ATI Physical Therapy, Inc. (NYSE:ATIP) Q2 2023 Earnings Call Transcript August 7, 2023
Operator: Good afternoon, and welcome to ATI Physical Therapy’s Second Quarter 2023 Earnings Conference Call and Webcast. [Operator Instructions] Please note this event is being recorded. On the call today is, Sharon Vitti, Chief Executive Officer; Chris Cox, Chief Operating Officer; Joseph Jordan, Chief Financial Officer; and Joanne Fong, Senior Vice President, Treasurer and Head of Investor Relations. I will now turn the call over to Ms. Fong.
Joanne Fong: Thank you, Josh. Good afternoon, everyone, and thank you for joining us today. To quickly cover, 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 to reflect changes that occur after this call. Descriptions of some of the factors that could cause actual results to differ materially from these forward-looking statements can be found in the Risk Factors section in the company’s filings with the Securities and Exchange Commission.
In addition, please note that the company will be discussing certain non-GAAP financial measures that we believe are important in evaluating performance. Details on the relationships between these non-GAAP measures to the most comparable GAAP measures and reconciliation of historical non-GAAP financial measures can be found in the earnings press release as posted on ATI’s Web site and filed with the SEC. And with that, I’d like to turn the call over to Sharon.
Sharon Vitti: Thank you, Joanne, and welcome, everyone. Earlier today, we reported our second quarter 2023 earnings results, and previewed the growing momentum in our performance. So, during this call today, we’ll share the details behind our strong operating achievements and our 2023 earnings guidance. So, as I sit here today, I am a year-plus into my tenure, here at ATI. I am privileged to lead to this fantastic national care delivery organization that is paving the way in the musculoskeletal ecosystem. Myself, and the entire team, are really proud of the progress to date to recover our business. This doesn’t come with luck. This comes with very deliberate planning around our key enablers to our success. So, the first being our leadership team, and that’s at multiple levels in the organization, but putting together a leadership team that has the skills and talent to bring the business where it needs to go, also very focused on refreshing our culture, focusing in on people, and aligning on goals to deliver on our purpose.
And lastly, empowering our teams and supporting their success, giving them the right tool, people, process, technology, and data that allow them to practice at the top of their license and excel in their roles and execute with excellence. So, we’ve come a long way in recovering our business, and we’re picking our heads up and looking at what next. And the next chapter is transformation and growth. While hiring clinical FTEs will unlock our growth for sure, reutilizing transformation and operational excellence to advance our top and bottom line growth. So, turning to the specifics for the second quarter, there are many successes. Frontline team members continue to advance towards operational excellence. Nearly all of our key performance metrics are improving sequentially, and year-over-year.
The team has momentum, and continues to reach new targets. Our first-half track record gives me confidence that we’ll continue to deliver on our financial goals in 2023, and beyond. So, you’ve heard me talk about the three Ps of our practice; our pipeline, our provider base, and our provider productivity. We continue to focus on disciplined execution of these fundamental building blocks, driving growth in profitability in our business. So, let’s start with pipeline, demand for PT, for therapy, sports medicine, worksite injury and prevention programs remained strong in 2023. Our therapy referral volumes have exceeded pre-COVID levels. On the people front, clinical FTEs are growing quarter-over-quarter as our new talent acquisition team and recruiting tactics hit their stride.
Combination of hiring and retention has been very powerful for us, allowing us to retain and grow our provider base. Lastly, we have productivity. Our productivity levels also steadily have grown quarter-over-quarter. Second quarter marked the highest visits per day, since pre-COVID levels, allowing us to provide outstanding care to more patients every day, with fewer clinical FTEs. Chris will provide more details on our operational metrics, our valuable transformation activities, and the other operational improvements we’re making. It’s really rewarding to see the team’s purposeful actions deliver meaningful improvements for our colleagues, patients, and our business. Let’s take a look at unit economics. Our key metrics are also improving here.
Our rate per visit not only stabilized, but is trending favorably. Payers are increasingly recognizing the value of high-quality physical therapy and positive patient outcomes, resulting in higher reimbursements. Now, even with modest rate increases, physical therapy still remains a lower-cost treatment pathway for musculoskeletal issues beyond the alternatives available. Equally exciting, we’re starting to see some payers move to more flexible structures for reimbursement terms. So, for an example on this front, we’re proud to be partnering with a payer to expand access to a traditionally underserved population while ensuring the rates make sense for our practice. This is beneficial to our communities, our clinics, and to the payer-members.
