American Renal Associates Holdings, Inc. (NYSE: ARA) (“ARA” or
the “Company”), a leading provider of outpatient dialysis services,
today announced financial and operating results for the third
quarter ended September 30, 2017.
Certain metrics, including those expressed on an adjusted basis,
are Non-GAAP financial measures (See “Use of Non-GAAP Financial
Measures” and the reconciliation tables further below).
Third Quarter 2017 Highlights (all percentage changes
compare Q3 2017 to Q3 2016 unless noted):
- Net patient service operating revenues
decreased 2.7% to $187.7 million;
- Net income attributable to American
Renal Associates Holdings, Inc. was $8.0 million as compared to
$12.4 million in Q3 2016;
- Adjusted EBITDA less noncontrolling
interests (“Adjusted EBITDA-NCI”) was $28.1 million as compared to
$32.5 million in Q3 2016;
- Adjusted net income attributable to
American Renal Associates Holdings, Inc. was $6.4 million, or $0.19
per share, for Q3 2017;
- Total dialysis treatments increased
6.8%, all of which was non-acquired growth. The Company estimates
that operational disruptions related to Hurricanes Harvey and Irma
unfavorably impacted Q3 2017 treatment growth by approximately
0.4%; and
- As of September 30, 2017, the
Company operated 217 outpatient dialysis centers serving
approximately 15,200 patients.
Joseph (Joe) Carlucci, Chairman and Chief Executive Officer,
said, “We are very pleased with our third quarter 2017 results.
During the third quarter of 2017, our organization maintained its
strong focus on delivering high quality patient care, while also
sustaining its performance on the operational initiatives we
outlined earlier this year. Our third quarter results further
demonstrate that these operating initiatives firmly position our
organization in a manner that should allow us to maintain a more
efficient cost structure going forward.”
“During the third quarter of 2017, we opened one new de novo
clinic, sold one clinic and ended the period with a pipeline of 36
signed clinics at September 30, 2017. Our business development
pipeline continues to be strong and reflects the growing acceptance
of our operating philosophy and the physician partnership model
within the nephrology community,” continued Carlucci.
Financial and operating highlights include:
Revenue: Net patient service operating revenues for the
third quarter of 2017 were $187.7 million, a decrease of 2.7% as
compared to $193.0 million for the prior-year period due to adverse
changes in payor mix, partially offset by treatment growth. Net
patient service operating revenues for the nine months ending
September 30, 2017 and 2016 were $550.7 million.
Treatment Volume: Total dialysis treatments for the third
quarter of 2017 were 551,258 representing an increase of 6.8% over
the third quarter of 2016. All of our treatment growth was
attributable to non-acquired treatment growth for the third quarter
of 2017.
Center Activity: As of September 30, 2017, the
Company provided services at 217 outpatient dialysis centers
serving 15,237 patients. During the third quarter of 2017, we
opened one de novo center and sold one center. As of
September 30, 2017, we had 36 signed clinics scheduled to open
in the future.
Net income, Net income attributable to noncontrolling
interests, Net income attributable to American Renal Associates
Holdings, Inc., Adjusted EBITDA and Adjusted EBITDA less
noncontrolling interests:
(Unaudited)
Three Months EndedSeptember
30,
Increase (Decrease) (dollars in thousands)
2017 2016 Amount Percentage
Change Net income $ 26,672 $ 36,046 $ (9,374 ) (26.0 )% Net
income attributable to noncontrolling interests (18,689 ) (23,622 )
4,933 (20.9 )% Net income attributable to American Renal Associates
Holdings, Inc. $ 7,983 $ 12,424 $ (4,441 ) (35.7 )%
Non-GAAP financial measures**: Adjusted EBITDA $ 46,838 $
56,154 $ (9,316 ) (16.6 )% Adjusted EBITDA less noncontrolling
interests $ 28,149 $ 32,532 $ (4,383 ) (13.5 )%
(Unaudited)
Nine Months EndedSeptember
30,
Increase (Decrease)
(dollars in thousands) 2017 2016
Amount Percentage Change Net income $ 55,965 $ 71,645
$ (15,680 ) (21.9 )% Net income attributable to noncontrolling
interests (51,339 ) (64,911 ) 13,572 (20.9 )% Net income
attributable to American Renal Associates Holdings, Inc. $ 4,626
$ 6,734 $ (2,108 ) (31.3 )%
Non-GAAP financial
measures**: Adjusted EBITDA $ 128,306 $ 156,292 $ (27,986 )
(17.9 )% Adjusted EBITDA less noncontrolling interests $ 76,967 $
91,381 $ (14,414 ) (15.8 )%
_______________________________________________________
** See reconciliation of Non-GAAP Financial Measures.
Operating Expenses: Patient care costs for the third
quarter of 2017 were $119.6 million or 63.7% of net patient service
operating revenues as compared to $116.1 million or 60.2% (or 59.2%
excluding the Modification Expense described below) of net patient
service operating revenues in the prior-year period. General and
administrative expenses were $22.3 million or 11.9% of net
patient service operating revenues as compared to $33.4 million or
17.3% (or 12.0% excluding the Modification Expense described below)
of net patient service operating revenues in the prior-year period.
Patient care costs include $1.9 million for the third quarter of
2016 of stock-based compensation related to modification of options
at the time of the Company’s initial public offering (the
“Modification Expense”). General and administrative expenses
include $10.3 million for the third quarter of 2016 of Modification
Expense.
