transaction price by applying established rates to the services provided and adjusting for contractual allowances provided to third-party payors and implicit price
concessions. Management estimates the contractual allowances and implicit price concessions using a portfolio approach based on historical collections for claims with similar characteristics, such as location of service and type of third-party
payor, in relation to established rates, because the Company does not have a contract with the underlying payor. Any subsequent changes in estimate on the realization of the receivable is recorded as a revenue adjustment. Management continually
reviews the revenue transaction price estimation process to consider updates to laws and regulations and changes in third-party payor contractual terms that result from contract renegotiations and renewals.
The principal considerations for our determination that performing procedures relating to the valuation of patient service revenue and related accounts
receivable for contractual allowances is a critical audit matter are (i) the significant judgment by management in estimating the value of patient service revenue and related accounts receivable for contractual allowances and (ii) a high
degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence related to the contractual allowances.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated
financial statements. These procedures included, among others, testing managements process for developing the estimate for contractual allowances, including (i) evaluating the appropriateness of the analysis used by management,
(ii) testing the completeness and accuracy of underlying historical collection data used in the analysis, (iii) testing, on a sample basis, the accuracy of revenue transactions and cash collections from the historical billing and
collection data used in managements analysis, (iv) performing a retrospective comparison of actual cash collected subsequent to the prior year-end to evaluate the reasonableness of the prior year
estimate, and (v) evaluating the reasonableness of adjustments made by management to contractual allowances.
Goodwill and indefinite-lived
intangible assets impairment assessments
As described in Notes 2 and 5 to the consolidated financial statements, the Companys consolidated
goodwill and indefinite-lived intangible assets balances were $608.8 million and $409.4 million, respectively, as of December 31, 2021. Goodwill and intangible assets with indefinite lives are not amortized but must be reviewed at
least annually for impairment, or whenever events or circumstances indicate that impairment may exist. If the impairment test indicates that the carrying value of goodwill of the single reporting unit or 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. Management completed the interim and annual impairment analyses of goodwill as of
June 30, 2021, September 30, 2021 and October 1, 2021 by estimating the fair value of the single 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 of the reporting unit include projected revenue growth rates, EBITDA margins, the terminal growth rate, the discount rate, and relevant market multiples. Management completed the interim and annual
impairment analyses of indefinite-lived intangible assets as of June 30, 2021, September 30, 2021 and October 1, 2021 by estimating the fair value of the indefinite-lived intangible assets using the relief from royalty method. The key
assumptions associated with determining the estimated fair value of the indefinite-lived intangible assets include projected revenue
F-3
growth rates, the royalty rate, the terminal growth rate and the discount rate. During the year ended December 31, 2021, the Company recorded $726.8 million and $234.3 million of
total impairment charges related to goodwill and indefinite-lived intangible assets, respectively.
The principal considerations for our determination
that performing procedures relating to the goodwill and indefinite-lived intangible assets impairment assessments is a critical audit matter are (i) the significant judgment by management when developing the fair value measurements of the
reporting unit and indefinite-lived intangibles, (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating managements significant assumptions related to projected revenue growth rates,
EBITDA margins, the terminal growth rate, the discount rate and relevant market multiples, related to goodwill and projected revenue growth rates, the royalty rate, the terminal growth rate, and the discount rate related to indefinite-lived
intangible assets, and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved
performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included, among others, (i) testing managements process for developing the fair
value estimates, (ii) evaluating the appropriateness of managements fair value analyses, (iii) testing the completeness, accuracy and relevance of the underlying data used in the analyses, and (iv) evaluating significant
assumptions used by management related to the projected revenue growth rates, EBITDA margins, the terminal growth rate, the discount rate, and relevant market multiples related to goodwill and projected revenue growth rates, the royalty rate, the
terminal growth rate and the discount rate related to indefinite-lived intangible assets. Evaluating managements assumptions related to projected revenue growth rates and EBITDA margins involved evaluating whether the assumptions were
reasonable considering past performance of the Company, the consistency with external data from other sources, and whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and
knowledge were used to assist in the evaluation of the discounted cash flow analysis, comparable public company analysis and relief from royalty method, and the discount rates, terminal growth rate, the royalty rate, and relevant market multiples
assumptions.
/s/ PricewaterhouseCoopers LLP
Chicago,
Illinois
March 1, 2022
We have served as the
Companys auditor since 2021.
F-4
ATI Physical Therapy, Inc.
Consolidated Balance Sheets
($ in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
Assets: |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
48,616 |
|
|
$ |
142,128 |
|
Accounts receivable (net of allowance for doubtful accounts of $53,533 and $69,693 at
December 31, 2021 and December 31, 2020, respectively) |
|
|
82,455 |
|
|
|
90,707 |
|
Prepaid expenses |
|
|
9,303 |
|
|
|
3,859 |
|
Other current assets |
|
|
3,204 |
|
|
|
2,168 |
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
143,578 |
|
|
|
238,862 |
|
Property and equipment, net |
|
|
139,730 |
|
|
|
137,174 |
|
Operating lease
right-of-use assets |
|
|
256,646 |
|
|
|
258,227 |
|
Goodwill, net |
|
|
608,811 |
|
|
|
1,330,085 |
|
Trade name and other intangible assets, net |
|
|
411,696 |
|
|
|
644,339 |
|
Other non-current assets |
|
|
2,233 |
|
|
|
1,685 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,562,694 |
|
|
$ |
2,610,372 |
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity: |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
15,146 |
|
|
$ |
12,148 |
|
Accrued expenses and other liabilities |
|
|
64,584 |
|
|
|
70,690 |
|
Current portion of operating lease liabilities |
|
|
49,433 |
|
|
|
52,395 |
|
Current portion of long-term debt |
|
|
8,167 |
|
|
|
8,167 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
137,330 |
|
|
|
143,400 |
|
Long-term debt, net |
|
|
543,799 |
|
|
|
991,418 |
|
Redeemable preferred stock |
|
|
|
|
|
|
163,329 |
|
Warrant liability |
|
|
4,341 |
|
|
|
|
|
Contingent common shares liability |
|
|
45,360 |
|
|
|
|
|
Deferred income tax liabilities |
|
|
67,459 |
|
|
|
138,547 |
|
Operating lease liabilities |
|
|
250,597 |
|
|
|
253,990 |
|
Other non-current liabilities |
|
|
2,301 |
|
|
|
18,571 |
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
1,051,187 |
|
|
|
1,709,255 |
|
Commitments and contingencies (Note 18) |
|
|
|
|
|
|
|
|
Stockholders equity: |
|
|
|
|
|
|
|
|
Preferred stock, $0.0001 par value; 1.0 million shares authorized; none issued and
outstanding at December 31, 2021 and December 31, 2020 |
|
|
|
|
|
|
|
|
Class A common stock, $0.0001 par value; 470.0 million shares authorized;
207.4 million shares issued, 197.4 million shares outstanding at December 31, 2021; 138.9 million shares issued, 128.3 million shares outstanding at December 31, 2020 |
|
|
20 |
|
|
|
13 |
|
Treasury stock, at cost, 0.03 million shares and none at December 31, 2021 and 2020,
respectively |
|
|
(95 |
) |
|
|
|
|
Additional paid-in capital |
|
|
1,351,597 |
|
|
|
954,728 |
|
Accumulated other comprehensive income (loss) |
|
|
28 |
|
|
|
(1,907 |
) |
Accumulated deficit |
|
|
(847,132 |
) |
|
|
(68,804 |
) |
|
|
|
|
|
|
|
|
|
Total ATI Physical Therapy, Inc. equity |
|
|
504,418 |
|
|
|
884,030 |
|
Non-controlling interests |
|
|
7,089 |
|
|
|
17,087 |
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
511,507 |
|
|
|
901,117 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
1,562,694 |
|
|
$ |
2,610,372 |
|
|
|
|
|
|
|
|
|
|
The accompanying notes to the consolidated financial statements are an integral part of these statements.
F-5
ATI Physical Therapy, Inc.
Consolidated Statements of Operations
(in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
|
December 31, 2019 |
|
Net patient revenue |
|
$ |
561,080 |
|
|
$ |
529,585 |
|
|
$ |
717,596 |
|
Other revenue |
|
|
66,791 |
|
|
|
62,668 |
|
|
|
67,862 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenue |
|
|
627,871 |
|
|
|
592,253 |
|
|
|
785,458 |
|
Cost of services: |
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and related costs |
|
|
336,496 |
|
|
|
306,471 |
|
|
|
414,492 |
|
Rent, clinic supplies, contract labor and other |
|
|
180,932 |
|
|
|
166,144 |
|
|
|
170,516 |
|
Provision for doubtful accounts |
|
|
16,369 |
|
|
|
16,231 |
|
|
|
22,191 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of services |
|
|
533,797 |
|
|
|
488,846 |
|
|
|
607,199 |
|
Selling, general and administrative expenses |
|
|
111,809 |
|
|
|
104,320 |
|
|
|
119,221 |
|
Goodwill and intangible asset impairment charges |
|
|
962,303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income |
|
|
(980,038 |
) |
|
|
(913 |
) |
|
|
59,038 |
|
Change in fair value of warrant liability (Note 13) |
|
|
(22,595 |
) |
|
|
|
|
|
|
|
|
Change in fair value of contingent common shares liability (Note 14) |
|
|
(175,140 |
) |
|
|
|
|
|
|
|
|
Loss on settlement of redeemable preferred stock |
|
|
14,037 |
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
46,320 |
|
|
|
69,291 |
|
|
|
76,972 |
|
Interest expense on redeemable preferred stock |
|
|
10,087 |
|
|
|
19,031 |
|
|
|
15,511 |
|
Other expense (income), net |
|
|
241 |
|
|
|
(91,002 |
) |
|
|
825 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before taxes |
|
|
(852,988 |
) |
|
|
1,767 |
|
|
|
(34,270 |
) |
Income tax (benefit) expense |
|
|
(70,960 |
) |
|
|
2,065 |
|
|
|
(44,019 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
|
(782,028 |
) |
|
|
(298 |
) |
|
|
9,749 |
|
Net (loss) income attributable to non-controlling
interest |
|
|
(3,700 |
) |
|
|
5,073 |
|
|
|
4,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to ATI Physical Therapy, Inc. |
|
$ |
(778,328 |
) |
|
$ |
(5,371 |
) |
|
$ |
5,349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings per share of Class A common stock: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(4.69 |
) |
|
$ |
(0.04 |
) |
|
$ |
0.04 |
|
Diluted |
|
$ |
(4.69 |
) |
|
$ |
(0.04 |
) |
|
$ |
0.04 |
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
|
165,805 |
|
|
|
128,286 |
|
|
|
128,286 |
|
The accompanying notes to the consolidated financial statements are an integral part of these statements.
F-6
ATI Physical Therapy, Inc.
Consolidated Statements of Comprehensive Income (Loss)
($ in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
|
December 31, 2019 |
|
Net (loss) income |
|
$ |
(782,028 |
) |
|
$ |
(298 |
) |
|
$ |
9,749 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on interest rate swap |
|
|
1,935 |
|
|
|
(582 |
) |
|
|
(16 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (loss) income |
|
$ |
(780,093 |
) |
|
$ |
(880 |
) |
|
$ |
9,733 |
|
Net (loss) income attributable to non-controlling
interest |
|
|
(3,700 |
) |
|
|
5,073 |
|
|
|
4,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (loss) income attributable to ATI Physical Therapy, Inc. |
|
$ |
(776,393 |
) |
|
$ |
(5,953 |
) |
|
$ |
5,333 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes to the consolidated financial statements are an integral part of these statements.
F-7
ATI Physical Therapy, Inc.
Consolidated Statements of Changes in Stockholders Equity
($ in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
Treasury Stock |
|
|
Additional Paid-In Capital |
|
|
Accumulated Other Comprehensive Income (Loss) |
|
|
Accumulated Deficit |
|
|
Non-Controlling Interest |
|
|
Total Stockholders Equity |
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
Balance at January 1, 2019 |
|
|
938,557 |
|
|
$ |
9 |
|
|
|
|
|
|
$ |
|
|
|
$ |
950,774 |
|
|
$ |
(1,309 |
) |
|
$ |
(68,377 |
) |
|
$ |
16,929 |
|
|
$ |
898,026 |
|
Retrospective application of reverse recapitalization |
|
|
127,346,957 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted balance at January 1, 2019 |
|
|
128,285,514 |
|
|
$ |
13 |
|
|
|
|
|
|
$ |
|
|
|
$ |
950,770 |
|
|
$ |
(1,309 |
) |
|
$ |
(68,377 |
) |
|
$ |
16,929 |
|
|
$ |
898,026 |
|
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,822 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,822 |
|
Contributions related to acquisitions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200 |
|
Other comprehensive loss (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16 |
) |
|
|
|
|
|
|
|
|
|
|
(16 |
) |
Distribution to non-controlling interest holder |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,862 |
) |
|
|
(4,862 |
) |
Net income attributable to non-controlling
interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,400 |
|
|
|
4,400 |
|
Net income attributable to ATI Physical Therapy, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,349 |
|
|
|
|
|
|
|
5,349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2019 |
|
|
128,285,514 |
|
|
$ |
13 |
|
|
|
|
|
|
$ |
|
|
|
$ |
952,792 |
|
|
$ |
(1,325 |
) |
|
$ |
(63,028 |
) |
|
$ |
16,467 |
|
|
$ |
904,919 |
|
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,936 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,936 |
|
Cumulative impact of ASC 842 adoption |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(405 |
) |
|
|
|
|
|
|
(405 |
) |
Other comprehensive loss (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(582 |
) |
|
|
|
|
|
|
|
|
|
|
(582 |
) |
Distribution to non-controlling interest holder |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,453 |
) |
|
|
(4,453 |
) |
Net income attributable to non-controlling
interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,073 |
|
|
|
5,073 |
|
Net loss attributable to ATI Physical Therapy, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,371 |
) |
|
|
|
|
|
|
(5,371 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2020 |
|
|
128,285,514 |
|
|
$ |
13 |
|
|
|
|
|
|
$ |
|
|
|
$ |
954,728 |
|
|
$ |
(1,907 |
) |
|
$ |
(68,804 |
) |
|
$ |
17,087 |
|
|
$ |
901,117 |
|
Net proceeds from FAII in Business Combination |
|
|
25,512,254 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
210,102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
210,105 |
|
Shares issued through PIPE investment |
|
|
30,000,000 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
299,997 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300,000 |
|
Shares issued to Wilco Holdco Series A Preferred stockholders |
|
|
12,845,282 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
128,452 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
128,453 |
|
Warrant liability recognized upon the closing of the Business Combination |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26,936 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26,936 |
) |
Contingent common shares liability recognized upon the closing of the Business
Combination |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(220,500 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(220,500 |
) |
Vesting of restricted shares distributed to holders of ICUs |
|
|
691,232 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock upon vesting of restricted stock awards |
|
|
105,473 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax withholdings related to net share settlement of restricted stock awards |
|
|
(29,791 |
) |
|
|
|
|
|
|
29,791 |
|
|
|
(95 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(95 |
) |
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,754 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,754 |
|
Other comprehensive income (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,935 |
|
|
|
|
|
|
|
|
|
|
|
1,935 |
|
Distribution to non-controlling interest holder |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,298 |
) |
|
|
(6,298 |
) |
Net loss attributable to non-controlling
interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,700 |
) |
|
|
(3,700 |
) |
Net loss attributable to ATI Physical Therapy, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(778,328 |
) |
|
|
|
|
|
|
(778,328 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2021 |
|
|
197,409,964 |
|
|
$ |
20 |
|
|
|
29,791 |
|
|
$ |
(95 |
) |
|
$ |
1,351,597 |
|
|
$ |
28 |
|
|
$ |
(847,132 |
) |
|
$ |
7,089 |
|
|
$ |
511,507 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Other comprehensive income (loss) related to unrealized gain (loss) on interest rate swap |
The accompanying notes to the consolidated financial statements are an integral part of these statements.
F-8
ATI Physical Therapy, Inc.
