Q4 2023 ATI Physical Therapy Inc Earnings Call

Participants

Joanne Fong; Senior Vice President, Treasurer, Head of Investor Relations; ATI Physical Therapy Inc

Sharon Vitti; Chief Executive Officer; ATI Physical Therapy Inc

Chris Cox; Chief Operating Officer; ATI Physical Therapy Inc

Joseph Jordan; Chief Financial Officer; ATI Physical Therapy Inc

Taji Phillips; Analyst; Jefferies LLC

Bill Sutherland; Analyst; Benchmark Company LLC

Presentation

Operator

Good afternoon and welcome to the ATI Physical Therapy's Fourth Quarter and Full Year 2023 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. Please note this event is being recorded. On the call today is Sharon Beattie, Chief Executive Officer, JOSEPH Jordan, Chief Financial Officer, Chris Cox, Chief Operating Officer, and go on Bong, Senior Vice President, Treasurer and Head of Investor Relations. I will now turn the call over to Ms. Fong.

Joanne Fong

Thank you, mandate. Good afternoon, everyone. Thank you for joining us today.
Before we begin, I'd like to remind you that certain statements made during this call may be forward looking statements are subject to various risks and uncertainties, and if that's the current expectation 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 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 discussing certain non-GAAP financial measures that we believe are important in evaluating performance details and malicious 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 ATS website and our SEC filings on that, I'd like to turn the call over to Sharon.

Sharon Vitti

Thank you, JoAnn, and welcome, everyone. In addition to Chris and Joe, we have the rest of our ELT on the call we have Emily Tansey, our Chief People Officer, Scott Ferguson, our Chief Growth Officer, best Oaks, our Chief Information Officer, and Erik cancer, key legal officer.
As you may know earlier, today, we reported our fourth quarter and full year 2023 results. 2023 was a reset year, and I'm very proud of our achievements. ATI. staff exhibited strong teamwork across our national single-branded Flint single brand platform to bring our purpose to life in our local communities, expanding access to care and helping people live their healthiest life. Our team implemented deliberate strategies to deliver meaningful quarter-over-quarter growth, allowing us to exceed our revenue targets and our 2023 guidance. 2023 was it was a year when we implemented many winning strategies, including strengthening the ATI. culture, growing the provider base, elevating talent and creating development opportunities for our employees, expanding access for patients, advancing clinic operations and enhancing the patient experience, all resulting in improved financial and key KPI performance.
I'm going to double down on a few areas that are highlights of 2023, starting with the demand for ATI. services. It was exceptionally strong in 2023, and we saw an all-time high in ATS history of referrals per day and referrals continue to be robust into 2024 time frame into 2023, the rate per visit increased by $3.30 over the previous year. So as we look at this, there are two contributing factors. One here are rate increases, coupled with operational improvements in our revenue cycle management, the HR and ops teams work together to allow us to see 390,000 more patient visits in 2023 compared to 2022. The labor market continues to remain tight. And in 2023, Emily Tansey, our Chief People Officer, lead our HR teams to successfully grow the number of clinical FTEs year over year end, significantly reduced turnover to a more normalized level, creating stability in our clinics. Chris Koch, our COO, led the teams focused on reducing administrative burdens and improving processes in the clinic, allowing our providers to see more visits per day per clinical FTE in 2023, achieving a historic high watermark on our clinic footprint. We opened 13 de novo clinics and closed or divested 40 clinics for performance reasons. 2024 will be a year of investing in our current fleet with necessary upgrades, expansion and consolidation, coupled with and without opening a limited number of new clinics.
Now our long-term goal is to grow the footprint while continuously monitoring, local markets and Clinique performance. Overall, we are focused on capitalizing on the momentum achieved in 2023 with people in operations to continue growing ATI.'s capacity in 2024. Our people are what set us apart from our competitors through all the changes in the market and within the company. In the past few years, our team's commitment to our care excellence has grown hearing from our patients as a critical part of C-BASS in 2023. We refined our patient survey processes during the year to gain additional insights in our patient experiences. We anticipate sharing this new improved customer satisfaction, KPKPI. later this year in 2024. Our clinical quality remains exceptional as previously reported in 2023 ATI. achieved an exceptional rating in patient quality from the Center for Medicare and Medicaid services mix program for the fourth consecutive year, basically every year since the program's inception for physical therapy providers in 2024 HE, I will again receive a bonus payments to help offset the CMS fee schedule cuts in 2024.
Another area of excellence is the launch earlier this month of the Institute for musculoskeletal advancement. The purpose of the institute is to advance scientific research and to enhance the quality of musculoskeletal clinical care. The Institute for musculoskeletal advancement will create new opportunities for our colleagues to get involved with teaching research and influencing policy is a top priority in 2024 in 2023, the operations team completed numerous process improvements and technology implementations. Chris will provide a detailed discussion of those operational initiatives and performance later during the call. I do want to call out two areas. The operations team drove increased clinic utilization every quarter over quarter during the year and in the fourth quarter drove the highest visits per clinic since the start of COVID in 2022, our clinicians were highly productive throughout 2023, spending more time treating patients than the prior year with each clinical ST. in 2023, seeing a historically high visits per day at 9.4. Strong demand for ATI. services, combined with the progress we made in the business resulted in the Company, beating our 2023 revenue and adjusted EBITDA guidance shortly, Joe will provide a detailed walk-through of Q4 and full 2023 financial results and sure Q1 2024 expectations. Worth noting is our continuous progress in 2023 to increase revenue every quarter, four from the prior sequential quarter with a TISQ. for 2023 revenue back to levels when the pandemic started in 2020. In 2024, we have kicked off the year implementing numerous strategies to extend the progress we made in 2023. It goes without saying we have incredible teams at ATI that are making a difference in the lives of our patients and communities every day I have tremendous gratitude for our talented teams, dedicated clinicians and leaders, promotionally invest and are passionate about enriching the lives of our colleagues, patients and communities.
Big congratulations to the entire ATI. team for showing everyone the real ATI. With that, I will turn the call over to Chris to discuss operations.