So, we’ve had solid operational achievements combined with strong market demand for therapy and sports medicine services, and that’s all translating into improved financial performance. We’ve seen higher sequential and year-over-year revenue, adjusted EBITDA, and profit margins. Second quarter marked ATI’s highest revenue, since the start of the pandemic in early 2020. Joe will walk through the financials in more detail and our 2023 guidance. Let me be clear, we are being deliberate in our plans to deliver long-term sustainable growth, and generate value for our patients, employees, communities, and our shareholders. As mentioned on previous calls, that we will be looking to form strategic partnerships that position ATI as a leader through leveraging our national single-branded standardized care model.
So, many of you may have read, most recently, we announced a partnership to elevate our digital telehealth capabilities. Now what this does, this allows us to create options for patients and meet our patients where they are through a hybrid care model. Our providers work with patients to develop a personalized treatment plan that integrates virtual physical therapy with hands-on care. I sit here very grateful for our incredible ATI teams. They are laser-focused on the best way to bring the ATI purpose to life; to exceed patient expectations by providing the highest quality of care, in a friendly encouraging environment, with impactful outcomes to improve each patient’s health. Every day, our teams are making a difference in our local communities, and continue to challenge themselves to realize our full potential.
Now, I will turn the call over to Chris to talk about clinic operations.
Chris Cox: Thank you, Sharon. I am thrilled about the strong operational progress in the first-half of this year, and simultaneously energized by the remaining opportunities ahead. As our field teams continue to execute and our central operations team continues to optimize workflows and processes, all with the goal of enhancing our capacity for care and elevating the patient experience. I want to thank our clinicians, field leaders, health services teams, and central teams for their continued focus and passion on improving the health and outcomes of our patients. Today, I want to touch on three themes; first, 4-wall performance and execution; second, our progress in removing administrative burdens from our clinics; and finally, improvements in our revenue cycle.
As it relates to 4-wall performance, labor productivity during the quarter was at 9.5 visits per day per clinical FTE. This exceeds our high of 9.4 that was at last quarter. Also in the second quarter, ATI clinician turnover declined to an annualized rate of 19%, which is on par with pre-COVID levels. In this tight labor environment, this level of retention speaks to ATI’s unique culture, and is the direct result of our efforts to improve clinic operations and tailor our employee value proposition to each person. Ultimately, provider growth is essential to the continued success of our business. While there continues to be an imbalance in the PT labor market, we increased clinical FTE compared to last quarter, and will continue prioritizing efforts that advance retention and recruitment.
One meaningful example of our strong employee engagement and community impact is the ATI Foundation, which recently re-launched. The foundation was started in 2003 as a way for ATI employees and patients to give back to the communities in which they live, work and serve. There was a temporary pause in activities with the pandemic and we have once again opened community grant applications to provide funding to children and adults with physical impairments so they can lead their most fulfilling lives. You can follow the Foundation on social media for exciting updates and developments on this front. Our second theme, reducing administrative burdens in clinics has helped to support the 4-wall performance around productivity and retention that I mentioned.
In our last call, I talked about some of the activities we have underway with leveraging technology and tools. On the front-end, we are achieving greater efficiencies and higher customer satisfaction with our call center initiatives, referral management, centralized patient intake, scheduling and focus on access. We are about 60% of the way through rolling out our modernized and centralized intake support platform across all 900 plus clinics. And we are seeing providers in those markets that are already supported by this model able to spend more time operating at the top of their license, focusing on patients and delivering high quality evidence-based care. This has always been the goal and we’re getting closer to realizing it through our transformation work.
We expect the centralized intake rollout to be completed by the end of the year and what’s more, this effort is only Phase 1. We now have a roadmap going into 2024 that will provide us enhanced digital capabilities, patient self-service tools and reduce additional administrative efforts in our clinics that will continue to unlock value with fewer distractions from administrative duties and a predictable operating rhythm in the clinic, employee satisfaction and ability to focus on our patients continues to rise. Finally, we made strides in revenue cycle management during the quarter. On our last call, I talked about a larger transformation to move our RCM function to best-in-class performance. We’ve since made the decision to consolidate our relationships and work more closely with a single leading vendor partner to drive collection rates.
