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, 2016, together with certain other
developments described below.
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 2016 Highlights (all percentage changes
compare Q3 2016 to Q3 2015 unless noted):
- Net patient service operating revenues
increased 15% to $193.0 million;
- Net income attributable to American
Renal Associates Holdings, Inc. was $12.4 million or $0.35 per
share as compared to $4.1 million or $0.19 per share in Q3
2015;
- Adjusted EBITDA less noncontrolling
interests (“Adjusted EBITDA-NCI”) increased 9.6% to $32.5
million;
- Adjusted net income attributable to
American Renal Associates Holdings, Inc. was $9.4 million or $0.28
per share for the third quarter of 2016;
- Total dialysis treatments increased
11.4%, of which 10.2% was non-acquired growth (“NAG”);
- As of September 30, 2016, the Company
operated 207 outpatient dialysis centers serving approximately
14,160 patients.
Joseph (Joe) Carlucci, Chairman and Chief Executive Officer,
said, “Our organization delivered strong third quarter performance,
and these results further demonstrate the continued momentum of our
physician partnership model. I am proud of the collective efforts
of the ARA team. ARA’s dedicated staff remained focused on our
Company’s first priority – delivering the highest quality patient
care.”
“Our differentiated partnership model allows us to deliver high
quality dialysis care in an integrated and coordinated manner with
our physician partners. Our pipeline of 33 signed clinics at
September 30, 2016, remained healthy and reflects the growing
acceptance of our operating philosophy within the nephrology
community,” continued Carlucci.
Financial and operating highlights include:
Revenue: Net patient service operating revenues for the
third quarter of 2016 were $193.0 million, an increase of 14.9% as
compared to $167.9 million for the prior-year period due to
treatment growth and meaningful improvements in payor mix. Net
patient service operating revenues for the nine months ending
September 30, 2016 were $550.7 million, an increase of 15.0% as
compared to $478.8 million for the prior-year period.
Treatment Volume: Total dialysis treatments for the third
quarter of 2016 were 516,043 representing an increase of 11.4% over
the third quarter of 2015. Non-acquired treatment growth was 10.2%
and acquired treatment growth was 1.2% for the third quarter of
2016.
Center Activity: As of September 30, 2016, the Company
provided services at 207 outpatient dialysis centers serving 14,166
patients. During the third quarter of 2016, we opened five de novo
centers. We also acquired a dialysis clinic in Pennsylvania during
the third quarter of 2016. As of September 30, 2016, we had 33
signed de novo 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:
Three Months Ended September 30, Increase
(Decrease) (in thousands, except per share amounts)
2016 2015
Amount
PercentageChange*
Net income $ 36,046 $ 23,596 $ 12,450 52.8 % Net income
attributable to noncontrolling interests (23,622 )
(19,491 ) 4,131 21.2 % Net income attributable to American Renal
Associates Holdings, Inc. 12,424 4,105
8,319 NM
Non-GAAP financial measures**: Adjusted EBITDA $
56,154 $ 49,169 $ 6,985 14.2 % Adjusted EBITDA less noncontrolling
interests $ 32,532 $ 29,678 $ 2,854 9.6 %
Nine
Months Ended September 30, Increase (Decrease) (in
thousands, except per share amounts) 2016
2015 Amount
PercentageChange*
Net income $ 71,645 $ 65,357 $ 6,288 9.6 % Net income attributable
to noncontrolling interests (64,911 ) (53,354 )
11,557 21.7 % Net income attributable to American Renal Associates
Holdings, Inc. 6,734 12,003 (5,269 ) NM
Non-GAAP financial measures**: Adjusted EBITDA $ 156,292 $
136,043 $ 20,249 14.9 % Adjusted EBITDA less noncontrolling
interests $ 91,381 $ 82,689 $ 8,692 10.5 %
_____________________________________
* NM – Not Meaningful** See reconciliation of Non-GAAP Financial
Measures.