Patient care costs for the nine months ended September 30,
2017 were $358.0 million or 65.0% (or 64.7% excluding the
Modification Expense, severance costs and gain on sale of assets)
of net patient service operating revenues as compared to $331.3
million or 60.2% (or 59.6% excluding the Modification Expense) of
net patient service operating revenues in the prior-year period.
Patient care costs include $2.2 million and $3.3 million for the
nine months ended September 30, 2017 and 2016, respectively,
of Modification Expense. Patient care costs also include $0.1
million of severance costs and $0.5 million gain on sale of assets
for the nine months ended September 30, 2017. General and
administrative expenses during the nine months ended
September 30, 2017, were $79.9 million or 14.5% (or 12.6%
excluding the Modification Expense and severance costs) of net
patient service operating revenues as compared to $86.8 million or
15.8% (or 12.4% excluding the Modification Expense) of net patient
service operating revenues in the prior-year period. General and
administrative expenses include $9.5 million and $18.3 million for
the nine months ended September 30, 2017 and 2016,
respectively, of Modification Expense. General and administrative
expenses also include $0.8 million in severance costs for the nine
months ended September 30, 2017.
Cash Flow: Cash provided by operating activities for the
third quarter of 2017 was $45.0 million as compared to $52.7
million in the prior-year period. Adjusted cash provided by
operating activities less distributions to noncontrolling interests
(see Reconciliation of Non-GAAP Financial Measures) for the third
quarter of 2017 was $23.0 million as compared to $29.7 million in
the prior-year period. Total capital expenditures for the third
quarter of 2017 were $10.7 million as compared to $12.4 million in
the prior-year period. Capital expenditures for the three months
ended September 30, 2017 included $1.5 million for maintenance
and $9.2 million for expansions and new clinic development.
Cash provided by operating activities for the nine months ended
September 30, 2017 was $97.4 million as compared to $141.9
million in the prior-year period. Adjusted cash provided by
operating activities less distributions to noncontrolling interests
(see Reconciliation of Non-GAAP Financial Measures) for the nine
months ended September 30, 2017 was $37.6 million as compared
to $77.2 million in the prior-year period. Total capital
expenditures for the nine months ended September 30, 2017 were
$24.8 million as compared to $46.7 million in the prior-year
period. Capital expenditures for the nine months ended
September 30, 2017 included $5.4 million for maintenance and
$19.3 million for expansions and new clinic development.
Balance Sheet: At September 30, 2017, the Company’s
balance sheet included consolidated cash of $67.6 million and
consolidated debt of $559.0 million, including the current portion
of long-term debt. Excluding clinic-level debt not guaranteed by
ARA and clinic-level cash not owned by ARA, Adjusted owned net debt
(see Reconciliation of Non-GAAP Financial Measures) was $461.6
million at September 30, 2017, as compared to $438.1 million
at December 31, 2016. Adjusted owned net debt to last twelve months
Adjusted EBITDA less NCI leverage ratio was 4.2x at
September 30, 2017. As of September 30, 2017, net patient
accounts receivable was $81.2 million, and DSO for the period was
39 days as compared to 38 days for the three months ended
June 30, 2017.
ARA Dialysis Patients and Charitable Premium
Assistance
The Company is providing additional disclosures regarding
charitable premium assistance. At September 30, 2017, approximately
14% of ARA’s patients, or 2,160 patients, received assistance from
the American Kidney Fund (“AKF”), including the following:
- 131 patients received charitable
premium assistance for Affordable Care Act (“ACA”) - compliant
plans, including both on-exchange and off-exchange plans.
- 456 patients received charitable
premium assistance for commercial health plans, with 279 patients
receiving assistance for employer group health plan coverage and
177 patients receiving assistance for COBRA plan coverage.
- 1,573 patients, or approximately 73% of
the total number of ARA patients receiving charitable premium
assistance, received such assistance for government coverage, such
as Medicare Part B and Medicare Supplemental Plans
(“Medigap”).
2017 Outlook for Adjusted EBITDA less NCI:
The Company is reiterating its prior guidance for 2017 Adjusted
EBITDA less NCI to be in a range of $100 million and $106
million.
The Company’s 2017 Adjusted EBITDA less NCI Outlook excludes
severance costs, certain legal costs, and other future potential
costs, which could include potential closure and consolidation
costs, to the extent they occur during 2017.
We are not providing a quantitative reconciliation of our
Non-GAAP outlook to the corresponding GAAP information because the
GAAP measures that we exclude from our Non-GAAP outlook are not
available without unreasonable effort on a forward-looking basis
due to their unpredictability, high variability, complexity and low
visibility. These excluded GAAP measures include noncontrolling
interests, interest expense, income taxes, and other charges. We
expect the variability of these charges to have a potentially
unpredictable, and potentially significant, impact on our future
GAAP financial results.
Please see the “Forward-Looking Statements” section of this
release for a discussion of certain risks to our outlook.
Conference Call
American Renal Associates Holdings, Inc. will hold a conference
call to discuss this release on Wednesday, November 15, 2017, at
9:00 a.m. Eastern time. Investors will have the opportunity to
listen to the conference call by dialing (877) 407-8029, or for
international callers (201) 689-8029, or may listen over the
Internet by going to the Investor Relations section at
www.ir.americanrenal.com. For those who cannot listen to the live
broadcast, a replay will be available and can be accessed by
dialing (877) 660-6853, or for international callers (201)
612-7415. The conference ID for the live call and the replay is
13672151.