Chris Cox

All right.
Thank you, Sharon, and proud to share an update on our transformation efforts during the fourth quarter and the full year of 2023, as well as the outstanding operational results that we achieved in January. I was able to attend our national leadership event for the second time, we brought together every clinic, DIRECTOR from across our national footprint, along with our field and corporate leaders as well as Board members to focus on leadership development as well as our 2024 critical path. This meeting sets the stage for our year ahead and affords us the opportunity to continue to develop the core competencies and skill sets that our clinicians need to enable continued operational and clinical progress. I'm inspired by our providers and their passion for achieving exceptional outcomes for our patients. Our operational progress furthers our ability to deliver continued excellence in health health outcomes. And I want to thank the ATI colleagues who bring our purpose to life every day in 2023, our field, a clinic team has continued to deliver exceptional patient care. While our central operations team has diligently refined workflows and processes together, we remain focused on enhancing our capacity for care and on continuing to elevate the patient experience.
As Sharon mentioned, our clinic teams again earned an exceptional rating by CMS mix for delivering quality patient care that will be awarded a bonus for many Medicare services rendered. The clinic teams also expanded patient access with each clinical FTE. seeing an additional 0.6 visits each day in 2023 over 2022. And in fact, we increased the visits per day and visits per day per clinic every single quarter in 2023 over the prior quarter as we made continued progress with our operations team at the beginning of 2023, I spoke about how we would leverage process innovation and enhancements in technology to reduce administrative burdens and support for four-wall performance fast-forward to the end of the year, and we can see that we realized greater efficiencies and higher customer satisfaction with our centralized intake initiative and clinic process innovation efforts. In Q4, we completed the centralization of our intake, registration and scheduling functions, completing the rollout across all our clinics. This effort has removed over 3.8 million annual phone calls from our clinics and helped drive consistency in our referral management, safeguarding referrals from slipping through the cracks. This effort, combined with enhancements to make our ATI. EMR system, even easier for physicians to use in addition to other operational initiatives, enabled our providers to spend more time operating at the top of their license focusing on patients and delivering high-quality evidence-based care, but it doesn't stop. There are initiatives to augment our clinical operations will continue in 2024 by further streamlining administrative processes in our clinics, we expect to unlock even greater value for our organization. We have ongoing efforts to reduce paperwork and digitize registration for new patients, which will save both clinicians and providers time and now that we have a single centralized intake model, we will begin experimenting with new patient engagement strategies to drive higher referral conversion and appointment attendance with reduced administrative burden and a more predictable operating rhythm. We expect our clinics to continue to experience improved employee satisfaction with more time to focus on delivering exceptional care in equally impactful. Despite the ongoing imbalance in the physical therapy labor market. We successfully grew our clinical FTE. base throughout 2023 and ended in Q4 at nearly 26,000 FTEs. We remain committed to prioritizing strategies that bolster both retention and recruitment efforts, recognizing the pivotal role our clinicians play in our continued growth and success submission turnover ended the year in the fourth quarter at 21%, which is on par with our pre-COVID levels, considering the challenging labor market we are in this notable retention speaks volumes about the culture we are building FOSTER community where providers are engaged to stay and grow.
Finally, our rate in 2023 was positively impacted by revenue cycle enhancements and ongoing negotiations with payers for reimbursement and during the year, we also standardized our Workers' Compensation offering to ensure that we are providing a provider of choice in that area.
I previously talked about transforming our revenue cycle management function to achieve best-in-class performance. In 2023, we made significant improvement in almost every KPI that measures revenue cycle efficiency from denial rate, the cost to collect the POS. collection rate for net collection rate. With our decision to consolidate our relationships and work more closely with the preferred vendor partner to drive collection rates, we were able to reduce costs and employ more automation in our efforts. We have also seen a reduction in bad debt expense throughout the year as reflected in the financials, driven by technology and process enhancements and to conclude, I want to emphasize that my priority remains driving innovative improvements to our processes to better support our teams and to stand out among the competition. We still have work to do, and I am energized by the progress we achieved in 2023. I look forward to providing updates as we continue to build on our momentum. I want to again express my heartfelt gratitude to our clinicians, field leaders, health services teams and central teams for their steadfast commitment and passion. It is through their collective efforts that we can make meaningful strides in improving the health and outcomes of our patients. Their dedication is the cornerstone of our success, and I am deeply appreciative of their continued focus on driving positive change. As we move forward. I am excited by the abundant opportunities that lie ahead.
Now I'd like to turn the call over to Joe provide an in-depth review of our financial results.

