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ATI PHYSICAL THERAPY, INC.

(ATIP)
  Report
Delayed Nyse  -  04:00 2022-10-03 pm EDT
1.010 USD   +1.00%
09/23ATI Physical Therapy's Chief Legal Officer Diana Chafey to Depart in November
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09/23Ati Physical Therapy, Inc. : Change in Directors or Principal Officers (form 8-K)
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09/23ATI Physical Therapy, Inc. Announces Resignation of Diana Chafey as Chief Legal Officer and Corporate Secretary, Effective on or About November 4, 2022
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ATI PHYSICAL THERAPY, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

08/09/2022 | 02:55pm EDT
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 and six months ended June 30, 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 926 owned clinics (as well as 20 clinics under management service
agreements) located in 25 states as of June 30, 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 predominantly of 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

Through the second 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 and continuing through the second 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 available physical therapy and other providers in the workforce, contributing to competition in hiring, attrition and 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, Medicare sequestration reductions that began after
March 31, 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 increasing clinical staffing levels, controlling costs 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.

During the quarter ended June 30, 2022, the Company identified an interim
triggering event as a result of factors primarily driven by potential changes in
discount rates. The Company determined that 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
approximately $87.9 million related to goodwill and $40.0 million related to the
trade name indefinite-lived intangible asset during the period ended June 30,
2022. 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.

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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, 21,062 and 22,403 in the
quarters ended March 31, 2021, June 30, 2021, September 30, 2021, December 31,
2021, March 31, 2022 and June 30, 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 and the second quarter
of 2022, we experienced increases in visit volumes relative to the beginning of
2022.

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 initially caused, in part, by changes made
during the COVID-19 pandemic related to compensation, staffing levels and
support for clinicians. We have implemented a range of actions related to
compensation, staffing levels, clinical and professional development and other
initiatives in an effort to retain and attract therapists across our platform,
which has increased our current and future expectations for labor costs. While
the Company has observed improvement in attrition levels since implementing
these actions, attrition remains above historical levels due to a continued
tight labor market for available physical therapy and other providers in the
workforce which may impede our progress toward increasing visit volumes. In an
effort to drive more volume and visits per day, in addition to focusing on
clinical staffing levels, 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.

                     [[Image Removed: ati-20220630_g1.jpg]]

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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.

CARES Act


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 six months ended June 30, 2022 and 2021,
the Company applied $10.7 million and $3.8 million in MAAPP funds against the
outstanding liability, respectively. 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 June 30, 2022 and December 31, 2021, $1.6
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 June 30, 2022
and December 31, 2021, $5.9 million is included in accrued expenses and other
liabilities. The Company expects the remaining deferred payments to be repaid
prior to the end of 2022.

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.

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•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 was postponed. Sequestration reductions resumed at 1% after March
31, 2022, and by an additional 1% after June 30, 2022, which resulted in an
overall reduction of 2% in reimbursement rates related to sequestration after
June 30, 2022. In July 2022, the CMS released its proposed 2023 Medicare
Physician Fee Schedule. The proposed fee schedule calls for an approximate 4.5%
reduction in the calendar year 2023 conversion factor which would lead to
further reductions in reimbursement rates.

•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.


•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.

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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.

Loss on settlement of redeemable preferred stock. Represents the loss on
settlement of the Wilco Holdco redeemable preferred stock liability based on the
value of cash and equity provided to preferred stockholders in relation to the
outstanding Wilco Holdco redeemable preferred stock liability at the time of the
closing of the Business Combination.

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 926 owned and 20 managed clinic locations as of
June 30, 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                                       Six Months Ended
                                         June 30, 2022                June 30, 2021              June 30, 2022               June 30, 2021
Number of clinics owned (end of
period)                                                 926                         889                        926                         889
Number of clinics managed (end of
period)                                                  20                          23                         20                          23
New clinics during the period                            10                          10                         22                          20
Business days                                            64                          64                        128                         127
Average visits per day                               22,403                      21,569                     21,733                      20,553
Average visits per day per clinic                      24.2                        24.3                       23.8                        23.3
Total patient visits                              1,433,815                   1,380,392                  2,781,793                   2,610,178
Net patient revenue per visit        $               103.57       $              106.26       $             103.33       $              106.87
Same clinic revenue growth rate                      0.0  %                     48.9  %                     2.1  %                      5.2  %