About American Renal Associates
American Renal Associates Holdings, Inc. (NYSE: ARA) is a
leading provider of outpatient dialysis services in the United
States. As of September 30, 2017, ARA operated 217 dialysis
clinic locations in 25 states and the District of Columbia serving
approximately 15,200 patients with end stage renal disease. ARA
operates exclusively through a physician joint venture model, in
which it partners with approximately 396 local nephrologists to
develop, own and operate dialysis clinics. ARA’s Core Values
emphasize taking good care of patients, providing physicians with
clinical autonomy and operational support, hiring and retaining the
best possible staff and providing best practices management
services. For more information about American Renal Associates,
visit www.americanrenal.com.
Forward-Looking Statements
This press release contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. These statements, which have been included in reliance of
the “safe harbor” provisions of the Private Securities Litigation
Reform Act of 1995, involve risks and uncertainties and assumptions
relating to our operations, financial condition, business,
prospects, growth strategy and liquidity, which may cause our
actual results to differ materially from those projected by such
forward-looking statements, and the Company cannot give assurances
that such statements will prove to be correct. You can identify
forward-looking statements because they do not relate strictly to
historical or current facts. These statements may include words
such as “aim,” “anticipate,” “believe,” “estimate,” “expect,”
“forecast,” “outlook,” “potential,” “project,” “projection,”
“plan,” “intend,” “seek,” “may,” “could,” “would,” “will,”
“should,” “can,” “can have,” “likely,” the negatives thereof and
other words and terms of similar meaning in connection with any
discussion of the timing or nature of future operating or financial
performance or other events.
The forward-looking statements appear in a number of places
throughout this press release and include statements regarding our
intentions, beliefs or current expectations concerning, among other
things, our results of operations, financial condition, liquidity,
prospects, growth, strategies and the industry in which we operate.
All forward-looking statements are subject to risks and
uncertainties, including but not limited to those risks and
uncertainties described in “Risk Factors” and “Special Note
Regarding Forward-Looking Statements” in our Annual Report on Form
10-K for the year ended December 31, 2016, as updated by our
reports on Form 10-Q filed or to be filed with the SEC that may
cause actual results to differ materially from those that we
expected.
Some of the factors that could cause actual results to differ
materially from those expressed or implied by the forward-looking
statements include, among others, the following:
- decline in the number of patients with
commercial insurance, including as a result of changes to the
healthcare exchanges or changes in regulations or enforcement of
regulations regarding the healthcare exchanges and challenges from
commercial payors or any other regulatory changes leading to
changes in the ability of patients with commercial insurance
coverage to receive charitable premium support;
- decline in commercial payor
reimbursement rates;
- the ultimate resolution of the Centers
for Medicare & Medicaid Services (“CMS”) Interim Final Rule
published December 14, 2016 related to dialysis facilities
Conditions for Coverage (CMS 3337-IFC), including an issuance of a
different but related Final Rule;
- reduction of government-based payor
reimbursement rates or insufficient rate increases or adjustments
that do not cover all of our operating costs;
- our ability to successfully develop de
novo clinics, acquire existing clinics and attract new physician
partners;
- our ability to compete effectively in
the dialysis services industry;
- the performance of our joint venture
subsidiaries and their ability to make distributions to us;
- changes to the Medicare ESRD program
that could affect reimbursement rates and evaluation criteria, as
well as changes in Medicaid or other non-Medicare government
programs or payment rates, including the ESRD PPS final rule for
2018 issued on October 27, 2017;
- federal or state healthcare laws that
could adversely affect us;
- our ability to comply with all of the
complex federal, state and local government regulations that apply
to our business, including those in connection with federal and
state anti-kickback laws and state laws prohibiting the corporate
practice of medicine or fee-splitting;
- heightened federal and state
investigations and enforcement efforts;
- the impact of the litigation by
affiliates of UnitedHealth Group, Inc., the Department of Justice
inquiry, securities litigation and related matters;
- changes in the availability and cost of
erythropoietin-stimulating agents and other pharmaceuticals used in
our business;
- development of new technologies that
could decrease the need for dialysis services or decrease our
in-center patient population;
- our ability to timely and accurately
bill for our services and meet payor billing requirements;
- claims and losses relating to
malpractice, professional liability and other matters; the
sufficiency of our insurance coverage for those claims and rising
insurances costs; and any negative publicity or reputational damage
arising from such matters;
- loss of any members of our senior
management;
- damage to our reputation or our brand
and our ability to maintain brand recognition;
- our ability to maintain relationships
with our medical directors and renew our medical director
agreements;
- shortages of qualified skilled clinical
personnel, or higher than normal turnover rates;
- competition and consolidation in the
dialysis services industry;
- deteriorations in economic conditions,
particularly in states where we operate a large number of clinics,
or disruptions in the financial markets;
- the participation of our physician
partners in material strategic and operating decisions and our
ability to favorably resolve any disputes;
- our ability to honor obligations under
the joint venture operating agreements with our physician partners
were they to exercise certain put rights and other rights;
- unauthorized disclosure of personally
identifiable, protected health or other sensitive or confidential
information;
- our ability to meet our obligations and
comply with restrictions under our substantial level of
indebtedness; and
- the ability of our principal
stockholder, whose interests may conflict with yours, to strongly
influence or effectively control our corporate decisions.
The forward-looking statements made in this press release are
made only as of the date of the hereof. Except as required by law,
we undertake no obligation to update any forward-looking statement,
whether as a result of new information or otherwise. More
information about potential factors that could affect our business
and financial results is included in our filings with the SEC.