Operating Expenses: Patient care costs for the third
quarter of 2016 were $116.1 million or 60.2% (or 59.2% excluding
the Modification and Other Stock Compensation Expense described
below) of net patient service operating revenues as compared to
$100.1 million or 59.6% of net patient service operating revenues
in the prior-year period. General and administrative expenses were
$33.4 million or 17.3% (or 12.0% excluding the Modification and
Other Stock Compensation Expense described below) of net patient
service operating revenues as compared to $19.4 million or 11.5% of
net patient service operating revenues in the prior-year period.
Patient care costs and general and administrative expenses for the
third quarter of 2016 include $1.9 million and $10.3 million,
respectively, of stock-based compensation related to modification
of options and other transactions at the time of the Company’s
initial public offering (the “Modification and Other Stock
Compensation Expense”).
Patient care costs for the nine months ended September 30, 2016
were $331.3 million or 60.2% (or 59.6% excluding the Modification
and Other Stock Compensation Expense) of net patient service
operating revenues as compared to $288.3 million or 60.2% of net
patient service operating revenues in the prior-year period.
General and administrative expenses during the nine months ended
September 30, 2016, were $86.8 million or 15.8% (or 12.4% excluding
the Modification and Other Stock Compensation Expense) of net
patient service operating revenues as compared to $56.7 million or
11.8% of net patient service operating revenues in the prior-year
period. Patient care costs and general and administrative expenses
for the nine months ended September 30, 2016 include $3.3 million
and $18.3 million, respectively, of Modification and Other Stock
Compensation Expense.
Cash Flow: Cash provided by operating activities for the
third quarter of 2016 was $52.7 million as compared to $42.7
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 2016 was $29.7 million as compared to $26.1 million in
the prior-year period. Total capital expenditures for the third
quarter of 2016 were $12.4 million as compared to $10.0 million in
the prior-year period. Capital expenditures for the third quarter
of 2016 included $2.7 million for maintenance and $9.7 million for
expansions and new clinic development.
Cash provided by operating activities for the nine months ended
September 30, 2016 was $141.9 million as compared to $104.5 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, 2016 was $77.2 million as compared to $47.0
million in the prior-year period. Total capital expenditures for
the nine months ended September 30, 2016 were $46.7 million as
compared to $37.9 million in the prior-year period. Capital
expenditures for the nine months ended September 30, 2016 included
$8.5 million for maintenance and $38.2 million for expansions and
new clinic development.
Balance Sheet: At September 30, 2016, the Company’s
balance sheet included consolidated cash of $105.1 million and
consolidated debt of $568.3 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
was $438.2 million at September 30, 2016. Adjusted owned net debt
to last twelve months Adjusted EBITDA less NCI leverage ratio was
3.6x at September 30, 2016. As of September 30, 2016, net patient
accounts receivable were $77.3 million and DSO for the period was
37 days as compared to 38 days for the three months ended June 30,
2016.
Departure of Chief Operating Officer:
In addition to the Company’s third quarter results, ARA
announced today that John McDonough has agreed to step down from
his role as Executive Vice President, Chief Operating Officer and
Treasurer, effective December 31, 2016. The Company and Mr.
McDonough expect to enter into a consulting arrangement for a
period after December 31, 2016. Mr. McDonough’s operational duties
will be shared by other members of ARA's senior operations
management team, reporting to Mr. Carlucci and Syed Kamal,
President.
“I want to thank John for the significant contributions he has
made to ARA since joining the Company in 2003. In both financial
and operational roles, John has had a significant impact on ARA’s
growth and success. Our staff, physician partners and the entire
ARA team are grateful for his service to the Company,” said Joe
Carlucci. “We are fortunate to have a deep, experienced and
operationally-focused team at ARA, which is a credit to John’s
years of leadership and allows us to manage the business
effectively and facilitate transitions such as this one.”
