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



Table of Contents

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

2

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

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

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

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

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

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

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

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

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


11

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


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

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

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

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

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

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

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

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

Interim impairment testing as of March 31, 2022
During the quarter ended March 31, 2022, the Company identified an interim triggering event as a result of factors including potential changes in discount rates and the recent decrease in share price. The Company determined that the combination of these factors constituted an interim triggering event that required further analysis with respect to potential impairment to goodwill, trade name indefinite-lived intangible and other assets.
As it was determined that it was more likely than not that the fair value of our trade name indefinite-lived intangible asset was below its carrying value, the Company performed an interim quantitative impairment test as of the March 31, 2022 balance sheet date. The Company utilized the relief from royalty method to estimate the fair value of the trade name indefinite-lived intangible asset. The key assumptions associated with determining the estimated fair value include projected revenue growth rates, the royalty rate, the discount rate and the terminal growth rate. As a result of the analysis, the Company recognized a $39.4 million non-cash interim impairment in the line item goodwill and intangible asset impairment charges in its condensed consolidated statements of operations, which represents the difference between the estimated fair value of the Company’s trade name indefinite-lived intangible asset and its carrying value.
The Company evaluated its asset groups, including operating lease right-of-use assets that were evaluated based on clinic-level cash flows and clinic-specific market factors, noting no material impairment.
As it was determined that it was more likely than not that the fair value of our single reporting unit was below its carrying value, the Company performed an interim quantitative impairment test. In order to determine the fair value of our single reporting unit, the Company utilized an average of a discounted cash flow analysis and comparable public company analysis. The key assumptions associated with determining the estimated fair value include projected revenue growth rates, earnings before interest, taxes, depreciation and amortization ("EBITDA") margins, the terminal growth rate, the discount rate and relevant market multiples. As a result of the analysis, the Company recognized a $116.3 million non-cash interim impairment in the line item goodwill and intangible asset impairment charges in its condensed consolidated statements of operations, which represented the difference between the estimated fair value of the Company’s single reporting unit and its carrying value.
Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates and market factors. Estimating the fair value of the Company’s reporting unit and indefinite-lived intangible assets requires us to make assumptions and estimates regarding our future plans, as well as industry, economic, and regulatory conditions. These assumptions and estimates include projected revenue growth rates, EBITDA margins, terminal growth rates, discount rates, relevant market multiples, royalty rates and other market factors. If current expectations of future growth rates, margins and cash flows are not met, or if market factors outside of our control change significantly, then our reporting unit or indefinite-lived intangible assets might become impaired in the future, negatively impacting our operating results and financial position. As the carrying amounts of goodwill and the Company’s trade name indefinite-lived intangible asset have been impaired as of March 31, 2022 and written down to fair value, those amounts are more susceptible to an impairment risk if there are unfavorable changes in assumptions and estimates.
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Note 6. Property and Equipment
Property and equipment consisted of the following at March 31, 2022 and December 31, 2021 (in thousands):