Use of Non-GAAP Financial Measures
In addition to the results prepared in accordance with generally
accepted accounting principles in the United States (“GAAP”)
provided throughout this press release, the Company has presented
the following Non-GAAP financial measures: EBITDA, Adjusted EBITDA,
Adjusted EBITDA less noncontrolling interests (NCI), Adjusted net
income (loss) attributable to American Renal Associates Holdings,
Inc., Adjusted cash provided (used) by operating activities and
Adjusted owned net debt, which exclude various items detailed in
the attached “Reconciliation of Non-GAAP Financial Measures.”
These Non-GAAP financial measures are not intended to replace
financial performance and liquidity measures determined in
accordance with GAAP. Rather, they are presented as supplemental
measures of the Company's performance and liquidity that management
believes may enhance the evaluation of the Company's ongoing
operating results. Please see “Reconciliation of Non-GAAP Financial
Measures” for additional reasons for why these measures are
provided.
American Renal Associates Holdings,
Inc. and Subsidiaries
Consolidated Statements of
Operations
(Unaudited)
(dollars in thousands except per share
amounts)
Three Months Ended September 30, Nine Months Ended
September 30, 2017 2016 2017
2016 Patient service operating revenues $
189,497 $ 194,857 $ 555,731 $ 555,349 Provision for uncollectible
accounts (1,786 ) (1,902 ) (5,003 ) (4,696 ) Net patient service
operating revenues 187,711 192,955 550,728 550,653 Operating
expenses: Patient care costs 119,599 116,115 357,959 331,349
General and administrative 22,292 33,359 79,917 86,800
Transaction-related costs — — 717 2,239 Depreciation and
amortization 9,438 8,687 27,894 24,616 Certain legal matters 3,481
4,042 11,714 4,042 Total operating
expenses 154,810 162,203 478,201 449,046
Operating income 32,901 30,752 72,527 101,607 Interest
expense, net (7,255 ) (7,372 ) (22,052 ) (28,571 ) Loss on early
extinguishment of debt — — (526 ) (4,708 ) Income tax receivable
agreement income 3,585 12,565 5,461 4,730
Income before income taxes 29,231 35,945 55,410 73,058
Income tax expense (benefit) 2,559 (101 ) (555 ) 1,413
Net income 26,672 36,046 55,965 71,645
Less: Net income attributable to
noncontrolling interests
(18,689 ) (23,622 ) (51,339 ) (64,911 ) Net income attributable to
American Renal Associates Holdings, Inc. 7,983 12,424 4,626 6,734
Less: Change in the difference between the redemption value and
estimated fair values for accounting purposes of the related
noncontrolling interests 5 (1,752 ) (13,605 ) (13,885 ) Net
income (loss) attributable to common shareholders $ 7,988 $
10,672 $ (8,979 ) $ (7,151 ) Earnings (loss) per share:
Basic $ 0.26 $ 0.35 $ (0.29 ) $ (0.26 ) Diluted 0.24 0.34 (0.29 )
(0.26 ) Weighted-average number of common shares outstanding: Basic
31,095,418 30,865,350 30,997,218 27,198,297 Diluted 33,833,822
31,436,814 30,997,218 27,198,297 Cash dividends declared per share*
$ — $ — $ — $ 1.30
* Paid to shareholders prior to the
Company's initial public offering.
American Renal Associates Holdings,
Inc. and Subsidiaries
Consolidated Balance Sheets
(dollars in thousands except per share
data)
September 30, 2017 December 31, 2016
Assets (Unaudited) Cash $ 67,593 $ 100,916 Accounts
receivable, less allowance for doubtful accounts of $7,937 and
$8,726, respectively 81,234 81,127 Inventories 4,672 4,676 Prepaid
expenses and other current assets 17,133 18,498 Income tax
receivable 8,071 5,163 Total current assets 178,703
210,380 Property and equipment, net of accumulated depreciation of
$146,057 and $121,242, respectively 166,890 170,118 Intangible
assets, net of accumulated amortization of $23,300 and $23,489,
respectively 25,488 25,626 Other long-term assets 8,636 6,753
Goodwill 572,702 573,147 Total assets $ 952,419
$ 986,024
Liabilities and Equity Accounts
payable $ 33,863 $ 31,127 Accrued compensation and benefits 31,767
29,103 Accrued expenses and other current liabilities 43,797 45,286
Current portion of long-term debt 44,189 48,274 Total
current liabilities 153,616 153,790 Long-term debt, less current
portion 514,846 522,058 Income tax receivable agreement payable
11,900 21,200 Other long-term liabilities 15,713 11,670 Deferred
tax liabilities 1,110 1,278 Total liabilities 697,185
709,996 Commitments and contingencies Noncontrolling interests
subject to put provisions 110,988 130,365 Equity: Preferred stock,
$0.01 par value; 1,000,000 shares authorized; none issued Common
stock, $0.01 par value; 300,000,000 shares authorized; 31,314,217
and 30,894,962 issued and outstanding at September 30, 2017 and
December 31, 2016, respectively 186 184 Additional paid-in capital
94,158 95,062 Receivable from noncontrolling interests (484 ) (544
) Accumulated deficit (124,020 ) (128,646 ) Accumulated other
comprehensive loss, net of tax (1,447 ) (100 ) Total American Renal
Associates Holdings, Inc. deficit (31,607 ) (34,044 )
Noncontrolling interests not subject to put provisions 175,853
179,707 Total equity 144,246 145,663
Total liabilities and equity $ 952,419 $ 986,024
American Renal Associates Holdings,
Inc. and Subsidiaries
Consolidated Statements of Cash
Flows
(Unaudited)
(dollars in thousands)
Three Months EndedSeptember
30,