“I am confident that the ARA team is well-positioned to continue
to execute on its differentiated strategy. I look forward to
working with the senior management team and other dedicated ARA
staff in the coming months as I begin my transition from the
Company,” said John McDonough. “I am proud to have played a role in
ARA’s evolution, and I strongly believe the Company’s partnership
model is the right approach to delivering the highest quality care
to dialysis patients.”
Update Regarding Temporary Change for Medicaid Patients
Seeking Affordable Care Act Plan Coverage for the 2017 Open
Enrollment Period:
In August 2016, CMS issued a Request for Information (RFI)
seeking comment as to, among other things, whether patients were
inappropriately steered into marketplace plans on the exchange.
Dialysis providers, including dialysis facilities owned in
partnership with ARA, received a notice of the RFI. In response to
the RFI, many commercial payors and trade associations demanded the
prohibition of any charitable premium assistance for marketplace
plans on and off the exchange. In addition, there were requests
from commercial payors and certain trade associations that
patients, and specifically ESRD patients, that have access to any
form of alternate coverage, should not be allowed to select a plan
offered on or off the exchange under the Affordable Care Act (ACA
Plan).
Pending further policy guidance from CMS, in November 2016, for
patients enrolled in minimum essential Medicaid coverage, we have
temporarily suspended assistance in the application process for
charitable premium support from the American Kidney Fund (“AKF”),
which we expect will cause an adverse change in the mix of patients
and treatments. This change will not affect our provision of such
assistance in the application process to other patients.
A small but growing portion of ARA’s patients have chosen to
enhance their health care benefits by electing to enroll in an ACA
Plan. As of September 30, 2016, approximately 300 patients had
pre-existing minimum essential Medicaid coverage and also chose
additional coverage through an ACA Plan. Virtually all of these
Medicaid patients rely on charitable premium assistance because
they are ineligible for federal premium tax credits. If CMS
establishes new policies to restrict or limit charitable premium
assistance for ACA Plans to patients with pre-existing minimum
essential Medicaid coverage, ARA anticipates that these patients
likely would revert back to Medicaid-only coverage.
In addition, approximately 235 additional patients were enrolled
in an ACA Plan and not enrolled in the Medicaid program as of
September 30, 2016. Approximately 85% of these patients have relied
on charitable premium assistance. ACA Plans are attractive to such
patients for a variety of reasons, including ineligibility for
government programs, the shift of coverage options from the
individual and/or small group markets to ACA exchanges, lack of
requisite work credits to be eligible for Medicare coverage, the
opportunity to consolidate family coverage under one insurance
plan, and the lack of Medigap policy coverage due to certain state
insurance department restrictions, among other reasons. Insurance
coverage disruptions could result if CMS establishes new guidelines
that extend to this subset of patients enrolled in ACA Plans.
ARA management estimates that the annual financial impact to
Adjusted EBITDA less noncontrolling interests of the patient
insurance education policy change to temporarily suspend
application assistance to the AKF for charitable premium assistance
by patients enrolled in pre-existing minimum essential Medicaid
coverage seeking additional coverage through an ACA Plan would be
up to approximately $17 million. If CMS were to issue broader
guidance that made access to charitable premium assistance
unavailable to all ESRD patients on ACA Plans, the estimated annual
financial impact to Adjusted EBITDA less noncontrolling interests
would increase by up to an estimated $7 million. The aforementioned
estimated annual financial impacts are based on ARA’s patient
population as of September 30, 2016, take ARA’s weighted average
dialysis facility ownership into account, and are presented before
any potential future offsetting actions that could be taken by the
Company.
Conference Call
American Renal Associates Holdings, Inc. will hold a conference
call to discuss this release on Friday, November 11, 2016, 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 13645757.