Consolidated Statements of Cash Flows
($ in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
|
December 31, 2019 |
|
Operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(782,028 |
) |
|
$ |
(298 |
) |
|
$ |
9,749 |
|
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill and intangible asset impairment charges |
|
|
962,303 |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
37,995 |
|
|
|
39,700 |
|
|
|
39,104 |
|
Provision for doubtful accounts |
|
|
16,369 |
|
|
|
16,231 |
|
|
|
22,191 |
|
Deferred income tax provision |
|
|
(71,088 |
) |
|
|
1,814 |
|
|
|
(44,033 |
) |
Amortization of
right-of-use assets |
|
|
45,536 |
|
|
|
44,526 |
|
|
|
|
|
Share-based compensation |
|
|
5,754 |
|
|
|
1,936 |
|
|
|
1,822 |
|
Amortization of debt issuance costs and original issue discount |
|
|
3,252 |
|
|
|
4,109 |
|
|
|
3,197 |
|
Non-cash interest expense |
|
|
|
|
|
|
6,335 |
|
|
|
|
|
Non-cash interest expense on redeemable preferred
stock |
|
|
10,087 |
|
|
|
19,031 |
|
|
|
15,511 |
|
Loss on extinguishment of debt |
|
|
5,534 |
|
|
|
|
|
|
|
|
|
Loss on settlement of redeemable preferred stock |
|
|
14,037 |
|
|
|
|
|
|
|
|
|
(Gain) loss on disposal and impairment of assets |
|
|
(5,189 |
) |
|
|
469 |
|
|
|
1,870 |
|
Loss on lease terminations and impairment |
|
|
|
|
|
|
3,863 |
|
|
|
|
|
Change in fair value of warrant liability |
|
|
(22,595 |
) |
|
|
|
|
|
|
|
|
Change in fair value of contingent common shares liability |
|
|
(175,140 |
) |
|
|
|
|
|
|
|
|
Changes in: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
|
(10,201 |
) |
|
|
(3,307 |
) |
|
|
(11,929 |
) |
Prepaid expenses and other current assets |
|
|
(6,688 |
) |
|
|
4,841 |
|
|
|
283 |
|
Other non-current assets |
|
|
(284 |
) |
|
|
413 |
|
|
|
36 |
|
Accounts payable |
|
|
1,831 |
|
|
|
798 |
|
|
|
(1,908 |
) |
Accrued expenses and other liabilities |
|
|
(5,288 |
) |
|
|
9,174 |
|
|
|
9,543 |
|
Operating lease liabilities |
|
|
(50,942 |
) |
|
|
(42,819 |
) |
|
|
|
|
Other non-current liabilities |
|
|
861 |
|
|
|
5,056 |
|
|
|
2,508 |
|
Medicare Accelerated and Advance Payment Program Funds |
|
|
(12,605 |
) |
|
|
26,732 |
|
|
|
|
|
Transaction-related amount due to former owners |
|
|
(3,611 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities |
|
|
(42,100 |
) |
|
|
138,604 |
|
|
|
47,944 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(40,293 |
) |
|
|
(21,887 |
) |
|
|
(41,227 |
) |
Purchases of intangible assets |
|
|
(1,675 |
) |
|
|
(250 |
) |
|
|
|
|
Proceeds from sale of property and equipment |
|
|
223 |
|
|
|
328 |
|
|
|
397 |
|
Proceeds from sale of clinics |
|
|
248 |
|
|
|
|
|
|
|
|
|
Proceeds from sale of Home Health service line |
|
|
6,131 |
|
|
|
|
|
|
|
|
|
Business acquisitions, net of cash acquired |
|
|
(4,523 |
) |
|
|
|
|
|
|
(1,848 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(39,889 |
) |
|
|
(21,809 |
) |
|
|
(42,678 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
F-9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
|
December 31, 2019 |
|
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Deferred financing costs |
|
|
|
|
|
|
(350 |
) |
|
|
|
|
Principal payments on long-term debt |
|
|
(456,202 |
) |
|
|
(8,167 |
) |
|
|
(8,167 |
) |
Proceeds from revolving line of credit |
|
|
|
|
|
|
68,750 |
|
|
|
|
|
Payments on revolving line of credit |
|
|
|
|
|
|
(68,750 |
) |
|
|
|
|
Cash inflow from Business Combination |
|
|
229,338 |
|
|
|
|
|
|
|
|
|
Payments to Series A Preferred stockholders |
|
|
(59,000 |
) |
|
|
|
|
|
|
|
|
Proceeds from shares issued through PIPE investment |
|
|
300,000 |
|
|
|
|
|
|
|
|
|
Payments for equity issuance costs |
|
|
(19,233 |
) |
|
|
|
|
|
|
|
|
Taxes paid on behalf of employees for shares withheld |
|
|
(128 |
) |
|
|
|
|
|
|
|
|
Distribution to non-controlling interest holder |
|
|
(6,298 |
) |
|
|
(4,453 |
) |
|
|
(4,862 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(11,523 |
) |
|
|
(12,970 |
) |
|
|
(13,029 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in cash and cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents |
|
|
(93,512 |
) |
|
|
103,825 |
|
|
|
(7,763 |
) |
Cash and cash equivalents at beginning of period |
|
|
142,128 |
|
|
|
38,303 |
|
|
|
46,066 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
48,616 |
|
|
$ |
142,128 |
|
|
$ |
38,303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental noncash disclosures: |
|
|
|
|
|
|
|
|
|
|
|
|
Derivative changes in fair value |
|
$ |
(1,935 |
) |
|
$ |
582 |
|
|
$ |
16 |
|
Purchases of property and equipment in accounts payable |
|
$ |
4,177 |
|
|
$ |
3,010 |
|
|
$ |
2,106 |
|
Warrant liability recognized upon the closing of the Business Combination |
|
$ |
(26,936 |
) |
|
$ |
|
|
|
$ |
|
|
Contingent common shares liability recognized upon the closing of the Business
Combination |
|
$ |
(220,500 |
) |
|
$ |
|
|
|
$ |
|
|
Shares issued to Wilco Holdco Series A Preferred stockholders |
|
$ |
128,453 |
|
|
$ |
|
|
|
$ |
|
|
Other supplemental disclosures: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
41,937 |
|
|
$ |
58,421 |
|
|
$ |
76,636 |
|
Cash paid for (received from) taxes |
|
$ |
81 |
|
|
$ |
(1,098 |
) |
|
$ |
(1,092 |
) |
The accompanying notes to the consolidated financial statements are an integral part of these statements.
F-10
Note 1. Overview of the Company
ATI Physical Therapy, Inc., together with its subsidiaries (herein referred to as we, the Company, ATI Physical Therapy and
ATI), is a nationally recognized healthcare company, specializing in outpatient rehabilitation and adjacent healthcare services. The Company provides outpatient physical therapy services under the name ATI Physical Therapy and, as of
December 31, 2021, had 910 clinics (as well as 20 clinics under management service agreements) located in 25 states. The Company offers a variety of services within its clinics, including physical therapy to treat spine, shoulder, knee and neck
injuries or pain; work injury rehabilitation services, including work conditioning and work hardening; hand therapy; and other specialized treatment services. The Companys direct and indirect wholly-owned subsidiaries include, but are not
limited to, Wilco Holdco, Inc., ATI Holdings Acquisition, Inc. and ATI Holdings, LLC.
On June 16, 2021 (the Closing Date), a Business
Combination transaction (the Business Combination) was finalized pursuant to the Agreement and Plan of Merger (Merger Agreement), dated February 21, 2021 between the operating company, Wilco Holdco, Inc. (Wilco
Holdco), and Fortress Value Acquisition Corp. II (herein referred to as FAII and FVAC), a special purpose acquisition company. In connection with the closing of the Business Combination, the Company changed its name
from Fortress Value Acquisition Corp. II to ATI Physical Therapy, Inc. The Companys common stock is listed on the New York Stock Exchange (NYSE) under the symbol ATIP.
The Business Combination is accounted for as a reverse recapitalization in accordance with U.S. generally accepted accounting principles (GAAP).
Under this method of accounting, FAII is treated as the acquired company and Wilco Holdco is treated as the acquirer for financial statement reporting and accounting purposes. As a result, the historical operations of Wilco Holdco are deemed to be
those of the Company. Therefore, the financial statements included in this report reflect (i) the historical operating results of Wilco Holdco prior to the Business Combination; (ii) the combined results of FAII and Wilco Holdco following
the Business Combination on June 16, 2021; (iii) the assets and liabilities of Wilco Holdco at their historical cost; and (iv) the Companys equity structure for all periods presented. The recapitalization of the number of shares of
common stock attributable to the Business Combination is reflected retroactively to the earliest period presented and will be utilized for calculating earnings per share in all prior periods presented. No
step-up basis of intangible assets or goodwill was recorded in the Business Combination consistent with the treatment of the transaction as a reverse recapitalization of Wilco Holdco, Inc. Refer to Note
3Business Combinations and Divestiture for additional information.
Impact of COVID-19 and
CARES Act
The coronavirus (COVID-19) pandemic in the United States resulted in changes to our
operating environment. We continue to closely monitor the impact of COVID-19 on all aspects of our business, and our priorities remain protecting the health and safety of employees and patients, maximizing the
availability of services to satisfy patient needs and improving the operational and financial stability of our business. While we expect the disruption caused by COVID-19 and resulting impacts to diminish
over time, we cannot predict the length of such impacts, and if such impacts continue for an extended period, it could have a continued effect on the Companys results of operations, financial condition and cash flows, which could be material.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) was signed into law providing reimbursement,
grants, waivers and other funds to assist health care providers during the COVID-19 pandemic. The Company has realized benefits under the CARES Act including, but not limited to, the following:
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|
|
In 2020, the Company received approximately $91.5 million of general distribution payments under
the Provider Relief Fund. These payments have been recognized as other income in the consolidated statements of operations throughout 2020 in a manner commensurate with the reporting and eligibility requirements issued by HHS. Based
on the terms and conditions of the program, including reporting guidance issued by HHS in 2021, the Company believes that it has met the applicable terms and |
F-11
|
conditions. This includes, but is not limited to, the fact that the Companys COVID-19 related expenses and lost revenues for the year ended
December 31, 2020 exceeded the amount of funds received. To the extent that reporting requirements and terms and conditions are subsequently modified, it may affect the Companys ability to comply and ability to retain the funds. The
following table summarizes the quarterly recognition of general distribution payments recognized in other expense (income), net in the Companys 2020 consolidated statements of operations (in millions): |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
March 31, 2020 |
|
June 30, 2020 |
|
|
September 30, 2020 |
|
|
December 31, 2020 |
|
|
Total |
|
$ |
|
$ |
(44.3 |
) |
|
$ |
(23.1 |
) |
|
$ |
(24.1 |
) |
|
$ |
(91.5 |
) |
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|
|
The Company applied for and obtained approval to receive $26.7 million of Medicare Accelerated and Advance
Payment Program (MAAPP) funds during the quarter ended June 30, 2020. During the year ended December 31, 2021, the Company applied $12.6 million in MAAPP funds and transferred $1.8 million in MAAPP funds as part of
the divestiture of its Home Health service line. Because the Company has not yet met all required performance obligations or performed the services related to the remaining funds, as of December 31, 2021 and December 31, 2020,
$12.3 million and $15.5 million of the funds are recorded in accrued expenses and other liabilities, respectively, and zero and $11.2 million of the funds are recorded in other non-current
liabilities, respectively. |
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|
The Company elected to defer depositing the employer portion of Social Security taxes for payments due from
March 27, 2020 through December 31, 2020, interest-free and penalty-free. Related to these payments, as of December 31, 2021 and December 31, 2020, $5.9 million and $5.5 million is included in
accrued expenses and other liabilities, respectively, and zero and $5.5 million is included in other non-current liabilities, respectively. |
Note 2. Basis of Presentation and Summary of Significant Accounting Policies
The accompanying consolidated financial statements of the Company were prepared in accordance with U.S. generally accepted accounting principles
(GAAP) and in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (SEC). The Companys indirect wholly-owned subsidiaries include, but are not limited to, ATI Holdings Acquisition,
Inc. and ATI Holdings, LLC.
Principles of consolidation
The consolidated financial statements incorporate the financial statements of the Company, its subsidiaries, entities for which the Company has a controlling
financial interest, and variable interest entities (VIEs) for which the Company is the primary beneficiary. All intercompany balances and transactions have been eliminated in consolidation, and net earnings are reduced by the portion of
net earnings attributable to noncontrolling interests.
Variable interest entities
The Company consolidates all variable interest entities where the Company is the primary beneficiary. The Company identifies the primary beneficiary of a VIE
as the enterprise that has both: (i) the power to direct the activities of the VIE that most significantly impact the entitys economic performance; and (ii) the obligation to absorb losses or the right to receive benefits of the VIE
that could be significant to the entity. The Company may change the original assessment of a VIE upon subsequent events such as the modification of contractual agreements.
The Company has an investment in RSFH-ATI Physical Therapy, LLC (RSFH) that qualifies as a VIE. Based on
the provisions of the RSFH agreement, the Company manages the entity and handles all day-to-day operating
F-12
decisions in exchange for management fees and may receive distributions proportionate with its level of ownership. Accordingly, the Company has the decision-making power over the activities that
most significantly impact the entitys economic performance and the obligation to absorb losses or the right to receive benefits that could be significant to the entity.
As of December 31, 2021 and 2020, total assets of RSFH were $13.3 million and $19.7 million, respectively, and total liabilities were
$6.5 million and $6.5 million, respectively. In general, the assets are available primarily for the settlement of obligations of RSFH.
Use of estimates
The preparation of financial
statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The effect of the change in the estimates will be recognized in the current period of the change.
Segment reporting
The Company reports segment
information based on the management approach. The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of the Companys reportable segments. All of the
Companys operations are conducted within the United States. Our chief operating decision maker (CODM) is our Chief Executive Officer (or in the absence of a Chief Executive Officer, the leadership team fulfilling the role of
Principal Executive Officer), who reviews financial information presented on a consolidated basis for purposes of making decisions, assessing financial performance and allocating resources. We operate our business as one operating segment and
therefore we have one reportable segment.
Cash and cash equivalents
Cash and cash equivalents include all cash balances and highly liquid investments with original maturities of three months or less when issued.
Accounts receivable
The Companys accounts
receivable are reported net of contractual adjustments and allowances for doubtful accounts. The majority of accounts receivable are due from commercial insurance companies, workers compensation plans, auto personal injury claims and
government health programs, such as Medicare or Medicaid. The Company reports accounts receivable at an amount equal to the consideration the Company expects to receive in exchange for providing healthcare services to its patients.
Allowance for doubtful accounts
The allowance for
doubtful accounts is based on estimates of losses related to receivable balances. The risk of collection varies based upon the service, the payor class and the patients ability to pay the amounts not reimbursed by the payor. The Company
estimates the allowance for doubtful accounts based upon several factors, including the age of the outstanding receivables, the historical experience of collections, the impact of economic conditions and, in some cases, evaluating specific customer
accounts for the ability to pay. Management judgment is used to assess the collectability of accounts and the ability of the Companys customers to pay. The provision for doubtful accounts is included in cost of services in the consolidated
statements of operations. When it is determined that a customer account is uncollectible, that balance is written off against the existing allowance.
F-13
Concentrations of business risk
The Company provides physical therapy services to a large number of patients who participate in government healthcare programs, resulting in a customer
concentration relating to Medicare and Medicaids service reimbursement programs. The Company believes that the concentration of credit risk with respect to other patient accounts receivable is limited due to the large number of patients that
make up the Companys patient base and the dispersion across many different insurance companies, preferred provider organizations and individuals.
Net patient revenue
Net patient revenue consists
of revenue for physical therapy services. Net patient revenue is recognized at an amount equal to the consideration the Company expects to receive from third-party payors, patients and others for services rendered when the performance obligations
under the terms of the contract are satisfied.
There is an implied contract between the Company and the patient upon each patient visit resulting in the
Companys patient service performance obligation. Generally, the performance obligation is satisfied at a point in time, as each service provided is distinct and future services rendered are not dependent on previously rendered services. The
Company has separate contractual agreements 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.
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 implied contract, the Company includes the estimated effects of any variable consideration, such as contractual allowances and implicit price concessions. When the Company has contracts with negotiated prices
for services provided (contracted payors), the Company considers the contractual rates when recording revenue and adjusts for any variable consideration to the transaction price to arrive at revenue. Variable consideration is estimated using a
portfolio approach that incorporates whether or not the Company has historical differences from negotiated rates due to non-compliance with contract provisions. Historical results indicate that it is probable
that negotiated prices less variable consideration will be realized; therefore, this amount is deemed the transaction price and recorded as revenue. The Company records an estimated provision for doubtful accounts based on historical collections for
claims with similar characteristics, such as location of service and type of third-party payor, at the time of recognition. Any subsequent impairment of the related receivable is recorded as provision for doubtful accounts.
For non-contracted payors, the Company determines the transaction price by applying established rates to the services
provided and adjusting for contractual allowances provided to third-party payors and implicit price concessions. The Company estimates the contractual allowances and implicit price concessions using a portfolio approach based on historical
collections for claims with similar characteristics, such as location of service and type of third-party payor, in relation to established rates, because the Company does not have a contract with the underlying payor. Any subsequent changes in
estimate on the realization of the receivable is recorded as a revenue adjustment. Management believes that calculating at the portfolio level would not differ materially from considering each patient account separately.
The Company continually reviews the revenue transaction price estimation process to consider updates to laws and regulations and changes in third-party payor
contractual terms that result from contract renegotiations and renewals. Due to complexities involved in determining amounts ultimately due under reimbursement arrangements with third-party payors and government entities, which are often subject to
interpretation, the Company may receive reimbursement for healthcare services that is different from the estimates, and such differences could be material.
F-14
Other revenue
Revenue from the ATI Worksite Solutions business is derived from onsite services provided to clients employees including injury prevention,
rehabilitation, ergonomic assessments and performance optimization. Revenue is determined based on the number of hours and respective rate for services provided.
Revenues from Management Service Agreements (MSA) are derived from contractual arrangements whereby the Company manages a non-controlled clinic or clinics for third party owners. The Company does not have any ownership interest in these clinics. Typically, revenue is determined based on the number of visits conducted at the clinic and
recognized when services are performed. Costs, primarily salaries for the Companys employees, are recorded when incurred.
Other revenue includes
physical or occupational therapy services and athletic training provided on-site, such as at schools and industrial worksites. Contract terms and rates are agreed to in advance between the Company and the
third parties. Services are typically performed over the contract period, and revenue is recorded in accordance with the contract terms. If the services are paid in advance, revenue is deferred and recognized as the services are performed.