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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                                           Six Months Ended
                                            June 30, 2022                   June 30, 2021                June 30, 2022                  June 30, 2021
Number of clinics owned (beginning of
period)                                                    922                             882                          910                           

875

Add: New clinics opened during the
period                                                      10                              10                           22                            

20


Less: Clinics closed/sold during the
period                                                       6                               3                            6                             6
Number of clinics owned (end of period)                    926                             889                          926                           889


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Results of Operations

Three months ended June 30, 2022 compared to three months ended June 30, 2021

The following table summarizes the Company's consolidated results of operations for the three months ended June 30, 2022 and 2021:

                                                                             Three Months Ended June 30,
                                                                 2022                                               2021                                   Increase/(Decrease)
($ in thousands, except percentages)                 $                     % of Revenue                 $                 % of Revenue                     $                      %
Net patient revenue                        $      148,506                           90.9  %       $  146,679                       89.4  %       $            1,827                1.2  %
Other revenue                                      14,787                            9.1  %           17,354                       10.6  %                   (2,567)             (14.8) %
Net operating revenue                             163,293                          100.0  %          164,033                      100.0  %                     (740)              (0.5) %
Cost of services:
Salaries and related costs                         89,606                           54.9  %           80,917                       49.3  %                    8,689               10.7  %
Rent, clinic supplies, contract
labor and other                                    50,405                           30.9  %           44,079                       26.9  %                    6,326               14.4  %
Provision for doubtful accounts                     3,506                            2.1  %            3,585                        2.2  %                      (79)              (2.2) %
Total cost of services                            143,517                           87.9  %          128,581                       78.4  %                   14,936               11.6  %
Selling, general and administrative
expenses                                           31,808                           19.5  %           26,391                       16.1  %                    5,417               20.5  %
Goodwill and intangible asset
impairment charges                                127,820                           78.3  %          453,331                      276.4  %                 (325,511)                  n/m
Operating loss                                   (139,852)                         (85.6) %         (444,270)                    (270.8) %                  304,418                   n/m
Change in fair value of warrant
liability                                          (1,184)                          (0.7) %           (4,539)                      (2.8) %                    3,355                   n/m
Change in fair value of contingent
common shares liability                            (1,496)                          (0.9) %          (20,948)                     (12.8) %                   19,452                   n/m
Loss on settlement of redeemable
preferred stock                                         -                              -  %           14,037                        8.6  %                  (14,037)                  n/m
Interest expense, net                              11,379                            7.0  %           15,632                        9.5  %                   (4,253)             (27.2) %
Interest expense on redeemable
preferred stock                                         -                              -  %            4,779                        2.9  %                   (4,779)                  n/m
Other expense, net                                    205                            0.1  %            5,626                        3.4  %                   (5,421)             (96.4) %
Loss before taxes                                (148,756)                         (91.1) %         (458,857)                    (279.7) %                  310,101                   n/m
Income tax benefit                                (13,033)                          (8.0) %          (19,731)                     (12.0) %                    6,698                   n/m
Net loss                                   $     (135,723)                         (83.1) %       $ (439,126)                    (267.7) %       $          303,403                   n/m


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Net patient revenue. Net patient revenue for the three months ended June 30,
2022 was $148.5 million compared to $146.7 million for the three months ended
June 30, 2021, an increase of $1.8 million or 1.2%.

The increase in net patient revenue was primarily driven by increased visit
volumes as a result of higher clinic count 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 3.9%, driving
an increase in average visits per day of 834, or 3.9%. Net patient revenue per
visit decreased $2.69, or 2.5%, to $103.57 for the three months ended June 30,
2022 compared to $106.26 for the three months ended June 30, 2021. The decrease
in net patient revenue per visit during the three months ended June 30, 2022
compared to the three months ended June 30, 2021 was primarily driven by
unfavorable mix shifts related to payor classes, Medicare rate cuts and higher
denials per visit.

The following chart reflects additional detail with respect to drivers of the change in net patient revenue (in millions).

                     [[Image Removed: ati-20220630_g2.jpg]]

Other revenue. Other revenue for the three months ended June 30, 2022 was $14.8
million compared to $17.4 million for the three months ended June 30, 2021, a
decrease of $2.6 million or 14.8%. The decrease in other revenue was primarily
driven by the absence of Home Health service line revenue for the three months
ended June 30, 2022 as a result of its divestiture on October 1, 2022.

