American Renal Associates Holdings, Inc. (NYSE: ARA) (the
“Company”), a leading provider of outpatient dialysis services,
today announced financial and operating results for the first
quarter ended March 31, 2018.
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).
First Quarter 2018 Highlights (all percentage changes
compare Q1 2018 to Q1 2017 unless noted):
- Net patient service operating revenues
increased 10.0% to $194.7 million;
- Net loss attributable to American Renal
Associates Holdings, Inc. was $0.9 million as compared to a net
loss of $1.3 million in Q1 2017;
- Adjusted EBITDA less noncontrolling
interests (“Adjusted EBITDA-NCI”) was $22.7 million as compared to
$21.4 million in Q1 2017;
- Adjusted net income attributable to
American Renal Associates Holdings, Inc. was $3.8 million, or $0.11
per share, for Q1 2018;
- Total dialysis treatments increased
5.2%, of which 4.2% was non-acquired growth. Normalized total
growth treatment was 6.3% and normalized non-acquired growth was
5.3%; and
- As of March 31, 2018, the Company
operated 228 outpatient dialysis centers serving approximately
15,700 patients.
Joseph (Joe) Carlucci, Chairman and Chief Executive Officer,
said, “We are very pleased that the Company’s first quarter 2018
performance represented a return to year-over-year growth in terms
of revenue, Adjusted EBITDA-NCI and Adjusted net income
attributable to American Renal Associates Holdings, Inc. per share.
We expect to continue to deliver growth in 2018, driven by a more
sustainable cost structure, continued execution on our development
program, treatment growth, and the new coverage policy for
Calcimimetic pharmaceuticals. We are proud that our partnership
model continues to be differentiated by strong quality metrics and
outstanding patient satisfaction rates.”
Financial and operating highlights include:
Revenue: Patient service operating revenues for the first
quarter of 2018 were $194.7 million, an increase of 10.0% as
compared to $177.0 million for the prior-year period, primarily due
to treatment growth and reimbursement of certain pharmaceuticals
under the Medicare ESRD PPS Transitional Drug Add-on Payment
Adjustment (“TDAPA”), which became effective January 1, 2018.
Treatment Volume: Total dialysis treatments for the first
quarter of 2018 were 558,936, representing an increase of 5.2% over
the first quarter of 2017. Non-acquired treatment growth was 4.2%,
and acquired treatment growth was 1.0% for the first quarter of
2018. Normalized for clinic sales and the number of treatment days
in the period, Q1 2018 total treatment growth was 6.3% and
non-acquired treatment growth was 5.3% as compared to Q1 2017.
Center Activity: As of March 31, 2018, the Company
provided services at 228 outpatient dialysis centers serving 15,776
patients. During the first quarter of 2018, we opened one de novo
center and sold one center. As of March 31, 2018, we had 28
signed clinics scheduled to open in the future.
Net income, Net income attributable to noncontrolling
interests, Net loss attributable to American Renal Associates
Holdings, Inc., Adjusted EBITDA and Adjusted EBITDA-NCI:
(Unaudited)
Three Months EndedMarch
31,
Increase (Decrease)
(in thousands)
2018 2017 Amount
PercentageChange
Net income $ 13,713 $ 12,902 $ 811 6.3 % Net income attributable to
noncontrolling interests (14,623 ) (14,153 ) 470 3.3 % Net loss
attributable to American Renal Associates Holdings, Inc. $ (910 ) $
(1,251 ) $ 341
NM
Non-GAAP financial measures**: Adjusted EBITDA $ 37,361 $
35,568 $ 1,793 5.0 % Adjusted EBITDA-NCI $ 22,738 $ 21,415 $ 1,323
6.2 %
_______________________________________________________
** See “Reconciliation of Non-GAAP Financial Measures.”
Operating Expenses: Patient care costs for the first
quarter of 2018 were $133.7 million, or 68.7% of patient service
operating revenues, as compared to $120.3 million, or 68.0% (or
67.0% excluding the Modification Expense described below) of
patient service operating revenues, in the prior-year period.
General and administrative expenses were $25.0 million,
or 12.8% of patient service operating revenues, as compared to
$31.2 million, or 17.6% (or 13.5% excluding the Modification
Expense described below) of patient service operating revenues, in
the prior-year period. Patient care costs include $1.7 million for
the first quarter of 2017 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 $7.4 million for the first quarter of 2017 of
Modification Expense.
Cash Flow: Cash provided by operating activities for the
first quarter of 2018 was $21.0 million as compared to $16.5
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 first
quarter of 2018 was $5.1 million as compared to $2.5 million in the
prior-year period. Total capital expenditures for the first quarter
of 2018 were $9.9 million as compared to $6.4 million in the
prior-year period. Capital expenditures for the three months ended
March 31, 2018 include $3.0 million for maintenance and $6.9
million for expansions and new clinic development.