Property and equipment
Property and equipment
acquired is recorded at cost less accumulated depreciation, except during an acquisition of a business, in which case the assets are recorded at fair value. Depreciation is calculated using the straight-line method and is provided in amounts
sufficient to attribute the cost of depreciable assets to operations over the estimated useful lives. The approximate useful life of each class of property and equipment is as follows:
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Equipment |
|
3-5 years |
Furniture & fixtures |
|
5-7 years |
Automobiles |
|
3-5 years |
Software |
|
3-5 years |
Buildings |
|
40 years |
Leasehold improvements |
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Lesser of lease term or estimated useful lives of the assets (generally 5-15 years) |
Major repairs that extend the useful life of an asset are capitalized to the property and equipment account. Routine
maintenance and repairs are charged to rent, clinic supplies, contract labor and other expense and selling, general and administrative expenses. Gains or losses associated with property and equipment retired or sold are included in earnings.
Computer software is included in property and equipment and consists of purchased software and internally developed software. The Company capitalizes
application-stage development costs for significant internally developed software projects. Once the software is ready for its intended use, these costs are amortized on a straight-line basis over the softwares estimated useful life. Costs
recognized in the preliminary project phase and the post-implementation phase, as well as maintenance and training costs, are expensed as incurred.
Impairment of long-lived assets
The Company
reviews the recoverability of long-lived assets whenever events or circumstances occur indicating that the carrying value of the asset may not be recoverable. If the undiscounted cash flows related to the long-lived asset or asset group are not
sufficient to recover the remaining carrying value of such asset or asset group, an impairment charge is recognized for the excess carrying amount over the fair value of the asset or asset group. Impairment of deferred leasehold interests relating
to asset write-offs from clinic closings are recorded to cost of services.
F-15
Goodwill and intangible assets
Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed. The Company accounts for goodwill and
indefinite-lived intangible assets under Accounting Standards Codification (ASC) Topic 350, Intangibles Goodwill and Other, which requires the Company to test goodwill and other indefinite-lived assets for impairment
annually or whenever events or circumstances indicate that impairment may exist. The Company noted triggering events during the current year which resulted in the recording of impairment losses. Refer to Note 5Goodwill, Trade Name and Other
Intangible Assets for further details. The Company did not note any triggering events during the prior presented years that resulted in the recording of an impairment loss. Due to the current economic uncertainty resulting from the COVID-19 pandemic and other factors, the Company will continue to review the carrying amounts of goodwill and indefinite-lived assets for potential triggering events.
The cost of acquired businesses is allocated first to its identifiable assets, both tangible and intangible, based on estimated fair values. Costs allocated
to finite-lived identifiable intangible assets are generally amortized on a straight-line basis over the remaining estimated useful lives of the assets. The excess of purchase price over the fair value of identifiable assets acquired, net of
liabilities assumed, is recorded as goodwill.
The approximate useful life of each class of intangible asset is as follows:
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|
ATI Physical Therapy trade name/trademarks |
|
Indefinite |
Non-compete agreements |
|
2-5 years |
Other intangible assets |
|
15 years |
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 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 interim and annual impairment analyses of goodwill as
of June 30, 2021, September 30, 2021 and October 1, 2021 by estimating its fair value 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, EBITDA margins, the terminal growth rate, the discount rate and relevant market multiples. The Company completed the interim and annual impairment analyses of indefinite-lived intangible
assets as of June 30, 2021, September 30, 2021 and October 1, 2021 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.
Deferred financing costs
Original debt issuance discounts and costs incurred related to debt financing are recorded as a reduction to debt and amortized ratably over the term of the
related debt agreement, using the effective interest method. Deferred financing costs related to revolving credit facilities are recognized as assets and amortized ratably over the term of the related agreement using the effective interest method.
Deferred financing costs are amortized to interest expense, net in the Companys consolidated statements of operations. The Company recognized amortization of deferred debt issuance costs of $2.3 million, $3.0 million and
$2.7 million for the years ended December 31, 2021, 2020 and 2019, respectively. The Company recognized amortization of original debt issuance discounts of $1.0 million, $1.0 million and $0.5 million for the years ended
December 31, 2021, 2020 and 2019, respectively.
Preferred stock
Preferred stock is classified as debt, equity or mezzanine equity based on its redemption features. Preferred stock with redemption features outside of the
control of the issuer, such as contingent redemption features, is classified as mezzanine equity. Preferred stock with mandatory redemption features is classified as debt. Preferred stock with no redemption features, or redemption features over
which the issuer has control, is classified as equity.
F-16
The Company had preferred stock that was classified as debt (redeemable preferred stock) in the
Companys consolidated balance sheets, prior to its redemption as part of the Business Combination. Refer to Note 12Redeemable Preferred Stock for more information about the Companys previously outstanding preferred stock.
Treasury stock
Treasury stock amounts are
accounted for under the cost method whereby the entire cost of the acquired stock is recorded as treasury stock. Gains and losses on the subsequent reissuance of shares are credited or charged to paid-in
capital in excess of par value using the average-cost method.
Warrant liability
The Company accounts for its outstanding Public Warrants and Private Placement Warrants in accordance with the guidance contained in Accounting Standards
Codification 815-40, Derivatives and HedgingContracts on an Entitys Own Equity, (ASC 815-40) and determined that the Warrants do not meet
the criteria for equity treatment thereunder. As such, each Warrant must be recorded as a liability and is subject to re-measurement at each balance sheet date. Changes in fair value are recognized in change
in fair value of warrant liability in the Companys consolidated statements of operations.
Contingent common shares liability
The Company accounts for its potential Earnout Shares and Vesting Shares as a liability in accordance with the guidance in ASC 480, Distinguishing
Liabilities from Equity, and ASC 815, Derivatives and Hedging, and is subject to re-measurement at each balance sheet date. Changes in fair value are recognized in the Companys consolidated
statements of operations.
Noncontrolling interests in consolidated affiliates
The consolidated financial statements include all assets, liabilities, revenues and expenses of less-than-100%-owned
affiliates where the Company has a controlling financial investment. The Company has separately reflected net income attributable to the noncontrolling interests in net income in the consolidated statements of operations.
Fair value of financial instruments
The Company
determines fair value measurements used in its consolidated financial statements based upon the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants exclusive of any
transaction costs, as determined by either the principal market or the most advantageous market at the measurement date.
Inputs used in the valuation
techniques to derive fair values are classified based on a three-level hierarchy. The basis for fair value measurements for each level within the hierarchy is described below with Level 1 having the highest priority and Level 3 having the
lowest.
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Level 1: Observable inputs, which include unadjusted quoted prices in active markets for identical
instruments. |
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Level 2: Observable inputs other than Level 1 inputs, such as quoted prices in markets that are not
active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the instruments. |
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Level 3: Unobservable inputs in which little or no market data exists, therefore requiring an entity to
develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. |
F-17
Refer to Note 15 - Fair Value Measurements for valuation techniques and inputs related to the
Companys financial instruments and share-based liabilities.
Income taxes
The Company accounts for income taxes in accordance with ASC Topic 740 (ASC 740), Income Taxes. Under ASC 740, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and the respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rate is recognized in
operations in the period that includes the enactment date.
ASC 740 provides guidance on how uncertain tax positions should be recognized, measured,
presented and disclosed in the financial statements. ASC 740 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Companys tax returns to determine whether the tax positions are more likely than
not of being sustained by the applicable tax authority. Tax positions deemed to not meet a more-likely-than-not threshold may not be recognized in the financial statements. The Company reviews these tax
uncertainties in light of changing facts and circumstances, such as the progress of tax audits, and if any tax uncertainties were identified, the Company would recognize them accordingly.
Cost of services
Cost of services consist of
salaries specific to the Companys clinic operations along with rent, clinic supplies expense, depreciation and advertising costs. In addition, cost of services includes the provision for doubtful accounts.
Selling, general and administrative expenses
Selling, general and administrative expenses consist primarily of wages and benefits for corporate personnel, corporate outside services, marketing costs,
depreciation of corporate fixed assets, amortization of intangible assets and certain corporate level professional fees, including those related to legal, accounting and payroll.
Advertising costs
Advertising costs are expensed
as incurred or when services are rendered. Advertising costs included in cost of services were $3.2 million, $2.3 million and $4.6 million for the years ended December 31, 2021, 2020 and 2019, respectively. Advertising costs
included in selling, general and administrative expenses were $5.1 million, $4.8 million and $6.9 million for the years ended December 31, 2021, 2020 and 2019, respectively.
Share-based compensation
The Company applies the
guidance in ASC Topic 718, CompensationStock Compensation, in its accounting for share-based compensation. The Company recognizes compensation expense for all share-based compensation awarded to employees, net of forfeitures, using a
fair value-based method. The grant-date fair value of each award is amortized to expense on a straight-line basis over the awards vesting period. Compensation expense associated with share-based awards is included in salaries and related costs
and selling, general and administrative expenses in the accompanying consolidated statements of operations, depending on whether the award recipient is a clinic-level or corporate employee, respectively. Share-based compensation expense is adjusted
for forfeitures as incurred.
F-18
(Loss) earnings per share
The Company applies the guidance in ASC Topic 260, Earnings Per Share, in its computation of (loss) earnings per share. Basic (loss) earnings per share
is computed by dividing net (loss) income by the weighted average number of common shares outstanding during the period. Diluted (loss) earnings per share is computed by dividing net (loss) income by the weighted average number of common shares and
dilutive common share equivalents outstanding. Refer to Note 19(Loss) Earnings per Share for more information.
Leases
The Company applies the guidance in ASC Topic 842 (ASC 842), Leases, to classify individual leases of assets as either operating or finance
leases at contract inception. All leased assets have been classified as operating lease arrangements, and the Companys classes of leased assets include real estate and equipment. The Company adopted ASC 842 on January 1, 2020 using the
alternative transition method.
Operating lease balances are included in operating lease
right-of-use (ROU) assets, current portion of operating lease liabilities and operating lease liabilities in the Companys consolidated balance sheets.
ROU assets represent the Companys right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease
commencement date based on the present value of lease payments over the lease term, adjusted for prepaid or accrued lease payments and lease incentives. The Companys lease terms include the impact of options to extend or terminate the lease
when it is reasonably certain that the options will be exercised or not exercised, as appropriate. When discount rates implicit in leases cannot be readily determined, the Company uses the applicable incremental borrowing rate at lease commencement
to perform lease classification tests on lease components and to measure lease liabilities and ROU assets. Leases with an initial term of 12 months or less are not recorded on the balance sheet.
The ROU asset is subject to testing for impairment if there is an indicator for impairment, as is the case for owned assets. The Company noted triggering
events during the current year which resulted in the recording of impairment losses, which were not material. The Company did not note any triggering events during the prior presented years that resulted in the recording of an impairment loss. The
amortization of operating lease ROU assets and the accretion of operating lease liabilities are reported together as fixed lease expense. The fixed lease expense is recognized on a straight-line basis over the life of the lease. Some of the
Companys operating leases include variable lease payments. To the extent they are not included in operating lease liabilities and operating lease ROU assets, these variable lease payments are recognized as incurred.
Recently adopted accounting guidance
In February
2016, the FASB established ASC Topic 842, Leases, by issuing ASU No. 2016-02, which requires lessees to recognize leases on-balance sheet and disclose key
information about leasing arrangements. ASC 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU
No. 2018-10, Codification Improvements to Topic 842, Leases; ASU No. 2018-11, Targeted Improvements; ASU
No. 2019-01, Codification Improvements; and ASU No. 2019-10, Leases (Topic 842). ASC 842 establishes a right-of-use model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating,
with classification affecting the pattern and classification of expense recognition in the statement of operations.
ASC 842 is effective for the Company
on January 1, 2021, with early adoption permitted. The Company elected to early adopt this standard on January 1, 2020 using the alternative transition method provided by ASC 842. Under the alternative transition method, the effects of
initially applying the new guidance are recognized as a cumulative-effect adjustment to retained earnings at the date of initial application, which is January 1, 2020, and prior periods are not restated.
As part of transitioning to ASC 842, the Company has elected to apply the package of transition practical expedients, which allows the Company to not reassess
under ASC 842 prior conclusions about lease
F-19
identification, lease classification and initial direct costs. As a result of adopting ASC 842 and election of the transition practical expedients, the Company recognized ROU assets and lease
liabilities for those leases classified as operating leases under ASC 840 that continued to be classified as operating leases under ASC 842 at the date of initial application. Leases classified as capital under ASC 840 are classified as finance
under ASC 842. As of the date of transition to ASC 842, the Company did not have any capital leases under ASC 840.
The Company has elected the practical
expedient within ASC 842 to not separate lease and non-lease components within lease transactions for all classes of assets. Additionally, the Company has elected the short-term lease exception for all classes
of assets.
In applying the alternative modified retrospective transition method, the Company measured lease liabilities at the present value of the sum
of remaining minimum lease payments. The Companys operating lease liabilities have been measured using the Companys incremental borrowing rates as of January 1, 2020 (the date of initial application). Additionally, the
Companys operating lease ROU assets have been measured as the initial measurement of applicable lease liabilities adjusted for any unamortized initial direct costs, prepaid/accrued rent, unamortized lease incentives and any liabilities on
account of exit or disposal cost obligations.
Adoption of ASC 842 at January 1, 2020, and application of the alternative modified retrospective
transition method resulted in the recognition of:
|
(1) |
operating lease ROU assets of $263.2 million; |
|
(2) |
operating lease liabilities of $306.4 million; |
|
(3) |
the cumulative effect adjustment to increase the opening balance of the accumulated deficit by
$0.4 million; |
Adoption of this standard did not have a material impact on the Companys consolidated statements of operations
and consolidated statements of cash flows. Refer to Note 17Leases for more information about the Companys lease related obligations.
In December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2019-12, Income Taxes Simplifying the Accounting for Income Taxes (Topic 740), which removes certain exceptions to the general principles in Topic 740 and simplifies the accounting for income
taxes. This ASU is effective for the Company on January 1, 2022, with early adoption permitted. The Company early adopted this new accounting standard effective January 1, 2021. The adoption of this ASU did not have a material impact on
the Companys consolidated financial statements.
Recent accounting pronouncements
Based on our public float as of June 30, 2021, the Company became a large accelerated filer and lost emerging growth company status as of
December 31, 2021. As of December 31, 2021, the Company will be required to adopt new or revised accounting standards when they are applicable to public companies that are not emerging growth companies.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of
Reference Rate Reform on Financial Reporting, which provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. This
standard was subsequently amended by ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope. This standard is optional and may be applied by entities after March 12, 2020, but no later than
December 31, 2022. As of December 31, 2021, the Company has certain debt instruments for which the interest rates are indexed to the London InterBank Offered Rate (LIBOR), and as a result, is currently evaluating the effect
that implementation of this standard will have on the Companys consolidated operating results, cash flows, financial condition and related disclosures.
F-20
In October 2021, the FASB issued ASU 2021-08, Business
Combinations (Topic 805): Accounting for Contract Assets and Liabilities from Contracts with Customers, which provides guidance to improve the accounting for acquired revenue contracts with customers in a business combination by addressing
diversity in practice. This ASU is effective for the Company on January 1, 2023, with early adoption permitted, and shall be applied on a prospective basis to business combinations that occur on or after the adoption date. The Company is
evaluating the effect that the implementation of this standard may have on the Companys consolidated financial statements, but does not currently expect the impact to be material.
In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities
about Government Assistance, which provides guidance to increase the transparency of government assistance transactions with business entities that are accounted for by applying a grant or contribution accounting model. This ASU is effective for
the Companys annual financial statements to be issued for the year ended December 31, 2022, with early adoption permitted. The Company expects to adopt this new accounting standard in its Annual Report on Form 10-K for the year ended December 31, 2022, and does not expect the adoption of this standard to have a material impact on the Companys consolidated financial statements.
Note 3. Business Combinations and Divestiture
The
Business Combination
As discussed in Note 1Overview of the Company, on June 16, 2021, a business combination between Wilco
Holdco and FAII was consummated, which was accounted for as a reverse recapitalization of Wilco Holdco, Inc. At the time of the Business Combination, stockholders of Wilco Holdco, Inc. received 130.3 million shares of the Companys
Class A common stock, par value $0.0001 per share (the Common Stock), for the outstanding shares of Wilco Holdco common stock, par value $0.01 per share, that such stockholders owned. Upon distribution of shares of Common Stock to
holders of vested and unvested Incentive Common Units (ICUs) granted prior to the Business Combination under the Wilco Acquisition, LP 2016 Equity Incentive Plan, 2.0 million of these shares were restricted subject to vesting
requirements, resulting in total unrestricted shares of 128.3 million and an exchange ratio of 136.7 unrestricted shares of ATI Physical Therapy, Inc. for every previously outstanding Wilco Holdco share.