Salaries and related costs. Salaries and related costs for the three months
ended June 30, 2022 were $89.6 million compared to $80.9 million for the three
months ended June 30, 2021, an increase of $8.7 million or 10.7%. Salaries and
related costs as a percentage of net operating revenue was 54.9% and 49.3% for
the three months ended June 30, 2022 and 2021, respectively. The increase of
$8.7 million was primarily driven by higher wages as the Company increased its
clinician and support staff due to higher visit volumes and by higher
compensation due to wage inflation for clinic labor. The increase as a
percentage of net operating revenue was primarily driven by higher compensation
due to wage inflation for clinic labor, lower clinic labor productivity and
lower net patient revenue per visit during the three months ended June 30, 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 June 30, 2022 were $50.4
million compared to $44.1 million for the three months ended June 30, 2021, an
increase of $6.3 million or 14.4%. Rent, clinic supplies, contract labor and
other costs as a percentage of net operating revenue was 30.9% and 26.9% for the
three months ended June 30, 2022 and 2021, respectively. The increase of $6.3
million and increase as a percentage of net operating revenue was primarily
driven by a higher clinic count and higher contract labor costs for the three
months ended June 30, 2022.

Provision for doubtful accounts. Provision for doubtful accounts for the three
months ended June 30, 2022 was $3.5 million compared to $3.6 million for the
three months ended June 30, 2021, a decrease of $0.1 million or 2.2%. Provision
for doubtful accounts in dollars and as a percentage of net operating revenue
for the three months ended June 30, 2022 and 2021 remained relatively consistent
year over year.

Selling, general and administrative expenses. Selling, general and
administrative expenses for the three months ended June 30, 2022 were $31.8
million compared to $26.4 million for the three months ended June 30, 2021, an
increase of $5.4 million or 20.5%. Selling, general and administrative expenses
as a percentage of net operating revenue was 19.5% and 16.1% for the three
months ended June 30, 2022 and 2021, respectively. The increase of $5.4 million
and increase as a percentage of revenue was primarily due to a loss on legal
settlement, higher public company operating costs and non-ordinary legal and
regulatory costs during the three months ended June 30, 2022, partially offset
by lower transaction costs incurred relative to the three months ended June 30,
2021 due to the closing of the Business Combination.

Goodwill and intangible asset impairment charges. Goodwill and intangible asset
impairment charges for the three months ended June 30, 2022 was $127.8 million
compared to $453.3 million for three months ended June 30, 2021. 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 in 2022, and the acceleration of clinician attrition, competition
for clinicians in the labor market and net patient revenue per visit decreases
primarily driven by unfavorable payor, state and service mix shifts in 2021.
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 June 30, 2022 was a gain of $1.2 million
compared to a gain of $4.5 million for the three months ended June 30, 2021. The
gain in each period relates to the decrease in the estimated fair value of the
Company's IPO Warrants, primarily driven by decreases in price of the Company's
Public Warrants during the three months ended June 30, 2022 and 2021,
respectively.

Change in fair value of contingent common shares liability. Change in fair value
of contingent common shares liability for the three months ended June 30, 2022
was a gain of $1.5 million compared to a gain of $20.9 million for the three
months ended June 30, 2021. The gain in each period relates to the decrease in
the estimated fair value of the Company's Earnout Shares and Vesting Shares,
primarily driven by decreases in the Company's share price during the three
months ended June 30, 2022 and 2021, respectively.

Loss on settlement of redeemable preferred stock. Loss on settlement of
redeemable preferred stock for the three months ended June 30, 2021 was $14.0
million. The loss is based on the value of cash and equity provided to preferred
stockholders in relation to the outstanding Wilco Holdco redeemable preferred
stock liability at the time of the closing of the Business Combination.

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Interest expense, net. Interest expense, net for the three months ended June 30,
2022 was $11.4 million compared to $15.6 million for the three months ended June
30, 2021, a decrease of approximately $4.3 million or 27.2%. The decrease in
interest expense was primarily driven by lower outstanding principal balances
under the Company's credit agreement during the three months ended June 30,
2022.