Nine Months EndedSeptember
30,
Operating activities 2017 2016
2017 2016 Net income $ 26,672 $ 36,046 $
55,965 $ 71,645 Adjustments to reconcile net income to cash
provided by operating activities: Depreciation and amortization
9,438 8,687 27,894 24,616 Amortization of discounts, fees and
deferred financing costs 469 625 1,534 2,432 Loss on extinguishment
of debt — — 526 4,708 Stock-based compensation 1,031 12,673 14,762
23,238 Premium paid for interest rate cap agreements — — (1,186 ) —
Deferred taxes 1 (739 ) 730 (8,508 ) Income tax receivable
agreement income (3,585 ) (12,565 ) (5,461 ) (4,730 ) Payment
related to tax receivable agreement — — (878 ) — Non-cash charge
related to interest rate swap — (361 ) 173 489 Non-cash rent
charges 157 844 588 1,764 Gain on disposal of assets (567 ) — (377
) — Change in operating assets and liabilities, net of
acquisitions: Accounts receivable (3,393 ) (349 ) (107 ) (334 )
Inventories 288 322 4 (177 ) Prepaid expenses and other current
assets 8,212 (2,476 ) (1,425 ) (1,171 ) Other assets (6 ) (648 )
(558 ) 44 Accounts payable 5,679 (238 ) 2,736 706 Accrued
compensation and benefits 3,113 3,623 2,664 6,588 Accrued expenses
and other liabilities (2,497 ) 7,230 (212 ) 20,593
Cash provided by operating activities 45,012 52,674 97,372 141,903
Investing activities Purchases of property, equipment and
intangible assets (10,727 ) (12,438 ) (24,780 ) (46,659 ) Proceeds
from asset sales 1,075 — 1,075 — Cash paid for acquisitions —
(3,667 ) — (4,467 ) Cash used in investing activities
(9,652 ) (16,105 ) (23,705 ) (51,126 )
Financing activities
Proceeds from issuance of common stock sold in initial public
offering, net of underwriting discounts and offering expense — (124
) — 175,254 Proceeds from issuance of long-term debt — — 7,401
60,000 Cash paid for debt issuance and other financing costs — —
(8,542 ) (1,350 ) Proceeds from term loans, net of deferred
financing costs 22,751 14,942 34,742 54,706 Payments on long-term
debt (26,275 ) (10,234 ) (48,009 ) (266,040 ) Dividends and
dividend equivalents paid (35 ) (47 ) (8,715 ) (30,223 ) Proceeds
from exercise of stock options 147 — 683 — Common stock repurchases
for tax withholdings of net settlement equity awards — (285 ) —
(356 ) Distributions to noncontrolling interests (21,967 ) (23,012
) (60,509 ) (66,985 ) Contributions from noncontrolling interests
960 2,135 3,847 6,576 Purchases of noncontrolling interests (18,347
) (8,120 ) (27,854 ) (8,397 ) Proceeds from sales of additional
noncontrolling interests 66 57 66 199
Cash used in financing activities (42,700 ) (24,688 )
(106,890 ) (76,616 )
(Decrease) increase in cash (7,340 )
11,881 (33,223 ) 14,161 Cash and restricted cash at beginning of
period 75,033 93,268 100,916 90,988
Cash and restricted cash at end of period $ 67,693
$ 105,149 $ 67,693 $ 105,149
Supplemental Disclosure of Cash Flow Information Cash paid
for income taxes $ 251 $ 6,480 $ 1,571 $ 11,856 Cash paid for
interest 6,676 7,121 20,111 25,721
Supplemental Disclosure of
Non-Cash Financing Activities Accrued offering expense — — —
314 Tax Receivable Agreement — — — 23,400 Non-Cash Dividend — — —
26,232 Accrued purchases of noncontrolling interests 3,696 — 3,696
— Liability for accrued dividend equivalent payments 167 2,278
2,711 3,818
American Renal Associates Holdings,
Inc. and Subsidiaries
Unaudited GAAP, Non-GAAP, and Other
Supplemental Business Metrics
(dollars in thousands except per
treatment amounts)
Three Months Ended Dialysis Clinic
Activity: September 30, 2017 June 30,
2017 September 30, 2016 Number of clinics
(as of end of period)
217 217 207 Number of de
novo clinics opened (during period)
1 2 5
Number of acquired clinics (during period)
— —
1 Sold or merged clinics (during period)
(1 )
(2 ) — Signed clinics (as of end of period)
36 32 33 Patients and Treatment Volume:
Patients (as of end of period) 15,237 15,023 14,166 Treatments
551,258 542,749 516,043 Number of treatment days 79 78 79
Treatments per day 6,978 6,958 6,532
Sources of treatment growth
(year over year % change): Non-acquired growth 6.8 % 8.6 % 10.2
% Acquired growth — % 0.3 % 1.2 % Total treatment growth 6.8 % 8.9
% 11.4 %
Revenue: Patient service operating revenues $
189,497 $ 187,602 $ 194,857 Patient service operating revenues per
treatment $ 344 $ 346 $ 378 Net patient service operating revenues
$ 187,711 $ 185,992 $ 192,955
Expenses: Adjusted Patient
care costs (1) Amount $ 119,599 $ 117,913 $ 114,209 As a % of net
patient service operating revenues 63.7 % 63.4 % 59.2 % Per
treatment $ 217 $ 217 $ 221 Adjusted General and administrative
expenses (2) Amount $ 22,292 $ 23,483 $ 23,086 As a % of net
patient service operating revenues 11.9 % 12.6 % 12.0 % Per
treatment $ 40 $ 43 $ 45 Provision for uncollectible accounts
Amount $ 1,786 $ 1,610 $ 1,902
As a % of patient service operating
revenues
0.9 % 0.9 % 1.0 % Per treatment $ 3 $ 3 $ 4
Accounts receivable
DSO (days) 39 38 37
Adjusted EBITDA* Adjusted EBITDA
including noncontrolling interests $ 46,838 $ 45,900 $ 56,154
Adjusted EBITDA - NCI $ 28,149 $ 27,403 $ 32,532
Clinical
(quarterly averages): Dialysis adequacy - % of patients with
Kt/V > 1.2 98 % 98 % 98 % Vascular access - % catheter in use
> 90 days 10 % 11 % 11 %
* See reconciliation of Non-GAAP Financial
Measures.