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

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

Three Months Ended

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

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

5,649
Credit balance due to patients and payors4,0494,240
Accrued interest
4,046
Accrued contract labor3,5202,057
Transaction-related costs (2)
303349
Other payables and accrued expenses7,3966,853
Total
$59,391$64,584
(1) Includes current portion of MAAPP funds received and deferred employer Social Security tax payments.
(2) Represents costs related to public readiness initiatives and corporate transactions.
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Note 8. Borrowings
Long-term debt consisted of the following at March 31, 2022 and December 31, 2021 (in thousands):
March 31, 2022December 31, 2021
Senior Secured Term Loan (1) (due February 24, 2028)
$500,000 $— 
2016 first lien term loan (2)
— 555,048 
Less: unamortized debt issuance costs
(12,303)(1,935)
Less: unamortized original issue discount
(9,880)(1,147)
Total debt, net
477,817 551,966 
Less: current portion of long-term debt
— (8,167)
Long-term debt, net
$477,817 $543,799 
(1) Interest rate of 8.25% at March 31, 2022, with interest payable in designated installments at a variable interest rate. The effective interest rate for the Senior Secured Term Loan was 9.2% at March 31, 2022.
(2) Loan balance was repaid in its entirety on February 24, 2022. The effective interest rate for the 2016 first lien term loan was 4.9% at December 31, 2021.
2016 first and second lien credit agreements
In connection with the Business Combination on June 16, 2021, the Company paid down $216.7 million of its 2016 first lien term loan. The Company recognized $1.7 million in loss on debt extinguishment related to the derecognition of the proportionate amount of remaining unamortized deferred financing costs and unamortized original issue discount associated with the partial debt repayment.
In connection with the Business Combination on June 16, 2021, the Company paid $231.3 million to settle its second lien subordinated term loan. The Company recognized $3.8 million in loss on debt extinguishment related to the derecognition of the remaining unamortized deferred financing costs in conjunction with the debt repayment.
On February 24, 2022, the Company paid $555.0 million to settle its existing term loan (the "2016 first lien term loan"). The Company accounted for the transaction as a debt extinguishment and recognized $2.8 million in loss on debt extinguishment related to the derecognition of the remaining unamortized deferred financing costs and unamortized original issue discount in conjunction with the debt repayment. The loss on debt extinguishment associated with the repayment of the 2016 first lien term loan has been reflected in other expense, net in the condensed consolidated statements of operations.
2022 Credit Agreement
On February 24, 2022 (the "Refinancing Date"), the Company entered into various financing arrangements to refinance its existing long-term debt (the "2022 Debt Refinancing"). As part of the 2022 Debt Refinancing, ATI Holdings Acquisition, Inc. (the "Borrower"), an indirect subsidiary of ATI Physical Therapy, Inc., entered into a credit agreement among the Borrower, Wilco Intermediate Holdings, Inc. ("Holdings"), as loan guarantor, Barclays Bank PLC, as administrative agent and issuing bank, and a syndicate of lenders (the "2022 Credit Agreement"). The 2022 Credit Agreement provides a $550.0 million credit facility (the "2022 Credit Facility") that is comprised of a $500.0 million senior secured term loan (the "Senior Secured Term Loan") which was fully funded at closing and a $50.0 million "super priority" senior secured revolver (the "Revolving Loans") with a $10.0 million letter of credit sublimit. The 2022 Credit Facility refinanced and replaced the Company's prior credit facility for which Barclays Bank PLC served as administrative agent for a syndicate of lenders.
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In connection with the 2022 Debt Refinancing, the Company also entered into a preferred stock purchase agreement, consisting of senior preferred stock with detachable warrants to purchase common stock for an aggregate stated value of $165.0 million (collectively, the “Preferred Stock Financing”). See Note 10 - Mezzanine and Stockholders' Equity for further information regarding the Preferred Stock Financing.
The Company capitalized debt issuance costs totaling $12.5 million related to the 2022 Credit Facility as well as an original issue discount of $10.0 million, which are amortized over the terms of the respective financing arrangements.
The Senior Secured Term Loan matures on February 24, 2028 and bears interest, at the Company's election, at a base interest rate of the Alternate Base Rate ("ABR"), as defined in the agreement, plus an applicable credit spread, or the Adjusted Term SOFR Rate, as defined in the agreement, plus an applicable credit spread. The credit spread is determined based on a pricing grid and the Company's Secured Net Leverage Ratio. As of March 31, 2022, borrowings on the Senior Secured Term Loan bear interest at 3-month SOFR, subject to a 1.0% floor, plus 7.25%. The Company may elect to pay 2.0% interest in-kind at a 0.5% premium during the first year under the agreement.
The Revolving Loans are subject to a maximum borrowing capacity of $50.0 million and mature on February 24, 2027. Borrowings on the Revolving Loans bear interest, at the Company's election, at a base interest rate of the ABR, as defined in the agreement, plus an applicable credit spread, or the Adjusted Term SOFR Rate, as defined in the agreement, plus an applicable credit spread. The credit spread is determined based on a pricing grid and the Company's Secured Net Leverage Ratio. The Company capitalized issuance costs of $0.5 million related to the Revolving Loans. Unamortized issuance costs of $0.2 million related to the revolving loans under the 2016 credit agreement were added to the balance of unamortized issuance costs to be amortized over the term of the Revolving Loans pursuant to debt extinguishment accounting guidance. Commitment fees on the Revolving Loans are payable quarterly at 0.5% per annum on the daily average undrawn portion for the quarter and are expensed as incurred. The balances of unamortized issuance costs related to the Revolving Loans and the revolving loans under the 2016 credit agreement, respectively, were $0.7 million as of March 31, 2022, and $0.3 million as of December 31, 2021.
The 2022 Credit Facility is guaranteed by certain of the Company’s subsidiaries and is secured by substantially all of the assets of Holdings, the Borrower and the Borrower’s wholly owned subsidiaries, including a pledge of the stock of the Borrower, in each case, subject to customary exceptions.
The 2022 Credit Agreement contains customary covenants and restrictions, including financial and non-financial covenants. The financial covenants require the Company to maintain $30.0 million of minimum liquidity at each test date through the first quarter of 2024. Additionally, beginning in the second quarter of 2024, the Company must maintain a Secured Net Leverage Ratio, as defined in the agreement, not to exceed 7.00:1.00. The net leverage ratio covenant decreases in the third quarter of 2024 to 6.75:1.00 and further decreases in the first quarter of 2025 to 6.25:1.00, which remains applicable through maturity. The financial covenants are tested as of each fiscal quarter end for the respective periods.
The 2022 Credit Facility contains customary representations and warranties, events of default, reporting and other affirmative covenants and negative covenants, including limitations on indebtedness, liens, investments, negative pledges, dividends, junior debt payments, fundamental changes and asset sales and affiliate transactions. Failure to comply with these covenants and restrictions could result in an event of default under the 2022 Credit Facility, subject to customary cure periods. In such an event, all amounts outstanding under the 2022 Credit Facility, together with any accrued interest, could then be declared immediately due and payable.
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Under the 2022 Credit Facility the Company may be required to make certain mandatory prepayments upon the occurrence of certain events, including: an event of default, a Prepayment Asset Sale or receipt of Net Insurance Proceeds (as defined in the 2022 Credit Agreement) in excess of $15.0 million, or excess cash flows exceeding certain thresholds (as defined in the 2022 Credit Agreement).
The Company had letters of credit totaling $1.2 million under the letter of credit sub-facility on the revolving credit facilities as of March 31, 2022 and December 31, 2021, respectively. The letters of credit auto-renew on an annual basis and are pledged to insurance carriers as collateral.
Aggregate maturities of long-term debt at March 31, 2022 are as follows (in thousands):
2022 (remainder of year)$— 
2023— 
2024— 
2025— 
2026— 
Thereafter500,000 
Total future maturities
500,000 
Unamortized original issue discount and debt issuance costs
(22,183)
Total debt, net
$477,817 
Note 9. Share-Based Compensation
The Company recognizes compensation expense for all share-based compensation awarded to employees, net of forfeitures, using a fair value-based method. The grant-date fair value of each award is amortized to expense on a straight-line basis over the award’s vesting period. Compensation expense associated with share-based awards is included in salaries and related costs and selling, general and administrative expenses in the accompanying condensed consolidated statements of operations, depending on whether the award recipient is a clinic-level or corporate employee, respectively. Share-based compensation expense is adjusted for forfeitures as incurred.
ATI 2021 Equity Incentive Plan
The Company adopted the ATI Physical Therapy 2021 Equity Incentive Plan (the "2021 Plan") under which it may grant equity interests of ATI Physical Therapy, Inc., in the form of stock options, stock appreciation rights, restricted stock awards and restricted stock units, to members of management, key employees and independent directors of the Company and its subsidiaries. The Compensation Committee is authorized to make grants and to make various other decisions under the 2021 Plan. The maximum number of shares reserved for issuance under the 2021 Plan is approximately 20.7 million. As of March 31, 2022, approximately 9.4 million shares were available for future grant.
2022 grants
During the first quarter of 2022, the Company granted stock options and restricted stock units ("RSUs") to certain employees and independent directors of the Company. For the three months ended March 31, 2022, approximately 5.2 million stock options and 4.5 million RSUs were granted under the 2021 Plan. The weighted average grant date fair values related to the 2022 grants were $1.01 and $2.23 for the stock options and RSUs, respectively.
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The fair values of each stock option granted was determined using the Black-Scholes option-pricing model. As the Company does not have sufficient historical share option exercise experience for such "plain-vanilla" awards, the expected option term was determined using the simplified method, which is the average of the option's vesting and contractual term. Volatility is measured using the historical volatility of certain comparable companies, using daily log-returns of stock prices, as adjusted for the impact of financial leverage. The risk-free interest rate reflects the U.S. Treasury yield curve in effect at the time of the grant. The following weighted-average assumptions were used for the options granted in 2022:
2022
Weighted-average grant-date fair value of options$1.01
Risk-free interest rate1.74%
Term (years)6.2
Volatility61.20%
Expected dividend—%
As of March 31, 2022, the unrecognized compensation expense related to stock options was $6.2 million, to be recognized over a weighted-average period of 3.6 years, and the unrecognized compensation expense related to RSUs was $9.8 million, to be recognized over a weighted-average period of 2.5 years.
Total share-based compensation expense recognized in the three months ended March 31, 2022 was approximately $2.0 million.
Note 10. Mezzanine and Stockholders' Equity
ATI Physical Therapy, Inc. Series A Senior Preferred Stock
In connection with the 2022 Debt Refinancing, the Company issued 165,000 shares of non-convertible preferred stock (the "Series A Senior Preferred Stock") plus 5.2 million warrants to purchase shares of the Company's common stock at an exercise price of $3.00 per share (the "Series I Warrants") and warrants to purchase 6.3 million shares of the Company's common stock at an exercise price equal to $0.01 per share (the "Series II Warrants"). The shares of the Series A Senior Preferred Stock have a par value of $0.0001 per share and an initial stated value of $1,000 per share, for an aggregate initial stated value of $165.0 million. The Company is authorized to issue 1.0 million shares of preferred stock per the Certificate of Designation. As of March 31, 2022, there was 0.2 million shares of Series A Senior Preferred Stock issued and outstanding.
The gross proceeds received from the issuance of the Series A Senior Preferred Stock and the Series I and Series II Warrants were $165.0 million, which was allocated among the instruments based on the relative fair values of each instrument. Of the gross proceeds, $144.7 million was allocated to the Series A Senior Preferred Stock, $5.1 million to the Series I Warrants and $15.2 million to the Series II Warrants. The resulting discount on the Series A Senior Preferred Stock will be recognized as a deemed dividend when those shares are subsequently remeasured upon becoming redeemable or probable of becoming redeemable. The Company recognized $2.9 million in issuance costs and $1.4 million of original issue discount related to the Series A Senior Preferred Stock.
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The following table reflects the components of proceeds related to the Series A Senior Preferred Stock (in thousands):
Gross proceeds allocated to Series A Senior Preferred Stock$144,667 
Less: original issue discount(1,447)
Less: issuance costs(2,880)
Net proceeds received from issuance of Series A Senior Preferred Stock$140,340 
The Series A Senior Preferred Stock has priority over the Company's Class A common stock and all other junior equity securities of the Company, and is junior to the Company's existing or future indebtedness and other liabilities (including trade payables), with respect to payment of dividends, distribution of assets, and all other liquidation, winding up, dissolution, dividend and redemption rights.
The Series A Senior Preferred Stock carries an initial dividend rate of 12.0% per annum (the "Base Dividend Rate"), payable quarterly in arrears. Dividends will be paid in-kind and added to the stated value of the Series A Senior Preferred Stock. The Company may elect to pay dividends on the Series A Senior Preferred Stock in cash beginning on the third anniversary of the Refinancing Date and, with respect to any such dividends paid in cash, the dividend rate then in effect will be decreased by 1.0%.
The Base Dividend Rate is subject to certain adjustments, including an increase of 1.0% per annum on the first day following the fifth anniversary of the Refinancing Date and on each one-year anniversary thereafter, and 2.0% per annum upon the occurrence of either an Event of Noncompliance (as defined in the Certificate of Designation) or a failure by the Company to redeem in full all Series A Senior Preferred Stock upon a Mandatory Redemption Event, which includes a change of control, liquidation, bankruptcy or certain restructurings. The paid in-kind dividends related to the Series A Preferred Stock were $1.9 million as of March 31, 2022.
The following table presents the change in the aggregate stated value and stated value per share of the Series A Senior Preferred Stock since the Refinancing Date (in thousands, except per share data):
Series A Senior Preferred Stock
Aggregate stated value as of February 24, 2022$165,000 
Accumulated paid in-kind dividends as of March 31, 2022
1,925 
Aggregate stated value as of March 31, 2022
$166,925 
Preferred shares issued and outstanding as of March 31, 2022
165
Stated value per share as of March 31, 2022
$1,011.67
The Company has the right to redeem the Series A Senior Preferred Stock, in whole or in part, at any time (subject to certain limitations on partial redemptions). The Redemption Price (as defined in the Certificate of Designation) for each share of Series A Senior Preferred Stock depends on when such optional redemption takes place, if at all.
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The Series A Senior Preferred Stock is perpetual and is not mandatorily redeemable at the option of the holders, except upon the occurrence of a Mandatory Redemption Event (as defined in the Certificate of Designation). Upon the occurrence of a Mandatory Redemption Event, to the extent not prohibited by law, the Company is required to redeem all Series A Senior Preferred Stock, in cash, at a price per share equal to the then applicable Redemption Price. Because the Series A Senior Preferred Stock is mandatorily redeemable contingent on certain events outside the Company’s control, the Series A Senior Preferred Stock is classified as mezzanine equity in the Company's condensed consolidated balance sheets. Based on the Company’s assessment of the conditions which would trigger the redemption of the Series A Senior Preferred Stock, the Company has determined that the Series A Senior Preferred Stock is neither currently redeemable nor probable of becoming redeemable. Because the Series A Senior Preferred Stock is classified as mezzanine equity and is not considered redeemable or probable of becoming redeemable, the paid in-kind dividends that are added to the stated value do not impact the carrying value of the Series A Senior Preferred Stock in the Company’s condensed consolidated balance sheets. Should the Series A Senior Preferred Stock become probable of becoming redeemable, the Company will recognize changes in the redemption value of the Series A Senior Preferred Stock immediately as they occur and adjust the carrying amount accordingly at the end of each reporting period. As of March 31, 2022, the redemption value of the Series A Senior Preferred Stock was $166.9 million, which is the stated value.