Immediately following the Business Combination, there were 207.3 million shares issued and 196.6 million outstanding shares of common stock of ATI
Physical Therapy, Inc., consisting of the following (in thousands):
|
|
|
|
|
|
|
Class A Common Shares |
|
FAII Class A common stock prior to Business Combination |
|
|
34,500 |
|
FAII Class F common stock prior to Business Combination(1) |
|
|
8,625 |
|
Less: FAII Class A common stock redemptions |
|
|
(8,988 |
) |
|
|
|
|
|
FAII common shares (Class A and Class F) |
|
|
34,137 |
|
|
|
|
|
|
Add: Shares issued to Wilco Holdco stockholders(2,
3) |
|
|
130,300 |
|
Add: Shares issued through PIPE investment |
|
|
30,000 |
|
Add: Shares issued to Wilco Holdco Series A Preferred stockholders |
|
|
12,845 |
|
|
|
|
|
|
Total shares issued as of the Closing Date of the Business Combination(4) |
|
|
207,282 |
|
|
|
|
|
|
Less: Vesting Shares(1) |
|
|
(8,625 |
) |
Less: Restricted shares(3) |
|
|
(2,014 |
) |
|
|
|
|
|
Total shares outstanding as of the Closing Date of the Business Combination(4) |
|
|
196,643 |
|
|
|
|
|
|
(1) |
Per the Merger Agreement, as of the closing of the Business Combination, all Class F shares converted into
the equivalent number of Class A common shares and became subject to certain vesting and forfeiture provisions (Vesting Shares) as detailed in Note 14Contingent Common Shares Liability. |
F-21
(2) |
Includes 1.2 million unrestricted shares upon distribution to holders of vested ICUs under the Wilco
Acquisition, LP 2016 Equity Incentive Plan. Refer to Note 10Share-Based Compensation for further details. |
(3) |
Includes 2.0 million restricted shares upon distribution to holders of unvested ICUs under the Wilco
Acquisition, LP 2016 Equity Incentive Plan. Refer to Note 10Share-Based Compensation for further details. |
(4) |
Excludes 15.0 million Earnout Shares, 6.9 million Public Warrants and 3.0 million Private
Placement Warrants to purchase Class A common stock. Refer to Note 13Warrant Liability and Note 14Contingent Common Shares Liability for further details. |
PIPE investment
Concurrently with the closing of the
Business Combination, pursuant to Subscription Agreements executed between FAII and certain investors, 30.0 million shares of Class A common stock (the PIPE investment) were newly issued in a private placement at a purchase
price of $10.00 per share for an aggregate purchase price of $300.0 million. The initial PIPE investment included 7.5 million shares of Class A common stock newly issued to certain investment funds managed by affiliates of Fortress
Investment Group LLC (Fortress) at a purchase price of $10.00 per share for an aggregate purchase price of $75.0 million.
Wilco
Holdco Series A Preferred Stock
Immediately following the Business Combination, all holders of the previously outstanding shares of Wilco Holdco
Series A Preferred Stock received a proportionate share of $59.0 million and 12.8 million shares of ATI Physical Therapy, Inc. Class A common stock based on the terms of the Merger Agreement. Refer to Note 12Redeemable
Preferred Stock for further details.
Earnout Shares
Subject to the terms and conditions of the Merger Agreement, certain stockholders of Wilco Holdco, Inc. were provided the contingent right to receive, in the
aggregate, up to 15.0 million shares of Class A common stock that may be issued pursuant to an earnout arrangement if certain Class A common stock price targets are achieved between the Closing Date and the 10 year anniversary of the
Closing Date (Earnout Shares). The Earnout Shares are subject to acceleration in the event of a sale or other change in control if the holders of Class A common stock would receive a per share price in excess of the applicable
Earnout Shares price target.
On the date of the Business Combination, the Company recorded a liability related to the Earnout Shares of
$140.0 million. During the period from June 16, 2021 to December 31, 2021, the fair value of the Earnout Shares decreased to $28.8 million, resulting in a gain of $111.2 million for the year ended December 31, 2021,
recorded as a component of change in fair value of contingent common shares liability in the consolidated statements of operations. Refer to Note 14Contingent Common Shares Liability and Note 15 - Fair Value Measurements for
further details.
Vesting Shares
Pursuant to the
Sponsor Letter Agreement executed in connection with the Merger Agreement, 8.6 million shares of Class F common stock of FAII outstanding immediately prior to the Business Combination converted to potential Class A common shares and
became subject to certain vesting and forfeiture provisions (Vesting Shares). The Vesting Shares are subject to acceleration in the event of a sale or other change in control if the holders of Class A common stock would receive a
per share price in excess of the applicable Vesting Shares price target.
On the date of the Business Combination, the Company recorded a liability
related to the Vesting Shares of $80.5 million. During the period from June 16, 2021 to December 31, 2021, the fair value of the Vesting Shares
F-22
decreased to $16.6 million, resulting in a gain of $63.9 million for the year ended December 31, 2021, recorded as a component of change in fair value of contingent common shares
liability in the consolidated statements of operations. Refer to Note 14Contingent Common Shares Liability and Note 15 - Fair Value Measurements for further details.
Warrants
Immediately following the Business Combination,
the Company had outstanding Public Warrants to purchase an aggregate of 6.9 million shares of the Companys Class A common stock (Public Warrants) and outstanding Private Placement Warrants to purchase an aggregate of
3.0 million shares of the Companys Class A common stock (Private Placement Warrants) (collectively, the Warrants). In conjunction with the Business Combination, 3.0 million Private Placement Warrants were
transferred and surrendered for no consideration based on terms of the Sponsor Letter Agreement.
On the date of the Business Combination, the Company
recorded a liability related to the Warrants of $26.9 million. During the period from June 16, 2021 to December 31, 2021, the fair value of the Warrants decreased to $4.3 million, resulting in a gain of $22.6 million for the
year ended December 31, 2021, recorded as change in fair value of warrant liability in the consolidated statements of operations. Refer to Note 13Warrant Liability and Note 15 - Fair Value Measurements for further details.
The following table reflects the components of cash movement related to the Business Combination, PIPE investment and debt repayments (in thousands):
|
|
|
|
|
Cash in trust with FAII as of the Closing Date of the Business Combination |
|
$ |
345,036 |
|
Cash used for redemptions of FAII Class A common stock |
|
|
(89,877 |
) |
FAII transaction costs paid at closing |
|
|
(25,821 |
) |
|
|
|
|
|
Cash inflow from Business Combination |
|
|
229,338 |
|
Wilco Holdco, Inc. transaction costs offset against proceeds |
|
|
(19,233 |
) |
|
|
|
|
|
Net proceeds from FAII in Business Combination |
|
|
210,105 |
|
Cash proceeds from PIPE investment |
|
|
300,000 |
|
Repayment of second lien subordinated loan |
|
|
(231,335 |
) |
Partial repayment of first lien term loan |
|
|
(216,700 |
) |
Cash payment to Wilco Holdco Series A Preferred stockholders |
|
|
(59,000 |
) |
Wilco Holdco, Inc. transaction costs expensed during the year ended December 31,
2021 |
|
|
(5,543 |
) |
|
|
|
|
|
Net decrease in cash related to Business Combination, PIPE investment and debt repayments |
|
$ |
(2,473 |
) |
|
|
|
|
|
For the year ended December 31, 2021, the Company expensed $5.5 million in transaction costs related to the Business
Combination, which are classified as selling, general and administrative expenses in the consolidated statement of operations. In addition, $19.2 million of Wilco Holdco, Inc. transaction costs related to the Business Combination were offset
against additional paid-in capital in the consolidated statements of changes in stockholders equity as these costs were determined to be directly attributable to the recapitalization.
Home Health divestiture
On August 25, 2021,
the Company entered into an agreement to divest its Home Health service line. On October 1, 2021, the transaction closed with a sale price of $7.3 million, and the Company recognized a gain of $5.8 million in other expense (income),
net in its consolidated statement of operations. The major classes of assets and liabilities associated with the Home Health service line consisted of predominantly accounts receivable, accrued expenses and other liabilities which were not material.
F-23
2021 acquisitions
During the fourth quarter of 2021, the Company completed 3 acquisitions consisting of 7 total clinics. The Company paid approximately $4.5 million in cash
and $1.4 million in future payment consideration, subject to certain time or performance conditions set out in the purchase agreements, to complete the acquisitions. The acquisitions qualified for purchase accounting treatment under ASC Topic
805, Business Combinations, whereby the purchase price was allocated to the assets acquired and liabilities assumed based upon their estimated fair values on the respective acquisition dates. Of the total amount of consideration,
$5.5 million was allocated to goodwill based on managements valuations, which are preliminary and subject to completion of the Companys valuation analysis through the 12 month measurement period. Goodwill represents the future
economic benefits arising from the other assets acquired that could not be individually identified and separately recognized, such as assembled workforce, synergies, and location. The entire amount of goodwill recorded from these purchases will be
deductible for income tax purposes. Acquisition-related costs to complete the transactions, net operating revenue and net income recognized in 2021 related to the acquisitions were not material, individually and in the aggregate. Unaudited proforma
consolidated financial information for the acquisitions have not been included as the results are not material, individually and in the aggregate.
Note 4. Revenue from Contracts with Customers
The
following table disaggregates net operating revenue by major service line for the periods indicated below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
|
December 31, 2019 |
|
Net patient revenue |
|
$ |
561,080 |
|
|
$ |
529,585 |
|
|
$ |
717,596 |
|
ATI Worksite Solutions (1) |
|
|
34,583 |
|
|
|
30,864 |
|
|
|
27,662 |
|
Management Service Agreements (1) |
|
|
15,246 |
|
|
|
15,837 |
|
|
|
17,363 |
|
Other revenue (1) |
|
|
16,962 |
|
|
|
15,967 |
|
|
|
22,837 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
627,871 |
|
|
$ |
592,253 |
|
|
$ |
785,458 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
ATI Worksite Solutions, Management Service Agreements and Other revenue are included within other revenue on
the face of the consolidated statements of operations. |
The following table disaggregates net patient revenue for each associated payor
class as a percentage of total net patient revenue for the periods indicated below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
|
December 31, 2019 |
|
Commercial |
|
|
56.3 |
% |
|
|
53.1 |
% |
|
|
51.5 |
% |
Government |
|
|
23.7 |
% |
|
|
22.2 |
% |
|
|
23.6 |
% |
Workers compensation |
|
|
14.3 |
% |
|
|
17.6 |
% |
|
|
17.2 |
% |
Other (1) |
|
|
5.7 |
% |
|
|
7.1 |
% |
|
|
7.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Other is primarily comprised of net patient revenue related to auto personal injury. |
Note 5. Goodwill, Trade Name and Other Intangible Assets
Our indefinite-lived intangible assets consist of certain trade names. We test indefinite-lived intangible assets for impairment on an annual basis as of
October 1. The Company concluded that no indefinite-lived intangible asset
F-24
impairment existed at the time of annual impairment tests performed for the years ended December 31, 2021, 2020 and 2019. The Company noted interim triggering events during the current year
which resulted in the recording of impairment losses.
The Company has one reporting unit for purposes of the Companys goodwill impairment test,
which is completed as of October 1. The Company concluded that no goodwill impairment existed at the time of the annual impairment test performed for the years ended December 31, 2021, 2020 and 2019. The Company noted interim triggering events
during the current year which resulted in the recording of impairment losses.
The Company has not identified any triggering events occurring after the
annual testing date that would impact the impairment testing results obtained but will continue to monitor the fair value of the Company. If the estimated cash flows decrease or market factors change, impairment charges may need to be recorded in
the future. 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 Companys 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.
Changes in the carrying amount of goodwill consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
Beginning balance |
|
$ |
1,330,085 |
|
|
$ |
1,330,085 |
|
Reductionsimpairment charges |
|
|
(726,798 |
) |
|
|
|
|
Additions acquisitions |
|
|
5,524 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
608,811 |
|
|
$ |
1,330,085 |
|
|
|
|
|
|
|
|
|
|
The table below summarizes the Companys carrying amount of trade name and other intangible assets at December 31,
2021 and December 31, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
Gross intangible assets: |
|
|
|
|
|
|
|
|
ATI trade name (1) |
|
$ |
409,360 |
|
|
$ |
643,700 |
|
Non-compete agreements |
|
|
2,405 |
|
|
|
4,678 |
|
Other intangible assets |
|
|
640 |
|
|
|
640 |
|
Accumulated amortization: |
|
|
|
|
|
|
|
|
Accumulated amortization non-compete
agreements |
|
|
(425 |
) |
|
|
(4,437 |
) |
Accumulated amortization other intangible assets |
|
|
(284 |
) |
|
|
(242 |
) |
|
|
|
|
|
|
|
|
|
Total trade name and other intangible assets, net |
|
$ |
411,696 |
|
|
$ |
644,339 |
|
|
|
|
|
|
|
|
|
|
(1) |
Not subject to amortization. The Company recorded $234.3 million of impairment charges related to the
trade name indefinite-lived intangible asset during year ended December 31, 2021. |
Amortization expense for the years ended
December 31, 2021, 2020 and 2019 was immaterial. The Company estimates that amortization expense related to intangible assets is expected to be immaterial over the next five fiscal years and thereafter.
F-25
Interim impairment testing as of June 30, 2021
In late July 2021, the Company revised its earnings forecast to reflect (i) the impact of clinician attrition on both volume and operating cost
expectations and (ii) payor, state and service mix shift impacts on net patient revenue per visit expectations. These factors accelerated in the second quarter and continued into the third quarter. The Company determined that the revision to
its forecast, including factors related to the revision of the forecast, constituted an interim triggering event that required further analysis with respect to potential impairment to goodwill, trade name indefinite-lived intangible and other
assets.
As it was determined that it was more likely than not that the fair value of our trade name indefinite-lived intangible asset was below its
carrying value, the Company performed an interim quantitative impairment test as of the June 30, 2021 balance sheet date. The Company utilized the relief from royalty method to estimate the fair value of the trade name indefinite-lived
intangible asset. The key assumptions associated with determining the estimated fair value include projected revenue growth rates, the royalty rate, the discount rate and the terminal growth rate. As a result of the analysis, the Company recognized
a $33.7 million non-cash interim impairment in the line item goodwill and intangible asset impairment charges in its consolidated statements of operations, which represents the difference between the
estimated fair value of the Companys trade name indefinite-lived intangible asset and its carrying value.
The Company evaluated its asset groups,
including operating lease right-of-use assets that were evaluated based on clinic-level cash flows and clinic-specific market factors, noting no material impairment.
As it was determined that it was more likely than not that the fair value of our single reporting unit was below its carrying value, the Company
performed an interim quantitative impairment test. In order to determine the fair value of our single reporting unit, the Company utilized an average of a discounted cash flow analysis and comparable public company analysis. The key assumptions
associated with determining the estimated fair value include projected revenue growth rates, earnings before interest, taxes, depreciation and amortization (EBITDA) margins, the terminal growth rate, the discount rate and relevant market
multiples. As a result of the analysis, the Company recognized a $419.4 million non-cash interim impairment in the line item goodwill and intangible asset impairment charges in its consolidated statements
of operations, which represented the difference between the estimated fair value of the Companys single reporting unit and its carrying value.
Interim impairment testing as of September 30, 2021
In October 2021, the Company further revised its forecast to reflect lower than expected patient visit volume. The Company determined that the factors related
to the revision of the forecast constituted an interim triggering event that required further analysis with respect to potential impairment to goodwill, trade name indefinite-lived intangible and other assets.
As it was determined more likely than not that the fair value of our trade name indefinite-lived intangible asset was below its carrying value, the Company
performed an interim quantitative impairment test. The Company utilized the relief from royalty method to estimate the fair value of the trade name indefinite-lived intangible asset. The key assumptions associated with determining the estimated fair
value include projected revenue growth rates, the royalty rate, the discount rate and the terminal growth rate. As a result of the changes in these assumptions, the Company recognized a $200.6 million
non-cash interim impairment in the line item goodwill and intangible asset impairment charges in its consolidated statements of operations, which represents the difference between the estimated fair value of
the Companys trade name indefinite-lived intangible asset and its carrying value.
The Company evaluated its asset groups, including operating lease
right-of-use assets that were evaluated based on clinic-level cash flows and clinic-specific market factors, noting no material impairment.
As it was determined that it was more likely than not that the fair value of our single reporting unit was below its carrying value, the Company performed an
interim quantitative impairment test. In order to determine the fair
F-26
value of our single reporting unit, the Company utilized an average of a discounted cash flow analysis and comparable public company analysis. The key assumptions associated with determining the
estimated fair value include projected revenue growth rates, earnings before interest, taxes, depreciation and amortization (EBITDA) margins, the terminal growth rate, the discount rate and relevant market multiples. As a result of the
changes in these assumptions, the Company recognized a $307.4 million non-cash interim impairment in the line item goodwill and intangible asset impairment charges in its consolidated statements of
operations, which represents the difference between the estimated fair value of the Companys single reporting unit and its carrying value.
Fair
value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates and market factors. Estimating the fair value of the Companys reporting unit and indefinite-lived intangible assets requires
us to make assumptions and estimates regarding our future plans, as well as industry, economic, and regulatory conditions. These assumptions and estimates include projected revenue growth rates, EBITDA margins, terminal growth rates, discount rates,
relevant market multiples, royalty rates and other market factors. If current expectations of future growth rates, margins and cash flows are not met, or if market factors outside of our control change significantly, then our reporting unit or
indefinite-lived intangible assets might become impaired in the future, negatively impacting our operating results and financial position. As the carrying amounts of goodwill and the Companys trade name indefinite-lived intangible asset have
been impaired as of June 30, 2021 and September 30, 2021 and written down to fair value, those amounts are more susceptible to an impairment risk if there are unfavorable changes in assumptions and estimates.
Note 6. Property and Equipment
Property and equipment
consisted of the following at December 31, 2021 and December 31, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
Equipment |
|
$ |
36,278 |
|
|
$ |
32,978 |
|
Furniture and fixtures |
|
|
17,141 |
|
|
|
17,247 |
|
Leasehold improvements |
|
|
183,542 |
|
|
|
162,853 |
|
Automobiles |
|
|
19 |
|
|
|
19 |
|
Computer equipment and software |
|
|
95,362 |
|
|
|
77,390 |
|
Construction-in-progress |
|
|
3,793 |
|
|
|
9,594 |
|
|
|
|
|
|
|
|
|
|
|
|
|
336,135 |
|
|
|
300,081 |
|
Accumulated depreciation and amortization |
|
|
(196,405 |
) |
|
|
(162,907 |
) |
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
$ |
139,730 |
|
|
$ |
137,174 |
|
|
|
|
|
|
|
|
|
|
Property and equipment includes internally developed computer software costs in the amount of $58.7 million and
$50.8 million as of December 31, 2021 and 2020, respectively. The related amortization expense was $6.8 million, $9.8 million and $9.8 million for the years ended December 31, 2021, 2020 and 2019, respectively.