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, 2016, ARA operated 207 dialysis clinic
locations in 25 states and the District of Columbia serving
approximately 14,160 patients with end stage renal disease. ARA
operates exclusively through a physician joint venture model, in
which it partners with approximately 370 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 Prospectus dated April
20, 2016 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 or decline in commercial payor reimbursement
rates, including as a result of changes to the healthcare exchanges
or changes in regulations or enforcement of regulations regarding
the exchanges;
- the Centers for Medicare and Medicaid
Services’ (“CMS”) request for information and the Company’s
temporary suspension of application assistance to charitable
organizations pending further policy guidance from CMS;
- 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 Medicare ESRD proposed rule
for 2017 released June 24, 2016;
- 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 United Health Group, Inc., the Securities and
Exchange Commission inquiry, securities litigation and related
matters;
- changes in the availability and cost of
ESAs 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 correctly estimate the
amount of revenues that we recognize in a reporting period;
- 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 attributable to American Renal Associates Holdings, Inc.,
Adjusted cash provided 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 measures determined in accordance with GAAP.
Rather, they are presented as supplemental measures of the
Company's performance 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.
Consolidated Statements of Operations (Unaudited)
(dollars in thousands except per share amounts)
Three Months Ended September 30,
Nine Months Ended September 30, 2016
2015 2016
2015 Patient service operating revenues $ 194,857 $
169,190 $ 555,349 $ 482,119 Provision for uncollectible accounts
(1,902 ) (1,244 ) (4,696 ) (3,349 ) Net
patient service operating revenues 192,955 167,946 550,653 478,770
Operating expenses: Patient care costs 116,115 100,110 331,349
288,343 General and administrative 33,359 19,373 86,800 56,663
Transaction-related costs — 2,105 2,239 2,105 Depreciation and
amortization 8,687 7,670 24,616 22,842 Certain legal matters
4,042 — 4,042 —
Total operating expenses 162,203 129,258
449,046 369,953 Operating income
30,752 38,688 101,607 108,817 Interest expense, net (7,372 )
(11,816 ) (28,571 ) (34,639 ) Loss on early extinguishment of debt
— — (4,708 ) — Income tax receivable agreement income 12,565
— 4,730 — Income
before income taxes 35,945 26,872 73,058 74,178 Income tax expense
(benefit) (101 ) 3,276 1,413
8,821 Net income 36,046 23,596 71,645 65,357 Less:
Net income attributable to noncontrolling interests (23,622
) (19,491 ) (64,911 ) (53,354 ) Net income
attributable to American Renal Associates Holdings, Inc. $ 12,424
$ 4,105 $ 6,734 $ 12,003
Earnings (loss) per share: Basic $ 0.35 $ 0.19 $ (0.26 ) $ 0.54
Diluted $ 0.34 $ 0.18 $ (0.26 ) $ 0.53 Weighted-average number of
common shares outstanding Basic 30,865,350 22,171,026 27,198,297
22,134,647 Diluted 31,436,814 22,773,326 27,198,297 22,680,286 Cash
dividends declared per share* $ — $ — $ 1.30 $ —
_____________________________________
* Paid to shareholders prior to the Company’s initial public
offering.
American Renal Associates Holdings, Inc.