This effort will both reduce costs and allow us to employ more automation in our collection efforts. In the second quarter, days sales outstanding improved yet again to another record low of 42 days, down from 45 days last quarter. We have also seen a reduction in bad debt expense driven by technology and process enhancements that we have made internally. As I’ve discussed, my priority is to drive the innovation of our processes and systems to better support our field and clinic teams. While we still have work to do, I’m encouraged by the progress we’ve made thus far and I look forward to providing updates as we continue building on our momentum. Now I’d like to turn the call over to Joe to discuss financials.
Joe Jordan: Thank you, Chris, and thanks to everyone for joining the call today. As Chris said, I’ll cover our second quarter 2023 financial results and I’ll also review our 2023 guidance. Let’s start with the financial results. Our net revenue was $172 million in the second quarter, which is a 5.5% increase over the prior year second quarter of $163 million. And that breaks down to net patient revenue of $157 million, which increased 5.7% year-over-year with other revenue of $15 million increasing 4.1% year-over-year, which is primarily due to higher management service agreement revenue. Visits per day per clinic during the quarter was 25.7 which is a 0.7 visit per day increase quarter-over-quarter from 25 in the first quarter 2023 and year-over-year is a 1.5 visit per day increase from 24.2 in the second quarter of the prior year.
This increase in clinic capacity utilization and the associated leverage of fixed cost was the largest contributor to the company’s improved gross margin. Rate per visit during the quarter was $104.74. That’s a sequential increase of 0.9% from $103.76 in the first quarter of 2023 and a 1.1% increase year-over-year from $103.57. As Chris discussed, the sequential increase is primarily the result of favorable contract negotiations and the year-over-year increase was due to the same favorable contract negotiations as well as service mix. Salaries and related costs in the first quarter of 2023 — second quarter of 2023 was $95 million, which is a 6.4% increase year-over-year from $90 million in Q2 of the prior year, and that’s primarily due to three things, increased support staff, which enabled our clinicians to spend more time on patient care, increases in incentives for our frontline members and wage inflation.
Now, PT salaries and related costs per visit during the quarter was $54.81, which sequentially increased 3.5% from $52.98 in the first quarter and 2.2% year-over-year from $53.64. The increases in cost per visit were primarily due to the increased support staff and wage inflation that I previously mentioned, and they were partially upset by higher labor productivity as visits per day per clinical FT improved 0.1 quarter-over-quarter and 0.4 year-over-year. Rent clinic supplies, contract labor, and other was $50 million in the second quarter, which was consistent with the prior year. Those same costs on a per clinic basis were approximately $54,000, which decreased 4.4% quarter-over-quarter from $56,000 in the first quarter and increased 1.6% year-over-year from $53,000 in the second quarter of the prior year.
The sequential decrease from Q1 was primarily driven by spending on the annual national leadership event held in the first quarter that we previously disclosed, and that was partially offset by higher contractors, contractors spend. When looking at the year-over-year increase, it was mostly due to higher contractor spend. Our provision for doubtful accounts during the quarter was $2 million or 1.5% of PT revenue, which is an improvement over the prior year, which was $4 million in 2.4% of PT revenue. The improvement in performance in the second quarter of 2023 was the result of the company’s continued focus on driving improvements within revenue cycle management, which Chris mentioned, and the resulting improvements in AR collections. SG&A during the quarter was $37 million, which is a 15% increase year-over-year from $32 million in Q2 of the prior year, and it’s primarily driven by higher transaction costs associated with the TSA closing earlier this quarter or second quarter.
It’s partially offset by lower legal settlement fees. Operating loss excluding impairment charges was $12 million, which is consistent with the prior year as higher revenue and higher associated earnings in 2023 were offset by higher G&A due to the previously mentioned transaction costs. Interest expense during the quarter was $17 million compared to $11 million in the second quarter of 2022, and the increase is primarily driven by higher interest rates as well as interest from the use of the revolving credit facility. Income tax expense during the quarter was $100,000 compared to income tax benefit of $13 million in the second quarter of the prior year, and net loss was $22 million compared to $136 million net loss in Q2 of the prior year with the prior year, including $128 million in impairment charges.
Adjusted EBITDA during the quarter was $9 million or 5.4% margin, and that increased over the prior year from $5 million, which was a 3.3% margin, and the year-over-year increase in adjusted EBITDA was primarily due to higher revenue in the associated earnings that come along with that, as well as the impact from improved collections that I talked about earlier. Cash used year-to-date 2023 was $45 million and it breaks down as $5 million used to fund operations, $10 million used in financing activities and $30 million used in — sorry $10 million used in investing activities and $30 million used in financing activities. It’s important to note that within financing activities, it includes $25 million repayment on the revolving line of credit.