Balance Sheet: At March 31, 2018, the Company’s
balance sheet included consolidated cash of $64.3 million and
consolidated debt of $557.9 million, including the current portion
of long-term debt. Excluding clinic-level debt not guaranteed by
the Company and clinic-level cash not owned by the Company,
Adjusted owned net debt (see “Reconciliation of Non-GAAP Financial
Measures”) was $462.7 million at March 31, 2018, as compared
to $459.5 million at December 31, 2017. Adjusted owned net debt to
last twelve months Adjusted EBITDA-NCI leverage ratio was 4.3x at
March 31, 2018, an improvement of 0.1x from December 31, 2017.
As of March 31, 2018, net patient accounts receivable was
$85.7 million, and days sales outstanding (“DSO”) for the period
was 40 days as compared to 37 days as of December 31,
2017.
2018 Outlook for Adjusted EBITDA-NCI:
The Company is reiterating its prior guidance for 2018 Adjusted
EBITDA-NCI to be in a range of $110 million and $116 million.
The Company’s 2018 Adjusted EBITDA-NCI excludes legal costs and
any potential adverse financial impact resulting from any broader
resolution of our disputes with United to the extent they occur
during 2018.
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, May 9, 2018, 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
13678713.
About American Renal Associates
American Renal Associates (“ARA”) is a leading provider of
outpatient dialysis services in the United States. As of
March 31, 2018, ARA operated 228 dialysis clinic locations in
26 states and the District of Columbia serving approximately 15,700
patients with end stage renal disease. ARA operates principally
through a physician partnership model, in which it partners with
approximately 400 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, 2017, as updated by our
reports on Form 10-Q filed or to be filed with the Securities and
Exchange Commission (“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:
- continuing 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 regulatory or other
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 and 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 end-stage renal
disease (“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 prospective payment rate system 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 and derivative 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 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: Adjusted EBITDA,
Adjusted EBITDA less noncontrolling interests, 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 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 why these measures are
provided.
American Renal Associates Holdings,
Inc. and SubsidiariesConsolidated Statements of
Operations(Unaudited)(dollars in thousands, except
for share data)
Three Months Ended March 31, 2018
2017 Patient service operating revenues $
194,672 $ 177,025 Operating expenses: Patient care costs 133,731
120,301 General and administrative 24,960 31,244
Transaction-related costs 856 — Depreciation and amortization 9,623
9,074 Certain legal matters 4,103 3,936 Total
operating expenses 173,273 164,555 Operating income
21,399 12,470 Interest expense, net (7,457 ) (7,609 ) Income tax
receivable agreement (expense) income (1,021 ) 4,517 Income
before income taxes 12,921 9,378 Income tax benefit (792 ) (3,524 )
Net income 13,713 12,902 Less: Net income attributable to
noncontrolling interests (14,623 ) (14,153 ) Net loss attributable
to American Renal Associates Holdings, Inc. (910 ) (1,251 ) Less:
Change in the difference between the redemption value and estimated
fair value for accounting purposes of the related noncontrolling
interests 582 (11,083 ) Net loss attributable to common
shareholders $ (328 ) $ (12,334 ) Loss per share: Basic $
(0.01 ) $ (0.40 ) Diluted $ (0.01 ) $ (0.40 ) Weighted-average
number of common shares outstanding: Basic 31,800,553 30,907,482
Diluted 31,800,553 30,907,482
American Renal Associates Holdings,
Inc. and SubsidiariesConsolidated Balance
Sheets(dollars in thousands, except for share data)
March 31, 2018 December 31,
2017 Assets (Unaudited) Cash $ 64,283 $ 71,521 Accounts
receivable, less allowance for doubtful accounts of $3,580 and
$6,757, respectively 85,723 79,662 Inventories 7,642 4,665 Prepaid
expenses and other current assets 24,478 24,998 Income tax
receivable 7,835 6,745 Total current assets 189,961
187,591 Property and equipment, net of accumulated depreciation of
$173,796 and $167,390, respectively 168,682 168,537 Intangible
assets, net of accumulated amortization of $23,596 and $23,419,
respectively 25,182 25,368 Other long-term assets 15,013 9,285
Goodwill 570,946 573,427 Total assets $ 969,784
$ 964,208