If an Event of Noncompliance occurs, then the holders of a majority of the then outstanding shares of Series A Senior Preferred Stock (the “Majority Holders”) have the right to demand that the Company engage in a sale/refinancing process to consummate a Forced Transaction (as defined in the Certificate of Designation). A Forced Transaction includes a refinancing of the Series A Senior Preferred Stock or a sale of the Company. Upon consummation of any Forced Transaction, to the extent not prohibited by law, the Company is required to redeem all Series A Senior Preferred Stock, in cash, at a price per share equal to the then applicable Redemption Price.
Holders of shares of Series A Senior Preferred Stock have no voting rights with respect to the Series A Senior Preferred Stock except as set forth in the Certificate of Designation, other documents entered into in connection with the Purchase Agreement and the transactions contemplated thereby (collectively, the “Transaction Documents”), or as otherwise required by law. For so long as any Series A Senior Preferred Stock is outstanding, the Company is prohibited from taking certain actions without the prior consent of the Majority Holders as set forth in the Certificate of Designation which include: issuing equity securities ranking senior to or pari passu with the Series A Senior Preferred Stock, incurring indebtedness or liens, engaging in affiliate transactions, making restricted payments, consummating investments or asset dispositions, consummating a change of control transaction unless the Series A Senior Preferred Stock is redeemed in full, altering the Company’s organizational documents, and making material changes to the nature of the Company’s business.
Holders of Series A Senior Preferred Stock, voting as a separate class, have the right to designate and elect one director to serve on the Company’s board of directors until such time after the Refinancing Date that (i) as of any applicable fiscal quarter end, the Company’s trailing 12-month Consolidated Adjusted EBITDA (as defined in the Certificate of Designation) exceeds $100 million, or (ii) the Lead Purchaser ceases to hold at least 50.1% of the Series A Senior Preferred Stock held by it as of the Refinancing Date.
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2022 Warrants
In connection with the Preferred Stock Financing, the Company agreed to issue to the preferred stockholders the Series I Warrants entitling the holders thereof to purchase 5.2 million shares of the Company's common stock at an exercise price equal to $3.00 per share, exercisable for 5 years from the Refinancing Date; and the Series II Warrants entitling holders thereof to purchase 6.3 million shares of the Company's common stock, at an exercise price equal to $0.01 per share, exercisable for 5 years from the Refinancing Date (collectively, the "2022 Warrants"). Such number of shares of common stock purchasable pursuant to the 2022 Warrant Agreement (the "2022 Warrant Shares") may be adjusted from time to time as set forth in the 2022 Warrant Agreement.
The 2022 Warrants are classified as equity instruments and were initially recorded at an amount equal to the proceeds received from the Preferred Stock Financing allocated among the Series A Senior Preferred Stock, the Series I Warrants, and the Series II Warrants based upon their relative fair values. Of the gross proceeds, $5.1 million was allocated to the Series I Warrants and $15.2 million was allocated to the Series II Warrants. The Company recognized total issuance costs and original issue discount of approximately $0.2 million and $0.5 million related to the Series I Warrants and Series II Warrants, respectively.
The following table reflects the components of proceeds related to the 2022 Warrants (in thousands):
Series I WarrantsSeries II WarrantsTotal
Gross proceeds allocated to 2022 Warrants$5,101 $15,232 $20,333 
Less: original issue discount(51)(152)(203)
Less: issuance costs(102)(303)(405)
Net proceeds received from issuance of 2022 Warrants$4,948 $14,777 $19,725 
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 Company’s Class A common stock are entitled to one vote for each share on each matter on which they are entitled to vote. At March 31, 2022, there were 207.4 million shares of Class A common stock issued and 197.5 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 Company’s 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.
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As of March 31, 2022, shares of Class A common stock reserved for potential future issuance, on an as-if converted basis, were as follows (in thousands):
March 31, 2022
Shares available for grant under the ATI 2021 Equity Incentive Plan9,395 
Earnout Shares reserved15,000 
2022 Warrants outstanding11,498 
IPO Warrants outstanding9,867 
Vesting Shares reserved(1)
8,625 
Restricted shares(1,2)
1,248 
Total shares of common stock reserved55,633 
(1) Represents shares of Class A common stock legally issued, but not outstanding, as of March 31, 2022.
(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.
Treasury stock
During the three months ended March 31, 2022, the Company net settled 0.01 million shares of its Class A common stock related to employee tax withholding obligations associated with the Company's share-based compensation program. These shares are reflected at cost as treasury stock in the condensed consolidated financial statements. As of March 31, 2022, there were 0.04 million shares of treasury stock totaling $0.1 million recognized in the condensed consolidated balance sheets.
Note 11. Wilco Holdco Redeemable Preferred Stock
On May 10, 2016, Wilco Holdco, Inc. issued shares of Series A Preferred Stock (the “Wilco Holdco preferred stock”) for a total consideration value of $98.0 million. Prior to the Business Combination, the Wilco Holdco 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 Wilco Holdco 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 Wilco Holdco preferred stock increased by 0.25% at the end of each fiscal quarter beginning after the second anniversary of the issuance of the Wilco Holdco preferred stock.
Based on the terms of the Wilco Holdco 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 2016 first and second lien credit agreements or a deemed liquidating event. Based on these redemption requirements, the Wilco Holdco preferred stock was classified as debt (redeemable preferred stock) in the Company’s historical consolidated balance sheets.
Cumulative dividends related to the Wilco Holdco preferred stock were accrued as preferred dividends that increased the balance of the redeemable preferred stock on the Company’s consolidated balance sheets and were recognized as interest expense on redeemable preferred stock in the Company’s consolidated statements of operations. For the three months ended March 31, 2021, the Company incurred cumulative preferred dividends related to the preferred stock of $5.3 million. No dividends were paid related to the preferred stock.
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In connection with the Business Combination, holders of the outstanding shares of Wilco Holdco 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. During 2021, the Company recorded a loss on settlement of redeemable preferred stock in the condensed 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. As a result of the Business Combination, the balance of redeemable preferred stock was fully settled.
Note 12. IPO Warrant Liability
The Company has outstanding Public Warrants to purchase an aggregate of 6.9 million shares of the Company’s Class A common stock at an exercise price of $11.50 per share and outstanding Private Placement Warrants to purchase an aggregate of 3.0 million shares of the Company's Class A common stock at an exercise price of $11.50 per share. There were no IPO Warrants exercised during the three months ended March 31, 2022.
The Company accounts for its outstanding IPO Warrants in accordance with the guidance contained in Accounting Standards Codification 815-40, Derivatives and Hedging - Contracts on an Entity’s Own Equity, and determined that the IPO Warrants do not meet the criteria for equity treatment thereunder. As such, each IPO Warrant must be recorded as a liability and is subject to re-measurement at each balance sheet date. Refer to Note 14 - Fair Value Measurements for further details. Changes in fair value are recognized in change in fair value of warrant liability in the Company’s condensed consolidated statements of operations.
The following table presents the change in the fair value of Private Placement Warrants that is recognized in change in fair value of warrant liability in the condensed consolidated statement of operations for the period ending March 31, 2022 (in thousands):
Three Months Ended
March 31, 2022
Fair value, beginning of period$1,305 
Changes in fair value(504)
Fair value, end of period$801 
The following table presents the changes in the fair value of the Public Warrants that is recognized in change in fair value of warrant liability in the condensed consolidated statements of operations for the period ending March 31, 2022 (in thousands):
Three Months Ended
March 31, 2022
Fair value, beginning of period$3,036 
Changes in fair value(1,173)
Fair value, end of period$1,863 
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Note 13. 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 Earnout Shares vest in three equal tranches of 5.0 million shares each if the VWAP of Class A common stock exceeds $12.00, $14.00 and $16.00 per share, respectively, over the designated period of time.
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 Company’s condensed consolidated statements of operations. As of March 31, 2022, no Earnout Shares have been issued as none of the corresponding share price thresholds have been met.
The following table presents the changes in the fair value of the Earnout Shares that is recognized in change in fair value of contingent common shares liability in the condensed consolidated statements of operations for the period ending March 31, 2022 (in thousands):
Three Months Ended
March 31, 2022
Fair value, beginning of period$28,800 
Changes in fair value(15,450)
Fair value, end of period$13,350 
Refer to Note 14 - Fair 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 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 VWAP of Class A common stock exceeds $12.00, $14.00 and $16.00 per share, respectively, over the designated period of time.
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 Company’s condensed consolidated statements of operations. As of March 31, 2022, no Vesting Shares are outstanding as none of the corresponding share price thresholds have been met.
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The following table presents the changes in the fair value of the Vesting Shares that is recognized in change in fair value of contingent common shares liability in the condensed consolidated statements of operations for the period ending March 31, 2022 (in thousands):
Three Months Ended
March 31, 2022
Fair value, beginning of period$16,560 
Changes in fair value(8,884)
Fair value, end of period$7,676 
Refer to Note 14 - Fair Value Measurements for further details.
Note 14. Fair Value Measurements
The Company determines fair value measurements used in its condensed 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 March 31, 2022 and December 31, 2021, 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.
The Company's Senior Secured Term Loan and Revolving Loans are Level 2 fair value measures which have variable interest rates and, as of March 31, 2022, 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.
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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 Company’s 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 Company’s 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 Company's 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 March 31, 2022 and December 31, 2021 for the respective Level 3 instruments:
Earnout SharesVesting Shares
March 31, 2022
December 31, 2021
March 31, 2022
December 31, 2021
Risk-free interest rate2.33%1.50%2.33%1.50%
Volatility50.82%44.86%50.82%44.86%
Dividend yield—%—%—%—%
Expected term (years)9.29.59.29.5
Share price$1.88$3.39$1.88$3.39
Refer to Note 13 - Contingent Common Shares Liability for further details on the change in fair value of the Earnout Shares and Vesting Shares.
Note 15. Income Taxes
The effective tax rate and income tax benefit for the three months ended March 31, 2022 were 14.4% and $23.3 million, compared to an effective tax rate and income tax benefit of 37.1% and $10.5 million for the three months ended March 31, 2021.
The effective tax rate for the three months ended March 31, 2022 was estimated based on full-year 2022 forecast. The estimated effective tax rate was different than the statutory rate primarily due to book impairment of goodwill. There was no basis in a significant component of the goodwill impaired for tax purposes. Therefore, a portion of the book impairment charge will never create a deduction for tax purposes in any period. As a result, this permanent difference has a substantial impact on the effective tax rate. The estimated effective tax rate applicable to year-to-date losses, in addition to discretes, resulted in a tax benefit of $23.3 million for the three months ended March 31, 2022.
The effective tax rate for the three months ended March 31, 2021 was estimated based on full-year 2021 forecast. The effective tax rate was different than the statutory rate primarily due to nondeductible transactions costs and interest expense on redeemable preferred stock. The estimated effective tax rate applicable to year-to-date losses resulted in a tax benefit of $10.5 million for the three months ended March 31, 2021.
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In evaluating the Company's 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 March 31, 2022, the Company continues to maintain a valuation allowance related to a significant portion of its federal and state net operating loss carryforwards with definite carryforward periods and certain deferred tax assets that are not more likely than not to be realized based on the weight of available evidence.
Note 16. Leases
The Company leases various facilities and office equipment for its physical therapy operations and administrative support functions under operating leases. The Company’s 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.
Lease costs are included as components of cost of services and selling, general and administrative expenses on the condensed consolidated statements of operations. Lease costs incurred by lease type were as follows for the periods indicated below (in thousands):
Three Months Ended
March 31, 2022March 31, 2021
Lease cost
Operating lease cost$16,703 $15,823 
Variable lease cost (1)
5,205 4,936 
Total lease cost (2)
$21,908 $20,759 
(1) Includes short term lease costs, which are immaterial .
(2) Sublease income was immaterial .
During the three months ended March 31, 2022 and 2021, the Company modified the lease terms for a significant number of its real estate leases, primarily related to lease term extensions and renewals in the normal course of business. Modifications during the three months ended March 31, 2022 and 2021 resulted in an increase to the Company’s operating lease ROU assets and operating lease liabilities of approximately $5.7 million and $3.8 million, respectively.
Other supplemental quantitative disclosures were as follows for the periods indicated below (in thousands):
Three Months Ended
March 31, 2022March 31, 2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$16,438 $16,166 
Cash payments related to lease terminations$— $4,570 
Right-of-use assets obtained in exchange for new operating lease liabilities$5,142 $5,399 
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Average lease terms and discount rates as of March 31, 2022 and December 31, 2021 were as follows:
March 31, 2022December 31, 2021
Weighted-average remaining lease term:
Operating leases6.3 years6.4 years
Weighted-average discount rate:
Operating leases6.5%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 March 31, 2022 were as follows (in thousands):
Year
2022 (remainder of year after March 31, 2022)$50,865 
202366,781 
202459,498 
202550,358 
202644,009 
Thereafter97,574 
Total undiscounted future cash flows369,085 
Less: Imputed Interest(70,080)
Present value of future cash flows$299,005 
Presentation on Balance Sheet
Current$50,651 
Non-current$248,354 
Note 17. Commitments and Contingencies
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 Company’s 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 FVAC’s June 15, 2021 special meeting.
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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 FVAC’s 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 FVAC’s 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 ATI’s 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 ATI’s business, operations, and 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. On April 11, 2022, defendants filed motions to dismiss the consolidated amended complaint, which remains pending. As of March 31, 2022, 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 Ghaith’s 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 March 31, 2022, 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.
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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 Company's 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 current and former 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 Company’s 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 18. Loss per Share
Basic loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the period. For the three months ended March 31, 2021, shares of Wilco Holdco preferred stock 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 Wilco Holdco preferred stockholders do not participate in losses, for any periods with a net loss, there is no allocation to participating securities in the period. As of the closing of the Business Combination, the Wilco Holdco preferred stock is no longer outstanding.
For the three months ended March 31, 2022, the income available to common shareholders is reduced by the amount of the cumulative dividend for the Series A Senior Preferred Stock that was issued as part of the 2022 Debt Refinancing.
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The calculation of both basic and diluted loss per share for the periods indicated below was as follows (in thousands, except per share data):