Joseph Jordan

Thank you, Chris, and thanks to everyone for joining the call today. I'll talk about our fourth quarter and full year 2023 financial results. And then later on, I'll discuss, as Sharon mentioned, early trends for 2024, as well as our expectations for the first quarter. Starting out with Q4, our net revenue in the fourth quarter was $182 million, which is a 12.7% increase year over year from $162 million in Q4 of the prior year. And as we go a layer deeper net patient revenue was $166 million, which is a 13.6% increase year over year. All other revenue for the fourth quarter was $16 million, which is a 3.7% increase year over year. And it's mostly due to higher revenue from MX from RMSAC. our visits per day per clinic, as Chris talked about a little bit earlier was 27 for the quarter, which is a sequential increase of 1.1 visits from the third quarter, which sat at 25.9. And since we began the execution of our clinic optimization and our operational improvement plans last year, the result continues to be stronger more vibrant clinics and improved unit economics. And also, as Chris mentioned, we've seen a sequential increase every quarter in visits per day per clinic visits per day per clinic of 27 in the fourth quarter compares to 24.1 in the fourth quarter of the prior year. Rate per visit was $108.81 in the third quarter, a decrease of 1% from $109.90 in the third quarter, but an increase of 4.6% from $103.99 in the fourth quarter of the prior year. Looking over the sequential quarters, the slight decrease in rate was mostly due to a more more significant discrete rate adjustments occurring in Q three related to prior period favorable collection experience. And when we look year over year, the increase in rate is primarily driven by favorable rate rate realization due to operational enhancements and revenue cycle management and increased contracted rates, with which Sharon and Chris both touched upon salaries and related costs in the fourth quarter 2023 were $99 million and that's a 9.5% increase year over year from $91 million in Q4 of the prior year was primarily driven by more clinical staff supporting higher revenue and higher wage wage rates due to inflation. PT. salaries and related costs per visit during the quarter were $56.56. That decreased 1.6% from $57.47 in the third quarter of 2023 and an increased 3% year over year from $54.92 in the fourth quarter of the prior year quarter over quarter. Decrease from Q3 is primarily due to higher labor productivity, while the year-over-year increase was primarily due to higher compensation and wage inflation, which was partially offset by higher labor productivity, Rent, clinic supplies, contract labor and other in the fourth quarter was $53 million, which is a 7% increase year over year from $49 million in Q4 of the prior year. It's primarily due to increased spend on contract labor and outside services. On a per clinic basis, those same costs were approximately $57,000 which is essentially flat from the third quarter and increasing 11% year over year from $51,000. For the same previously noted reasons, contractor spend and outside service, our provision for doubtful accounts during the quarter was approximately $1 million, which is 0.9% of PT revenue, and that compares favorably to 2.1% of (technical difficulty) this year. And 1.7% in Q4 of last year. And on a full year basis, the provision was 1.8% of PT revenue compared to 2.4% in the prior year. Now these improvements are the result of deliberate process improvements and collection efforts by our teams. Chris talked a lot about the rev cycle management improvements that have happened year over year, and those improvements in those processes remain ongoing as we move into 2024.
Sg&a during the quarter was approximately $26 million, which is a 4.2% decrease year over year from $28 million in Q4 of the prior year, primarily driven by lower severance and lower non-ordinary legal costs, partially offset by higher outside services and contract labor, non-cash goodwill, intangible and other asset impairment charges in the fourth quarter were $6 million. It's due to long-lived asset impairments related to primarily subleasing a portion of our corporate office space.