Our liquidity as of June 30, 2023 was approximately $58 million, and that consists of cash and cash equivalents of $38 million and available revolver capacity of $20 million. In addition, the company may access $25 million of additional funds through the delayed draw term loan, which is outlined in the second lien notes purchase agreement subject to certain limitations. Looking ahead to the full-year 2023, we currently expect revenue to be in the range of $680 million to $695 million, which equates to a 7% to 9% growth over 2022. Now we’ve had a strong first-half of the year Sharon talked about in terms of pipeline and productivity, and we have sustained focus on growing our clinical headcount, which will also grow visit volumes, which underpin our outlook for the remainder of the year.
We’re balancing our optimism with the recognition that reaching full clinic capacity utilization across our fleet will be a multi-year effort. For revenue rates, we’re modeling an increase of approximately 1% for the full-year 2023, compared to 2022. And as a reminder, that contemplates the Medicare physician fee schedule change, which included a rate reduction of approximately 2% in 2023, although for ATI this reduction is partially offset by Medicare bonus payments resulting from our excellent rating, under the MIPS program. And that offsets approximately half of the rate reduction, so that would take it down to 1%. The rest of the rate increase is a result of some of the payer negotiations that Sharon and Chris talked about earlier, as well as general mix.
For adjusted EBITDA, we expect 2023 to be in the range of $30 million to $36 million, which represents approximately 4% to 5% profit margin, and really reflects the solid progress that we’re making. Now, while we’re pleased with the operational improvements that we’ve made, 2023 adjusted EBITDA remains muted due to the multiyear timeframe to execute against our clinical FTE growth plans and optimize our clinic operations, as I mentioned, and as the business continues to ramp up, we expect to better leverage our fixed costs and to further enhance profitability, with 2023 being a solid step in the right direction. Turning to our clinic footprint optimization initiatives, we closed four clinics — underperforming clinics during the quarter, and we opened six new clinics in higher-growth markets during the quarter.
Overall, we anticipate a limited number of new clinics in 2023, and those will be in select locations with attractive opportunities. We’re focused on maximizing our fleet by expanding where there is demand, and pursuing lease savings where possible and where it makes sense. We’re continuously monitoring local markets and clinic performance potential for further expansion opportunities. But, on balance, we’d anticipate a net reduction of approximately 20 clinics for the full-year 2023. I’d now like to turn the call back over to Sharon.
Sharon Vitti: Thank you, Joe. Solid second quarter 2023 results demonstrate our strategy is working, we’re aligned on our goals, and we have the right teams in place to execute with excellence. We’ve now delivered multiple quarters of sequential improvement in various key performance indicators, and are continuing those trends in Q3. With each quarter, we’re helping more patients [technical difficulty] we’re reached their health goals while positioning our business for sustainable long-term growth. This whole team is excited for the second-half of the year, and beyond. I look forward to keeping you updated on our progress. Thank you for joining us today. We will now open the line for Q&A.
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Q&A Session
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Operator: [Operator Instructions] Your first question comes from the line of Brian Tanquilut with Jefferies. Your line is open.
Taji Phillips: Good afternoon, thank you. You’ve got Taji, on for Brian. So, my first question would have to be around your guidance. So, expecting [$680 million] (ph) to $695 million in revenue, and then $30 million to $36 million in EBITDA, suggesting a ramp in the back-half of the year. I know that you touched upon expecting improvements from the visits, and then also on that 1% rate bump. Maybe if you can also talk through any other elements or assumptions embedded in the guidance? And what gives you confidence in that ramp just so we have all the moving pieces that are included in those numbers?
Joe Jordan: Hey, Taji, it’s Joe. Happy to do that, thanks for the question. So, some of the other key KPIs to think about there as I think about the business, the two most important are productivity of our clinicians and the number of clinicians we have, and both of those as well as referrals end up driving our visits. We’ve steady ramp, Sharon talked about, in referrals. We’ve seen productivity hitting near all-time highs or at all-time highs in the first-half of 2023. As we build the forecast for the full-year 2023, we’re assuming generally a continuation of the productivity we’ve seen all year. And based on what we’ve seen in the first-half plus July, there is no reason to think that that would slow down. We’ve been thoughtful on how we provided support to the clinicians to enable them to hit those types or productivity levels.