Three Months Ended

March 31, 2022

March 31, 2021
Basic and diluted loss per share:
Net loss
$(138,223)$(17,818)
Less: Net (loss) income attributable to non-controlling interests
(473)1,309
Less: Series A Senior Preferred cumulative dividend1,925
Loss available to common stockholders
$(139,675)$(19,127)

Weighted average shares outstanding(1,2)
199,971128,286

Basic and diluted loss per share
$(0.70)$(0.15)
(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.
(2) Included within weighted average shares outstanding following the 2022 Debt Refinancing are common shares issuable upon the exercise of the Series II Warrants, as the Series II Warrants are exercisable at any time for nominal consideration. As such, the shares are considered to be outstanding for the purpose of calculating basic and diluted loss per share.
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):

Three Months Ended
March 31, 2022

March 31, 2021
Series I Warrants5,226
IPO Warrants 9,867
Restricted shares(1)
1,248
Stock options5,951
RSUs4,886
RSAs366
Total27,544
(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.
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.
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Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of ATI Physical Therapy, Inc. and its subsidiaries (herein referred to as “we,” ”us,” “the Company,” “our Company,” or "ATI") should be read in conjunction with the Company’s condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report.
We make statements in this discussion that are forward-looking and involve risks and uncertainties. These statements contain forward-looking information relating to the financial condition, results of operations, plans, objectives, future performance and business of the Company. The forward-looking statements are based on our current views and assumptions, and actual results could differ materially from those anticipated in such forward-looking statements due to factors including, but not limited to, those discussed under “Cautionary Note Regarding Forward-Looking Statements” and Part II, Item 1A. “Risk Factors.”
Many factors are beyond our control. Given these uncertainties, you should not place undue reliance on our forward-looking statements. Our forward-looking statements represent our estimates and assumptions only as of the date of this Quarterly Report. Except as required by law, we are under no obligation to update any forward-looking statement, regardless of the reason the statement may no longer be accurate.
Certain amounts in this Management's Discussion and Analysis may not add due to rounding. All percentages have been calculated using unrounded amounts for the three months ended March 31, 2022, and 2021.
All dollar amounts are presented in thousands, unless indicated otherwise.
Company Overview
We are a nationally recognized outpatient physical therapy provider in the United States specializing in outpatient rehabilitation and adjacent healthcare services, with 922 owned clinics (as well as 20 clinics under management service agreements) located in 25 states as of March 31, 2022. We operate with a commitment to providing our patients, medical provider partners, payors and employers with evidence-based, patient-centric care.
We offer a variety of services within our 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. Our Company’s team of professionals is dedicated to helping return patients to optimal physical health.
Physical therapy patients receive team-based care, leading-edge techniques and individualized treatment plans in an encouraging environment. To achieve optimal results, we use an extensive array of techniques including therapeutic exercise, manual therapy and strength training, among others. Our physical therapy model aims to deliver optimized outcomes and time to recovery for patients, insights and service satisfaction for referring providers and predictable costs and measurable value for payors.
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In addition to providing services to physical therapy patients at outpatient rehabilitation clinics, we provide services through our ATI Worksite Solutions (“AWS”) program, Management Service Agreements (“MSA”) and Sports Medicine arrangements. AWS provides an on-site team of healthcare professionals at employer worksites to promote work-related injury prevention, facilitate expedient and appropriate return-to-work follow-up and maintain the health and well-being of the workforce. Our MSA arrangements typically include the Company providing management and physical therapy-related services to physician-owned physical therapy clinics. Sports Medicine arrangements provide certified healthcare professionals to various schools, universities and other institutions to perform on-site physical therapy and rehabilitation services.
Appointment of Chief Executive Officer
On April 28, 2022, the Company appointed Sharon Vitti as its Chief Executive Officer and to the Board of Directors. Ms. Vitti has 30 years of healthcare experience, including nearly two decades of executive leadership in clinical and consumer-focused healthcare companies.
In connection with Ms. Vitti’s appointment, John (Jack) Larsen stepped down as Executive Chairman of the Company, effective April 28, 2022 and will continue in his role as Chairman of the Board of the Company. Mr. Larsen was appointed Executive Chairman of the Company on August 9, 2021. In addition, effective April 28, 2022, John (Jack) Larsen, Joseph Jordan, the Company’s Chief Financial Officer, and Ray Wahl, the Company’s Chief Operating Officer, no longer fulfill the role of Principal Executive Officer.
2022 Debt Refinancing and Preferred Stock Financing
On February 24, 2022, the Company entered into various financing arrangements to refinance its existing long-term debt (the "2022 Debt Refinancing"). The Company entered into a new 2022 Credit Agreement which is comprised of a senior secured term loan which matures on February 24, 2028, and a "super priority" senior secured revolver, which matures on February 24, 2027. Refer to Note 8 - Borrowings in the condensed consolidated financial statements for further details.
In connection with the 2022 Debt Refinancing, the Company issued shares of non-convertible preferred stock and warrants to purchase shares of the Company's common stock. Refer to Note 10 - Mezzanine and Stockholders' Equity in the condensed consolidated financial statements for further details.
The Business Combination
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 Business Combination was accounted for as a reverse recapitalization in accordance with U.S. generally accepted accounting principles ("GAAP"). The Company’s common stock is listed on the New York Stock Exchange ("NYSE") under the symbol “ATIP.” Refer to Note 3 - Business Combinations and Divestiture in the condensed consolidated financial statements for further details.
Home Health divestiture
On August 25, 2021, the Company entered into an agreement to divest its Home Health service line. On October 1, 2021, the transaction closed with a sale price of $7.3 million. The major classes of assets and liabilities associated with the Home Health service line consisted of predominantly accounts receivable, accrued expenses and other liabilities which were not material.
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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.
Trends and Factors Affecting the Company’s Future Performance and Comparability of Results
During the first quarter of 2022, we observed the following developing trends in our business:
Improved referral and patient visit volumes to conclude the first quarter of 2022, relative to volume softness experienced during the beginning of 2022 which was driven by an increase in COVID-19 cases due to the outbreak of additional variants.
A continued tight labor market for the available physical therapy and other providers in the workforce, contributing to continued wage inflation in the physical therapy industry and at ATI.
Decrease in rate per visit primarily driven by Medicare rate cuts that became effective on January 1, 2022 and less favorable payor, state and service mix when compared to prior periods.
Our ability to achieve our business plan depends upon a number of factors, including, but not limited to, the success of a number of continued steps being taken related to clinical staffing levels and increasing visit volumes and referrals.
During the quarter ended March 31, 2022, the Company identified an interim triggering event as a result of factors including potential changes in discount rates and the recent decrease in share price. The Company determined that the combination of these factors constituted an interim triggering event that required further analysis with respect to potential impairment to goodwill, trade name indefinite-lived intangible and other assets. Accordingly, the Company performed interim quantitative impairment testing and determined that the fair value amounts were below the respective carrying amounts. As a result, the Company recorded non-cash impairment charges of $116.3 million related to goodwill and $39.4 million related to the trade name indefinite-lived intangible asset during the period ended March 31, 2022. These charges are non-cash in nature and do not affect our liquidity or debt covenants. Refer to Note 5 - Goodwill, Trade Name and Other Intangible Assets in the condensed consolidated financial statements for further details.
COVID-19 pandemic and volume impacts 
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.
As a result of the COVID-19 pandemic, visits per day ("VPD") decreased to a low point of 12,643 during the quarter ended June 30, 2020. The Company has experienced relative increases in quarterly VPD following the low point. Quarterly VPD was 19,520, 21,569, 20,674, 20,649 and 21,062 in the quarters ended March 31, 2021, June 30, 2021, September 30, 2021, December 31, 2021, and March 31, 2022, respectively, as local restrictions in certain markets, referral levels and individual routines evolved compared to prior periods. During the fourth quarter of 2021, we observed volume softness caused, in part, by an increase in COVID-19 cases due to the outbreak of additional variants, which continued to impact visit volumes in the beginning of 2022. Through the remainder of the first quarter of 2022, we experienced increases in visit volumes relative to the beginning of the first quarter of 2022.
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As demand for physical therapy services has increased in the market since its low point during the quarter ended June 30, 2020, the Company has focused on increasing its clinical staffing levels by hiring clinicians and reducing levels of clinician attrition that have been elevated relative to historical levels. The elevated levels of attrition were caused, in part, by changes made during the COVID-19 pandemic related to compensation, staffing levels and support for clinicians. We have implemented a range of actions related to compensation, staffing levels, clinical and professional development and other initiatives in an effort to retain and attract therapists across our platform, which has increased our current and future expectations for labor costs. As we improve our staffing levels, we are working toward improving labor productivity as we onboard newly hired clinicians. In an effort to drive more volume and visits per day, in addition to integrating our new team members, we are working to establish relationships with new referral sources and strengthen relationships with our partner providers and existing referral sources across our geographic footprint.
The chart below reflects the quarterly trend in VPD.
ati-20220331_g1.jpg
The COVID-19 pandemic is still evolving and the full extent of its future impact remains unknown and difficult to predict. The future impact of the COVID-19 pandemic on our performance will depend on certain developments, including the duration and spread of the virus and its newly identified strains, effectiveness and adoption rates of vaccines and other therapeutic remedies, the potential for continued or reinstated restrictive policies enforced by federal, state and local governments, and the impact of the virus and vaccination requirements on our workforce, all of which create uncertainty and cannot be predicted. While we expect the disruption caused by COVID-19 and resulting impacts to diminish over time, we cannot predict the length of such impacts, and if such impacts continue for an extended period, it could have a continued effect on the Company’s results of operations, financial condition and cash flows, which could be material.
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CARES Act
On March 27, 2020, the CARES Act was signed into law providing reimbursement, grants, waivers and other funds to assist health care providers during the COVID-19 pandemic. The Company has realized benefits under the CARES Act including, but not limited to, the following:
The Company applied for and obtained approval to receive $26.7 million of Medicare Accelerated and Advance Payment Program ("MAAPP") funds during the quarter ended June 30, 2020. During the three months ended March 31, 2022, the Company applied $4.3 million in MAAPP funds against the outstanding liability. The remaining amounts are required to be applied or repaid by the quarter ending September 30, 2022. Because the Company has not yet met all required performance obligations or performed the services related to the remaining funds, as of March 31, 2022 and December 31, 2021, $8.0 million and $12.3 million of the funds are recorded in accrued expenses and other liabilities, respectively. The Company expects the remaining advanced payments to be applied or repaid by the quarter ending September 30, 2022.
The Company elected to defer depositing the employer portion of Social Security taxes for payments due from March 27, 2020 through December 31, 2020, interest-free and penalty-free. Related to these payments, as of March 31, 2022 and December 31, 2021, $5.9 million is included in accrued expenses and other liabilities.
Market and industry trends and factors
Outpatient physical therapy services growth. Outpatient physical therapy continues to play a key role in treating musculoskeletal conditions for patients. According to the Centers for Medicare & Medicaid Services ("CMS"), musculoskeletal conditions impact individuals of all ages and include some of the most common health issues in the U.S. As healthcare trends in the U.S. continue to evolve, with a growing focus on value-based care emphasizing up-front, conservative care to deliver better outcomes, quality healthcare services addressing such conditions in lower cost outpatient settings may continue increasing in prevalence.
U.S. population demographics. The population of adults aged 65 and older in the U.S. is expected to continue to grow and thus expand the Company’s market opportunity. According to the U.S. Census Bureau, the population of adults over the age of 65 is expected to grow 30% from 2020 through 2030.
Federal funding for Medicare and Medicaid. Federal and state funding of Medicare and Medicaid and the terms of access to these reimbursement programs affect demand for physical therapy services. In December 2021, the Protecting Medicare and American Farmers from Sequester Cuts Act was signed into law. As a result, the reimbursement rate reduction beginning in January 2022 was approximately 0.75%. The Act did not address a previously proposed 15% decrease in payments for services performed by physical therapy assistants, which began on January 1, 2022. Additionally, a further reduction through resuming sequestration has been postponed. Sequestration reductions will resume at 1% after March 31, 2022, and by an additional 1% after June 30, 2022, which will result in an overall reduction of 2% in reimbursement rates related to sequestration by June 30, 2022 unless acted upon through a Congressional measure.
Workers’ compensation funding. Payments received under certain workers’ compensation arrangements may be based on predetermined state fee schedules, which may be impacted by changes in state funding.
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Number of people with private health insurance. Physical therapy services are often covered by private health insurance. Individuals covered by private health insurance may be more likely to use healthcare services because it helps offset the cost of such services. As health insurance coverage rises, demand for physical therapy services tends to also increase.
Key Components of Operating Results
Net patient revenue. Net patient revenues are recorded for physical therapy services that the Company provides to patients including physical therapy, work conditioning, hand therapy, aquatic therapy and functional capacity assessment. Net patient revenue is recognized based on contracted amounts with payors or other established rates, adjusted for the estimated effects of any variable consideration, such as contractual allowances and implicit price concessions. Visit volume is primarily driven by conversion of physician referrals and marketing efforts.
Other revenue. Other revenue consists of revenue generated by our AWS, MSA and Sports Medicine service lines.
Salaries and related costs. Salaries and related costs consist primarily of wages and benefits for our healthcare professionals engaged directly and indirectly in providing services to patients.