Depreciation and amortization expense is recorded within rent, clinic supplies, contract labor and other and selling, general and administrative expenses
within the consolidated statements of operations, depending on the use of the underlying fixed assets. The depreciation expense recorded in cost of services relates to revenue-generating assets, which primarily includes clinic leasehold improvements
and therapy equipment. The depreciation expense included in selling, general and administrative expenses is related to infrastructure items, such as corporate leasehold improvements, computer equipment and software.
F-27
The following table presents the amount of depreciation expense recorded in rent, clinic supplies, contract
labor and other and selling, general and administrative expenses in the Companys consolidated statements of operations for the periods indicated below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
|
December 31, 2019 |
|
Rent, clinic supplies, contract labor and other |
|
$ |
26,664 |
|
|
$ |
25,409 |
|
|
$ |
25,007 |
|
Selling, general and administrative expenses |
|
|
10,873 |
|
|
|
14,101 |
|
|
|
15,112 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation expense |
|
$ |
37,537 |
|
|
$ |
39,510 |
|
|
$ |
40,119 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 7. Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consisted of the following at December 31, 2021 and December 31, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
Salaries and related costs |
|
$ |
27,257 |
|
|
$ |
21,387 |
|
CARES Act funds (1) |
|
|
18,179 |
|
|
|
21,031 |
|
Accrued professional fees |
|
|
4,574 |
|
|
|
2,049 |
|
Credit balance due to patients and payors |
|
|
4,240 |
|
|
|
9,635 |
|
Revenue cycle management costs |
|
|
1,075 |
|
|
|
2,469 |
|
Transaction-related costs (2) |
|
|
349 |
|
|
|
2,547 |
|
Transaction-related amount due to former owners
(3) |
|
|
|
|
|
|
3,611 |
|
Other payables and accrued expenses |
|
|
8,910 |
|
|
|
7,961 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
64,584 |
|
|
$ |
70,690 |
|
|
|
|
|
|
|
|
|
|
(1) |
Includes current portion of MAAPP funds received and deferred employer Social Security tax payments.
|
(2) |
Represents costs related to public readiness initiatives and corporate transactions. |
(3) |
Represents the amount due to former owners related to the Companys utilization of net operating loss
carryforwards generated prior to its acquisition of ATI Holdings Acquisition, Inc. |
Note 8. Borrowings
Long-term debt consisted of the following at December 31, 2021 and December 31, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
First lien term loan (1) (due May 10,
2023, with principal payable in quarterly installments) |
|
$ |
555,048 |
|
|
$ |
779,915 |
|
Second lien subordinated loan (2) |
|
|
|
|
|
|
231,335 |
|
Less: unamortized debt issuance costs |
|
|
(1,935 |
) |
|
|
(8,933 |
) |
Less: unamortized original issue discount |
|
|
(1,147 |
) |
|
|
(2,732 |
) |
|
|
|
|
|
|
|
|
|
Total debt, net |
|
$ |
551,966 |
|
|
$ |
999,585 |
|
Less: current portion of long-term debt |
|
|
(8,167 |
) |
|
|
(8,167 |
) |
|
|
|
|
|
|
|
|
|
Long-term debt, net |
|
$ |
543,799 |
|
|
$ |
991,418 |
|
|
|
|
|
|
|
|
|
|
(1) |
Interest rate of 4.5% at December 31, 2021 and December 31, 2020, with interest payable in designated
installments (dependent upon the base interest rate election) at a variable interest rate. The effective interest rate for the first lien term loan was 4.9% at December 31, 2021 and December 31, 2020. |
F-28
(2) |
Loan balance was repaid in its entirety on June 16, 2021 as part of the Business Combination. The
effective interest rate for the second lien term loan was 10.9% at December 31, 2020. |
2016 first and second lien credit
agreements
In connection with the Business Combination on June 16, 2021, the Company paid down $216.7 million of its first lien term
loan. The Company recognized $1.7 million in charges related to the derecognition of the proportionate amount of remaining unamortized deferred financing costs and unamortized original issue discount associated with the partial debt repayment.
In connection with the Business Combination on June 16, 2021, the Company paid $231.3 million to settle its second lien subordinated term loan.
The Company recognized $3.8 million in charges related to the derecognition of the remaining unamortized deferred financing costs in conjunction with the debt repayment.
The total loss on debt extinguishment associated with the partial repayment of the first lien term loan and the settlement of the second lien subordinated
term loan was $5.5 million for the year ended December 31, 2021. This amount has been reflected in other expense (income), net in the consolidated statements of operations.
The 2016 first lien credit arrangement is guaranteed by Wilco Intermediate and its domestic subsidiaries, subject to customary exceptions (collectively, the
Guarantors) and secured by substantially all of the assets of ATI Holdings Acquisition, Inc. (the Borrower) and Guarantors. The 2016 first lien borrowing bears interest, at the Borrowers election, at a base interest
rate of the Alternate Base Rate (ABR) or LIBOR plus an interest rate spread, as defined in the first lien credit agreement. The ABR is the highest of (i) the federal funds rate plus 0.5%, (ii)
one-month LIBOR plus 1.0% and (iii) the prime rate. The LIBOR term may be one, two, three or six months (or, to the extent available, twelve months or a shorter period). The per annum interest rate spread
for first lien term loans is (a) 2.5% for ABR loans and (b) 3.5% for LIBOR loans.
The Companys credit agreements contain covenants with which the
Borrower must comply. For the 2016 first lien credit agreement, the Borrower must maintain, as of the last day of each fiscal quarter when the sum of the outstanding balance of revolving loans, swingline loans and certain letters of credit exceeds
30% of the total revolving credit facility commitment, a ratio of consolidated first lien net debt to consolidated adjusted EBITDA, as defined in the agreements, not to exceed 6.25:1.00. As of December 31, 2021, the ratio exceeded 6.25:1.00. As
a result, the sum of the outstanding balance of revolving loans, swingline loans and certain letters of credit is effectively limited to 30% of the total revolving credit facility commitment. Additionally, the agreements are subject to subjective
acceleration clauses, effective upon a material adverse change in the Companys business or financial condition. As of December 31, 2021, the Borrower was in compliance with the covenants contained in the first lien agreement.
Revolving credit facility
The 2016 first lien
agreement includes a revolving credit facility with a maximum borrowing capacity of $70.0 million, including $15.0 million sub-limit for swingline loans and amounts available for letters of credit.
The issuance of such letters of credit and the making of swingline loans reduces the amount available under the applicable revolving credit facility.
The
Borrower may make draws under the revolving credit facility for general corporate purposes until the maturity date of the revolving credit facility. The first lien revolving facility matures on May 10, 2023 unless (a) as of
February 9, 2023 (the Springing Maturity Date), either (i) more than $100.0 million of first lien term loans remain outstanding on the Springing Maturity Date or (ii) the debt incurred to refinance any portion of the
first lien term loans in excess of $100.0 million does not satisfy specified parameters, in which case the first lien revolving facility will mature on February 9, 2023, or (b) the Borrower makes certain prohibited restricted payments
as defined in the agreement, in which case the first lien revolving facility will mature on the date of such restricted payment.
F-29
The per annum interest rate spread for first lien revolving loans is (a) 3.5% for ABR loans and (b) 4.5% for
LIBOR loans, with stepdowns based on the first lien leverage ratio. The applicable interest rate spreads were 3.5% and 3.0% for ABR revolving borrowings, and 4.5% and 4.0% for LIBOR revolving borrowings at December 31, 2021 and 2020,
respectively. In addition to the stated interest rate on borrowings under the revolving credit facility, the Company is required to pay a commitment fee of between 0.25% and 0.5% per annum on any unused portion of the revolving credit facility based
on the Companys first lien leverage ratio. The fee was 0.5% at December 31, 2021.
The Company drew amounts of $19.0 million and
$49.8 million under its revolving credit facility in March and April 2020, respectively. The Company repaid the borrowed amounts in full in June 2020. As of December 31, 2021 and December 31, 2020, no borrowings were outstanding under
the revolving credit facility.
The Company had letters of credit totaling $1.2 million under the letter of credit
sub-facility on the revolving credit facilities as of December 31, 2021 and December 31, 2020, respectively. The letters of credit auto-renew on an annual basis and are pledged to insurance carriers
as collateral.
Aggregate maturities of long-term debt at December 31, 2021 are as follows (in thousands):
|
|
|
|
|
2022 |
|
$ |
8,167 |
|
2023 |
|
|
546,881 |
|
|
|
|
|
|
Total future maturities |
|
|
555,048 |
|
Unamortized original issue discount and debt issuance costs |
|
|
(3,082 |
) |
|
|
|
|
|
Total debt, net |
|
$ |
551,966 |
|
|
|
|
|
|
Note 9. Employee Benefit Plans
The Company maintains a defined contribution 401(k) retirement plan for its full-time employees. The plan allows all participants to make elective pretax
contributions of up to 100% of their compensation, up to a maximum amount as limited by law. The Company makes matching contributions to the plan on behalf of the employee in the amount of 50% of the first 6% of the contributing participants
elective deferral contribution. Matching contributions to the plan were $4.6 million, $4.7 million and $5.5 million for the years ended December 31, 2021, 2020 and 2019, respectively.
The following table presents the Companys matching contributions to the plan recorded in cost of services and selling, general and administrative
expenses in the consolidated statements of operations for the periods indicated below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
|
December 31, 2019 |
|
Salaries and related costs |
|
$ |
4,102 |
|
|
$ |
4,206 |
|
|
$ |
4,965 |
|
Selling, general and administrative expenses |
|
|
532 |
|
|
|
520 |
|
|
|
504 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
4,634 |
|
|
$ |
4,726 |
|
|
$ |
5,469 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 10. Share-Based Compensation
The Company recognizes compensation expense for all share-based compensation awarded to employees, net of forfeitures, using a fair value-based method. The
grant-date fair value of each award is amortized to expense on a straight-line basis over the awards vesting period. Compensation expense associated with share-based awards is included in salaries and related costs and selling, general and
administrative expenses in the accompanying consolidated statements of operations, depending on whether the award recipient is a clinic-level or corporate employee, respectively. Share-based compensation expense is adjusted for forfeitures as
incurred.
F-30
Wilco Acquisition, LP 2016 Equity Incentive Plan
Prior to the Business Combination, Wilco Acquisition was the parent company of Wilco Holdco, Inc. and its subsidiaries. In 2016, the Company adopted the Wilco
Acquisition, LP 2016 Equity Incentive Plan (the 2016 Plan) under which, prior to the Business Combination, it granted profit interests of Wilco Acquisition in the form of Incentive Common Units, to members of management, key employees
and independent directors of Wilco Acquisition and its subsidiaries.
Service-based vesting
Prior to the Business Combination, Wilco Acquisition granted Incentive Common Units, subject to service-based vesting, to members of management, key employees
and independent directors. Following the closing of the Business Combination, holders of service-based ICUs were entitled to a distribution of a number of Class A common shares of ATI Physical Therapy, Inc. based on the distribution priorities
under the Wilco Acquisition limited partnership agreement. The shares related to vested service-based ICUs were distributed as unrestricted Class A common shares of ATI. The shares related to unvested service-based ICUs were distributed as
restricted Class A common shares of ATI eligible to vest over the shorter of: (a) the existing vesting schedule applicable to the underlying ICUs, or (b) in installments on each quarterly anniversary of the closing over three years
post-closing, subject to the grantees continued service through each vesting date.
Pursuant to the 2016 Plan, total share-based compensation
expense related to service-based awards recognized in the years ended December 31, 2021, 2020 and 2019 was $2.7 million, $1.9 million and $1.8 million, respectively.
For the year ended December 31, 2021, 0.4 million shares distributed to holders of service-based ICUs vested, and forfeitures related to shares
distributed to holders of service-based ICUs were immaterial. There were no service-based awards granted under the 2016 Plan during the year ended December 31, 2021.
As of December 31, 2021, the remaining unvested restricted shares distributed to holders of service-based ICUs totaled 0.3 million Class A
common shares, with unrecognized compensation expense of $1.8 million to be recognized over a weighted-average period of 2.3 years.
Performance-based vesting
Prior to the Business
Combination, Wilco Acquisition granted Incentive Common Units, subject to performance-based vesting, to members of management, key employees and independent directors. Following the closing of the Business Combination, holders of performance-based
ICUs were entitled to a distribution of a number of Class A common shares of ATI Physical Therapy, Inc. based on the distribution priorities under the Wilco Acquisition limited partnership agreement. The shares related to performance-based ICUs
were distributed to holders as restricted Class A common shares of ATI eligible to vest in installments on each quarterly anniversary of the closing over the shorter of: (a) the eight-year period from the original grant date of the
underlying ICUs, or (b) three years post-closing, subject to the grantees continued service through each vesting date.
Based on the terms of
the performance-based ICUs, commencement of vesting is generally contingent upon the occurrence of certain events, such as a change-in-control subject to the achievement
of specified investment returns of certain Wilco Acquisition unit holders, or an initial public offering (IPO). Under the terms of the award agreements, in the event of an IPO, the performance-based vesting requirements convert to
service-based vesting requirements. The performance-based awards follow the treatment of an IPO as a result of the Business Combination and, therefore, converted to service-based vesting requirements.
Prior to the Business Combination, no share-based compensation expense was recognized related to the performance-based awards, as a change-in-control or IPO cannot be assessed as probable prior to its occurrence. Following the closing of the Business Combination, the Company began recognizing share-based
compensation expense associated with the performance-based awards. Recognition of such expense follows a straight-line
F-31
expense allocation based on the original grant date and the shorter of (a) the eight-year period from the original grant date of the underlying ICUs, or (b) three years post-closing of
the Business Combination. For the year ended December 31, 2021, the Company recognized $2.5 million of share-based compensation expense related to the performance-based awards.
For the year ended December 31, 2021, 0.4 million shares distributed to holders of performance-based ICUs vested, and 0.3 million shares
distributed to holders of performance-based ICUs were forfeited. There were no performance-based awards granted under the 2016 Plan during the year ended December 31, 2021.
As of December 31, 2021, the remaining unvested restricted shares distributed to holders of performance-based ICUs totaled 0.5 million shares, with
unrecognized compensation expense of $1.5 million to be recognized over a weighted-average period of 2.4 years.
Unallocated and forfeited
Incentive Common Units
ATI and Wilco Acquisition intend to cancel approximately 0.6 million Class A common shares of ATI received by Wilco
Acquisition in connection with the Business Combination in respect of the remaining unallocated ICU pool. ATI intends to amend, subject to stockholder approval, the ATI Physical Therapy 2021 Equity Incentive Plan (the 2021 Plan) to
increase the share reserve by approximately 0.6 million Class A common shares of ATI.
If any restricted shares of ATI are forfeited following
the closing of the Business Combination and prior to vesting, such shares will be cancelled and ATI intends to amend the 2021 Plan to permit such shares to be reissued as awards under the 2021 Plan.
ATI 2021 Equity Incentive Plan
The Company
adopted the ATI Physical Therapy 2021 Equity Incentive Plan under which it may grant equity interests of ATI Physical Therapy, Inc., in the form of stock options, stock appreciation rights, restricted stock awards and restricted stock units, to
members of management, key employees and independent directors of the Company and its subsidiaries. The Compensation Committee is authorized to make grants and to make various other decisions under the 2021 Plan. The maximum number of shares
reserved for issuance under the 2021 Plan is approximately 20.7 million. As of December 31, 2021, approximately 19.0 million shares were available for future grant.
Stock options
The Company grants stock options to
members of management, key employees and independent directors. Stock options typically vest in equal annual installments over a service period ranging from three to four years from the date of grant, depending on the term of the agreement. All
options have a maximum term of 10 years from the date of grant and may be exercised for one share of Class A common stock.
Pursuant to the 2021
Plan, total share-based compensation expense related to stock options recognized in the year ended December 31, 2021 was approximately $0.1 million. No share-based compensation expense was recognized in the years ended December 31,
2020 and 2019 related to stock options.
F-32
The following table summarizes the activity of stock options for the year ended December 31, 2021
(aggregate intrinsic value in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Options |
|
|
Weighted- Average Exercise Price |
|
|
Weighted- Average Contractual Term (in years) |
|
|
Aggregate Intrinsic Value |
|
Outstanding, January 1, 2021 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
Granted |
|
|
774,796 |
|
|
|
3.41 |
|
|
|
N/A |
|
|
|
N/A |
|
Exercised |
|
|
|
|
|
|
|
|
|
|
N/A |
|
|
|
|
|
Forfeited/Cancelled |
|
|
|
|
|
|
|
|
|
|
N/A |
|
|
|
N/A |
|
Outstanding, December 31, 2021 |
|
|
774,796 |
|
|
$ |
3.41 |
|
|
|
9.9 |
|
|
$ |
9 |
|
Exercisable, December 31, 2021 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
The fair values of each stock option granted was determined using the Black-Scholes option-pricing model. The following
weighted-average assumptions were used for the options granted in 2021. As the Company does not have sufficient historical share option exercise experience for such plain-vanilla awards, the expected option term was determined using the
simplified method, which is the average of the options vesting and contractual term. Volatility is measured using the historical volatility of certain comparable companies, using daily log-returns of
stock prices, as adjusted for the impact of financial leverage. The risk-free interest rate reflects the U.S. Treasury yield curve in effect at the time of the grant. No stock options were granted under the 2021 Plan during the years ended
December 31, 2020 and 2019.
|
|
|
|
|
|
|
2021 |
|
Weighted-average grant-date fair value |
|
$ |
1.69 |
|
Risk-free interest rate |
|
|
1.45 |
% |
Term (years) |
|
|
6.0 |
|
Volatility |
|
|
51.67 |
% |
Expected dividend |
|
|
|
% |
As of December 31, 2021, the unrecognized compensation expense related to stock options was $1.2 million, to be
recognized over a weighted-average period of 2.9 years.