Operating income, excluding impairment charges in the fourth quarter was $3 million, which increased from an operating loss of $8 million in the prior year, which reflects the higher revenue we earned in 2023 and the associated earnings that come along with that notable below-the-line items during the quarter included income resulting from a decrease in the fair value of our second-lien PIC notes, our contingent common shares and warrants, which totaled $16 million. Those are mark-to-market at fair value every quarter. So as of year end, December 31 valuation analysis that resulted in $16 million. Our interest expense during the quarter was $15 million, which compares to $13 million in the fourth quarter of the prior year. And the increase is primarily due to lower interest rate hedge benefits.
Income tax expense for the quarter was $2 million, which compares to a benefit of $5 million in the fourth quarter of the prior year. And our net loss during the quarter was $5 million compared to a net loss of $102 million in the fourth quarter of the prior year.
Looking at the full year, revenue for 2023 was $699 million. That's a 10% increase year over year from $636 million and outperformed revenue guidance of [$680 million to $695 million]. The primary drivers were an increase in visits per day, which increased 7.5% year over year and rate per visit, which grew 3.2%. And on the adjusted EBITDA line, the full year was $36.2 million, which increased from $7 million in the prior year, also outperforming our adjusted EBITDA guidance range of $30 million to $36 million. Cash used during 2023 was approximately $46 million compared to cash generated in the prior year of $35 million as we break that down further, operating cash use was $12 million in 2023 compared to $66 million in 2022 and the improvement reflects improved earnings.
In addition to that conclusion of CARES Act, investing cash use was $17 million compared to $28 million in 2022, with the decrease mostly due to fewer clinic openings and financing cash use was $17 million compared to cash generated of $128 million in 2022. With the decrease driven primarily by the issuance of preferred stock that happened in 2022 as well as higher revolver repayments in 2023 as we had significant borrowings at the end of 2022 and then repaid some of it in '23. As of December 31, 2023, our available liquidity was approximately $42 million, and that consisted of cash and cash equivalents of $37 million and then available revolver capacity of $5 million. And in addition to that availability, we had access to a $25 million delayed draw term loan, which was fully drawn in January of 2024.
Finally, as Sharon and Chris discussed the people and the operational advances that we achieved in 2023 led to volume and led to capacity utilization increases throughout the year. And we're pleased with the progress that we made during 2023, and we're excited to continue these advancements into 2024 despite the severe weather in January that negatively impacted patient visits. We currently expect Q1 revenue to be between $175 million and $185 million and adjusted EBITDA to be between $5 million and $10 million, demonstrating growth over the prior year. Of course, this will depend upon continued success of our current initiatives and the risks outlined in our press release and other filings. Overall, we continue to see plenty of demand for ATA services, and Sharon talked about that early on in 2024, we'll be working to see if we can achieve the full potential of the process improvements and technology solutions that we implemented throughout last year and with the changes made to date and others still in process, we plan to achieve productivity levels exceeding 2023, and we expect to provide full year guidance during our next early earnings call.
In the spring.
With that, I'll turn the call back over to Sharon for closing remarks.

Sharon Vitti

Thank you, Joe. As I said before, 2023 was a reset year and we succeeded in setting up ATI. for continued growth. Success has accomplished during the year demonstrate that we have the right team in place. We are aggressively aggressively executing our operations improvements while continuing to make notable strides toward our strategic vision. I am very confident in our people, strategy and ongoing initiatives and that we will continue to advance our national practice improve performance and lead in the musculoskeletal space. We will capitalize on the 2023 momentum and execute on known growth to XL in 2024.
I'll now hand the call back to the operator to open up for questions and answers.

Question and Answer Session

Operator

The floor is now open for your questions.
To ask a question at this time, simply press star followed by the number one on your telephone keypad. We'll now take a moment to compile our roster.
No.
Our first question comes from the line of Brian Tanquilut with Jefferies.
Please go ahead.