Consolidated Balance Sheets (dollars in thousands except
for share data) September 30, 2016
December 31, 2015 Assets (Unaudited) Cash $ 105,149 $
90,988 Accounts receivable, less allowance for doubtful accounts of
$7,296 and $7,435, respectively 77,253 76,919 Inventories 4,468
4,291 Prepaid expenses and other current assets 12,951 18,863
Income tax receivable 4,656 2,686 Total
current assets 204,477 193,747 Property and equipment, net of
accumulated depreciation of $159,684 and $138,163, respectively
165,132 142,701 Intangible assets, net of accumulated depreciation
of $23,025 and $22,378, respectively 25,943 25,662 Other long-term
assets 6,593 6,850 Goodwill 573,107 569,318
Total assets $ 975,252 $ 938,278
Liabilities and Equity Accounts payable $ 23,277 $ 22,571
Accrued compensation and benefits 29,092 22,504 Accrued expenses
and other current liabilities 54,031 26,788 Current portion of
long-term debt 43,582 25,610 Total
current liabilities 149,982 97,473 Long-term debt, less current
portion 520,017 657,372 Income tax receivable agreement payable
15,670 — Other long-term liabilities 11,262 9,483 Deferred tax
liabilities 6,722 15,029 Total
Liabilities 703,653 779,357 Commitments and contingencies
Noncontrolling interests subject to put provisions 140,336 108,211
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; 30,868,050 and 22,213,967 issued and outstanding
at September 30, 2016 and December 31, 2015, respectively 184 98
Additional paid-in capital 69,765 — Receivable from noncontrolling
interests (562 ) (529 ) Accumulated deficit (121,527 ) (128,261 )
Accumulated other comprehensive loss, net of tax (201 )
(501 ) Total American Renal Associates Holdings, Inc.
deficit (52,341 ) (129,193 ) Noncontrolling interests not subject
to put provisions 183,604 179,903 Total
equity 131,263 50,710 Total liabilities
and equity $ 975,252 $ 938,278
American Renal Associates Holdings, Inc. Consolidated
Statements of Cash Flows (Unaudited) (dollars in
thousands) Three Months
Ended Nine Months Ended September 30,
September 30, Operating activities 2016
2015 2016
2015 Net income $ 36,046 $ 23,596 $ 71,645 $ 65,357
Adjustments to reconcile net income to cash provided by operating
activities: Depreciation and amortization 8,687 7,670 24,616 22,842
Amortization of discounts, fees and deferred financing costs 625
719 2,432 2,151 Loss on extinguishment of debt — — 4,708 —
Stock-based compensation 12,673 437 23,238 1,009 Deferred taxes
(739 ) 1,129 (8,508 ) 3,099 Income tax receivable agreement income
(12,565 ) — (4,730 ) — Non-cash charge related to interest rate
swap (361 ) 338 489 832 Non-cash rent charges 844 390 1,764 744
Change in operating assets and liabilities, net of acquisitions:
Accounts receivable (349 ) (1,738 ) (334 ) (5,717 ) Inventories 322
114 (177 ) 107 Prepaid expenses and other current assets (2,476 )
5,606 (1,171 ) 3,742 Other assets (648 ) 1,337 44 100 Accounts
payable (238 ) 1,580 706 896 Accrued compensation and benefits
3,623 3,805 6,588 9,031 Accrued expenses and other liabilities
7,230 (2,282 ) 20,593 326
Cash provided by operating activities 52,674 42,701 141,903 104,519
Investing activities Purchases of property, equipment
and intangible assets (12,438 ) (10,005 ) (46,659 ) (37,897 ) Cash
paid for acquisitions (3,667 ) — (4,467 )
(600 ) Cash used in investing activities (16,105 ) (10,005 )
(51,126 ) (38,497 )
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 — — 60,000 — Cash paid for
debt issuance and other financing costs — — (1,350 ) — Proceeds
from term loans, net of deferred financing costs 14,942 4,759
54,706 39,244 Payments on long-term debt (10,234 ) (5,636 )
(266,040 ) (19,047 ) Payments on capital lease obligations — — — (5
) Dividends and dividend equivalents paid (47 ) — (30,223 ) —
Proceeds from issuance of common stock — 571 — 727 Proceeds from