And then, we assume a steady growth in clinical FTE consistent with what we’ve seen in the first-half of the year. Beyond that, I did touch upon, during the script, the revenue rate, so you have that. And then within SG&A, maybe the only other thing to think about is we did mention we had the transaction happen in the first-half of the year. I think SG&A is assumed to be relatively steady-state [if you] (ph) adjusted — [pro-forma’d] (ph) out the transaction.
Sharon Vitti: Yes. And Joe, I think the other would be incremental improvement in our bad debt expense, which is a little — kind of a secondary factor, but we’ve seen good performance there.
Joe Jordan: Yes. And then as far as confidence goes, Taji, I believe we’ve built momentum throughout the first-half of the year. You can see the Q2 results relative to Q1; there is a performance improvement that was pretty significant. Some of that has a seasonality component to it. There is, obviously, a seasonality component of the business, but we’ve continued to see momentum, and feel good about where the business is heading as a result of some of the referral stuff Sharon talked about. You can see in the back part of our earnings release, the attrition is really low in the second quarter, and a combination of where those trends are going makes us feel good about the guidance that we put out.
Sharon Vitti: Yes, and when we look at, as we created our [indiscernible] for the rest of the year, we looked at the risks and opportunities, they’re very balanced. So, I think we’re pushing, but we also are continuing to make sure we don’t get ahead of ourselves.
Taji Phillips: That’s really helpful, Joe and Sharon. And then just one follow-up looking at rate, I know that you had talked about how some of the stronger rate growth is due to more favorable contracting. Just curious how much more of your contracting do you have to do for the year? I’m just trying to gauge how much more run way there is in terms of securing bumps from payers? And then a smaller point as well on the value-based arrangements, can you maybe talk through the structure of those agreements and your penetration across all of your payer agreements, I guess what percentage include like a value-based incentive?
Sharon Vitti: So, the payer stuff is hard, Taji, because it’s so variable. It depends on when we sign the contract, what the anniversary is. So, it’s an ongoing throughout the year. I would say we’ve probably touched half of our payers, and it just kind of is how the year rolls out and how we put the campaign out. So, I can’t give you anything concrete around the percentage of payers that will possibly — we’ll be speaking to around — in the anniversary increase of rate. On the VBC, or value-based care, or [the crate of] (ph) arrangements, that is a very small percentage of our current business. We certainly are venturing into that space to get more experience and to also capitalize on the benefits of our quality care and our great outcomes.
I think our MIPS is only upside, but it’s probably one of the best examples of our performance in that kind of an arrangement. So, I don’t think there’s anything to share at this point around VBC, other than pilots that we’re engaged in, and using those as learning situations to be able to look at is there a broader offering for the payer market.
Taji Phillips: Great, thank you.
Sharon Vitti: Thank you.
Operator: [Operator Instructions] Our next question comes from the line of Mike Petusky with Barrington. Your line is open.
Mike Petusky: Hey, guys, thanks for the questions. So, Joe, is there any sort of guide or anything additional talk about in terms of your expectations for cash flow from ops and CapEx for the rest of the year?
Joe Jordan: So, we didn’t guide the cash flow from ops or CapEx, but I think you could expect second-half CapEx to be pretty similar to the first-half. And I would say overall cash flow, probably somewhere in the mid single-digit cash usage, which would include the investing activities I just talked about.
Mike Petusky: What about the expectation for cash interest in the second-half?
Joe Jordan: Cash, it’s obviously dependent on the interest rate environment, Mike, but I would suspect it would be similar to Q2, all things being equal, on interest rate. The transaction took effect in Q2, and the interest piece of it really took effect back to, I believe, April, even though it was signed in June. So, most of Q2 reflects the new debt agreement. Use that as a proxy for the second-half of the year.
Mike Petusky: Okay, all right. And then, Sharon, as far as, and I suspect this is ongoing, but you guys have talked about assessing facilities and sort of ranking them in buckets and trying to figure out what’s going to make sense. Did you guys sell any facilities in the quarter or did I miss that or can you just update where you are in that assessment? Thanks.
