ATI Physical Therapy, Inc.

Good afternoon, and welcome to ATI Physical Therapy's third quarter 2022 earnings conference call and webcast. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, Press star 1 on your telephone keypad. Please note this event is being recorded. On the call today is Sharon Vitti, Chief Executive Officer, Emily Tansey, Chief People Officer, Ray Wall, Chief Operating Officer, Joseph Jordan, Chief Financial Officer, and Joanne Fong, Senior Vice President, Treasurer, and Head of Investor Relations. I would now like to turn the call over to Ms. Fong to read the Safe Harbor and forward-looking statements.

Thank you, Abby. Good afternoon, everyone, and thank you for joining us for today's call. Before we begin, we'd like to remind you that certain statements made during this call will be forward-looking statements that are subject to various risks and uncertainties and reflect our current expectations based on our beliefs, assumptions, and information currently available to us. Although we believe these expectations are reasonable, we undertake no obligation to revise any statements or reflect changes that occur after this call. Descriptions of some of the factors that could cause after results that differ materially from these forward-looking statements can be found in the risk factor section and accompanies filings with the Securities and Exchange Commissions. In addition, please note that the company is discussing certain non-GAAP financial measures that we believe are important in evaluating performance. Details on the relationship between these non-GAAP measures for the most comparable gap measures and reconciliation of historical non-gap financial measures can be found in earnings press release as posted on ATI's website and filed to SEC. And with that, I'd like to turn the call over to Sharon.

Thank you, Joanne. Welcome, everyone, to our third quarter earnings call. I'm joined today by Emily Tansey, our Chief People Officer, Ray Wall, our Chief Operating Officer, and Joe Jordan, our Chief Financial Officer. So since our last call, I continue to learn about the ATI business and the physical therapy ecosystem and inform more definitive views on what the business needs. I've enjoyed meeting with many of our therapists, patients, and stakeholders across the country, and will begin by sharing some observations. Next, I'll provide highlights of Q3 results with a focus on our most impactful operational levers, the three Ps of our practice, pipeline, provider base, and provider productivity. These are critical drivers to achieving our near-term growth targets. Emily will discuss the labor environment and key activities around our provider base. Ray will walk through operational performance during the quarter, and Joe will take us through a detailed review of financial results. Finally, I will wrap up with closing remarks before we open the call up to Q&A. To start, I want to thank ATI's talented and dedicated team of clinicians and leaders that emotionally invest and are passionate about enriching the lives of the patients and communities they serve. Over the last few months, I've had the pleasure of visiting clinics and hosting in-person town hall meetings across the footprint. Altogether, I've proudly met and spoken with close to 1,000 team members, and my reaction to what we offer remains strong and proud. The passion of the teams and the commitment to helping patients get back to their lives is consistent and visible. I observed firsthand the dedication of our teams to help patients on their healthcare journey and ensure that everyone feels like a member of our ATI family. From our patients, new hires, established colleagues, and corporate teams, when I ask them why they love ATI, it's the people. ATI was built on a solid foundation and the company is poised for success with the work ahead. While demand for physical therapy remains strong, the healthcare provider labor market and economic environment continue to present challenges. We are eager to demonstrate to our investors, board, and employees our ability to define, execute, and deliver on the right actions for both short- and long-term success. Regarding our first Operational P pipeline, Sustained demand for physical therapy care reiterates the value of this offering, and in the third quarter, the pipeline for ATI services continues to be strong. Referrals grew quarter over quarter and are just shy of pre-COVID levels. Our business development team is focused on local relationship building alongside our clinicians with targeted referral sources and employer customers. The second P, provider base. The headwinds we discussed previously with recruitment and hiring persisted through the third quarter. Despite the tough labor market, our ATI employee attrition rate, excluding our clinician contractors, has improved since the beginning of this year and is currently in the mid-20s. Moreover, in the third quarter, the clinical FTE count remains stable. The labor challenges affecting ATI and the broader PT market will take some time to dissipate. In the meantime, we are not standing still and are making investments and executing on tactics, both short and long term, to accelerate the way we grow our provider teams. One of my first priorities in this regard was to fill the Chief People Officer role. I'm delighted to introduce Emily Tansey on this call. She joined the CPO just over two months ago. Emily is a strong and seasoned leader with more than 20 years' experience in human resources and operations in healthcare and provider organizations. Emily will share some perspectives shortly on the labor market and discuss new approaches in talent acquisition and people development to advance the business. We are delighted to have her. For the third P, provider productivity, our teams across our national footprint saw an average of 8.7 visits per day per clinical FTE in the third quarter. and 8.8 visits per day per clinical FTE in the year-to-date period. Now when we break this down, we rank our clinics based on productivity in Q3. The providers in the top 80% of our clinics saw an average of 9.5 VPD per clinical FTE compared to the bottom 20% of our clinics that are at a 6.5 VPD. So the top 80% of clinics are doing well, seeing patients and achieving or exceeding our productivity targets. We believe there's room for incremental improvement in both groups, and Ray will discuss our roadmap later in the call. We completed the first task in reviewing our clinic footprint and observed a similar clustering related to financial and operational performance. We see the top 80% of our clinics meeting or exceeding performance targets, while 20% are underperforming. We are currently pursuing different approaches to optimize half of the underperforming clinics, including consolidation, closure, and divestiture. We will also continue to closely monitor the remaining lagging clinics. In addition to boosting financial returns, rethinking select clinic locations will strengthen operations and facilitate redeployment of displaced providers to clinics with more demand. Now, historically, ATI has increased the number of clinics every quarter since the company's inception in 1996. While we plan to continue opening de novos in attractive geographies and markets, we are taking a hard look at the existing fleet and will exercise discipline in pruning underperforming locations. Looking ahead, in 2023, we may have a decline in the total number of clinics year over year as we prioritize same clinic growth over expanding clinics. We continue to gain insight into the past for near and long-term earnings and cash potential of this business. In the third quarter, we have identified and developed work plans on a portfolio of initiatives with a deliberate aim to strengthen our financial position, including execution of several quick sprint efficiency and improvement projects in 2022. The priority areas for review, organizational change, and or process transformation include streamlining the corporate SG&A function, redesigning our referral and patient intake structures, and leveraging technology to improve revenue cycle performance. We are moving with speed and are focused on being prudent with our spend and conserving cash. I'm pleased with the focus, the intensity, and the progress that our teams have made. Finally, we need to celebrate our exceptional rating under the Medicare Merit-Based Incentive Payment System, otherwise known as MIPS, and our outstanding NPS and Google Star rating customer satisfaction scores. Both are testaments to our purpose-driven culture. As I said before, ATI has a solid foundation and talented team of leaders. I am confident we will continue to make progress toward our goals. With that, I will turn the call over to Emily for a discussion of talent acquisition and people development.