(1) Adjusted patient care costs exclude $0.5 million and $1.9
million of stock-based compensation related to modification of
options at the time of the Company’s IPO during the three months
ended June 30, 2017 and September 30, 2016, respectively.
The three months ended June 30, 2017 also excludes $0.1 million
severance expense and $0.5 million gain on sale of assets.
(2) Adjusted general and administrative expenses exclude $2.1
million and $10.3 million of stock-based compensation related to
modification of options at the time of the Company’s IPO during the
three months ended June 30, 2017 and September 30, 2016,
respectively. The three months ended June 30, 2017 also excludes
$0.8 million severance expense.
American Renal Associates Holdings,
Inc. and Subsidiaries
Net Income (Loss) per Share
Reconciliation
(Unaudited)
(dollars in thousands except per share
data)
Three Months EndedSeptember
30,
Nine Months EndedSeptember
30,
2017 2016 2017
2016 Basic Net income attributable to American Renal
Associates Holdings, Inc. $ 7,983 $ 12,424 $ 4,626 $ 6,734 Change
in the difference between the redemption value and estimated fair
values for accounting purposes of the related noncontrolling
interests 5 (1,752 ) (13,605 ) (13,885 ) Net income (loss)
attributable to common shareholders for basic earnings per share
calculation $ 7,988 $ 10,672 $ (8,979 ) $ (7,151 )
Weighted-average common shares outstanding 31,095,418 30,865,350
30,997,218 27,198,297 Earnings (loss) per
share, basic $ 0.26 $ 0.35 $ (0.29 ) $ (0.26 )
Diluted Net income attributable to American Renal Associates
Holdings, Inc. $ 7,983 $ 12,424 $ 4,626 $ 6,734 Change in the
difference between the redemption value and estimated fair values
for accounting purposes of the related noncontrolling interests 5
(1,752 ) (13,605 ) (13,885 ) Net income (loss) attributable to
common shareholders for diluted earnings per share calculation $
7,988 $ 10,672 $ (8,979 ) $ (7,151 ) Weighted-average common
shares outstanding, basic 31,095,418 30,865,350 30,997,218
27,198,297 Weighted-average effect of dilutive securities: Effect
of assumed exercise of stock options
2,536,750
571,464 — — Effect of unvested restricted stock 201,654 — —
— Weighted-average common shares outstanding, diluted
33,833,822 31,436,814 30,997,218 27,198,297
Earnings (loss) per share, diluted $ 0.24 $ 0.34 $ (0.29 ) $
(0.26 ) Outstanding options excluded as impact would be
anti-dilutive 1,357,957 338,538 1,988,257 336,935
American Renal
Associates Holdings, Inc. and SubsidiariesReconciliation of
Non-GAAP Financial Measures:(Unaudited)(dollars in
thousands)
We use Adjusted EBITDA and Adjusted EBITDA-NCI to track our
performance. “Adjusted EBITDA” is defined as net income before
income taxes, interest expense, net, depreciation and amortization,
as adjusted for stock-based compensation and associated payroll
taxes, loss on early extinguishment of debt, transaction-related
costs, certain legal matters costs, executive and management
severance costs, income tax receivable agreement income and
expense, management fees and gain on sale of assets. “Adjusted
EBITDA-NCI” is defined as Adjusted EBITDA less net income
attributable to noncontrolling interests. We believe Adjusted
EBITDA and Adjusted EBITDA-NCI provide information useful for
evaluating our business and a further understanding of the
Company's results of operations from management's perspective. We
believe Adjusted EBITDA is helpful in highlighting trends because
Adjusted EBITDA excludes the results of actions that are outside
the operational control of management, but can differ significantly
from company to company depending on long-term strategic decisions
regarding capital structure, the tax jurisdictions in which
companies operate and capital investments. We believe Adjusted
EBITDA-NCI is helpful in highlighting the amount of Adjusted EBITDA
that is available to us after reflecting the interests of our joint
venture partners. Adjusted EBITDA and Adjusted EBITDA-NCI are not
measures of operating performance computed in accordance with GAAP
and should not be considered as a substitute for operating income,
net income, cash flows from operations, or other statement of
operations or cash flow data prepared in conformity with GAAP, or
as measures of profitability or liquidity. In addition, Adjusted
EBITDA and Adjusted EBITDA-NCI may not be comparable to similarly
titled measures of other companies. Adjusted EBITDA and Adjusted
EBITDA-NCI may not be indicative of historical operating results,
and we do not mean for these items to be predictive of future
results of operations or cash flows. Adjusted EBITDA and Adjusted
EBITDA-NCI have limitations as analytical tools, and you should
not consider these items in isolation, or as substitutes for
an analysis of our results as reported under GAAP. Some of these
limitations are that Adjusted EBITDA and Adjusted EBITDA-NCI:
- do not include stock-based compensation
expense, and beginning with the quarter ended June 30, 2017, do not
include associated payroll taxes;
- do not include transaction-related
costs;
- do not include depreciation and
amortization—because construction and operation of our dialysis
clinics requires significant capital expenditures, depreciation and
amortization are a necessary element of our costs and ability to
generate profits;
- do not include interest expense—as we
have borrowed money for general corporate purposes, interest
expense is a necessary element of our costs and ability to generate
profits and cash flows;
- do not include income tax receivable
agreement income and expense;
- do not include loss on early
extinguishment of debt;
- do not include costs related to certain
legal matters;
- beginning with the quarter ended
December 31, 2016, do not include executive and management
severance costs;
- do not include management fees;
- do not include certain income tax
payments that represent a reduction in cash available to us;
- do not include changes in, or cash
requirements for, our working capital needs; and
- do not include gain on sale of
assets.