Rent, clinic supplies, contract labor and other. Comprised of non-salary, clinic related expenses consisting of rent, clinic supplies, contract labor and other costs including travel expenses and depreciation at our clinics.
Provision for doubtful accounts. Provision for doubtful accounts represents the Company’s estimate of accounts receivable recorded during the period that may ultimately prove uncollectible based upon several factors, including the age of outstanding receivables, the historical experience of collections, the impact of economic conditions and, in some cases, the specific customer account's ability to pay.
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.
Goodwill and intangible asset impairment charges. Goodwill and intangible asset impairment charges represent non-cash charges associated with the write-down of both goodwill and trade name indefinite-lived intangible assets.
Change in fair value of warrant liability. Represents non-cash amounts related to the change in the estimated fair value of the IPO Warrants.
Change in fair value of contingent common shares liability. Represents non-cash amounts related to the change in the estimated fair value of Earnout Shares and Vesting Shares.
Interest expense, net. Interest expense includes the cost of borrowing under the Company’s credit facility and amortization of deferred financing costs.
Interest expense on redeemable preferred stock. Represents interest expense related to accruing dividends on the Wilco Holdco redeemable preferred stock based on contract terms.
Other expense, net. Other expense, net is comprised of income statement activity not related to the core operations of the Company.
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Key Business Metrics
When evaluating the results of operations, management has identified a number of metrics that allow for specific evaluation of performance on a more detailed basis. See “Results of Operations” for further discussion on financial statement metrics such as net operating revenue, net income, EBITDA and Adjusted EBITDA.
Patient visits
As the main operations of the Company are driven by physical therapy services provided to patients, management considers total patient visits to be a key volume measure of such services. In addition to total patient visits, management analyzes (1) average VPD calculated as total patient visits divided by business days for the period, as this allows for comparability between time periods with an unequal number of business days, and (2) average VPD per clinic, calculated as average VPD divided by the average number of owned clinics open during the period.
Net patient revenue ("NPR") per visit
The Company calculates net patient revenue per visit, its most significant reimbursement metric, by dividing net patient revenue in a period by total patient visits in the same period.
Clinics
To better understand geographical and location-based trends, the Company evaluates metrics based on the 922 owned and 20 managed clinic locations as of March 31, 2022. De novo clinics represent organic new clinics opened during the current period based on sophisticated site selection analytics. Acqui-novo clinics represent new clinics opened during the current period, that were existing clinics not previously owned by the Company, in a target geography that provides the Company with an immediate presence, available staff and referral relationships of the former owner within the surrounding areas. Same clinic revenue growth rate identifies revenue growth year over year on clinics that have been owned and operating for over one year. This metric is determined by isolating the population of clinics that have been open for at least 12 months and calculating the percentage change in revenue of this population between the current and prior period.
The following table presents selected operating and financial data that we believe are key indicators of our operating performance:
Three Months Ended
 March 31, 2022March 31, 2021
Number of clinics owned (end of period)922882
Number of clinics managed (end of period)2022
New clinics during the period1210
Business days6463
Average visits per day21,06219,520
Average visits per day per clinic22.922.2
Total patient visits1,347,9781,229,786
Net patient revenue per visit$103.06$107.56
Same clinic revenue growth rate4.3 %(20.1)%
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The following table provides a rollforward of activity related to the number of clinics owned during the corresponding periods:
Three Months Ended
 March 31, 2022March 31, 2021
Number of clinics owned (beginning of period)910875
Add: New clinics opened during the period1210
Less: Clinics closed/sold during the period3
Number of clinics owned (end of period)922882
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Results of Operations
Three months ended March 31, 2022 compared to three months ended March 31, 2021
The following table summarizes the Company’s consolidated results of operations for the three months ended March 31, 2022 and 2021:
  Three Months Ended March 31,
  20222021Increase/(Decrease)
($ in thousands, except percentages) $% of Revenue $% of Revenue$%
Net patient revenue $138,925 90.3 %$132,271 88.7 %$6,654 5.0 %
Other revenue 14,897 9.7 %16,791 11.3 %(1,894)(11.3)%
Net operating revenue
 153,822 100.0 %149,062 100.0 %4,760 3.2 %
Cost of services:  
Salaries and related costs
 87,415 56.8 %80,654 54.1 %6,761 8.4 %
Rent, clinic supplies, contract labor and other
 51,615 33.6 %43,296 29.0 %8,319 19.2 %
Provision for doubtful accounts
 5,105 3.3 %7,171 4.8 %(2,066)(28.8)%
Total cost of services
 144,135 93.7 %131,121 88.0 %13,014 9.9 %
Selling, general and administrative expenses 30,024 19.5 %24,726 16.6 %5,298 21.4 %
Goodwill and intangible asset impairment charges155,741 101.2 %— — %155,741 n/m
Operating loss
 (176,078)(114.5)%(6,785)(4.6)%(169,293)n/m
Change in fair value of warrant liability(1,677)(1.1)%— — %(1,677)n/m
Change in fair value of contingent common shares liability(24,334)(15.8)%— — %(24,334)n/m
Interest expense, net 8,656 5.6 %16,087 10.8 %(7,431)(46.2)%
Interest expense on redeemable preferred stock— — %5,308 3.6 %(5,308)n/m
Other expense, net 2,781 1.8 %153 0.1 %2,628 n/m
Loss before taxes
 (161,504)(105.0)%(28,333)(19.0)%(133,171)n/m
Income tax benefit (23,281)(15.1)%(10,515)(7.1)%(12,766)n/m
Net loss
$(138,223)(89.9)%$(17,818)(12.0)%$(120,405)n/m
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Net patient revenue. Net patient revenue for the three months ended March 31, 2022 was $138.9 million compared to $132.3 million for the three months ended March 31, 2021, an increase of $6.7 million or 5.0%.
The increase in net patient revenue was primarily driven by increased visit volumes as a result of higher VPD per clinic, higher clinic count and one more business day in the current period, partially offset by unfavorable net patient revenue per visit in the current period. Total patient visits increased by approximately 0.1 million visits, or 9.6%, driving an increase in average visits per day of 1,542, or 7.9%. Net patient revenue per visit decreased $4.50, or 4.2%, to $103.06 for the three months ended March 31, 2022. The decrease in net patient revenue per visit during the three months ended March 31, 2022 was primarily driven by unfavorable mix shifts related to payor classes, states and services and Medicare rate cuts.
The following chart reflects additional detail with respect to drivers of the change in net patient revenue (in millions):
ati-20220331_g2.jpg
Other revenue. Other revenue for the three months ended March 31, 2022 was $14.9 million compared to $16.8 million for the three months ended March 31, 2021, a decrease of $1.9 million or 11.3%. The decrease in other revenue was primarily driven by the absence of Home Health service line revenue for the three months ended March 31, 2022 as a result of its divestiture on October 1, 2021.
Salaries and related costs. Salaries and related costs for the three months ended March 31, 2022 were $87.4 million compared to $80.7 million for the three months ended March 31, 2021, an increase of approximately $6.8 million or 8.4%. Salaries and related costs as a percentage of net operating revenue was 56.8% and 54.1% for the three months ended March 31, 2022 and 2021, respectively. The increase of $6.8 million was primarily driven by higher level of wages as the Company increased its clinician and support staff due to higher visit volumes. The increase as a percentage of net operating revenue was primarily driven by higher compensation due to wage inflation for clinic labor, higher share-based compensation for clinical employees and by lower net patient revenue per visit during the three months ended March 31, 2022.
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Rent, clinic supplies, contract labor and other. Rent, clinic supplies, contract labor and other costs for the three months ended March 31, 2022 were $51.6 million compared to $43.3 million for the three months ended March 31, 2021, an increase of $8.3 million or 19.2%. Rent, clinic supplies, contract labor and other costs as a percentage of net operating revenue was 33.6% and 29.0% for the three months ended March 31, 2022 and 2021, respectively. The increase of $8.3 million and increase as a percentage of net operating revenue was primarily driven by a higher clinic count and higher contract labor costs during the three months ended March 31, 2022.
Provision for doubtful accounts. Provision for doubtful accounts for the three months ended March 31, 2022 was $5.1 million compared to $7.2 million for the three months ended March 31, 2021, a decrease of $2.1 million or 28.8%. Provision for doubtful accounts as a percentage of net operating revenue was 3.3% and 4.8% for the three months ended March 31, 2022 and 2021, respectively. The decrease of $2.1 million and decrease as a percentage of net operating revenue was primarily driven by favorable cash collections during the three months ended March 31, 2022.
Selling, general and administrative expenses. Selling, general and administrative expenses for the three months ended March 31, 2022 were $30.0 million compared to $24.7 million for the three months ended March 31, 2021, an increase of $5.3 million or 21.4%. Selling, general and administrative expenses as a percentage of net operating revenue was 19.5% and 16.6% for the three months ended March 31, 2022 and 2021, respectively. The increase of $5.3 million and increase as a percentage of net operating revenue was primarily due to higher public company operating costs and non-ordinary legal and regulatory costs during the three months ended March 31, 2022.
Goodwill and intangible asset impairment charges. Goodwill and intangible asset impairment charges for the three months ended March 31, 2022 was $155.7 million. The amount relates to the non-cash write-down of both goodwill and trade name indefinite-lived intangible assets as a result of factors including increase in discount rates and lower public company comparative multiples. Refer to Note 5 - Goodwill, Trade Name and Other Intangible Assets in the condensed consolidated financial statements for further details.
Change in fair value of warrant liability. Change in fair value of warrant liability for the three months ended March 31, 2022 was $1.7 million. The amount relates to the decrease in the estimated fair value of the Company’s IPO Warrants between December 31, 2021 and March 31, 2022.
Change in fair value of contingent common shares liability. Change in fair value of contingent common shares liability for the three months ended March 31, 2022 was $24.3 million. The amount relates to the decrease in the estimated fair value of the Company’s Earnout Shares and Vesting Shares between December 31, 2021 and March 31, 2022.
Interest expense, net. Interest expense, net for the three months ended March 31, 2022 was $8.7 million compared to $16.1 million for the three months ended March 31, 2021, a decrease of $7.4 million or 46.2%. The decrease in interest expense was primarily driven by lower outstanding principal balances under the Company's credit agreements during the three months ended March 31, 2022.
Interest expense on redeemable preferred stock. Interest expense on redeemable preferred stock for the three months ended March 31, 2021 was $5.3 million. The redeemable preferred stock was fully settled in June 2021 and no longer accrued interest following the Business Combination.
Other expense, net. Other expense, net for the three months ended March 31, 2022 was $2.8 million compared to $0.2 million of income for the three months ended March 31, 2021, a change of $2.6 million. The change was driven by $2.8 million in loss on debt extinguishment related to the derecognition of the unamortized deferred financing costs and original issuance discount associated with the full repayment of the 2016 first lien term loan during the three months ended March 31, 2022.
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Income tax benefit. Income tax benefit for the three months ended March 31, 2022 was $23.3 million compared to $10.5 million of benefit for the three months ended March 31, 2021, an increase of $12.8 million. The increase was primarily driven by the difference in the effective tax rate for the respective periods. The effective tax rate was different between the respective periods primarily due to nondeductible impairment charges for the three months ended March 31, 2022, and nondeductible transaction costs and interest expense on redeemable preferred stock for the three months ended March 31, 2021.
Net loss. Net loss for the three months ended March 31, 2022 was $138.2 million compared to $17.8 million for the three months ended March 31, 2021, an increase in loss of $120.4 million. The comparatively higher loss was primarily driven by goodwill and intangible asset impairment charges, partially offset by the change in fair value of warrant liability and change in fair value of contingent common shares liability for the three months ended March 31, 2022.
Non-GAAP Financial Measures
The following table reconciles the supplemental non-GAAP financial measures, as defined under the rules of the SEC, presented herein to the most directly comparable financial measures calculated and presented in accordance with GAAP. The Company has provided the non-GAAP financial measures, which are not calculated or presented in accordance with GAAP, as supplemental information and in addition to the financial measures that are calculated and presented in accordance with GAAP. EBITDA and Adjusted EBITDA are defined as net income from continuing operations calculated in accordance with GAAP, less net income attributable to non-controlling interests, plus the sum of income tax expense, interest expense, net, depreciation and amortization (“EBITDA”) and further adjusted to exclude certain items of a significant or unusual nature, including but not limited to, goodwill and intangible asset impairment charges, changes in fair value of warrant liability and contingent common shares liability, loss on debt extinguishment, non-ordinary legal and regulatory matters, share-based compensation, transaction and integration costs, pre-opening de novo costs, gain on sale of Home Health service line and reorganization and severance costs (“Adjusted EBITDA”).
We present EBITDA and Adjusted EBITDA because they are key measures used by our management team to evaluate our operating performance, generate future operating plans and make strategic decisions. The Company believes EBITDA and Adjusted EBITDA are useful to investors for the purposes of comparing our results period-to-period and alongside peers and understanding and evaluating our operating results in the same manner as our management team and board of directors.
These supplemental measures should not be considered superior to, as a substitute for or as an alternative to, and should be considered in conjunction with, the GAAP financial measures presented. In addition, since these non-GAAP measures are not determined in accordance with GAAP, they are susceptible to varying calculations and may not be comparable to other similarly titled non-GAAP measures of other companies.
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EBITDA and Adjusted EBITDA (Non-GAAP Financial Measures)
The following is a reconciliation of net loss, the most directly comparable GAAP financial measure, to EBITDA and Adjusted EBITDA (each of which is a non-GAAP financial measure) for each of the periods indicated. For additional information on these non-GAAP financial measures, see “Non-GAAP Financial Measures” above.
Three Months Ended
($ in thousands)March 31, 2022March 31, 2021
Net loss$(138,223)$(17,818)
Plus (minus):
Net loss (income) attributable to non-controlling interests
473 (1,309)
Interest expense, net
8,656 16,087 
Interest expense on redeemable preferred stock
— 5,308 
Income tax benefit
(23,281)(10,515)
Depreciation and amortization expense
9,900 9,619 
EBITDA$(142,475)$1,372 
Goodwill and intangible asset impairment charges(1)
155,741 — 
Goodwill and intangible asset impairment charges attributable to non-controlling interests(1)
(940)— 
Changes in fair value of warrant liability and contingent common shares liability(2)
(26,011)— 
Loss on debt extinguishment(3)
2,809 — 
Non-ordinary legal and regulatory matters(4)
2,497 — 
Share-based compensation
1,964 504 
Transaction and integration costs(5)
1,538 2,918 
Pre-opening de novo costs(6)
381 434 
Gain on sale of Home Health service line, net(199)— 
Reorganization and severance costs(7)
— 362 
Adjusted EBITDA$(4,695)$5,590 
(1)Represents non-cash charges related to the write-down of goodwill and trade name indefinite-lived intangible assets. Refer to Note 5 of the accompanying condensed consolidated financial statements for further details.