Interest expense on redeemable preferred stock. Interest expense on redeemable
preferred stock for the three months ended June 30, 2021 was $4.8 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 June 30, 2022
was $0.2 million compared to $5.6 million for the three months ended June 30,
2021, a decrease of $5.4 million. The decrease was driven by $5.5 million in
loss on debt extinguishment related to the derecognition of the unamortized
deferred financing costs and original issue discount associated with the partial
and full repayment of the 2016 first and second lien term loans during the three
months ended June 30, 2021 that did not recur during the three months ended June
30, 2022.

Income tax benefit. Income tax benefit for the three months ended June 30, 2022
was $13.0 million compared to $19.7 million for the three months ended June 30,
2021, a decrease in benefit of approximately $6.7 million. The decrease 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 higher nondeductible impairment charges, nondeductible
transaction costs, nondeductible loss on redeemable preferred stock and interest
expense on redeemable preferred stock for the three months ended June 30, 2021.

Net loss. Net loss for the three months ended June 30, 2022 was $135.7 million
compared to $439.1 million for the three months ended June 30, 2021, a decrease
in loss of $303.4 million. The comparatively lower loss was primarily driven by
lower goodwill and intangible asset impairment charges during the three months
ended June 30, 2022 as compared to the three months ended June 30, 2021.

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Six months ended June 30, 2022 compared to six months ended June 30, 2021

The following table summarizes the Company's consolidated results of operations for the six months ended June 30, 2022 and 2021:

                                                                           Six Months Ended June 30,
                                                              2022                                             2021                                   Increase/(Decrease)
($ in thousands, except percentages)              $                   % of Revenue                 $                 % of Revenue                     $                      %
Net patient revenue                        $     287,431                       90.6  %       $  278,950                       89.1  %       $            8,481                3.0  %
Other revenue                                     29,684                        9.4  %           34,145                       10.9  %                   (4,461)             (13.1) %
Net operating revenue                            317,115                      100.0  %          313,095                      100.0  %                    4,020                1.3  %
Cost of services:
Salaries and related costs                       177,021                       55.8  %          161,571                       51.6  %                   15,450                9.6  %
Rent, clinic supplies, contract
labor and other                                  102,020                       32.2  %           87,375                       27.9  %                   14,645               16.8  %
Provision for doubtful accounts                    8,611                        2.7  %           10,756                        3.4  %                   (2,145)             (19.9) %
Total cost of services                           287,652                       90.7  %          259,702                       82.9  %                   27,950               10.8  %
Selling, general and administrative
expenses                                          61,832                       19.5  %           51,117                       16.3  %                   10,715               21.0  %
Goodwill and intangible asset
impairment charges                               283,561                       89.4  %          453,331                      144.8  %                 (169,770)                  n/m
Operating loss                                  (315,930)                     (99.6) %         (451,055)                    (144.1) %                  135,125                   n/m
Change in fair value of warrant
liability                                         (2,861)                      (0.9) %           (4,539)                      (1.4) %                    1,678                   n/m
Change in fair value of contingent
common shares liability                          (25,830)                      (8.1) %          (20,948)                      (6.7) %                   (4,882)                  n/m
Loss on settlement of redeemable
preferred stock                                        -                          -  %           14,037                        4.5  %                  (14,037)                  n/m
Interest expense, net                             20,035                        6.3  %           31,719                       10.1  %                  (11,684)             (36.8) %
Interest expense on redeemable
preferred stock                                        -                          -  %           10,087                        3.2  %                  (10,087)                  n/m
Other expense, net                                 2,986                        0.9  %            5,779                        1.8  %                   (2,793)             (48.3) %
Loss before taxes                               (310,260)                     (97.8) %         (487,190)                    (155.6) %                  176,930                   n/m
Income tax benefit                               (36,314)                     (11.5) %          (30,246)                      (9.7) %                   (6,068)                  n/m
Net loss                                   $    (273,946)                     (86.4) %       $ (456,944)                    (145.9) %       $          182,998                   n/m


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Net patient revenue. Net patient revenue for the six months ended June 30, 2022
was $287.4 million compared to $279.0 million for the six months ended June 30,
2021, an increase of $8.5 million or 3.0%.