Restricted stock units
The Company grants restricted stock units (RSUs) to members of management, key employees and independent directors. RSUs are time-based vesting
awards and are subject to the continued service of the employee or non-employee director over the vesting period. RSUs typically vest in equal annual installments over one to three years from the date of
grant, based on the terms of the agreement. The fair value of RSUs was based on the price of the Companys common stock on the grant date.
Pursuant
to the 2021 Plan, total share-based compensation expense related to RSUs recognized in the year ended December 31, 2021 was $0.1 million. No share-based compensation expense was recognized in the years ended December 31, 2020 and 2019
related to RSUs.
F-33
The following table summarizes the activity of unvested RSUs and the respective weighted-average grant date
fair value per RSU for the year ended December 31, 2021. No RSUs were outstanding for the years ended December 31, 2020 and 2019.
|
|
|
|
|
|
|
|
|
|
|
2021 |
|
|
|
RSUs |
|
|
Weighted-Average Grant Date Fair Value |
|
Outstanding and unvested, beginning of year |
|
|
|
|
|
$ |
|
|
Granted |
|
|
404,235 |
|
|
|
3.41 |
|
Vested |
|
|
|
|
|
|
|
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and unvested, end of year |
|
|
404,235 |
|
|
$ |
3.41 |
|
|
|
|
|
|
|
|
|
|
As of December 31, 2021, the unrecognized compensation expense related to RSUs was $1.3 million, to be recognized
over a weighted-average period of 2.5 years.
Restricted stock awards
The Company grants restricted stock awards (RSAs) to members of management and key employees. RSAs are time-based vesting awards and are subject to
the continued service of the employee over the vesting period. RSAs typically vest in equal quarterly installments over a service period of 3 years from the grant date. The vesting start date for the RSAs granted in 2021 is the Closing Date. The
fair value of restricted stock was based on the price of the Companys common stock on the grant date.
Pursuant to the 2021 Plan, total share-based
compensation expense related to RSAs recognized in the year ended December 31, 2021 was $0.4 million. No share-based compensation expense was recognized in the years ended December 31, 2020 and 2019 related to RSAs.
The following table summarizes the activity of unvested RSAs and respective weighted-average grant date fair value per RSA for the year ended
December 31, 2021. No RSAs were outstanding for the years ended December 31, 2020 and 2019.
|
|
|
|
|
|
|
|
|
|
|
2021 |
|
|
|
RSAs |
|
|
Weighted-Average Grant Date Fair Value |
|
Outstanding and unvested, beginning of year |
|
|
|
|
|
$ |
|
|
Granted |
|
|
557,334 |
|
|
|
3.42 |
|
Vested |
|
|
(105,473 |
) |
|
|
3.42 |
|
Forfeited |
|
|
(4,130 |
) |
|
|
3.42 |
|
|
|
|
|
|
|
|
|
|
Outstanding and unvested, end of year |
|
|
447,731 |
|
|
$ |
3.42 |
|
|
|
|
|
|
|
|
|
|
As of December 31, 2021, the unrecognized compensation expense related to RSAs was $1.5 million, to be recognized
over a weighted-average period of 2.5 years.
Note 11. Stockholders Equity
ATI Physical Therapy, Inc. preferred stock
The
Company is authorized to issue 1.0 million shares of preferred stock with a par value of $0.0001 per share. As of December 31, 2021, there was no preferred stock issued or outstanding.
F-34
Class A common stock
The Company is authorized to issue 470.0 million shares of Class A common stock with a par value of $0.0001 per share. Holders of the Companys
Class A common stock are entitled to one vote for each share on each matter on which they are entitled to vote. At December 31, 2021, there were 207.4 million shares of Class A common stock issued and 197.4 million shares
outstanding.
As a result of the recapitalization associated with the Business Combination, shares are reflected as if they were issued and outstanding as
of the earliest reported period to reflect the new capital structure. At the time of the Business Combination, stockholders of Wilco Holdco, Inc. received 130.3 million shares of the Companys Class A common stock, par value $0.0001
per share, for the outstanding shares of Wilco Holdco common stock, par value $0.01 per share, that such stockholders owned. Upon distribution of shares to holders of unvested Incentive Common Units granted prior to the Business Combination under
the Wilco Acquisition, LP 2016 Equity Incentive Plan, 2.0 million of these shares were restricted subject to vesting requirements, resulting in total unrestricted shares of 128.3 million and an exchange ratio of 136.7 unrestricted shares
of ATI Physical Therapy, Inc. for every previously outstanding Wilco Holdco share.
As of December 31, 2021, shares of Class A common stock
reserved for potential future issuance, on an as-if converted basis, were as follows (in thousands):
|
|
|
|
|
|
|
December 31, 2021 |
|
Shares available for grant under the ATI 2021 Equity Incentive Plan |
|
|
18,996 |
|
Earnout Shares reserved |
|
|
15,000 |
|
Class A common stock Warrants outstanding |
|
|
9,867 |
|
Vesting Shares reserved(1) |
|
|
8,625 |
|
Restricted shares(1,2) |
|
|
1,323 |
|
|
|
|
|
|
Total shares of common stock reserved |
|
|
53,811 |
|
|
|
|
|
|
(1) |
Represents shares of Class A common stock legally issued, but not outstanding, as of December 31,
2021. |
(2) |
Represents a portion of the 2.0 million restricted shares distributed following the Business Combination
to holders of unvested Incentive Common Units under the Wilco Acquisition, LP 2016 Equity Incentive Plan. Refer to Note 10Share-Based Compensation for further details. |
Treasury stock
During the year ended
December 31, 2021, the Company net settled 0.03 million shares of its Class A common stock related to employee tax withholding obligations associated with the Companys share-based compensation program. These shares are reflected
at cost as treasury stock in the consolidated financial statements.
Note 12. Redeemable Preferred Stock
On May 10, 2016, Wilco Holdco, Inc. issued shares of Series A Preferred Stock (the preferred stock) for a total consideration value of
$98.0 million. Prior to the Business Combination, the preferred stock was a class of equity that had priority over the Common Stock with respect to distribution rights, liquidation rights and dividend rights.
The preferred stockholders, from and after issuance, were entitled to cumulative preferred dividends at an annual rate per share equal to 10.25% of the
original issue price. The dividend rate of the preferred stock increased by 0.25% at the end of each fiscal quarter beginning after the second anniversary of the issuance of the preferred stock.
F-35
Based on the terms of the preferred stockholder agreement, Wilco Holdco, Inc. was required to redeem all
outstanding shares of preferred stock upon the occurrence of certain events, such as those related to full repayment of the first and second lien credit agreements or a deemed liquidating event. Based on these redemption requirements, the preferred
stock was classified as debt (redeemable preferred stock) in the Companys historical consolidated balance sheets.
Cumulative dividends related to
the preferred stock were accrued as preferred dividends that increased the balance of the redeemable preferred stock on the Companys consolidated balance sheets and were recognized as interest expense on redeemable preferred stock in the
Companys consolidated statements of operations. For the years ended December 31, 2021, 2020 and 2019, the Company incurred cumulative preferred dividends related to the preferred stock of $10.1 million, $19.0 million and
$15.5 million, respectively. No dividends were paid related to the preferred stock.
In connection with the Business Combination, holders of the
outstanding shares of Series A Preferred Stock received a proportionate share of $59.0 million and 12.8 million shares of Class A common stock based on the settlement terms in the Merger Agreement. The Company recorded a loss on
settlement of redeemable preferred stock in the consolidated statement of operations of $14.0 million based on the value of the cash and equity provided to preferred stockholders in relation to the outstanding redeemable preferred stock
liability. The balance of redeemable preferred stock was zero and $163.3 million as of December 31, 2021 and December 31, 2020, respectively.
Note 13. Warrant Liability
The Company has outstanding
Public Warrants to purchase an aggregate of 6.9 million shares of the Companys Class A common stock and outstanding Private Placement Warrants to purchase an aggregate of 3.0 million shares of the Companys Class A
common stock. There were no warrants exercised during the year ended December 31, 2021.
The Company accounts for its outstanding Public Warrants and
Private Placement Warrants in accordance with the guidance contained in Accounting Standards Codification 815-40, Derivatives and HedgingContracts on an Entitys Own Equity and
determined that the Warrants do not meet the criteria for equity treatment thereunder. As such, each Warrant must be recorded as a liability and is subject to re-measurement at each balance sheet date. Refer
to Note 15Fair Value Measurements for further details. Changes in fair value are recognized in change in fair value of warrant liability in the Companys consolidated statements of operations.
The following table presents the change in the fair value of warrant liability, since the Closing Date of the Business Combination, that is recognized in the
consolidated statement of operations for the respective periods (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Placement Warrants |
|
|
Public Warrants |
|
|
Warrant Liability |
|
Fair value as of Business Combination, June 16, 2021 |
|
$ |
8,099 |
|
|
$ |
18,837 |
|
|
$ |
26,936 |
|
Changes in fair value |
|
|
(6,794 |
) |
|
|
(15,801 |
) |
|
|
(22,595 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value as of December 31, 2021 |
|
$ |
1,305 |
|
|
$ |
3,036 |
|
|
$ |
4,341 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Each Public Warrant entitles the holder to purchase one share of Class A common stock at an exercise price of $11.50 per
share, subject to adjustment. The Public Warrants became exercisable 30 days after the completion of the Business Combination, subject to certain conditions, including that the Company maintains an effective registration statement under the
Securities Act covering the Class A common stock issuable upon exercise of the Public Warrants. The Public Warrants will expire five years after the completion of the Business Combination or earlier upon redemption or liquidation. The Company
may call the Public Warrants for redemption for cash or for Class A common stock under certain circumstances.
F-36
The Private Placement Warrants are identical to the Public Warrants, except that (i) the Private
Placement Warrants and the Class A common stock issuable upon exercise of the Private Placement Warrants were not transferable, assignable or salable until 30 days after the completion of the Business Combination, subject to certain limited
exceptions, (ii) the Private Placement Warrants are non-redeemable (except under certain circumstances) so long as they are held by the initial purchasers or such purchasers permitted transferees,
(iii) the Private Placement Warrants may be exercised by the holders on a cashless basis, and (iv) the Private Placement Warrants and the Class A common stock issuable upon exercise of the Private Placement Warrants are entitled to
registration rights. If the Private Placement Warrants are held by someone other than the initial stockholders or their permitted transferees, the Private Placement Warrants will be redeemable by the Company in all redemption scenarios and
exercisable by such holders on the same basis as the Public Warrants.
The exercise price and number of Class A common stock issuable upon exercise
of the Warrants may be adjusted in certain circumstances including in the event of a stock dividend, recapitalization, reorganization, merger or consolidation.
Note 14. Contingent Common Shares Liability
Earnout Shares
Subject to the terms and conditions
of the Merger Agreement, certain stockholders of Wilco Holdco, Inc. were provided the contingent right to receive, in the aggregate, up to 15.0 million shares of Class A common stock if, from the closing of the Business Combination until
the 10th anniversary thereof, the dollar volume-weighted average price (VWAP) of Class A common stock exceeds certain thresholds:
|
|
|
The first issuance of 5.0 million Earnout Shares will occur if the VWAP exceeds $12.00 for any 5 trading
days within any consecutive 10 trading day period. |
|
|
|
The second issuance of 5.0 million Earnout Shares will occur if the VWAP exceeds $14.00 for any 5 trading
days within any consecutive 10 trading day period. |
|
|
|
The third issuance of 5.0 million Earnout Shares will occur if the VWAP exceeds $16.00 for any 5 trading
days within any consecutive 10 trading day period. |
The Earnout Shares are subject to acceleration in the event of a sale or other
change in control if the holders of Class A common stock would receive a per share price in excess of the applicable Earnout Shares price target.
The Company accounts for the potential Earnout Shares as a liability in accordance with the guidance in ASC 480, Distinguishing Liabilities from
Equity, and ASC 815, Derivatives and Hedging, and is subject to re-measurement at each balance sheet date. Changes in fair value are recognized in the Companys consolidated statements of
operations. On June 16, 2021, the Company estimated the fair value of the potential Earnout Shares to be $140.0 million. As of December 31, 2021, no Earnout Shares have been issued as none of the corresponding share price thresholds
have been met.
During the period from June 16, 2021 to December 31, 2021, the fair value of the Earnout Shares decreased to $28.8 million,
resulting in a gain of $111.2 million for the year ended December 31, 2021, respectively, recorded as a component of change in fair value of contingent common shares liability in the consolidated statement of operations.
The fair value of the Earnout Shares as of December 31, 2021 was $28.8 million and was recorded as a component of contingent common shares liability
in the consolidated balance sheets. Refer to Note 15Fair Value Measurements for further details.
Vesting Shares
Subject to the terms and conditions of the Sponsor Letter Agreement that was executed in connection with the Merger Agreement, 8.6 million shares of
Class F common stock of FAII outstanding immediately prior to the
F-37
Business Combination converted to potential Class A common shares and became subject to vesting and forfeiture provisions. The Vesting Shares vest in three equal tranches of 2.9 million
shares each if the trading price of common stock exceeds certain thresholds within 10 years of the Closing Date:
|
|
|
The first issuance of 2.9 million Vesting Shares will occur if the VWAP exceeds $12.00 for any 5 trading
days within any consecutive 10 trading day period. |
|
|
|
The second issuance of 2.9 million Vesting Shares will occur if the VWAP exceeds $14.00 for any 5 trading
days within any consecutive 10 trading day period. |
|
|
|
The third issuance of 2.9 million Vesting Shares will occur if the VWAP exceeds $16.00 for any 5 trading
days within any consecutive 10 trading day period. |
The Vesting Shares are subject to acceleration in the event of a sale or other
change in control if the holders of Class A common stock would receive a per share price in excess of the applicable Vesting Shares price target.
The Company accounts for the Vesting Shares as a liability in accordance with the guidance in ASC 480, Distinguishing Liabilities from Equity, and ASC
815, Derivatives and Hedging, and is subject to re-measurement at each balance sheet date. Changes in fair value are recognized in the Companys consolidated statements of operations. On
June 16, 2021, the Company estimated the fair value of the Vesting Shares to be $80.5 million. As of December 31, 2021, no Vesting Shares are outstanding as none of the corresponding share price thresholds have been met.
During the period from June 16, 2021 to December 31, 2021, the fair value of the Vesting Shares decreased to $16.6 million, resulting in a gain
of $63.9 million for the year ended December 31, 2021, respectively, recorded as a component of change in fair value of contingent common shares liability in the consolidated statements of operations.
The fair value of the Vesting Shares as of December 31, 2021 was $16.6 million and was recorded as a component of contingent common shares liability
in the consolidated balance sheets. Refer to Note 15Fair Value Measurements for further details.
Note 15. Fair Value Measurements
The Company determines fair value measurements used in its consolidated financial statements based upon the price that would be received from selling
an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three
levels, with Level 1 having the highest priority and Level 3 having the lowest.
|
|
|
Level 1: Observable inputs, which include unadjusted quoted prices in active markets for identical
instruments. |
|
|
|
Level 2: Observable inputs other than Level 1 inputs, such as quoted prices in markets that are not
active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the instruments. |
|
|
|
Level 3: Unobservable inputs in which little or no market data exists, therefore requiring an entity to
develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. |
As of December 31, 2021 and December 31, 2020, respectively, the recorded values of cash and cash equivalents, accounts receivable, other current
assets, accounts payable, accrued expenses and deferred revenue approximate their fair values due to the short-term nature of these items.
F-38
The Companys term loan and revolving line of credit are Level 2 fair value measures which have
variable interest rates and, as of December 31, 2021 and December 31, 2020, the recorded amounts approximate fair value. The Company utilizes the market approach valuation technique based on interest rates that are currently available to
the Company for issuance of debt with similar terms or maturities.
Fair value measurement of share-based financial liabilities
The Company determined the fair value of the Public Warrant liability using Level 1 inputs.
The Company determined the fair value of the Private Placement Warrant liability using the price of the Public Warrants as a Level 2 input.
The Company determined the fair value of the Earnout Shares liability and Vesting Shares liability using Level 3 inputs. The contingent common shares
contain specific market conditions to determine whether the shares vest based on the Companys common stock price over a specified measurement period. Given the path-dependent nature of the requirement in which the shares are earned, a
Monte-Carlo simulation was used to estimate the fair value of the liability. The Companys common stock price was simulated to each measurement period based on the above methodology. In each iteration, the simulated stock price was compared to
the conditions under which the shares vest. In iterations where the stock price corresponded to shares vesting, the future value of the vesting shares was discounted back to present value. The fair value of the liability was estimated based on the
average of all iterations of the simulation.
Inherent in a Monte Carlo valuation model are assumptions related to expected stock-price volatility,
expected term, risk-free interest rate and dividend yield. The Company estimates the volatility based on the historical volatility of certain guideline companies as of the valuation date. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected term of the Earnout Shares and Vesting Shares. The dividend yield percentage is zero based on the Companys current expectations
related to the payment of dividends during the expected term of the Earnout Shares or Vesting Shares.