(2)Represents non-cash amounts related to the change in the estimated fair value of IPO Warrants, Earnout Shares and Vesting Shares. Refer to Notes 3, 12 and 13 of the accompanying condensed consolidated financial statements for further details.
(3)Represents charges related to the derecognition of the unamortized deferred financing costs and original issuance discount associated with the full repayment of the 2016 first lien term loan. Refer to Note 8 of the accompanying condensed consolidated financial statements for further details.
(4)Represents non-ordinary course legal costs related to the previously-disclosed ATIP shareholder class action complaints, derivative complaint and SEC inquiry. Refer to Note 17 of the accompanying condensed consolidated financial statements for further details.
(5)Represents costs related to the Business Combination, non-capitalizable debt transaction costs and consulting and planning costs related to preparation to operate as a public company.
(6)Represents expenses associated with renovation, equipment and marketing costs relating to the start-up and launch of new locations incurred prior to opening.
(7)Represents severance, consulting and other costs related to discrete initiatives focused on reorganization and delayering of the Company’s labor model, management structure and support functions.
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Liquidity and Capital Resources
Our principal sources of liquidity are operating cash flows, borrowings under our credit agreement and proceeds from equity issuances. We have used these funds for our short-term and long-term capital uses, which include salaries, benefits and other employee-related expenses, rent, clinical supplies, outside services, capital expenditures, acquisitions, de novos and acqui-novos and debt service. Our capital expenditure, acquisition, de novo and acqui-novo spend will depend on many factors, including, but not limited to, the targeted number of new clinic openings, patient volumes, revenue growth rates and level of operating cash flows.
As of March 31, 2022 and December 31, 2021, we had $94.8 million and $48.6 million in cash and cash equivalents, respectively. As of March 31, 2022, we had $50.0 million available under our 2022 revolving credit facility, less $1.2 million of outstanding letters of credit.
For the three months ended March 31, 2022, we had operating cash outflows of $26.7 million driven by items including net losses, partial application of MAAPP funds and cash outflows related to the reduction of accounts payable and other liabilities. Our ability to generate future operating cash flows depends on many factors, including patient volumes and revenue growth rates.
As of March 31, 2022 and December 31, 2021, the Company had $8.0 million and $12.3 million of MAAPP funds included in the balance of cash and cash equivalents, respectively. In addition, as of March 31, 2022 and December 31, 2021, the Company had $5.9 million of deferred Social Security taxes included in the balance of cash and cash equivalents. The Company began applying MAAPP funds to Medicare billings in the second quarter of 2021 and remitted payments on its deferred employer Social Security taxes in the third and fourth quarters of 2021. The MAAPP funds and deferred employer Social Security taxes are required to be applied or repaid prior to the end of 2022, which together with other operational activity, may result in a net operating cash outflow for 2022.
We make reasonable and appropriate efforts to collect accounts receivable, including payor amounts and applicable patient deductibles, co-payments and co-insurance, in a consistent manner for all payor types. Claims are submitted to payors daily, weekly or monthly in accordance with our policy or payor’s requirements. When possible, we submit our claims electronically. The collection process is time consuming and typically involves the submission of claims to multiple payors whose payment of claims may be dependent upon the payment of another payor. Claims under litigation and vehicular incidents can take a year or longer to collect.
2022 Credit Agreement
On February 24, 2022 (the "Refinancing Date"), the Company entered into various financing arrangements to refinance its existing long-term debt, which consisted of $555.0 million in principal under the Company's existing term loan (the "2016 first lien term loan"), which was repaid in full on the Refinancing Date. As part of the 2022 Debt Refinancing, ATI Holdings Acquisition, Inc. (the "Borrower"), an indirect subsidiary of ATI Physical Therapy, Inc., entered into a credit agreement among the Borrower, Wilco Intermediate Holdings, Inc. ("Holdings"), as loan guarantor, Barclays Bank PLC, as administrative agent and issuing bank, and a syndicate of lenders (the "2022 Credit Agreement"). The 2022 Credit Agreement provides a $550.0 million credit facility (the "2022 Credit Facility") that is comprised of a $500.0 million senior secured term loan (the "Senior Secured Term Loan") which was fully funded at closing and a $50.0 million "super priority" senior secured revolver (the "Revolving Loans") with a $10.0 million letter of credit sublimit. The 2022 Credit Facility refinanced and replaced the Company's prior credit facility for which Barclays Bank PLC served as administrative agent for a syndicate of lenders.
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The Company recognized $2.8 million in loss on debt extinguishment related to the derecognition of the remaining unamortized deferred financing costs and unamortized original issue discount in conjunction with the repayment of the 2016 first lien term loan. The Company capitalized debt issuance costs totaling $12.5 million related to the 2022 Credit Facility as well as an original issue discount of $10.0 million. The Company capitalized issuance costs of $0.5 million related to the Revolving Loans.
The Senior Secured Term Loan matures on February 24, 2028 and bears interest, at the Company's election, at a base interest rate of the Alternate Base Rate ("ABR"), as defined in the agreement, plus an applicable credit spread, or the Adjusted Term Secured Overnight Financing Rate ("SOFR"), as defined in the agreement, plus an applicable credit spread. The credit spread is determined based on a pricing grid and the Company's Secured Net Leverage Ratio. As of March 31, 2022, borrowings on the Senior Secured Term Loan bear interest at 3-month SOFR, subject to a 1.0% floor, plus 7.25%. The Company may elect to pay 2.0% interest in-kind at a 0.5% premium during the first year under the agreement. As of March 31, 2022, the interest rate on the Senior Secured Term loan was 8.25% and the effective interest rate was 9.2%. As of March 31, 2022, the outstanding principal amount under the Senior Secured Term Loan was $500.0 million.
The Revolving Loans are subject to a maximum borrowing capacity of $50.0 million and mature on February 24, 2027. Borrowings on the Revolving Loans bear interest, at the Company's election, at a base interest rate of the ABR, as defined in the agreement, plus an applicable credit spread, or the Adjusted Term SOFR Rate, as defined in the agreement, plus an applicable credit spread. The credit spread is determined based on a pricing grid and the Company's Secured Net Leverage Ratio. Commitment fees on the Revolving Loans are payable quarterly at 0.5% per annum on the daily average undrawn portion for the quarter and are expensed as incurred.
The 2022 Credit Facility is guaranteed by certain of the Company’s subsidiaries and is secured by substantially all of the assets of Holdings, the Borrower and the Borrower’s wholly owned subsidiaries, including a pledge of the stock of the Borrower, in each case, subject to customary exceptions.
The 2022 Credit Agreement contains customary covenants and restrictions, including financial and non-financial covenants. The financial covenants require the Company to maintain $30.0 million of minimum liquidity at each test date through the first quarter of 2024. Additionally, beginning in the second quarter of 2024, the Company must maintain a Secured Net Leverage Ratio, as defined in the agreement, not to exceed 7.00:1.00. The net leverage ratio covenant decreases in the third quarter of 2024 to 6.75:1.00 and further decreases in the first quarter of 2025 to 6.25:1.00, which remains applicable through maturity. The financial covenants are tested as of each fiscal quarter end for the respective periods.
The 2022 Credit Facility contains customary representations and warranties, events of default, reporting and other affirmative covenants and negative covenants, including limitations on indebtedness, liens, investments, negative pledges, dividends, junior debt payments, fundamental changes and asset sales and affiliate transactions. Failure to comply with these covenants and restrictions could result in an event of default under the 2022 Credit Facility, subject to customary cure periods. In such an event, all amounts outstanding under the 2022 Credit Facility, together with any accrued interest, could then be declared immediately due and payable.
Under the 2022 Credit Facility the Company may be required to make certain mandatory prepayments upon the occurrence of certain events, including: an event of default, a Prepayment Asset Sale or receipt of Net Insurance Proceeds (as defined in the 2022 Credit Agreement) in excess of $15.0 million, or excess cash flows exceeding certain thresholds (as defined in the 2022 Credit Agreement).
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Preferred Stock Financing
In connection with the 2022 Debt Refinancing, the Company issued 165,000 shares of non-convertible preferred stock (the "Series A Senior Preferred Stock") plus 5.2 million warrants to purchase shares of the Company's common stock at an exercise price of $3.00 per share (the "Series I Warrants") and warrants to purchase 6.3 million shares of the Company's common stock at an exercise price equal to $0.01 per share (the "Series II Warrants"). The shares of the Series A Senior Preferred Stock have a par value of $0.0001 per share and an initial stated value of $1,000 per share, for an aggregate initial stated value of $165.0 million. The Series I and Series II Warrants are exercisable for 5 years from the Refinancing Date
The gross proceeds received from the issuance of the Series A Senior Preferred Stock and the Series I and Series II Warrants were $165.0 million, which was allocated among the instruments based on the relative fair values of each instrument. Of the gross proceeds, $144.7 million was allocated to the Series A Senior Preferred Stock, $5.1 million to the Series I Warrants and $15.2 million to the Series II Warrants. The resulting discount on the Series A Senior Preferred Stock will be recognized as a deemed dividend when those shares are subsequently remeasured upon becoming redeemable or probable of becoming redeemable. The Company recognized $2.9 million in issuance costs and $1.4 million of original issue discount related to the Series A Senior Preferred Stock. The Company recognized total issuance costs and original issue discount of approximately $0.2 million and $0.5 million related to the Series I Warrants and Series II Warrants, respectively.
The Series A Senior Preferred Stock has priority over the Company's Class A common stock and all other junior equity securities of the Company, and is junior to the Company's existing or future indebtedness and other liabilities (including trade payables), with respect to payment of dividends, distribution of assets, and all other liquidation, winding up, dissolution, dividend and redemption rights.
The Series A Senior Preferred Stock carries an initial dividend rate of 12.0% per annum (the "Base Dividend Rate"), payable quarterly in arrears. Dividends will be paid in-kind and added to the stated value of the Series A Senior Preferred Stock. The Company may elect to pay dividends on the Series A Senior Preferred Stock in cash beginning on the third anniversary of the Refinancing Date and, with respect to any such dividends paid in cash, the dividend rate then in effect will be decreased by 1.0%.
The Base Dividend Rate is subject to certain adjustments, including an increase of 1.0% per annum on the first day following the fifth anniversary of the Refinancing Date and on each one-year anniversary thereafter, and 2.0% per annum upon the occurrence of either an Event of Noncompliance (as defined in the Certificate of Designation) or a failure by the Company to redeem in full all Series A Senior Preferred Stock upon a Mandatory Redemption Event, which includes a change of control, liquidation, bankruptcy or certain restructurings. As of March 31, 2022, the accumulated paid in-kind dividends related to the Series A Preferred Stock were $1.9 million and the aggregate stated value was $166.9 million.
The Company has the right to redeem the Series A Senior Preferred Stock, in whole or in part, at any time (subject to certain limitations on partial redemptions). The Redemption Price (as defined in the Certificate of Designation) for each share of Series A Senior Preferred Stock depends on when such optional redemption takes place, if at all.
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The Series A Senior Preferred Stock is perpetual and is not mandatorily redeemable at the option of the holders, except upon the occurrence of a Mandatory Redemption Event (as defined in the Certificate of Designation). Upon the occurrence of a Mandatory Redemption Event, to the extent not prohibited by law, the Company is required to redeem all Series A Senior Preferred Stock, in cash, at a price per share equal to the then applicable Redemption Price. Based on the Company’s assessment of the conditions which would trigger the redemption of the Series A Senior Preferred Stock, the Company has determined that the Series A Senior Preferred Stock is neither currently redeemable nor probable of becoming redeemable. Because the Series A Senior Preferred Stock is classified as mezzanine equity and is not considered redeemable or probable of becoming redeemable, the paid in-kind dividends that are added to the stated value do not impact the carrying value of the Series A Senior Preferred Stock in the Company’s condensed consolidated balance sheets. Should the Series A Senior Preferred Stock become probable of becoming redeemable, the Company will recognize changes in the redemption value of the Series A Senior Preferred Stock immediately as they occur and adjust the carrying amount accordingly at the end of each reporting period. As of March 31, 2022, the redemption value of the Series A Senior Preferred Stock was $166.9 million, which is the stated value.
If an Event of Noncompliance occurs, then the holders of a majority of the then outstanding shares of Series A Senior Preferred Stock (the “Majority Holders”) have the right to demand that the Company engage in a sale/refinancing process to consummate a Forced Transaction (as defined in the Certificate of Designation). A Forced Transaction includes a refinancing of the Series A Senior Preferred Stock or a sale of the Company. Upon consummation of any Forced Transaction, to the extent not prohibited by law, the Company is required to redeem all Series A Senior Preferred Stock, in cash, at a price per share equal to the then applicable Redemption Price.
Holders of shares of Series A Senior Preferred Stock have no voting rights with respect to the Series A Senior Preferred Stock except as set forth in the Certificate of Designation, other documents entered into in connection with the Purchase Agreement and the transactions contemplated thereby (collectively, the “Transaction Documents”), or as otherwise required by law. For so long as any Series A Senior Preferred Stock is outstanding, the Company is prohibited from taking certain actions without the prior consent of the Majority Holders as set forth in the Certificate of Designation which include: issuing equity securities ranking senior to or pari passu with the Series A Senior Preferred Stock, incurring indebtedness or liens, engaging in affiliate transactions, making restricted payments, consummating investments or asset dispositions, consummating a change of control transaction unless the Series A Senior Preferred Stock is redeemed in full, altering the Company’s organizational documents, and making material changes to the nature of the Company’s business.
Holders of Series A Senior Preferred Stock, voting as a separate class, have the right to designate and elect one director to serve on the Company’s board of directors until such time after the Refinancing Date that (i) as of any applicable fiscal quarter end, the Company’s trailing 12-month Consolidated Adjusted EBITDA (as defined in the Certificate of Designation) exceeds $100 million, or (ii) the Lead Purchaser ceases to hold at least 50.1% of the Series A Senior Preferred Stock held by it as of the Refinancing Date.
As a result of the 2022 Debt Refinancing and the Preferred Stock Financing, the Company added approximately $77.3 million of cash to its balance sheet. We believe our operating cash flow, combined with our existing cash, cash equivalents and credit facility will continue to be sufficient to fund our operations for at least the next 12 months.
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Consolidated Cash Flows
The following table presents selected data from our condensed consolidated statements of cash flows:
Three Months Ended
($ in thousands)March 31, 2022March 31, 2021
   