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 0.2 million visits, or 6.6%, driving an increase in average visits
per day of 1,180, or 5.7%. Net patient revenue per visit decreased $3.54, or
3.3%, to $103.33 for the six months ended June 30, 2022 compared to $106.87 for
the six months ended June 30, 2021. The decrease in net patient revenue per
visit during the six months ended June 30, 2022 compared to the six months ended
June 30, 2021 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):

                     [[Image Removed: ati-20220630_g3.jpg]]

Other revenue. Other revenue for the six months ended June 30, 2022 was $29.7
million compared to $34.1 million for the six months ended June 30, 2021, a
decrease of $4.5 million or 13.1%. The decrease in other revenue was primarily
driven by the absence of Home Health service line revenue for the six months
ended June 30, 2022 as a result of its divestiture on October 1, 2021.

Salaries and related costs. Salaries and related costs for the six months ended
June 30, 2022 were $177.0 million compared to $161.6 million for the six months
ended June 30, 2021, an increase of approximately $15.5 million or 9.6%.
Salaries and related costs as a percentage of net operating revenue was 55.8%
and 51.6% for the six months ended June 30, 2022 and 2021, respectively. The
increase of $15.5 million was primarily driven by higher wages as the Company
increased its clinician and support staff due to higher visit volumes and by
higher compensation due to wage inflation for clinic labor. 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, lower clinic labor productivity and lower net patient
revenue per visit during the six months ended June 30, 2022.

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Rent, clinic supplies, contract labor and other. Rent, clinic supplies, contract
labor and other costs for the six months ended June 30, 2022 were $102.0 million
compared to $87.4 million for the six months ended June 30, 2021, an increase of
$14.6 million or 16.8%. Rent, clinic supplies, contract labor and other costs as
a percentage of net operating revenue was 32.2% and 27.9% for the six months
ended June 30, 2022 and 2021, respectively. The increase of $14.6 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 six months ended
June 30, 2022.

Provision for doubtful accounts. Provision for doubtful accounts for the six
months ended June 30, 2022 was $8.6 million compared to $10.8 million for the
six months ended June 30, 2021, a decrease of $2.1 million or 19.9%. Provision
for doubtful accounts as a percentage of net operating revenue was 2.7% and 3.4%
for the six months ended June 30, 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 six months ended June 30, 2022.

Selling, general and administrative expenses. Selling, general and
administrative expenses for the six months ended June 30, 2022 were $61.8
million compared to $51.1 million for the six months ended June 30, 2021, an
increase of $10.7 million or 21.0%. Selling, general and administrative expenses
as a percentage of net operating revenue was 19.5% and 16.3% for the six months
ended June 30, 2022 and 2021, respectively. The increase of $10.7 million and
increase as a percentage of net operating revenue was primarily due to a loss on
legal settlement, higher public company operating costs and non-ordinary legal
and regulatory costs during the six months ended June 30, 2022, partially offset
by lower transaction costs incurred relative to the six months ended June 30,
2021 due to the closing of the Business Combination.

Goodwill and intangible asset impairment charges. Goodwill and intangible asset
impairment charges for the six months ended June 30, 2022 was $283.6 million
compared to $453.3 million for the six months ended June 30, 2021. 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 in 2022, and the
acceleration of clinician attrition, competition for clinicians in the labor
market and net patient revenue per visit decreases primarily driven by
unfavorable payor, state and service mix shifts in 2021. 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 six months ended June 30, 2022 was a gain of $2.9 million
compared to a gain of $4.5 million for the six months ended June 30, 2021. The
gain in each period relates to the decrease in the estimated fair value of the
Company's IPO Warrants, primarily driven by decreases in price of the Company's
Public Warrants during the six months ended June 30, 2022 and 2021,
respectively.

Change in fair value of contingent common shares liability. Change in fair value
of contingent common shares liability for the six months ended June 30, 2022 was
a gain of $25.8 million compared to a gain of $20.9 million for the six months
ended June 30, 2021. The gain in each period relates to the decrease in the
estimated fair value of the Company's Earnout Shares and Vesting Shares,
primarily driven by decreases in the Company's share price during the six months
ended June 30, 2022 and 2021, respectively.

Loss on settlement of redeemable preferred stock. Loss on settlement of
redeemable preferred stock for the six months ended June 30, 2021 was $14.0
million. The loss is based on the value of cash and equity provided to preferred
stockholders in relation to the outstanding Wilco Holdco redeemable preferred
stock liability at the time of the closing of the Business Combination.