The key inputs into the Monte Carlo option pricing
model were as follows as of the Closing Date and December 31, 2021 for the respective Level 3 instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnout Shares |
|
|
Vesting Shares |
|
|
|
June 16, 2021 |
|
|
December 31, 2021 |
|
|
June 16, 2021 |
|
|
December 31, 2021 |
|
Risk-free interest rate |
|
|
1.56 |
% |
|
|
1.50 |
% |
|
|
1.56 |
% |
|
|
1.50 |
% |
Volatility |
|
|
39.03 |
% |
|
|
44.86 |
% |
|
|
39.03 |
% |
|
|
44.86 |
% |
Dividend yield |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
|
% |
Expected term (years) |
|
|
10.0 |
|
|
|
9.5 |
|
|
|
10.0 |
|
|
|
9.5 |
|
Share price |
|
$ |
10.28 |
|
|
$ |
3.39 |
|
|
$ |
10.28 |
|
|
$ |
3.39 |
|
The following table presents the changes in the fair value for the respective Level 3 instruments, since the Closing Date
of the Business Combination, that is recognized in change in fair value of contingent common shares liability in the consolidated statements of operations for the respective periods (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Earnout Shares Liability |
|
|
Vesting Shares Liability |
|
Fair value as of Business Combination, June 16, 2021 |
|
$ |
140,000 |
|
|
$ |
80,500 |
|
Changes in fair value |
|
|
(111,200 |
) |
|
|
(63,940 |
) |
|
|
|
|
|
|
|
|
|
Fair value as of December 31, 2021 |
|
$ |
28,800 |
|
|
$ |
16,560 |
|
|
|
|
|
|
|
|
|
|
F-39
Note 16. Income Taxes
The Companys (loss) income before taxes consists of only domestic operations. The details of the Companys income tax (benefit) expense for the
years ended December 31, 2021, 2020 and 2019 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
State |
|
|
128 |
|
|
|
251 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current |
|
|
128 |
|
|
|
251 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
(60,002 |
) |
|
|
3,514 |
|
|
|
(30,305 |
) |
State |
|
|
(11,086 |
) |
|
|
(1,700 |
) |
|
|
(13,728 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred |
|
|
(71,088 |
) |
|
|
1,814 |
|
|
|
(44,033 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax (benefit) expense |
|
$ |
(70,960 |
) |
|
$ |
2,065 |
|
|
$ |
(44,019 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
The effective tax rate for the years ended December 31, 2021, 2020 and 2019 was 8.3%, (62.5)% and 113.8%, respectively.
The Companys effective income tax rate varies from the federal statutory rate due to various items, such as state income taxes, valuation allowances and nondeductible items such as interest expense on redeemable preferred stock, fair value
adjustments related to liability-classified share-based instruments and impairment charges. The differences between the federal tax rate and the Companys effective tax rate for the years ended December 31, 2021, 2020 and 2019 are as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
Federal income tax benefit at statutory rate |
|
$ |
(179,128 |
) |
|
|
21.0 |
% |
|
$ |
(694 |
) |
|
|
21.0 |
% |
|
$ |
(8,121 |
) |
|
|
21.0 |
% |
State income tax (benefit) expense, net of federal tax benefit |
|
|
(25,814 |
) |
|
|
3.0 |
% |
|
|
1,248 |
|
|
|
(37.8 |
)% |
|
|
(3,741 |
) |
|
|
9.7 |
% |
Change in state tax rate |
|
|
34 |
|
|
|
|
% |
|
|
(2,551 |
) |
|
|
77.1 |
% |
|
|
(1,197 |
) |
|
|
3.1 |
% |
Prior period adjustments and other |
|
|
1,515 |
|
|
|
(0.2 |
)% |
|
|
(105 |
) |
|
|
3.2 |
% |
|
|
(51 |
) |
|
|
|
% |
Valuation allowance |
|
|
35,731 |
|
|
|
(4.2 |
)% |
|
|
(981 |
) |
|
|
29.7 |
% |
|
|
(34,943 |
) |
|
|
90.4 |
% |
Interest expense on redeemable preferred stock |
|
|
2,118 |
|
|
|
(0.2 |
)% |
|
|
3,997 |
|
|
|
(120.9 |
)% |
|
|
3,257 |
|
|
|
(8.4 |
)% |
Changes in fair value of warrant liability and contingent common shares liability |
|
|
(41,524 |
) |
|
|
4.9 |
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
Goodwill and intangible asset impairment charges |
|
|
132,447 |
|
|
|
(15.5 |
)% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
Other permanent differences, net |
|
|
3,661 |
|
|
|
(0.5 |
)% |
|
|
1,151 |
|
|
|
(34.8 |
)% |
|
|
777 |
|
|
|
(2.0 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax (benefit) expense |
|
$ |
(70,960 |
) |
|
|
8.3 |
% |
|
$ |
2,065 |
|
|
|
(62.5 |
)% |
|
$ |
(44,019 |
) |
|
|
113.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-40
Deferred income taxes have been provided on temporary differences, which consist of the following at
December 31, 2021 and 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2021 |
|
|
2020 |
|
Deferred income tax assets: |
|
|
|
|
|
|
|
|
Accrued liabilities |
|
$ |
10,420 |
|
|
$ |
14,423 |
|
Provision for bad debt |
|
|
12,530 |
|
|
|
16,472 |
|
Operating lease liabilities |
|
|
74,115 |
|
|
|
75,141 |
|
Acquisition and transaction costs |
|
|
3,770 |
|
|
|
4,262 |
|
Net operating losses |
|
|
82,304 |
|
|
|
54,655 |
|
Interest expense |
|
|
33,163 |
|
|
|
21,903 |
|
Other deferred tax assets |
|
|
4,798 |
|
|
|
4,205 |
|
|
|
|
|
|
|
|
|
|
Total gross deferred income tax assets |
|
|
221,100 |
|
|
|
191,061 |
|
Valuation allowance |
|
|
(58,312 |
) |
|
|
(22,581 |
) |
|
|
|
|
|
|
|
|
|
Total gross deferred income tax assets, net of valuation allowance |
|
|
162,788 |
|
|
|
168,480 |
|
Deferred income tax liabilities: |
|
|
|
|
|
|
|
|
Goodwill |
|
|
26,563 |
|
|
|
36,374 |
|
Trade name/trademark |
|
|
114,451 |
|
|
|
179,503 |
|
Operating
right-of-use assets |
|
|
63,252 |
|
|
|
63,531 |
|
Depreciation |
|
|
22,089 |
|
|
|
24,188 |
|
Other deferred tax liabilities |
|
|
3,892 |
|
|
|
3,431 |
|
|
|
|
|
|
|
|
|
|
Total gross deferred income tax liabilities |
|
|
230,247 |
|
|
|
307,027 |
|
|
|
|
|
|
|
|
|
|
Net deferred income tax liabilities |
|
$ |
67,459 |
|
|
$ |
138,547 |
|
|
|
|
|
|
|
|
|
|
Deferred tax assets include federal net operating losses of $237.3 million and $153.3 million at December 31,
2021 and 2020, respectively, and state net operating losses of $577.3 million and $440.5 million at December 31, 2021 and 2020, respectively. Deferred tax assets are expected to be used in the reduction of taxable earnings of future
tax years unless it is determined they are more likely than not to be realized based on the weight of available evidence. The earliest net operating loss will expire by statute in 2022 for state net operating losses, and in 2036 for federal net
operating losses.
In evaluating the Companys ability to recover deferred income tax assets, all available positive and negative evidence is
considered, including scheduled reversal of deferred tax liabilities, operating results and forecasts of future taxable income in each of the jurisdictions in which the Company operates. As of December 31, 2021, the Company determined that a
significant portion of its federal and state net operating loss carryforwards with definite carryforward periods and certain deferred tax assets are not more likely than not to be realized based on the weight of available evidence. As a result, the
Company recorded an increase of $22.5 million to its valuation allowance related to federal net operating loss carryforwards and an increase of $13.3 million to its valuation allowance related to state net operating loss carryforwards and
certain deferred tax assets. These amounts were recorded during the year ended December 31, 2021 in income tax (benefit) expense in the consolidated statement of operations.
For the year ended December 31, 2019, the Company reached the conclusion that it was appropriate to release its valuation allowance related to a
significant portion of its federal and state deferred tax assets due to the expectation of current and future taxable income, which is partly attributable to interest limitation addbacks. As a result of the release, the Companys valuation
allowance related to federal net operating loss carryforwards decreased approximately $26.0 million, and the Companys valuation allowance related to state net operating loss carryforwards and state credits decreased approximately
$8.9 million. For the year ended December 31, 2020, the Company reached the conclusion that it was more likely than not that the Companys federal and
F-41
certain state deferred income tax assets were expected to be realized, and the Company maintained a valuation allowance mainly related to certain state net operating losses.
The Company is routinely audited by the tax authorities in various U.S. states and is currently not subject to examination. The statute remains open for most
state jurisdictions for periods beginning in 2017. For federal tax purposes, tax years through 2017 are closed for examination by the Internal Revenue Service. Any interest and penalties related to the tax uncertainties are recorded in income tax
expense.
As reflected in the following table (in thousands), the Company had an uncertain tax position related to the tax treatment of tenant improvement
allowances. Due to the Companys net operating loss position, there were no accrued interest and penalties related to the unrecognized tax benefits in any year. Our gross unrecognized tax benefits were reduced by $3.0 million during the
year ended December 31, 2021 due to tax filings. Of the gross unrecognized tax benefits, none were recognized as liabilities in the consolidated balance sheets in any year due to tax attribute carryforwards available to offset a potential tax
liability.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
Balance at beginning of period |
|
$ |
3,027 |
|
|
$ |
2,341 |
|
|
$ |
884 |
|
Increases for positions taken during the year |
|
|
|
|
|
|
686 |
|
|
|
1,457 |
|
Decreases for positions taken in prior years |
|
|
(3,027 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
|
|
|
$ |
3,027 |
|
|
$ |
2,341 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 17. Leases
The
Company leases various facilities and office equipment for its physical therapy operations and administrative support functions under operating leases. The Companys initial operating lease terms are generally between 7 and 10 years, and
typically contain options to renew for varying terms. Right-of-use (ROU) assets and lease liabilities are recognized at the lease commencement date based on
the present value of lease payments over the lease term. The amortization of operating lease ROU assets and the accretion of operating lease liabilities are reported together as fixed lease expense. The fixed lease expense is recognized on a
straight-line basis over the life of the lease. Refer to Note 2Basis of Presentation and Summary of Significant Accounting Policies for more information about the Companys lease accounting policies and ASC 842 adoption.
Lease costs are included as components of cost of services and selling, general and administrative expenses on the consolidated statements of operations. Lease
costs incurred by lease type were as follows for the periods indicated below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
Lease cost |
|
|
|
|
|
|
|
|
Operating lease cost |
|
$ |
65,555 |
|
|
$ |
67,279 |
|
Variable lease cost (1) |
|
|
20,045 |
|
|
|
18,689 |
|
|
|
|
|
|
|
|
|
|
Total lease cost (2) |
|
$ |
85,600 |
|
|
$ |
85,968 |
|
|
|
|
|
|
|
|
|
|
(1) |
Includes short term lease costs, which are not material. |
(2) |
Sublease income was not material. |
During the year ended December 31, 2020, the Company terminated certain lease agreements primarily related to corporate facilities no longer in use.
These terminations resulted in net charges of $4.3 million, comprised of $3.9 million in loss on lease terminations and impairment and $0.4 million in other costs associated with the terminations. The charges are recorded in selling,
general and administrative expenses in the Companys
F-42
consolidated statements of operations. The Company paid approximately $4.6 million related to these terminations during the year ended December 31, 2021.
During the years ended December 31, 2021 and 2020, the Company modified the lease terms for a significant number of its real estate leases. Modifications
during the years ended December 31, 2021 and 2020 resulted in an increase to the Companys operating lease ROU assets and operating lease liabilities of approximately $18.4 million and $29.3 million, respectively.
Other supplemental quantitative disclosures were as follows for the periods indicated below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
Other information |
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
|
Operating cash flows from operating leases |
|
$ |
65,678 |
|
|
$ |
61,993 |
|
Cash payments related to lease terminations |
|
$ |
4,570 |
|
|
$ |
|
|
Right-of-use
assets obtained in exchange for new operating lease liabilities |
|
$ |
28,759 |
|
|
$ |
14,067 |
|
Average lease terms and discount rates as of December 31, 2021 and December 31, 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
Weighted-average remaining lease term: |
|
|
|
|
|
|
|
|
Operating leases |
|
|
6.4 years |
|
|
|
6.7 years |
|
Weighted-average discount rate: |
|
|
|
|
|
|
|
|
Operating leases |
|
|
6.5 |
% |
|
|
6.5 |
% |
Estimated undiscounted future lease payments under non-cancellable operating leases,
along with a reconciliation of the undiscounted cash flows to operating lease liabilities, respectively, at December 31, 2021 were as follows (in thousands):
|
|
|
|
|
Year |
|
|
|
|
2022 |
|
$ |
66,916 |
|
2023 |
|
|
64,314 |
|
2024 |
|
|
57,370 |
|
2025 |
|
|
48,508 |
|
2026 |
|
|
42,278 |
|
Thereafter |
|
|
92,133 |
|
|
|
|
|
|
Total undiscounted future cash flows |
|
$ |
371,519 |
|
Less: Imputed Interest |
|
|
(71,489 |
) |
|
|
|
|
|
Present value of future cash flows |
|
$ |
300,030 |
|
|
|
|
|
|
Presentation on Balance Sheet |
|
|
|
|
Current |
|
$ |
49,433 |
|
Non-current |
|
$ |
250,597 |
|
Note 18. Commitments and Contingencies
The Company has contractual commitments that are not required to be recognized in the consolidated financial statements related to cloud computing and
telecommunication services agreements. Minimum amounts due under
F-43
these agreements are approximately $4.8 million through March of 2024 subject to customary business terms and conditions.
From time to time, the Company is a party to legal proceedings, governmental audits and investigations that arise in the ordinary course of business.
Management is not aware of any legal proceedings, governmental audits and investigations of which the outcome is probable or reasonably possible to have a material adverse effect on the Companys results of operations or financial condition,
which would require disclosure of the contingency and the possible range of loss. The outcome of any litigation and claims against the Company cannot be predicted with certainty, and the resolution of current or future claims could materially affect
our future results of operations, cash flows, or financial position.
Shareholder class action complaints
On August 16, 2021, two purported ATI shareholders, Kevin Burbige and Ziyang Nie, filed a putative class action complaint in the U.S. District Court for
the Northern District of Illinois against ATI; Labeed Diab, Joe Jordan, and Drew McKnight (collectively, the ATI Individual Defendants); and Joshua Pack, Marc Furstein, Leslee Cowen, Aaron Hood, Carmen Policy, Rakefet Russak-Aminoach,
and Sunil Gulati (collectively, the FVAC Defendants). The Burbige/Nie complaint asserted claims against: (i) ATI and the ATI Individual Defendants under Section 10(b) of the Securities Exchange Act of 1934 (the Exchange
Act); (ii) the ATI Individual Defendants under Section 20(a) of the Exchange Act; and (iii) all defendants under Section 14(a) of the Exchange Act. Plaintiffs Burbige and Nie purported to assert their claims on behalf of those
ATI shareholders who purchased or otherwise acquired their ATI shares between April 1, 2021 and July 23, 2021, inclusive, and/or held FVAC Class A common shares as of May 24, 2021 and were eligible to vote at FVACs
June 15, 2021 special meeting.
On October 7, 2021, another purported ATI shareholder, City of Melbourne Firefighters Retirement System
(City of Melbourne), filed a putative class action complaint in the U.S. District Court for the Northern District of Illinois against ATI, the ATI Individual Defendants, and the FVAC Defendants. Like the Burbige/Nie complaint, the City
of Melbourne complaint asserted claims against (i) ATI and the ATI Individual Defendants under Section 10(b) of the Exchange Act; (ii) the ATI Individual Defendants under Section 20(a) of the Exchange Act; and (iii) all
defendants under Section 14(a) of the Exchange Act. City of Melbourne purported to assert its claims on behalf of those ATI shareholders who purchased or otherwise acquired their ATI shares between February 22, 2021 and July 23, 2021,
inclusive, and/or held FVAC Class A common shares as of May 24, 2021 and were eligible to vote at FVACs June 15, 2021 special meeting.
On November 18, 2021, the court consolidated the cases and appointed The Phoenix Insurance Company Ltd. and The Phoenix Pension & Provident
Funds as Lead Plaintiffs (Lead Plaintiffs) and Pomerantz LLP as Lead Counsel. On February 8, 2022, Lead Plaintiffs filed a consolidated amended complaint against ATI, the ATI Individual Defendants, and the FVAC Defendants, which
asserts claims against (i) ATI and the ATI Individual Defendants under Section 10(b) of the Exchange Act; (ii) the ATI Individual Defendants under Section 20(a) of the Exchange Act (in connection with the Section 10(b)
claim); (iii) all defendants under Section 14(a) of the Exchange Act; and (iv) the ATI Individual Defendants and the FVAC Defendants under Section 20(a) of the Exchange Act (in connection with the Section 14(a) claim). Lead
Plaintiffs purport to assert these claims on behalf of those ATI shareholders who purchased or otherwise acquired their ATI shares between February 22, 2021 and October 19, 2021, inclusive, and/or held FVAC Class A common shares as of
May 24, 2021 and were eligible to vote at FVACs June 15, 2021 special meeting. The consolidated amended complaint, like the predecessor Burbige/Nie and City of Melbourne complaints, generally alleges that the proxy materials for the
FVAC/ATI merger, as well as other ATI disclosures (including the press release announcing ATIs financial results for the first quarter of 2021), were false and misleading (and, thus, in violation of Sections 10(b) and 14(a) of the Exchange
Act) because they failed to disclose that: (i) ATI was experiencing attrition among its physical therapists; (ii) ATI faced increasing competition for clinicians in the labor market; (iii) as a result, ATI faced difficulty retaining
therapists and incurred increased labor costs; (iv) also as a result, ATI would open fewer new clinics; and (v) also as a result, the defendants positive statements about ATIs business, operations, and
F-44
prospects were materially misleading and/or lacked a reasonable basis. Lead Plaintiffs, on behalf of themselves and the putative class, seek money damages in an unspecified amount and costs and
expenses, including attorneys and experts fees. Defendants have not yet responded to the consolidated amended complaint. As of December 31, 2021, the Company has determined that potential liabilities related to the consolidated
amended complaint are not considered probable or reasonably estimable at this time.