exercise of stock options — 124 — 124 Common stock repurchases for
tax withholdings of net settlement equity awards (285 ) (9 ) (356 )
(91 ) Distributions to noncontrolling interests (23,012 ) (18,716 )
(66,985 ) (59,648 ) Contributions from noncontrolling interests
2,135 1,462 6,576 3,878 Purchases of noncontrolling interests
(8,120 ) — (8,397 ) (3,326 ) Proceeds from sales of additional
noncontrolling interests 57 166 199
495 Cash used in financing activities (24,688
) (17,279 ) (76,616 ) (37,649 ) Increase in cash 11,881
15,417 14,161 28,373 Cash at beginning of period 93,268
74,431 90,988 61,475 Cash
at end of period $ 105,149 $ 89,848 $ 105,149
$ 89,848
Supplemental Disclosure of Cash Flow
Information Cash paid for income taxes 6,480 1,251 11,856 5,513
Cash paid for interest 7,121 10,690 25,721 31,448
Supplemental
Disclosure of Non-Cash Financing Activities Accrued offering
costs — — 314 — Tax Receivable Agreement — — 23,400 — Non-Cash
Dividend — — 26,232 — Liability for accrued dividend equivalent
payments 2,278 — 3,818 —
American Renal Associates
Holdings, Inc. Unaudited Supplemental Business Metrics
(dollars in thousands) Three Months
Ended September 30, June 30, September 30,
Dialysis Clinic Activity: 2016 2016
2015 Number of clinics (as of end of period)
207
201 187 Number of de novo clinics opened (during
period)
5 6 6 Number of acquired clinics
(during period)
1 1 — Signed clinics (as of
end of period)
33 35 30 Patients and
Treatment Volume: Patients (as of end of period)
14,166
13,755 12,543 Treatments 516,043 498,368 463,181
Number of treatment days 79 78 79 Treatments per day 6,532 6,389
5,863
Sources of treatment growth (year over year %
change): Non-acquired growth 10.2% 10.8% 13.3% Acquired growth
1.2% 1.0% 4.0% Total treatment growth 11.4% 11.8% 17.3%
Revenue: Patient service operating revenues $ 194,857 $
186,938 $ 169,190 Patient service operating revenues per treatment
$ 377.60 $ 375.10 $ 365.28 Net patient service operating revenues $
192,955 $ 185,567 $ 167,946
Expenses: Patient care
costs (1) Amount $ 114,209 $ 108,290 $ 100,110 As a % of net
patient service operating revenues 59.2% 58.4% 59.6% Per treatment
$ 221.32 $ 217.29 $ 216.14 General and administrative
expenses (2) Amount $ 23,086 $ 23,629 $ 19,373 As a % of net
patient service operating revenues 12.0% 12.7% 11.5% Per treatment
$ 44.74 $ 47.41 $ 41.83 Provision for uncollectible accounts
Amount $ 1,902 $ 1,371 $ 1,244 As a % of net patient service
operating revenues 1.0% 0.7% 0.7% Per treatment $ 3.69 $ 2.75 $
2.69
Accounts receivable DSO (days) 37 38 42
Adjusted EBITDA* Adjusted EBITDA including noncontrolling
interests $ 56,154 $ 54,118 $ 49,169 Adjusted EBITDA - NCI $ 32,532
$ 31,630 $ 29,678
Clinical (quarterly averages):
Dialysis adequacy - % of patients with Kt/V > 1.2 98% 98% 98%
Vascular access - % catheter in use > 90 days 11% 10% 10%
_____________________________________
* See reconciliation of Non-GAAP Financial Measures.(1) Excludes
$1.9 million and $1.4 million of stock based compensation related
to modification of options and other transactions at the time of
the Company’s IPO during the three months ended September 30, 2016
and June 30, 2016, respectively. Additionally excludes $0.1 million
of stock based compensation related to the early adoption of ASU
2016-09 in the three months ended June 30, 2016, as the stock
compensation relates to the modified options referenced above.(2)
Excludes $10.3 million and $8.0 million of stock based compensation
related to modification of options and other transactions at the
time of the Company’s IPO during the three months ended September
30, 2016 and June 30, 2016, respectively. Additionally excludes
$0.3 million of stock based compensation related to the early
adoption of ASU 2016-09 in the three months ended June 30, 2016, as
the stock compensation relates to the modified options referenced
above.