In addition, Adjusted EBITDA is not adjusted for the portion of
earnings that we distribute to our joint venture partners.
You should not consider Adjusted EBITDA and Adjusted EBITDA-NCI
as alternatives to income from operations or net income, determined
in accordance with GAAP, as an indicator of our operating
performance, or as alternatives to cash provided by operating
activities, determined in accordance with GAAP, as an indicator of
cash flows or as a measure of liquidity. This presentation of
Adjusted EBITDA and Adjusted EBITDA-NCI may not be directly
comparable to similarly titled measures of other companies, since
not all companies use identical calculations.
We use Adjusted net income attributable to American Renal
Associates Holdings, Inc. because it is a useful measure to
evaluate our performance by excluding the impact of certain items
that we believe are not related to our normal business operations
and/or are a result of changes in our liabilities from period to
period. See the notes to the tables below for further explanation
of the exclusion of certain items. By excluding these items, we
believe Adjusted net income allows us and investors to evaluate our
net income on a more consistent basis. “Adjusted net income
attributable to American Renal Associates Holdings, Inc.” is
defined as Net income (loss) attributable to American Renal
Associates Holdings, Inc. plus or minus, as applicable, income
tax receivable agreement income/expense, accounting changes in
fair value of non-controlling interest puts, certain legal matter
costs, and stock-based compensation due to option modifications and
other transactions at the time of the Company’s initial public
offering, net of taxes. We use Adjusted weighted average number of
diluted shares to calculate Adjusted net income attributable to
American Renal Associates Holdings, Inc. per share. Adjusted
weighted average number of diluted shares outstanding is calculated
using the treasury method as if certain unvested in-the-money
options subject to a contingency are treated as being vested to
provide investors with a calculation of the fully-diluted number of
shares assuming certain pre-IPO options vested prior to their
actual vesting on April 21, 2017.
We use Adjusted cash provided (used) by operating activities
less distributions to NCI because it is a useful measure to
evaluate the cash flow that is available to the Company for
investment in property, plant and equipment, debt service, growth
and other general corporate purposes. “Adjusted cash provided
(used) by operating activities less distributions to noncontrolling
interests” is defined as cash provided by operating activities plus
transaction-related expenses less distributions to noncontrolling
interests.
We use Adjusted owned net debt because it is a useful metric to
evaluate the Company’s share of interests in the cash on our
consolidated balance sheet and the debt of the Company. “Adjusted
owned net debt” is defined as Debt (other than clinic-level debt)
plus Clinic-level debt guaranteed by our wholly owned subsidiaries
of American Renal Associates Holdings, Inc. less Cash (other than
clinic-level cash) less the Company’s pro rata interest in
Clinic-level cash. “Owned Net Leverage” is defined as the ratio of
Owned Net Debt to our trailing twelve months Adjusted EBITDA less
NCI.
The following table presents the reconciliation from net income
to Adjusted EBITDA and Adjusted EBITDA-NCI for the periods
indicated:
(Unaudited)
Reconciliation of Net income to
Adjusted EBITDA
Three Months EndedSeptember
30,
Nine Months EndedSeptember
30,
LTM (1) as ofSeptember
30,2017
2017 2016 2017
2016 Net income $ 26,672 $ 36,046 $ 55,965 $ 71,645 $ 72,525
Interest expense, net 7,255 7,372 22,052 28,571 29,414 Income tax
expense (benefit) 2,559 (101 ) (555 ) 1,413 (2,721 ) Depreciation
and amortization 9,438 8,687 27,894 24,616 37,140
Transaction-related costs — — 717 2,239 717 Loss on early
extinguishment of debt — — 526 4,708 526 Income tax receivable
agreement income (3,585 ) (12,565 ) (5,461 ) (4,730 ) (553 )
Certain legal matters (2) 3,481 4,042 11,714 4,042 14,451 Executive
and management severance costs (3) — — 917 — 2,567 Stock-based
compensation and related payroll taxes 1,054 12,673 15,090 23,251
32,137 Gain on sale of assets (36 ) — (553 ) — (2,017 ) Management
fees — — — 537 — Adjusted EBITDA
(including noncontrolling interests) $ 46,838 $ 56,154 $ 128,306 $
156,292 $ 184,186 Less: Net income attributable to noncontrolling
interests (18,689 ) (23,622 ) (51,339 ) (64,911 ) (75,018 )
Adjusted EBITDA-NCI $ 28,149 $ 32,532 $ 76,967
$ 91,381 $ 109,168
__________________________________
(1) Last twelve months (“LTM”) is the period beginning October
1, 2016 through September 30, 2017.