Joanne Fong

Mandeep, would you like to open up for questions and answers now?

Taji Phillips

Hi, good evening. You have Toshi Philips on for Brian, and thank you for taking my question. So first, my first question is going to be on how we should think about the cadence of earnings power throughout the year. I mean, obviously, you had provided some guidance for Q1. Just curious if qualitatively you can provide some commentary on how we should be thinking about revenue generally --

Joanne Fong

I'm sorry, I'll jump in and assist when.
Ryan, would you like to go first, right?

Chris Cox

Hey, Todd, this is Chris. I'm not in the room with them, but there must be some sort of audio connection issue.

Taji Phillips

Hello?
Hello?
Can you all hear me?

Chris Cox

Yes.
Can you hear me.

Taji Phillips

Yes. Can you hear me now?
Apologies if this Toshi Philips on for Brian.

Chris Cox

This is Fred, and I'm not in the room with them, but they must be having some sort of issue?
Hang on second because I don't want.

Taji Phillips

Okay, no problem.

Chris Cox

Is the operator available?

Sharon Vitti

Asking questions? We can't hear.

Operator

This operator, are you able to hear me.

Chris Cox

So I can hear you, Chris.
And then our technology from Jefferies Can hear you. The room with Sharon go and Joanne cannot hear us.

Operator

I'm going to attempt to home dialysis, which could contact them One moment, please. (technical difficulty)

Chris Cox

But Darren, can you hear me now?

Operator

(technical difficulty) On a higher term loan are experiencing technical issues in Brazil resume momentarily.

Chris Cox

Hello.
Can you hear us now it, Joanne, can you hear me?

Joseph Jordan

We can hear you now, Dan, I don't know. (multiple speakers)

Chris Cox

Okay.

Operator

Satoshi Tachi from Jefferies was asking a question.

Taji Phillips

Hi, all. Can you all hear me.

Sharon Vitti

(multiple speakers) Yes, I think as you say that, that rate would.

Taji Phillips

Hi. Thank you for taking my question and no worries. And so I now that you have got you have provided some commentary around Q1 and what we should be expecting in terms of revenue and EBITDA. Just curious even qualitatively, can you provide some commentary around what we should be expecting in terms of the cadence of earnings power throughout the rest of the year?

Joseph Jordan

I think Tazeen, it's Joe. I could I could start out. I think I think we expect to follow seasonality trends like we have in past years and you obviously understand the seasonality of the business at this point out of Q2, Q4 being a strong quarter. And as I mentioned in my comments, and Chris and churn both touched on as well. We'd expect to continue to experience growth and see the positive trends that we developed in 2023 expand in 2024. So that's how you can think about it directionally. And then as I mentioned, when we get to Q one earnings in the spring in May, we would we would come out with more definitive guidelines around what that revenue and adjusted EBITDA and probably the clinic count looks like as well.

Sharon Vitti

Yes. And we're very proud of that 2023 accomplishment. Many of those initiatives have a Phase two or we have some new initiatives in place and for 2024 related to leveraging technology, streamlining our front end and intake process control continuing to standardize roles and team-based care and so and then the revenue cycle management sophistication. So those are there are we have a portfolio of initiatives, initiatives, Toshi that we are putting in place for 2024 that we will, I think, start seeing some of the traction when we get to Q2.

Taji Phillips

Great. Appreciate that and then a slightly different topic. Just curious around your thoughts on the near term leverage target and the actions you'll take to you hit that target?

Joseph Jordan

Well, I think the leverage target we haven't put out there. I would say for us, the focal point has been driving back towards cash flow breakeven. And one of the things I talked about in our last earnings call is I didn't expect 2024 to be a breakeven year, but I think it's a continued building block to getting towards cash flow breakeven in 2025. And if you look back at 2023 and you strip out the noise of our refinancing, we were cash use of somewhere around $35 million, $36 million and $36million of EBITDA. So we need to obviously dependent on interest rates and borrowings, which could move around. We need to continue to grow into our capital structure, which is what we'll look to do in 2024 and continue to build on the momentum that we had last year. But target leverage isn't really our focus just at this point it's really driving more towards cash flow breakeven.

Taji Phillips

Great. And then just last question for me. Obviously, a lot of improvement this year versus last year and the comps are definitely unfavorable for this year. As you think about the sustainable growth path moving forward, I guess what actions do you need to take to bring back that sustainable growth even on top of tougher comps like we would see in 2023.