American Renal Associates Holdings,
Inc.
Net Income (Loss) per Share Reconciliation
(Unaudited) (dollars in thousands except for share
data) Three Months Ended
September 30, Nine Months Ended September 30,
2016 2015 2016
2015 Basic Net income attributable to American
Renal Associates Holdings, Inc. $ 12,424 $ 4,105 $ 6,734 $ 12,003
Change in the difference between the estimated fair values of
contractual noncontrolling interest put provisions and estimated
fair values for accounting purposes of the related noncontrolling
interests (1,752 ) - (13,885 ) - Net
income (loss) attributable to American Renal Associates Holdings,
Inc. for basic earnings per share calculation $ 10,672 $
4,105 $ (7,151 ) $ 12,003 Weighted-average common shares
outstanding 30,865,350 22,171,026
27,198,297 22,134,647 Earnings (loss) per share,
basic $ 0.35 $ 0.19 $ (0.26 ) $ 0.54
Diluted Net
income attributable to American Renal Associates Holdings, Inc. $
12,424 $ 4,105 $ 6,734 $ 12,003 Change in the difference between
the estimated fair values of contractual noncontrolling interest
put provisions and estimated fair values for accounting purposes of
the related noncontrolling interests (1,752 ) -
(13,885 ) - Net income (loss) attributable to
American Renal Associates Holdings, Inc. for diluted earnings per
share calculation $ 10,672 $ 4,105 $ (7,151 ) $ 12,003
Weighted-average common shares outstanding, basic 30,865,350
22,171,026 27,198,297 22,134,647 Weighted-average effect of
dilutive securities: Effect of assumed exercise of stock options
571,464 602,300 — 545,639
Weighted-average common shares outstanding, diluted
31,436,814 22,773,326 27,198,297
22,680,286 Earnings (loss) per share, diluted $ 0.34 $ 0.18
$ (0.26 ) $ 0.53 Outstanding options excluded as impact would be
anti-dilutive 338,538 64,017 336,935 27,711
American Renal Associates Holdings,
Inc.Reconciliation 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, depreciation and amortization, as
adjusted for stock-based compensation, loss on early extinguishment
of debt, transaction-related costs, income tax receivable agreement
expense, certain legal matters costs, and management fees.
“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 understanding our operating performance
in a manner similar to management. 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 it 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;
- 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;
- do not include loss on early
extinguishment of debt;
- do not include costs related to certain
legal matters;
- do not include management fee;
- do not include certain income tax
payments that represent a reduction in cash available to us;
and
- do not reflect changes in, or cash
requirements for, our working capital needs.
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 share-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 vest.
We use Adjusted cash provided 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 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:
Reconciliation of Net income
to Three Months Ended Nine Months Ended LTM
(1) as of Adjusted EBITDA: September 30,
September 30, September 30, 2016
2015 2016 2015
2016 Net income $ 36,046 $ 23,596 $ 71,645 $ 65,357 $
99,365 Interest expense, net 7,372 11,816 28,571 34,639 39,332
Income tax expense (benefit) (101 ) 3,276 1,413 8,821 4,965
Depreciation and amortization 8,687 7,670 24,616 22,842 33,620
Transaction-related costs - 2,105 2,239 2,105 2,220 Loss on early
extinguishment of debt - - 4,708 - 4,708 Income tax receivable
agreement income (12,565 ) - (4,730 ) - (4,730 ) Certain legal
matters (2) 4,042 - 4,042 - 4,042 Stock-based compensation 12,673
449 23,251 1,052 23,650 Management fee - 257
537 1,227 1,132
Adjusted EBITDA (including noncontrolling interests) $ 56,154 $
49,169 $ 156,292 $ 136,043 $ 208,304 Less: Net income attributable
to noncontrolling interests (23,622 ) (19,491 )
(64,911 ) (53,354 ) (85,789 ) Adjusted
EBITDA-NCI $ 32,532 $ 29,678 $ 91,381 $ 82,689
$ 122,515
_____________________________________
(1) Last twelve months (“LTM”) is the period beginning October
1, 2015 through September 30, 2016
(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 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, 2016. We have excluded
these costs because they represent unusual fees and expenses that
are not related to the usual operation of our business.