Sharon Vitti: So, Mike, you are 100% right, this is ongoing. And interestingly, when we came out with the information, last year, as we look and on a quarterly basis our watch list and our close list, does move a little bit. But we did not sell any clinics in Q2. And I think the work that we’ve done really is to take a look at a few things. So, one, we, as Joe mentioned, have closed some clinics, and we have a few more that we’ll be closing over the course of the year. Number two, we’re really looking at how do we maximize our footprint. So, there are some opportunities where we have more demand than the capacity of the clinic, so it’s not held up by the workforce, there’s an opportunity to look at expansions, to look at renovations, [indiscernible].
So, that’s kind of the work we’re doing right now, how do we maximize our current footprint. And then I’d say the third is, we’re looking at where those strategic [pockets] (ph) are for growth. And it’s just a little bit of a different look than before. We’re really looking at where we absolutely have the demand and we have the resources to be able to grow in a market. And that will be something that we will be really working on in 2024.
Mike Petusky: Okay. So, I just had a sense, maybe three, six months ago, that there was a little bit more likelihood or urgency around the idea of potentially divesting clinics. It almost sounds like maybe with the refinancing, that you guys have backed off of that or am I reading too much into this, so that you’re still actively potentially looking at divesting meaningful numbers of clinics or can you just speak to that? Thanks. Sorry, did I break up?
Sharon Vitti: No, I was trying to get the numbers quickly for you. So, you’re — I don’t think — I can’t we haven’t slowed down. The discipline is still there. Things have changed a little bit. And yes, there’s — I would say, as our key operating metrics move up, that should also allow some of our underperforming [watch list] (ph) clinics to start breaking even and getting to profitability. But I would say we have — we closed 22 in the first-half of the year, and those were definitely on the close list. We divested four clinics. There was another group of clinics that we were looking at divesting, and ended up not doing that because of some changes in that marketplace. So, I would say the attention hasn’t changed, but that the conclusions from the data have caused us to either continue to close some clinics or move forward and keep some clinics, I mean that’s our whole goal is not to be closing clinics, but to be getting them to the performance level that allows us to have profitability per clinic.
So, I think there’s a combination of a little [dynamicism] (ph) in the marketplace. And then also as we improve our performance overall, it is helping some of these clinics get to where they need to be. We’ve also changed some of our strategies around referrals and around our talent. And so, many times, when there are clinics that haven’t performed, that some of it relates to not having the right attention around either our referrals or having enough talent, if you will, to be staffing the clinics. And so, I would say, with some of the changes in our strategy over the last six months, instead of [peanut butter] (ph), we’ve really focused in on very specific marketplace strategies, which in turn have paid off.
Mike Petusky: Okay, all right. So, one more question. It sounds like there’s not a ton of people in the queue, so I’ll ask one more, if that’s okay on [indiscernible].
Sharon Vitti: Go for it.
Mike Petusky: So, last quarter, you guys said, “Hey, look, we’re seeing a lot of demand, we don’t necessarily have the clinical staff in place to take care of all the demand we have.” And I think I asked the question, well, what type of clinical workforce would you need, and I you guys guess somewhere around 2,900, something like that relative to the sub-2,700 you all have at the end of June. And I understand the number of these things are sort of multiyear, but how long, given the low unemployment rate, it feels like it may take a while for you guys to get what you would consider fully staffed up. Have you guys thought about that in terms of is that a three-year goal or how do you all think about that particular item? Thanks.
Sharon Vitti: That’s a great question, Mike. I think there’s two ways to think about it. One is, what does ATI need? And I think you’re right, those are the numbers we said, and we might even push them up a little bit given the continued demand. So, and I have great confidence in our team, our TA, our Talent Acquisition team really was recreated and fully up to speed or in action at the end of Q1. And so we’re starting to see that traction, I think the bigger issue, so I think we’re going to be able to keep moving in regards to both retaining our staff and creating a great value proposition for new recruits. But I mean, I got to tell you, I do not see, and yes, there may be high unemployment, or sorry, low unemployment, but on the PT front, this is a macro level issue.
And I think until we start, the big, we start looking at opening up the top of the funnel, getting more PT students into the programs, and kind of breaking that cycle like other sectors have done. I think it’s going to take a little bit. So, I think ATI is going to do the job they need to do, but I also think the macro level trends are going to continue to be headwinds.
Mike Petusky: Yes, I mean, I’d assume it’s at least a three year sort of?
