ATI Physical Therapy, Inc. (NYSE:ATIP), a Delaware-incorporated provider of outpatient physical therapy services, has entered into an agreement to issue new second lien payment-in-kind (PIK) notes totaling $10.5 million, according to a recent SEC filing. The agreement, dated October 2, 2024, involves the issuance of the notes to certain purchasers under a Second Amendment to the Note Purchase Agreement.
The newly issued PIK notes, which mature on August 24, 2028, will accrue interest at an annual rate of 17%, payable quarterly by adding the interest amount to the principal balance. These notes are not convertible into company stock. The financing arrangement is an amendment to an original agreement from April 17, 2023, where ATI Physical Therapy issued initial PIK convertible notes with an aggregate principal amount of $103.3 million.
The transaction, completed on the Closing Date of October 2, 2024, is part of ATI Physical Therapy's broader financial strategy. The company, which operates under the name ATI Holdings Acquisition, Inc. and other subsidiary guarantors, has been listed on the New York Stock Exchange under the ticker symbol ATIP, with its redeemable warrants trading over-the-counter under the symbol ATIPW.
The additional capital raised through the issuance of the Second Amendment Delayed Draw Notes is expected to further support the company's operational and strategic initiatives. The PIK notes represent a financial obligation that will be carried on the company's balance sheet, impacting its long-term debt structure.
In other recent news, ATI Physical Therapy reported an increase in net revenue by 9.2% to $188 million for the second quarter of 2024. The company also experienced growth in terms of patient visits, with over 1,500 additional visits compared to the same period the previous year. Adjusted EBITDA for the quarter stood at $17 million, reflecting a margin improvement from 5.4% to 8.8%.
Despite labor market challenges, ATI Physical Therapy managed to increase its clinician headcount by over 4% year-over-year. However, the company did report a net loss of $3 million, though this is a decrease from the $22 million net loss reported in the previous year.
These recent developments also include the closure of two clinics and the divestment of four others, aimed at better alignment with patient needs. Looking ahead, the company anticipates Q3 revenue to be between $180 million and $190 million, with an adjusted EBITDA of $9 million to $14 million. With a focus on operational efficiency and strategic alignment with market demands, ATI Physical Therapy continues to navigate the healthcare sector.
InvestingPro Insights
ATI Physical Therapy's recent issuance of $10.5 million in PIK notes aligns with InvestingPro data indicating the company's significant debt burden. The company's market cap stands at a modest $26.63 million, highlighting the weight of this new debt addition.
InvestingPro Tips reveal that ATI is quickly burning through cash and is not expected to be profitable this year. This context explains the need for additional financing through the PIK notes. The company's revenue for the last twelve months as of Q2 2023 was $717.15 million, with a revenue growth of 11.0% over the same period. However, the operating income margin stands at -0.29%, underscoring the company's profitability challenges.
Despite these financial hurdles, InvestingPro Tips note a strong return over the last three months, with price data showing a 20.25% total return over this period. This positive short-term performance might indicate investor optimism about the company's strategic moves, including this latest financing arrangement.
For investors seeking a more comprehensive analysis, InvestingPro offers 5 additional tips that could provide further insights into ATI Physical Therapy's financial health and market position.
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