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Interest expense, net. Interest expense, net for the six months ended June 30,
2022 was $20.0 million compared to $31.7 million for the six months ended June
30, 2021, a decrease of $11.7 million or 36.8%. The decrease in interest expense
was primarily driven by lower outstanding principal balances under the Company's
credit agreement during the six months ended June 30, 2022.

Interest expense on redeemable preferred stock. Interest expense on redeemable
preferred stock for the six months ended June 30, 2021 was $10.1 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 six months ended June 30, 2022
was $3.0 million compared to $5.8 million for the six months ended June 30,
2021, a decrease of $2.8 million. The decrease was driven by $5.5 million in
loss on debt extinguishment related to the derecognition of the unamortized
deferred financing costs and original issue discount associated with the partial
and full repayment of the 2016 first and second lien term loans during the six
months ended June 30, 2021, compared to $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 six months ended June 30,
2022.

Income tax benefit. Income tax benefit for the six months ended June 30, 2022
was $36.3 million compared to $30.2 million for the six months ended June 30,
2021, an increase in benefit of approximately $6.1 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 higher nondeductible impairment charges, nondeductible
transaction costs, nondeductible loss on redeemable preferred stock and interest
expense on redeemable preferred stock for the six months ended June 30, 2021.

Net loss. Net loss for the six months ended June 30, 2022 was $273.9 million
compared to $456.9 million for the six months ended June 30, 2021, a decrease in
loss of approximately $183.0 million. The comparatively lower loss was primarily
driven by lower goodwill and intangible asset impairment charges during the six
months ended June 30, 2022 as compared to the six months ended June 30, 2021.

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Non-GAAP Financial Measures


The following table reconciles the supplemental non-GAAP financial measures, as
defined under the rules of the U.S. Securities and Exchange Commission ("SEC"),
presented herein to the most directly comparable financial measures calculated
and presented in accordance with 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, loss on legal settlement,
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, loss on settlement of redeemable preferred stock 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                               Six Months Ended
($ in thousands)                         June 30, 2022           June 30, 2021           June 30, 2022           June 30, 2021
Net loss                               $     (135,723)         $     (439,126)         $     (273,946)         $     (456,944)
Plus (minus):
Net loss attributable to
non-controlling interests                         177                   3,769                     650                   2,460
Interest expense, net                          11,379                  15,632                  20,035                  31,719
Interest expense on redeemable
preferred stock                                     -                   4,779                       -                  10,087
Income tax benefit                            (13,033)                (19,731)                (36,314)                (30,246)
Depreciation and amortization expense          10,055                   9,149                  19,955                  18,768
EBITDA                                 $     (127,145)         $     

(425,528) $ (269,620) $ (424,156) Goodwill and intangible asset impairment charges(1)

                         127,820                 453,331                 283,561                 453,331
Goodwill and intangible asset
impairment charges attributable to
non-controlling interests(1)                     (654)                 (5,021)                 (1,594)                 (5,021)
Changes in fair value of warrant
liability and contingent common shares
liability(2)                                   (2,680)                (25,487)                (28,691)                (25,487)
Loss on debt extinguishment(3)                      -                   5,534                   2,809                   5,534
Loss on legal settlement(4)                     3,000                       -                   3,000                       -
Non-ordinary legal and regulatory
matters(5)                                      2,202                       -                   4,699                       -
Share-based compensation                        2,004                   3,112                   3,968                   3,616
Transaction and integration costs(6)              603                   3,580                   2,141                   6,498
Pre-opening de novo costs(7)                      286                     441                     667                     875
Gain on sale of Home Health service
line, net                                           -                       -                    (199)                      -
Loss on settlement of redeemable
preferred stock                                     -                  14,037                       -                  14,037
Reorganization and severance costs(8)               -                       -                       -                     362

Adjusted EBITDA                        $        5,436          $       23,999          $          741          $       29,589


(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.

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(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 and the partial and full repayment of
the 2016 first and second lien term loans, respectively. Refer to Note 8 of the
accompanying condensed consolidated financial statements for further details.

(4)Represents estimated charge for probable net settlement liability related to
billing dispute. Refer to Note 17 of the accompanying condensed consolidated
financial statements for further details.