Sharon Vitti: Yes, it’s not going to be in my, when I first started, I was like, give it a year and it’ll loosen up like many other situations. But I’d be confident to say this isn’t going to break open, before the end of the year. And I think ’24 is going to be another hard year.
Mike Petusky: Yes, all right. Fair enough. Thank you so much guys. Appreciate it.
Sharon Vitti: Thanks Mike.
Operator: Your next question comes from the line of Bill Sutherland with The Benchmark Company. Your line is open.
Bill Sutherland: Thanks and hello everybody. Yes, I was going to talk about the labor issue too. The one remaining part of that set of questions that I was thinking about as the contractors, I think they were. Can you just talk about the level that you are at as percent of your workforce and where you want to get that to?
Joe Jordan: Yes, Bill it’s Joe. The roughly 6% of our workforce right now, 185 contractors at the end of Q2, I think the contractors will be with us for a little while, just given the overall labor dynamics. But at some point they are more expensive than ATI full-time PTs or PTAs. We’d obviously like to bring the contractors down. It won’t, it’ll never get to zero, but if it could get down to 1%, 2% of our workforce in the long run, I think that’s where we’d like to be. But in the short term, because we have so much demand for therapy at ATI, I think we’ll be living with the contractors for a bit.
Sharon Vitti: Yes, and Joe, we’re using them selectively. I know we’re using more than we would normally, but we’re using them selectively and Marcus that are just, they’re deserts for recruits. So, again, that is also playing into the fact that, to Joe’s comment that we’re going to probably need them for the foreseeable future.
Bill Sutherland: I’m remembering a couple of years ago, maybe during the roadshow, the affiliation you had with a couple of programs, I think one was Duke. Is that something that you can, or do you still have it or can you tool it up?
Sharon Vitti: Yes, great question, Bill. So, our university relations, if you will, as with any organization, kind of fell by the wayside during COVID but we have a multichannel approach, and I think I’m really excited about what we’re doing. On the other side of it, it takes a little bit for it to bear fruit. And so, I would say everything from the usual, right, so bringing in students precepting, having alumni relationships. But I would say the other thing that we’re focusing on is a little bit of where you’re going. How do we start working differently with the universities, especially as it relates to both the top of the funnel, the number of folks coming in, the diversity of candidates, and then the ability to prepare them to be successful both in the exam and when they graduate.
And so, that is a more comprehensive approach than just bringing in folks for their clinicals. And so I think that’s the way we have to go. And I think it’s a common, it’s a partnership. And I don’t think ATI’s the only one doing this. I think it’s a partnership with the universities to really, I would say modernize the way the whole PT university piece starts, and then how we transition those folks into being successful therapists in the marketplace.
Bill Sutherland: Got it. And last one I wanted to ask was on the reduction of the administrative burden, particularly at centralized intake. Will we see this mostly in PT productivity or is there a clinic overhead factor that will show up as well?
Joe Jordan: You’ll see it mostly in the productivity. If you think about the model that we’re transitioning from, it was some model, some markets were already centralized, but others were running a hub and spoke type of model where they might have one front desk individual supporting five or six clinics. So, largely those folks are moving into the centralized model, and it gives us the capacity to be able to support the clinics for example, when there’s a call out, when there’s a resignation, we have the redundancy and the capabilities to be able to cover for that. The other thing it does, that we’re seeing some leading indicators of is it just helps us to capture a 100% of the referrals that are coming in. If you have, for example, a clinic where the administrative person has been out and the clinicians are all seeing patients and the phone rings and no one answers, that’s no longer going to happen.
And then finally, we do expect that it will also aid in our retention, because it takes things like answering phone calls out of the clinics and really makes that a better environment for our clinicians.
Sharon Vitti: Yes, and then our patient experience is more, it’s kind of their first, in many cases, their first time interacting with ATI and it’s, they can expect the standardized experience, have all data on call handling times, and service levels as it relates to that initial call. So, I think that other, that’s a qualitative piece, but certainly an important piece.
Bill Sutherland: Great. That’s good color. Appreciate it. Thanks everybody.
Sharon Vitti: Thanks, Bill.
Operator: There are no further questions at this time. I’ll turn the call back to CEO, Sharon Vitti for closing remarks.
Sharon Vitti: So I want to thank everyone for joining us today and we look forward to coming back together in Q3 and sharing our results on Q3. Thank you. That is the end of the call.
Operator: This concludes today’s conference call. Thank you for joining. You may now disconnect.