Shareholder derivative complaint
On December 1, 2021, another purported ATI shareholder, Hamza Ghaith, filed a derivative action, purportedly on behalf of ATI, in the U.S. District Court
for the Northern District of Illinois against Labeed Diab, Joe Jordan, John Larsen, John Maldonado, Carmine Petrone, Joanne Burns, Christopher Krubert, James Parisi, Drew McKnight, Joshua Pack, Aaron Hood, Carmen Policy, Marc Furstein, Leslee Cowen,
Rafeket Russak-Aminoach, and Sunil Gulati (collectively, the Individual Defendants). The Ghaith complaint asserts claims on behalf of ATI against: (i) the Individual Defendants for breach of fiduciary duty; (ii) Labeed Diab,
Joe Jordan, and Drew McKnight for contribution under Sections 10(b) and 21(d) of the Exchange Act; and (iii) Drew McKnight, Joshua Pack, Aaron Hood, Carmen Policy, Marc Furstein, Leslee Cowen, Rafeket Russak-Aminoach, and Sunil Gulati under
Section 14(a) of the Exchange Act. Plaintiff Ghaiths allegations generally mirror those asserted in the securities complaints described above, and the Ghaith complaint seeks damages in an unspecified amount, certain corporate governance
reforms, restitution from the Individual Defendants and disgorgement of all of their compensation, and costs and expenses, including attorneys and experts fees. As of December 31, 2021, the Company has determined that potential
liabilities related to the Ghaith complaint are not considered probable or reasonably estimable at this time. Defendants have not yet responded to the Ghaith complaint.
Regulatory matters
On November 5, 2021, the
Company received from the SEC a voluntary request for the production of documents relating to the earnings forecast and financial information referenced in the Companys July 26, 2021 Form 8-K and
related matters. The Company is cooperating with the SEC in connection with this request.
Indemnifications
The Company has agreed to indemnify its directors and executive officers for costs associated with any fees, expenses, judgments, fines and settlement amounts
incurred by them in any action or proceeding to which any of them are, or are threatened to be, made a party by reason of their service as a director or officer. The Company maintains director and officer insurance coverage that would generally
enable it to recover a portion of any future amounts paid. The ultimate cost of potential future litigation may exceed the Companys current insurance coverages and may have a material adverse impact on our results of operations, cash flows and
financial condition. The Company also may be subject to indemnification obligations by law with respect to the actions of its employees under certain circumstances and in certain jurisdictions.
Note 19. (Loss) Earnings per Share
Basic (loss) earnings
per share is computed by dividing net (loss) income by the weighted average number of common shares outstanding during the period. For the years ended December 31, 2020 and 2019, preferred shares are treated as participating securities and
therefore are included in computing earnings per common share using the two-class method. The two-class method is an earnings allocation formula that calculates basic
and diluted net earnings per common share for each class of common stock separately based on dividends declared and participation rights in undistributed earnings as if the earnings for the year had been distributed. As the preferred stockholders do
not participate in losses, for any periods with a net loss, there is no allocation to participating securities in the period.
No undistributed earnings
or losses were allocated to the preferred shares for the year ended December 31, 2021. As of the closing of the Business Combination, the Wilco Holdco Series A Preferred shares were no longer outstanding.
F-45
The calculation of both basic and diluted (loss) earnings per share for the periods indicated below was as
follows (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
|
December 31, 2019 |
|
Basic and diluted (loss) earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(782,028 |
) |
|
$ |
(298 |
) |
|
$ |
9,749 |
|
Less: Net (loss) income attributable to non-controlling
interest |
|
|
(3,700 |
) |
|
|
5,073 |
|
|
|
4,400 |
|
Less: Income allocated to participating securities |
|
|
|
|
|
|
|
|
|
|
535 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income available to common stockholders |
|
$ |
(778,328 |
) |
|
$ |
(5,371 |
) |
|
$ |
4,814 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares
outstanding(1) |
|
|
165,805 |
|
|
|
128,286 |
|
|
|
128,286 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted (loss) earnings per share |
|
$ |
(4.69 |
) |
|
$ |
(0.04 |
) |
|
$ |
0.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
The weighted-average number of shares outstanding in periods presented prior to the closing of the Business
Combination has been retrospectively adjusted based on the exchange ratio established through the transaction. |
There were no preferred
or other dividends declared during any period presented.
For the periods presented, the following securities were not required to be included in the
computation of diluted shares outstanding, as their impact would have been anti-dilutive. Figures presented are based on the number of underlying Class A common shares following the Business Combination (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
|
December 31, 2019 |
|
Warrants |
|
|
9,867 |
|
|
|
|
|
|
|
|
|
Restricted shares(1) |
|
|
1,323 |
|
|
|
|
|
|
|
|
|
Stock options |
|
|
775 |
|
|
|
|
|
|
|
|
|
RSUs |
|
|
404 |
|
|
|
|
|
|
|
|
|
RSAs |
|
|
448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
12,817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Represents a portion of the 2.0 million restricted shares distributed following the Business Combination
to holders of unvested Incentive Common Units under the Wilco Acquisition, LP 2016 Equity Incentive Plan. Refer to Note 10Share-Based Compensation for further details. |
15.0 million Earnout Shares and 8.6 million Vesting Shares were excluded from the calculation of basic and diluted per share calculations as the
vesting thresholds have not yet been met as of the end of the reporting period.
F-46
Note 20. Selected Quarterly Financial Data (Unaudited)
Presented below is selected quarterly financial data for fiscal year 2021, which was prepared on the same basis as the audited consolidated financial
statements and includes all adjustments necessary to present fairly, in all material respects, the information set forth therein on a consistent basis (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Year Ended |
|
|
|
March 31, 2021 |
|
|
June 30, 2021(1) |
|
|
September 30, 2021(1) |
|
|
December 31, 2021 |
|
|
December 31, 2021 |
|
Net operating revenue |
|
$ |
149,062 |
|
|
$ |
164,033 |
|
|
$ |
159,013 |
|
|
$ |
155,763 |
|
|
$ |
627,871 |
|
Total cost of services |
|
|
131,121 |
|
|
|
128,581 |
|
|
|
136,117 |
|
|
|
137,978 |
|
|
|
533,797 |
|
Selling, general and administrative expenses |
|
|
24,726 |
|
|
|
26,391 |
|
|
|
30,795 |
|
|
|
29,897 |
|
|
|
111,809 |
|
Goodwill and intangible asset impairment
charges(1) |
|
|
|
|
|
|
453,331 |
|
|
|
508,972 |
|
|
|
|
|
|
|
962,303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss(1) |
|
|
(6,785 |
) |
|
|
(444,270 |
) |
|
|
(516,871 |
) |
|
|
(12,112 |
) |
|
|
(980,038 |
) |
Loss before taxes(1) |
|
|
(28,333 |
) |
|
|
(458,857 |
) |
|
|
(362,107 |
) |
|
|
(3,691 |
) |
|
|
(852,988 |
) |
Income tax benefit(1) |
|
|
(10,515 |
) |
|
|
(19,731 |
) |
|
|
(35,333 |
) |
|
|
(5,381 |
) |
|
|
(70,960 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income(1) |
|
|
(17,818 |
) |
|
|
(439,126 |
) |
|
|
(326,774 |
) |
|
|
1,690 |
|
|
|
(782,028 |
) |
Net income (loss) attributable to non-controlling
interest |
|
|
1,309 |
|
|
|
(3,769 |
) |
|
|
(2,109 |
) |
|
|
869 |
|
|
|
(3,700 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to ATI Physical Therapy, Inc.(1) |
|
$ |
(19,127 |
) |
|
$ |
(435,357 |
) |
|
$ |
(324,665 |
) |
|
$ |
821 |
|
|
$ |
(778,328 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings per share of Class A common stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic(1)(2) |
|
$ |
(0.15 |
) |
|
$ |
(3.12 |
) |
|
$ |
(1.65 |
) |
|
$ |
0.00 |
|
|
$ |
(4.69 |
) |
Diluted(1)(2) |
|
$ |
(0.15 |
) |
|
$ |
(3.12 |
) |
|
$ |
(1.65 |
) |
|
$ |
0.00 |
|
|
$ |
(4.69 |
) |
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
128,286 |
|
|
|
139,553 |
|
|
|
196,996 |
|
|
|
197,285 |
|
|
|
165,805 |
|
Diluted |
|
|
128,286 |
|
|
|
139,553 |
|
|
|
196,996 |
|
|
|
197,446 |
|
|
|
165,805 |
|
(1) |
Amounts are presented as revised for immaterial prior period revisions. Refer to discussion below.
|
(2) |
Basic and diluted (loss) earnings per share are computed independently for each of the periods presented.
Accordingly, the sum of the quarterly (loss) earnings per share amounts may not agree to the total for the year. |
Immaterial
revisions to prior periods
We identified and previously disclosed an immaterial prior period revision with respect to the amount of the non-cash goodwill impairment charge recorded for the three and six months ended June 30, 2021, specifically related to the assumed benefit to enterprise value as of June 30, 2021 associated with the
Companys net operating loss carryforwards. We evaluated the effects of this error on our previously-issued condensed consolidated financial statements in accordance with the guidance in Accounting Standards Codification (ASC) Topic
250, Accounting Changes and Error Corrections, ASC Topic 250-10-S99-1, Assessing Materiality, and ASC Topic 250-10-S99-2, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial
Statements (collectively, ASC Topic 250), and concluded that no prior period is materially misstated. The revision decreased accumulated deficit by $13.3 million as of June 30, 2021. The impacted periods will be revised in
future filings as applicable.
F-47
A summary of the effect of the revision on the condensed consolidated statements of operations for the three
and six months ended June 30, 2021 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2021 |
|
As reported |
|
|
Revision |
|
|
As revised |
|
Goodwill and intangible asset impairment charges |
|
$ |
467,118 |
|
|
$ |
(13,787 |
) |
|
$ |
453,331 |
|
Operating loss |
|
$ |
(458,057 |
) |
|
$ |
13,787 |
|
|
$ |
(444,270 |
) |
Loss before taxes |
|
$ |
(472,644 |
) |
|
$ |
13,787 |
|
|
$ |
(458,857 |
) |
Income tax benefit |
|
$ |
(20,183 |
) |
|
$ |
452 |
|
|
$ |
(19,731 |
) |
Net loss |
|
$ |
(452,461 |
) |
|
$ |
13,335 |
|
|
$ |
(439,126 |
) |
Net loss attributable to ATI Physical Therapy, Inc. |
|
$ |
(448,692 |
) |
|
$ |
13,335 |
|
|
$ |
(435,357 |
) |
Loss per share, Basic |
|
$ |
(3.22 |
) |
|
$ |
0.10 |
|
|
$ |
(3.12 |
) |
Loss per share, Diluted |
|
$ |
(3.22 |
) |
|
$ |
0.10 |
|
|
$ |
(3.12 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2021 |
|
As reported |
|
|
Revision |
|
|
As revised |
|
Goodwill and intangible asset impairment charges |
|
$ |
467,118 |
|
|
$ |
(13,787 |
) |
|
$ |
453,331 |
|
Operating loss |
|
$ |
(464,842 |
) |
|
$ |
13,787 |
|
|
$ |
(451,055 |
) |
Loss before taxes |
|
$ |
(500,977 |
) |
|
$ |
13,787 |
|
|
$ |
(487,190 |
) |
Income tax benefit |
|
$ |
(30,698 |
) |
|
$ |
452 |
|
|
$ |
(30,246 |
) |
Net loss |
|
$ |
(470,279 |
) |
|
$ |
13,335 |
|
|
$ |
(456,944 |
) |
Net loss attributable to ATI Physical Therapy, Inc. |
|
$ |
(467,819 |
) |
|
$ |
13,335 |
|
|
$ |
(454,484 |
) |
Loss per share, Basic |
|
$ |
(3.49 |
) |
|
$ |
0.10 |
|
|
$ |
(3.39 |
) |
Loss per share, Diluted |
|
$ |
(3.49 |
) |
|
$ |
0.10 |
|
|
$ |
(3.39 |
) |
In addition, we identified an immaterial prior period error with respect to the amount of income tax benefit recorded for the
three and nine months ended September 30, 2021, specifically related to the impact of federal and state valuation allowances. We evaluated the effects of this error on our previously-issued condensed consolidated financial statements in
accordance with the guidance in ASC Topic 250, and concluded that no prior period is materially misstated. The revision increased income tax benefit by $7.0 million for the three and nine months ended September 30, 2021, from
$28.3 million to $35.3 million and $58.5 million to $65.6 million, respectively. The revision decreased net loss by $7.0 million for the three and nine months ended September 30, 2021, from $333.8 million to
$326.8 million and $790.8 million to $783.7 million, respectively. The revision decreased loss per share from $1.68 to $1.65, and $5.07 to $5.02 for the three and nine months ended September 30, 2021, respectively. The impacted
periods will be revised in future filings as applicable.
Note 21. Subsequent Events
In January 2022, the Company granted approximately 1.1 million RSUs to certain employees under the 2021 Plan. The awards will vest in equal installments
on each of the first three anniversaries of the Closing Date, subject to the participants continued service through the applicable vesting dates. Based on the grant date fair value of the awards, the Company expects to recognize approximately
$4.2 million of share-based compensation expense in salaries and related costs in the consolidated statements of operations over the vesting period.
On February 24, 2022, ATI Holdings Acquisition, Inc., an indirect subsidiary of ATI Physical Therapy, Inc., refinanced its outstanding debt by entering
into a new 2022 credit agreement. The Companys outstanding 2016 first lien term loan had a principal balance of $555.0 million which was paid down in its entirety on the refinancing date. The new 2022 credit agreement includes a senior
secured term loan with a principal balance of $500.0 million which matures on February 24, 2028. Borrowings on the new senior secured term loan initially bear interest at a rate equal to the Secured Overnight Financing Rate
(SOFR), subject to a 1.0% floor, plus 7.25%, and includes step-downs based on the Companys net leverage ratio. The Company may elect to pay
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2.0% interest in-kind at a 0.5% premium during the first year under the agreement. The 2022 credit agreement contains customary covenants and restrictions,
including financial and non-financial covenants. The financial covenants require the Company to maintain $30.0 million of minimum liquidity through the first quarter of 2024. Additionally, beginning in
the second quarter of 2024, the Company must maintain a net leverage ratio, as defined in the agreements, not to exceed 7.00:1.00. The net leverage ratio covenant contains a step-down in the third quarter of 2024 to 6.75:1.00 and an additional
step-down in the first quarter of 2025 to 6.25:1.00, which remains applicable through maturity.
The 2022 credit agreement includes a super priority
revolving credit facility which has a maximum borrowing capacity of $50.0 million and matures on February 24, 2027. Borrowings on the new revolving credit facility bear interest, at the Companys election, at a base interest rate of
the ABR, as defined in the agreement, plus a credit spread or SOFR plus an applicable credit spread adjustment plus 4.0%. The interest rate related to borrowings on the revolving credit facility includes step-downs based on the Companys net
leverage ratio.
On February 24, 2022, the Company issued, in the aggregate, 165,000 shares of
non-convertible Series A Senior Preferred Stock with an initial stated value of $1,000 per share, or $165.0 million of stated value in the aggregate (Series A Preferred Stock), which includes
warrants to purchase up to 11.5 million shares of the Companys common stock. The Series A Preferred Stock has priority over the Class A common stock with respect to distribution rights, liquidation rights and dividend rights. The
holders of the Series A Preferred Stock are entitled to cumulative dividends on the preferred shares at an initial dividend rate of 12.0%, which are payable in-kind, increasing 1.0% per annum on the first day
following the fifth anniversary of the issuance and each one-year anniversary thereafter. However, from and after the third anniversary of the issuance of such preferred equity, the Company has the option to
pay such dividends in cash at an interest rate of 1.0% lower than the paid-in-kind rate. The Series A Preferred Stock is perpetual and is mandatorily redeemable in
certain circumstances such as a change of control, liquidation, winding up or dissolution, bankruptcy or other insolvency event, restructuring or capitalization transaction, or event of noncompliance.
The Series A Preferred Stock includes approximately 11.5 million detachable warrants. Each warrant entitles the holder to purchase one share of the
Companys Class A common stock. The warrants are exercisable within 5 years from issuance. The strike price is $3.00 for 5.2 million of the issued warrants, and the strike price is $0.01 for 6.3 million of the issued warrants.
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ATI Physical Therapy, Inc.
143,389,692 shares of Common Stock
Up to 9,866,657 shares of Common Stock Issuable upon Exercise of the
Warrants
PROSPECTUS
April 6,
2022