(5)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.


(6)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.

(7)Represents expenses associated with renovation, equipment and marketing costs relating to the start-up and launch of new locations incurred prior to opening.

(8)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.

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, clinician labor market, revenue growth
rates and level of operating cash flows.

As of June 30, 2022 and December 31, 2021, we had $79.7 million and $48.6 million in cash and cash equivalents, respectively. As of June 30, 2022, we had $50.0 million available under our 2022 revolving credit facility, less $1.8 million of outstanding letters of credit.


For the six months ended June 30, 2022, we had operating cash outflows of
$32.7 million driven by items including net losses and the partial application
of MAAPP funds. Our ability to generate future operating cash flows depends on
many factors, including clinical staffing levels, patient volumes and revenue
growth rates.

As of June 30, 2022 and December 31, 2021, the Company had $1.6 million and
$12.3 million of MAAPP funds included in the balance of cash and cash
equivalents, respectively. In addition, as of June 30, 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.

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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.

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
June 30, 2022, borrowings on the Senior Secured Term Loan bear interest at
1-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 June 30, 2022, the interest rate on the Senior Secured Term
loan was 8.8% and the effective interest rate was 9.7%. As of June 30, 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.

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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).

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.
The paid in-kind dividends related to the Series A Preferred Stock were $5.1
million and $7.0 million for the three and six months ended June 30, 2022,
respectively. As of June 30, 2022, the accumulated paid in-kind dividends
related to the Series A Preferred Stock were $7.0 million and the aggregate
stated value was $172.0 million.

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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.


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 June 30, 2022, the redemption value of the
Series A Senior Preferred Stock was $172.0 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:

                                                                      Six Months Ended
($ in thousands)                                            June 30, 2022           June 30, 2021

Net cash used in operating activities                     $      (32,737)         $      (27,109)
Net cash used in investing activities                            (17,618)                (18,943)
Net cash provided by (used in) financing activities               81,419                  (5,507)
Net increase (decrease) in cash and cash equivalents              31,064                 (51,559)
Cash and cash equivalents at beginning of period                  48,616                 142,128
Cash and cash equivalents at end of period                $       79,680    

$ 90,569

Six months ended June 30, 2022 compared to six months ended June 30, 2021


Net cash used in operating activities for the six months ended June 30, 2022 was
$32.7 million compared to $27.1 million for the six months ended June 30, 2021
an increase in cash used of $5.6 million. The change was primarily the result of
$10.8 million of partial application of MAAPP funds and higher net losses as
adjusted for non-cash items during the six months ended June 30, 2022, partially
offset by cash outflows related to lease terminations and activity associated
with the Business Combination not recurring in 2022.

Net cash used in investing activities for the six months ended June 30, 2022 was
$17.6 million compared to $18.9 million for the six months ended June 30, 2021,
a decrease of $1.3 million. The decrease was primarily driven by cash outflows
related to purchases of intangible assets during the six months ended June 30,
2021 not recurring in 2022.

Net cash provided by financing activities for the six months ended June 30, 2022
was $81.4 million compared to $5.5 million of cash used in financing activities
for the six months ended June 30, 2021, an increase in cash provided of
$86.9 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 six months
ended June 30, 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 June 30, 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 June 30, 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.

During the quarter ended June 30, 2022, the Company identified an interim
triggering event as a result of factors primarily driven by potential changes in
discount rates. The Company determined that 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
approximately $87.9 million related to goodwill and $40.0 million related to the
trade name indefinite-lived intangible asset during the period ended June 30,
2022. Refer to Note 5 - Goodwill, Trade Name and Other Intangible Assets in the
condensed consolidated financial statements for further details.

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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, including discount rates, relevant market multiples, company
share price and other market factors, 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 June 30, 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.

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 margin                                    Royalty rate
                                 50 basis points                                  50 basis points                               100 basis points                                50 basis points
                       Increase                  Decrease               Increase                   Decrease             Increase                Decrease             Increase                   Decrease
Goodwill              $(30,000)                   $35,000               $30,000                   $(25,000)             $50,000                $(50,000)
Trade name            $(20,000)                   $20,000               $10,000                   $(10,000)                                                          $40,000                   $(40,000)

(1) A change of 100 basis points to our assumed non-terminal revenue growth rates would result in approximately $60 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.

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