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.:
Three Months Ended September 30, 2016
Net income attributable to American Renal Associates
Holdings, Inc. $ 12,424 Change in the difference between the
estimated fair values of contractual noncontrolling interest put
provisions and estimated fair values for accounting purposes of the
related noncontrolling interests
(1,752
) Net income attributable to American Renal Associates Holdings,
Inc. for basic earnings per share calculation $ 10,672
Adjustments: Share-based compensation due to option modification
and IPO transactions (1) 12,179 Certain legal matters (2) 4,042
Total pre-tax adjustments $ 16,221 Tax effect 6,727 Income
tax receivable agreement income
(12,565
) Change in the difference between the estimated fair values of
contractual noncontrolling interest put provisions and estimated
fair values for accounting purposes of the related noncontrolling
interests (3) 1,752 Total adjustments, net $
(1,319
) Adjusted net income attributable to American Renal Associates
Holdings, Inc. $ 9,353 Basic shares outstanding 30,865,350
Adjusted effect of dilutive stock options (4) 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) 33,981,496
Adjusted net
income attributable to American Renal Associates Holdings, Inc. per
share $ 0.28
_____________________________________
(1) Share-based compensation due to option modification and
other transactions at the time of the IPO which will be 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.
(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 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, 2016. We have excluded
these costs because they represent unusual fees and expenses that
are not related to the usual operation of our business.
(3) 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.
(4) 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. Unaudited
Supplemental Cash Flow (dollars in thousands)
Three Months Ended Nine Months
Ended
September 30,
September 30,
2016 2015
2016 2015 Cash provided by
operating activities $ 52,674 $ 42,701 $ 141,903 $ 104,519
Plus: Transaction-related costs (1) - 2,105
2,239 2,105
Adjusted cash
provided by operating activities $ 52,674 $ 44,806 $ 144,142 $
106,624 Distributions to noncontrolling interests (23,012 )
(18,716 ) (66,985 ) (59,648 )
Adjusted cash
provided by operating activities less distributions to NCI $
29,662 $ 26,090 $ 77,157 $ 46,976
Capital expenditure
breakdown: Routine and maintenance capital expenditures $ 2,712
$ 3,565 $ 8,460 $ 8,172 Development capital expenditures
9,726 6,440 38,199 29,725
Total capital expenditures $ 12,438 $ 10,005 $ 46,659
$ 37,897
American Renal Associates Holdings,
Inc. Unaudited Supplemental Leverage Statistics
(dollars in thousands) As of September 30,
2016 Total ARA ARA "Owned" Cash (other than clinic-level cash)
$17,500 $17,500 Clinic-level cash 87,649 43,726 Total
cash $105,149 $61,226 Debt (other than
clinic-level debt) $438,081 $438,081 Clinic-level debt 130,191
66,043 Unamortized debt discounts and fees (4,673 ) (4,673 ) Total
debt $563,599 $499,451
Net debt (total debt
- total cash) $438,225 Adjusted EBITDA less NCI,
LTM $122,515 Leverage ratio (2) 3.6x
_____________________________________
(1) Transaction-related costs due to the IPO and debt
refinancing, including accounting, valuation, legal and other
consulting and professional fees.
(2) Leverage ratio calculated as follows: Owned net debt divided
by Adjusted EBITDA less NCI, last twelve months.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20161110006525/en/
American Renal Associates Holdings, Inc.Darren Lehrich,
978-922-3080 x134SVP Strategy & Investor
Relationsdlehrich@americanrenal.com
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