Net cash used in operating activities$(26,731)$(30,072)
Net cash used in investing activities(8,658)(8,762)
Net cash provided by (used in) financing activities81,570 (5,617)
Net increase (decrease) in cash and cash equivalents46,181 (44,451)
Cash and cash equivalents at beginning of period48,616 142,128 
Cash and cash equivalents at end of period$94,797 $97,677 
Three months ended March 31, 2022 compared to three months ended March 31, 2021
Net cash used in operating activities for the three months ended March 31, 2022 was $26.7 million compared to $30.1 million for the three months ended March 31, 2021 a decrease in cash used of $3.3 million. The change was primarily the result of cash outflows related to lease terminations and activity associated with the Business Combination not recurring in 2022, lower payments on credit balances due to patients and payors for the three months ended March 31, 2022, partially offset by $4.3 million of partial application of MAAPP funds and higher net losses as adjusted for non-cash items during the three months ended March 31, 2022.
Net cash used in investing activities for the three months ended March 31, 2022 was $8.7 million compared to $8.8 million for the three months ended March 31, 2021, a decrease of $0.1 million. Net cash used in investing activities was relatively consistent year over year.
Net cash provided by financing activities for the three months ended March 31, 2022 was $81.6 million compared to $5.6 million of cash used in financing activities for the three months ended March 31, 2021, an increase in cash provided of $87.2 million. The change was primarily driven by net cash inflows related to the 2022 Debt Refinancing (refer to Note 8 - Borrowings for further details) and a lower distribution to non-controlling interest holders during the three months ended March 31, 2022.
Commitments and Contingencies
The Company may be subject to loss contingencies, such as legal proceedings and claims arising out of its business. The Company records accruals for such loss contingencies when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. As of March 31, 2022, the Company did not record any accruals related to the outcomes of the legal matters described in Note 17 - Commitments and Contingencies. Refer to Note 17 to our condensed consolidated financial statements included elsewhere in this Quarterly Report for further information.
We enter into contractual obligations and commitments from time to time in the normal course of business, primarily related to our debt financing and operating leases. Refer to Notes 8 and 16 to our condensed consolidated financial statements included elsewhere in this Quarterly Report for further information. As noted previously, we have commitments related to MAAPP funds and deferred Social Security taxes which are required to be applied or repaid prior to the end of 2022.
Off-Balance Sheet Arrangements
As of March 31, 2022 and December 31, 2021, the Company did not have any off-balance sheet arrangements.
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Critical Accounting Estimates
The discussion and analysis of the Company’s financial condition and results of operations is based upon the Company’s condensed consolidated financial statements, which have been prepared in accordance with US GAAP. The preparation of the Company’s condensed consolidated financial statements requires its management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosures. The Company’s management bases its estimates, assumptions and judgments on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Different assumptions and judgments would change the estimates used in the preparation of the Company’s condensed consolidated financial statements which, in turn, could change the results from those reported. In addition, actual results may differ from these estimates and such differences could be material to the Company’s financial position and results of operations.
Critical accounting estimates are those that the Company’s management considers the most important to the portrayal of the Company’s financial condition and results of operations because they require management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The Company’s critical accounting estimates in relation to its condensed consolidated financial statements include those related to:
Patient revenue recognition and allowance for doubtful accounts
Realization of deferred tax assets
Goodwill and intangible assets
Additional information related to our critical accounting estimates can be found in Note 2 - Basis of Presentation and Summary of Significant Accounting Policies of our audited consolidated financial statements and Part II, Item 7 included in our Annual Report on Form 10-K filed with the SEC on March 1, 2022. Other than as described below, there have been no material changes to our critical accounting estimates since our Annual Report on Form 10-K for the year ended December 31, 2021.
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 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 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 the purchase price over the fair value of identifiable assets acquired, net of liabilities assumed, is recorded as goodwill.
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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 condensed 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 using an average of a discounted cash flow analysis and comparable public company analysis. The Company concluded that no goodwill impairment occurred during the fourth quarter of 2021. Goodwill impairment charges were recorded during the second and third quarters of 2021. 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 analysis of indefinite lived intangible assets as of June 30, 2021, September 30, 2021 and October 1, 2021 using the relief from royalty method. The Company concluded that no indefinite lived intangible asset impairment occurred during the fourth quarter of 2021. Indefinite lived intangibles asset impairment charges were recorded during the second and third quarters of 2021. 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.
The Company has one reporting unit for purposes of the Company’s goodwill impairment tests.
During the quarter ended March 31, 2022, the Company identified an interim triggering event as a result of factors including potential changes in discount rates and the recent decrease in share price. The Company determined that the combination of these factors constituted an interim triggering event that required further analysis with respect to potential impairment to goodwill, trade name indefinite-lived intangible and other assets. Accordingly, the Company performed interim quantitative impairment testing and determined that the fair value amounts were below the respective carrying amounts. As a result, the Company recorded non-cash impairment charges of $116.3 million related to goodwill and $39.4 million related to the trade name indefinite-lived intangible asset during the period ended March 31, 2022. Refer to Note 5 - Goodwill, Trade Name and Other Intangible Assets in the condensed consolidated financial statements for further details.
Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates and market factors. Estimating the fair value of the Company’s reporting unit and indefinite-lived intangible assets requires us to make assumptions and estimates regarding our future plans, as well as industry, economic, and regulatory conditions. These assumptions and estimates include projected revenue growth rates, EBITDA margins, terminal growth rates, discount rates, relevant market multiples, royalty rates and other market factors. If current expectations of future growth rates, margins and cash flows are not met, or if market factors outside of our control change significantly, then our reporting unit or indefinite-lived intangible assets might become impaired in the future, negatively impacting our operating results and financial position. As the carrying amounts of goodwill and the Company’s trade name indefinite-lived intangible asset were impaired as of March 31, 2022 and written down to fair value, those amounts are more susceptible to an impairment risk if there are unfavorable changes in assumptions and estimates. Additionally, goodwill and indefinite-lived intangible assets associated with acquisitions that may occur in the future are recorded on the balance sheet at their estimated acquisition date fair values, those amounts are more susceptible to impairment risk if business operating results or market conditions deteriorate.
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To further illustrate sensitivity of the valuation models, if we had changed the assumptions used to estimate the fair value of our goodwill reporting unit and trade name indefinite-lived intangible asset in our most recent quantitative analysis, these isolated changes, which are reasonably possible to occur, would have led to the following approximate increase/(decrease) in the aggregate fair value of the reporting unit under the discounted cash flow analysis or trade name indefinite-lived intangible asset (in thousands):
Discount rate
Terminal growth rate(1)
EBITDA marginRoyalty rate
50 basis points50 basis points100 basis points50 basis points
IncreaseDecreaseIncreaseDecreaseIncreaseDecreaseIncreaseDecrease
Goodwill$(40,000)$50,000$40,000$(30,000)$60,000$(60,000)
Trade name$(30,000)$30,000$10,000$(10,000)$50,000$(50,000)
(1) A change of 100 basis points to our assumed non-terminal revenue growth rates would result in approximately $70 million of an estimated impact to the fair value of our goodwill reporting unit.
Recent Accounting Pronouncements
For information regarding recent accounting pronouncements, refer to Note 2 - Basis of Presentation and Recent Accounting Standards in the accompanying condensed consolidated financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As of March 31, 2022, the Company is exposed to interest rate variability with regard to existing variable-rate debt instruments, which exposure primarily relates to movements in various interest rates, such as SOFR. The Company utilizes derivative instruments such as interest rate swaps for purposes of hedging exposures related to such variability. Management believes that the result of its interest rate swap reduces the risk of interest rate variability to an immaterial amount. As of March 31, 2022, the fair value of the Company’s derivative instrument was an asset of $3.8 million. As of December 31, 2021, the fair value of the Company’s derivative instrument consisted of a $0.3 million non-current asset and $0.3 million current liability.
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. The amendments in this update provide 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 is optional and may be applied by entities after March 12, 2020, but no later than December 31, 2022. As of March 31, 2022, the Company has derivative instruments for which the interest rates are indexed to the LIBOR. During the period ended March 31, 2022, the Company modified the reference rate index on its hedged items from LIBOR to SOFR. The Company elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives, which is LIBOR. The guidance allows for different expedient elections to be made at different points in time. As of March 31, 2022, the Company does not anticipate that this guidance will have a material impact on its consolidated financial statements, however, the Company will continue to assess the potential impact on its future hedging relationships and expedient elections, as applicable.
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Item 4. Controls and Procedures
Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in company reports filed or submitted under the Exchange Act is accumulated and communicated to management to allow timely decisions regarding required disclosure.
We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Principal Executive Officer and our Principal Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2022. Based upon their evaluation, our Principal Executive Officer and our Principal Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were not effective as of March 31, 2022 due to the previously reported material weaknesses in internal control over financial reporting described in Part II, Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2021.
Management concluded that notwithstanding the existence of the material weaknesses, the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q present fairly, in all material respects, the Company's financial position, results of operations and cash flows for the periods presented in conformity with U.S. GAAP.
Remediation Efforts with Respect to the Material Weaknesses