Sharon Vitti

I think the growth will follow two paths. One is the traditional areas that we have thought out growth before and that relates to some referrals, emerging referrals, increasing capacity and productivity within the clinics. I also think that we are looking at other less traditional ways to grow the business in parallel, which may relate to our new strategic partners, getting further upstream in the referral process and also looking at different types of reimbursement models.

Taji Phillips

Great. Thank you so much.

Sharon Vitti

Thank you, sir.

Operator

Our next question comes from the line of Bill Sutherland with The Benchmark Company. Please go ahead.

Bill Sutherland

Thank you and everybody. Nice Nice work from here to where are you at this point with the office kind of rationalization process.

Joseph Jordan

up clinics health?

Bill Sutherland

Clinic. Sorry, Yes.

Sharon Vitti

So we have we are actively on a quarterly basis looking at our clinics and what the performance is and how that performance relates to what's happening within those communities. And so we have a list of clinics that we watch on a regular basis. And as I talked about in my in my call, we will we will continue to prune clinics that don't make sense in this window anymore. And that said, in 2024, we are also looking at how do we maximize our current fleet through consolidations, expansions and upgrades. And we are we similar. We look at where we have more demand than we have capacity. We look at the market and the community to determine if there's an action we can take that makes sense to allow us to improve not only access, but the financial performance of it and then into that, our main focus for this year, we will do a small number of denovos and I would anticipate that we would be looking at more de novos in the future.

Bill Sutherland

So it sounds like maybe you just hold steady with office count between now absent and closures and you're just looking to increase productivity again for client base.

Joseph Jordan

Yes, I think go in the clinics that would fall into our quote-unquote watch list. That list has been getting smaller as we've closed some clinics last year, but then also performance improved throughout the year, referrals have been going up. Number of clinicians have been going up, both of those contribute to clinics coming off the watch list. And so we are in process of and we're constantly in process of reevaluating our watch list and determining what, if any, clinics might close in in 2024. So it's hard to say exactly what that number looks like right now. But I think as we move towards the first quarter, we'll probably have a pretty decent view that we can share.

Sharon Vitti

Yes.
And our goal is to continue to grow the footprint, but it also is important to make sure we're maximizing what we've already built.

Bill Sutherland

Sure. On the hiring and productivity front churn has improved. Do you expect to further improve it? And where are you contract utilization versus where you'd like to be?

Sharon Vitti

So three parts to that question, I would say one, we are continuing to hire and we we had put a lot of energy into rebuilding our structure around our talent acquisition and our retention. So both of those are key factors that I think will continue to produce for us in 2024.
I'm going to I'm going to let Chris answer the productivity question because he's very close to it. And then I would just say the other is we're sitting on about 7% of our total commission headcount to our contractors. And we continue in certain geographies to be dependent upon contractors where we have more supply than we have to miss the back, but the other way around where we have more demand than we have supply and the team is very cognizant of that. And we I don't I actually don't see 2024 being a year where we move fully back to a lower level of contractors similar to what we had prior to COVID. I think it's going to well, I think we're going to have continue to have a reliance on contractors for the year with the eye toward I'm trying to where we can and beef up the FT.s and not so not not have to rely on those contractors.
And Chris, why don't you take the productivity question for Bill?

Chris Cox

What I would say is that we do see room for continued productivity growth. As we look out across the country we serve, we see certain geographies performing. Some of that is due to some legacy targets that were set at different levels by different geographic P&L owners. Some of that is due to referral demand within particular geographies, and some of it is just pure execution. So those are all levers that we are going after this year. We've standardized our expectations and across all of our geographies to kind of the higher levels of what we had previously had some were managing outliers in a very robust way. And then we do see some of the pockets where we've historically had some referral needs growing with referrals, which is helping us to improve productivity.
And then finally, I'd take you to my prepared comments. The continued process innovation, removal of administrative burden should open up the ceiling to be even higher there.

Sharon Vitti

Got you hit a big hit on three things build that are that are going to continue to be important in 2024. And like I said, we're kind of Chapter two. We made some improvements and had great progress in '23. And we've lined up what next to continue to push on those pieces.

Bill Sutherland

Thank you, so much for all the color guys.

Operator

There are no further questions at this time. I would now like to turn the call over to Sharon BD for closing remarks.

Sharon Vitti

So first of all, apologies for those technical difficulties. I guess everyone could hear each other except for us. So apologies there, and thank you for joining us. Thank you for the questions and participation, and we look forward to sharing our progress at our next earnings call, which will be early May of 2024.

Operator

This concludes today's call. You may now disconnect.