(2) Certain legal matters costs include professional fees and
other expenses associated with the Company’s handling of, and
response to, the UnitedHealth litigation, the now-concluded SEC
inquiry, the CMS request for information, the securities
litigation, and the Company’s internal review and analysis of
factual and legal issues relating to the aforementioned matters as
described in our Form 10-Q for the period ended September 30,
2017. We have excluded these costs because they represent unusual
fees and expenses that are not related to the usual operation of
our business.
(3) Represents executive and management severance costs.
The following table presents the reconciliation from Net income
attributable to American Renal Associates Holdings, Inc. to
Adjusted net income attributable to American Renal Associates
Holdings, Inc. for the periods indicated:
(dollars in thousands, except per share
data)Reconciliation of Net Income Attributable to American
Renal Associates Holdings, Inc. to Adjusted Net Income Attributable
to American Renal Associates Holdings, Inc.:
(Unaudited)
Three Months EndedSeptember
30,
2017 2016 Net income attributable to
American Renal Associates Holdings, Inc. $ 7,983 $ 12,424
Change in the difference between the redemption value and
estimated fair values for accounting purposes of the related
noncontrolling interests (1) 5 (1,752 ) Net income
attributable to common shareholders $ 7,988 $ 10,672
Adjustments: Stock-based compensation due to option
modification and IPO transactions (2) — 12,179 Certain legal
matters (3) 3,481 4,042 Total pre-tax adjustments $
3,481 $ 16,221 Tax effect 1,444 6,727 Income tax receivable
agreement income (3,585 ) (12,565 ) Change in the difference
between the redemption value and estimated fair values for
accounting purposes of the related noncontrolling interests (1) 5
(1,752 ) Total adjustments, net $ (1,553 ) $ (1,319 )
Adjusted net income attributable to American Renal Associates
Holdings, Inc. $ 6,435 $ 9,353 Basic shares outstanding
31,095,418 30,865,350 Adjusted effect of dilutive stock options (4)
2,738,404 3,116,146 Adjusted weighted average number
of diluted shares used to compute adjusted net income attributable
to American Renal Associates Holdings, Inc. per share (4)
33,833,822 33,981,496
Adjusted net income
attributable to American Renal Associates Holdings, Inc. per
share $ 0.19 $ 0.28
__________________________
(1) Changes in fair values of contractual noncontrolling
interest put provisions are related to certain put rights that may
be accelerated as a result of the IPO.
(2) Stock-based compensation due to option modification and
other transactions at the time of the IPO which were expensed
within 12 months after the IPO have been excluded since they arose
based on transactions that are not expected to occur in the
future.
(3) Certain legal matters costs include professional fees and
other expenses associated with the Company’s handling of, and
response to, the UnitedHealth litigation, the now-concluded SEC
inquiry, the CMS request for information, the securities
litigation, and the Company’s internal review and analysis of
factual and legal issues relating to the aforementioned matters as
described in our Form 10-Q for the period ended September 30,
2017. We have excluded these costs because they represent unusual
fees and expenses that are not related to the usual operation of
our business.
(4) For the three months ended September 30, 2016, adjusted
weighted average number of diluted shares outstanding calculated
using the treasury method as if 2.5 million shares related to
unvested in-the-money options subject to a contingency are
vested.
American Renal Associates Holdings,
Inc. and Subsidiaries
Unaudited Supplemental Cash
Flow
(dollars in thousands)
Three Months EndedSeptember
30,
Nine Months EndedSeptember
30,
2017
2016 2017 2016
Cash provided by operating activities $ 45,012 $ 52,674 $
97,372 $ 141,903 Plus: Transaction-related costs (1) — —
717 2,239
Adjusted cash provided by
operating activities $ 45,012 $ 52,674 $ 98,089 $ 144,142
Distributions to noncontrolling interests (21,967 ) (23,012 )
(60,509 ) (66,985 )
Adjusted cash provided by operating
activities less distributions to NCI $ 23,045 $ 29,662 $ 37,580
$ 77,157
Capital expenditure breakdown: Routine and
maintenance capital expenditures $ 1,522 $ 2,712 $ 5,436 $ 8,460
Development capital expenditures 9,205 9,726 19,344
38,199
Total capital expenditures $ 10,727 $
12,438 $ 24,780 $ 46,659
American Renal Associates Holdings,
Inc. and Subsidiaries
Unaudited Supplemental Leverage
Statistics
(dollars in thousands)
As of September 30, 2017 Total ARA
ARA "Owned" Cash (other than clinic-level
cash) $ 1,916 $ 1,916 Clinic-level cash 65,677 34,424
Total cash $ 67,593 $ 36,340 Debt (other than clinic-level debt) $
441,637 $ 441,637 Clinic-level debt 127,262 66,123 Unamortized debt
discounts and fees (9,864 ) (9,864 ) Total debt $ 559,035 $ 497,896
Adjusted owned net debt (total debt - total cash) $ 461,556
Adjusted EBITDA less NCI, LTM $ 109,168
Leverage ratio
(2) 4.2x
_________________________
(1) Transaction-related costs due to the IPO and debt
refinancing in the nine months ended September 30, 2016 and the
debt refinancing in the nine months ended September 30, 2017,
including accounting, valuation, legal and other consulting and
professional fees.
(2) Leverage ratio calculated as follows: Adjusted owned net
debt divided by Adjusted EBITDA less NCI, last twelve months.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20171114006452/en/
American Renal Associates Holdings, Inc.Darren Lehrich,
978-522-6063SVP Strategy & Investor
Relationsdlehrich@americanrenal.com
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