We are in the process of developing and implementing our remediation plan for the previously reported material weaknesses in internal control over financial reporting described in in Part II, Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2021. The material weaknesses were identified in our control environment related to the income tax provision. The remediation plan includes steps to hire additional tax personnel, refine the scope of the Company's external tax advisors and enhance the design and precision of the Company's controls related to the income tax provision calculations and documentation, including controls related to the valuation allowance assessment.
The material weaknesses will not be considered remediated until management completes the remediation plan and the enhanced controls operate for a sufficient period of time and management has concluded, through testing, that the related controls are effective. The Company will monitor the effectiveness of its remediation plan and will refine its remediation plan as appropriate.
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Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the fiscal quarter ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II
Item 1. Legal Proceedings
From time to time, the Company may be involved in legal proceedings or subject to claims arising in the ordinary course of business. The outcome of any litigation and claims against the Company cannot be predicted with certainty, and the resolution of these matters could materially affect our future results of operations, cash flows, or financial position. Refer to Note 17 - Commitments and Contingencies in the condensed consolidated financial statements included in Part I, Item 1, of this Form 10-Q for further details.
Item 1A. Risk Factors
Other than as described below, there have been no material changes from the Risk Factors previously disclosed in our Annual Report on Form 10-K filed with the SEC on March 1, 2022.
Our outstanding indebtedness and our Series A Senior Preferred Stock contains covenants that may limit certain operating and financial decisions. Non-compliance with these covenants may result in the acceleration of our indebtedness which could lead to bankruptcy, reorganization or insolvency.
Our credit agreements contain restrictive and financial covenants and the Certificate of Designation for our Series A Senior Preferred Stock contains provisions that impose significant operating and financial restrictions that may limit our ability to take actions that may be in our long-term best interest, including, but not limited to, limitations on indebtedness, liens, investments, negative pledges, dividends, junior debt payments, fundamental changes and asset sales and affiliate transactions. Failure to comply with these covenants and restrictions could result in an event of default, subject to customary cure periods. The financial covenants also require us to maintain a secured net leverage ratio, which we may be unable to meet.
In addition, the Certificate of Designation for our Series A Senior Preferred Stock contains provisions that may likewise impose significant operating and financial restrictions on our business. If an Event of Noncompliance (as defined in the Certificate of Designation), then the holders of a majority of the then outstanding shares of Series A Senior Preferred Stock (but excluding any shares of Series A Senior Preferred Stock then held by Advent International Corporation or its controlled affiliates) (the “Majority Holders”) have the right to demand that the Company engage in a sale/refinancing process for the Series A Senior Preferred Stock.
Failure to comply with our debt agreements or our Series A Senior Preferred Stock could have a material adverse effect on our business, prospects, liquidity, financial condition or result of operation, and could result in the acceleration of some or all of our indebtedness, which could lead to bankruptcy, reorganization or insolvency.
Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.
We have incurred significant cumulative net taxable losses in the past. Our deferred tax assets as of December 31, 2021 include federal net operating losses, or NOLs, of $237.3 million and state NOLs of $577.3 million. Our unused NOLs generally carry forward to offset future taxable income, if any, until such unused losses expire, if subject to expiration. The earliest NOLs will expire by statute in 2022 for state NOLs, and in 2036 for federal NOLs. We may be unable to use these NOLs to offset income before such unused NOLs expire.
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In addition, if a corporation undergoes an “ownership change” (generally defined as a greater than 50 percentage-point cumulative change in the equity ownership of certain stockholders over a rolling three-year period) under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the “Code”), the corporation’s ability to use its pre-change NOL carryforwards and other pre-change tax attributes to offset future taxable income or taxes may be limited. This limitation is based in part on the pre-change equity value of the corporation, with a lower equity value resulting in a lower and more severe limitation. We may experience an “ownership change” as a result of future changes in our stock ownership (including dispositions of our Common Stock by the Selling Securityholders), some of which changes may not be within our control. If we are unable to use NOL carryforwards before they expire or they become subject to limitation, it could have a material adverse effect on our business, financial condition and results of operations.
There is currently no market for our Series I Warrants and Series II Warrants and a market for our Series I Warrants and Series II Warrants may not develop, which would adversely affect the liquidity and price of our Series I Warrants and Series II Warrants.
Our Series I Warrants and Series II Warrants are not listed or traded on any stock exchange and there is currently no market for our Series I Warrants and Series II Warrants. Warrantholders therefore have no access to trading price or volume information about prior market history on which to base their investment decision. Furthermore, an active trading market for our Series I Warrants and Series II Warrants may never develop or, if developed, it may not be sustained. You may be unable to sell your Series I Warrants and Series II Warrants unless a market can be established and sustained.
Investing in our securities involves a high degree of risk. Investors should carefully consider the risks described in our Form 10-K and all of the other information set forth in this Form 10-Q, including our financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before deciding to invest in our Common Stock. If any of the events or developments described in our Form 10-K or herein occur, our business, financial condition, or results of operations could be materially or adversely affected. As a result, the market price of our Common Stock could decline, and investors could lose all or part of their investment. The risks and uncertainties described in our Form 10-K and in this Form 10-Q are not the only risks and uncertainties that we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. The risks discussed also include forward-looking statements, and our actual results may differ substantially from those discussed in these forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements.”
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Series A Senior Preferred Stock and Warrant Issuance
On February 24, 2022, the Company entered into a Series A Senior Preferred Stock Purchase Agreement with the purchasers signatory thereto, including funds affiliated with Knighthead Capital Management, LLC (the “Investors”), pursuant to which the Investors purchased from the Company, in the aggregate, 165,000 shares of Series A Senior Preferred Stock with an initial stated value of $1,000 per share, or $165,000,000 of stated value in the aggregate, and warrants to purchase up to 11,498,401 shares of common stock of the Company, for an aggregate purchase price of $163,350,000 (“Preferred Stock Financing Proceeds”). Each warrant entitles the holder to purchase one share of the Company's Class A common stock. The warrants are exercisable within 5 years from issuance. The strike price is $3.00 per share for 5,226,546 of the issued warrants, and the strike price is $0.01 per share for 6,271,855 of the issued warrants. The Preferred Stock Financing Proceeds reflected an original issue discount of 1.0% of the stated value of the Series A Senior Preferred Stock. The Company used the Preferred Stock Financing Proceeds to refinance a portion of its existing indebtedness for borrowed money of the Company and its applicable subsidiaries, with remaining cash to the Company’s balance sheet. The Series A Senior Preferred Stock and warrants were not registered under the Securities Act, and were issued in reliance on the exemption from registration requirements thereof provided by Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder as a transaction by an issuer not involving a public offering without any form of general solicitation or general advertising.
Issuer Purchases of Equity Securities
During the three months ended March 31, 2022, the Company withheld shares of our common stock in connection with employee minimum statutory tax withholding obligations payable upon the vesting of restricted stock, as follows:
Total Number of Shares Purchased(1)
Average Price Paid Per ShareTotal Number of Shares Purchased as Part of Publicly Announced Plans or ProgramsMaximum Number of Shares that May Yet Be Purchased Under the Plans of Programs
January 1 - January 31, 2022— $— — — 
February 1 - February 28, 2022— $— — — 
March 1 - March 31, 202212,824 $1.71 — — 
Total12,824 $1.71 — — 
(1) Represents shares delivered to or withheld by us in connection with employee minimum tax withholding obligations upon exercise or vesting of stock awards. No shares were purchased in the open market pursuant to a repurchase program.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
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Item 6. Exhibits
Exhibit NumberDescription
Certificate of Designation of Series A Senior Preferred Stock of ATI Physical Therapy, Inc., filed on February 24, 2022 (filed as Exhibit 3.1 to the Current Report on Form 8-K of the Company on February 25, 2022 and incorporated herein by reference)
Warrant Agreement, dated as of February 24, 2022, by and between ATI Physical Therapy, Inc. and Continental Stock Transfer & Trust Company, as Warrant Agent (filed as Exhibit 4.1 to the Current Report on Form 8-K of the Company on February 24, 2022 and incorporated herein by reference)
Credit Agreement, dated as of February 24, 2022, by and among ATI Holdings Acquisition, Inc., Wilco Intermediate Holdings, Inc., Barclays Bank PLC, as Administrative Agent and Issuing Bank and the other lenders party thereto (filed as Exhibit 10.1 to the Current Report on Form 8-K of the Company on February 25, 2022 and incorporated herein by reference)
Amendment No. 1 to Credit Agreement, dated as of March 30, 2022, by and among ATI Holdings Acquisition, Inc., Wilco Intermediate Holdings, Inc., HPS Investment Partners, LLC, as Lender Representative and Barclays Bank PLC, as Administrative Agent (filed as Exhibit 10.24 to the Post-Effective Amendment to the Registration Statement on Form S-1 filed on April 1, 2022 and incorporated herein by reference)
Series A Senior Preferred Stock Purchase Agreement, dated as of February 24, 2022, by and between ATI Physical Therapy, Inc. and the Purchasers signatory thereto (filed as Exhibit 10.2 to the Current Report on Form 8-K of the Company on February 25, 2022 and incorporated herein by reference)
Investors’ Rights Agreement, dated as of February 24, 2022, by and among ATI Physical Therapy, Inc. and the Holders party thereto from time to time (filed as Exhibit 10.3 to the Current Report on Form 8-K of the Company on February 25, 2022 and incorporated herein by reference)
10.5
Employment Agreement by and between ATI Physical Therapy, Inc. and Sharon A. Vitti dated March 30, 2022, effective April 28, 2022 (filed as Exhibit 10.1 to the Current Report on Form 8-K of the Company on April 28, 2022 and incorporated herein by reference)
Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15(d)-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15(d)-14(a) under the Securities Exchange Act of 1934, as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*XBRL Instance Document
101.SCH*XBRL Taxonomy Extension Schema Document
101.CAL*XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*XBRL Taxonomy Extension Label Linkbase Document
101.PRE*XBRL Taxonomy Extension Presentation Linkbase Document
* Filed or furnished herewith
† Management contract or compensatory plan or arrangement
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on our behalf by the undersigned thereunto duly authorized.

    
ATI PHYSICAL THERAPY, INC.
         
Date: May 10, 2022

/s/ JOSEPH JORDAN
Joseph Jordan
Chief Financial Officer
(Duly Authorized Officer and Principal Financial Officer)


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