Liabilities and Equity Accounts
payable $ 40,885 $ 33,421 Accrued compensation and benefits 27,160
28,985 Accrued expenses and other current liabilities 51,954 49,963
Current portion of long-term debt 45,121 44,534 Total
current liabilities 165,120 156,903 Long-term debt, less current
portion 512,822 515,554 Income tax receivable agreement payable
8,646 7,500 Other long-term liabilities 14,171 14,880 Deferred tax
liabilities 9,560 8,991 Total liabilities 710,319
703,828 Commitments and contingencies Noncontrolling interests
subject to put provisions 148,769 139,895
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;
32,437,507 and 32,034,439 issued and outstanding at March 31, 2018
and December 31, 2017, respectively 195 193 Additional paid-in
capital 68,632 67,853 Receivable from noncontrolling interests (515
) (358 ) Accumulated deficit (124,485 ) (123,789 ) Accumulated
other comprehensive income (loss), net of tax 760 (677 )
Total American Renal Associates Holdings, Inc. deficit (55,413 )
(56,778 ) Noncontrolling interests not subject to put provisions
166,109 177,263 Total equity 110,696 120,485
Total liabilities and equity $ 969,784 $ 964,208
American Renal Associates Holdings,
Inc. and SubsidiariesConsolidated Statements of Cash
Flows(Unaudited)(dollars in thousands)
Three Months EndedMarch
31,
Operating activities 2018 2017
Net income $ 13,713 $ 12,902 Adjustments to reconcile net income to
cash provided by operating activities: Depreciation and
amortization 9,623 9,074 Amortization of discounts, fees and
deferred financing costs 497 530 Stock-based compensation 1,264
10,088 Premium paid for interest rate cap agreements — (1,186 )
Deferred taxes — 673 Income tax receivable agreement expense
(income) 1,021 (4,517 ) Non-cash charge related to derivative
agreements 1 173 Non-cash rent charges 167 289 Loss on disposal of
assets 250 57 Change in operating assets and liabilities, net of
acquisitions: Accounts receivable (6,061 ) 3,632 Inventories (2,977
) 28 Prepaid expenses and other current assets (457 ) (3,870 )
Other assets (4,311 ) (63 ) Accounts payable 7,464 (6,522 ) Accrued
compensation and benefits (1,825 ) (3,011 ) Accrued expenses and
other liabilities 2,640 (1,755 ) Cash provided by operating
activities 21,009 16,522
Investing activities Purchases of
property, equipment and intangible assets (9,851 ) (6,406 )
Proceeds from asset sales 2,500 — Cash used in
investing activities (7,351 ) (6,406 )
Financing activities
Proceeds from term loans, net of deferred financing costs 10,506
4,881 Payments on long-term debt (13,060 ) (9,689 ) Dividends and
dividend equivalents paid (257 ) (271 ) Proceeds from exercise of
stock options 336 30 Vested restricted stock awards withheld on net
share settlement (367 ) — Distributions to noncontrolling interests
(16,718 ) (19,044 ) Contributions from noncontrolling interests
1,730 1,710 Purchases of noncontrolling interests (3,158 ) (4,546 )
Proceeds from sales of additional noncontrolling interests 92
— Cash used in financing activities (20,896 ) (26,929
) Decrease in cash and restricted cash (7,238 ) (16,813 )
Cash and restricted cash at beginning of period 71,621
100,916 Cash and restricted cash at end of period $ 64,383
$ 84,103
Supplemental Disclosure of Cash
Flow Information Cash paid for income taxes $ 298 $ 127 Cash
paid for interest 6,996 6,832
Supplemental Disclosure of
Non-Cash Financing Activities Liability for accrued dividend
equivalent payments 542 1,563
American Renal Associates Holdings,
Inc. and SubsidiariesUnaudited GAAP, Non-GAAP, and Other
Supplemental Business Metrics(dollars in thousands, except
per treatment amounts)
Three Months Ended March 31, 2018
December 31,2017
March 31, 2017 Dialysis Clinic
Activity: Number of clinics (as of end of period) 228 228 217
Number of de novo clinics opened (during period) 1 9 3 Number of
acquired clinics (during period) — 3 — Sold or merged clinics
(during period) (1 ) (1 ) — Signed clinics (as of end of period) 28
25 32
Patients and Treatment Volume: Patients (as of end of
period) 15,776 15,637 14,735 Number of treatments 558,936 565,945
531,220 Number of treatment days 78 78 77 Treatments per day 7,166
7,256 6,899
Sources of treatment growth (year over year %
change): Non-acquired growth 4.2 % 6.1 % 9.2 % Acquired growth
1.0 % 0.6 % 0.9 % Total treatment growth 5.2 % 6.7 % 10.1 %
Revenue: Patient service operating revenues $ 194,672 $
194,378 $ 177,025 Patient service operating revenues per treatment
$ 348 $ 343 $ 333
Expenses: Adjusted patient care costs (1)
Amount $ 133,731 $ 124,512 $ 118,582
As a % of patient service operating
revenues
68.7 % 64.1 % 67.0 % Per treatment $ 239 $ 220 $ 223 Adjusted
general and administrative expenses (2) Amount $ 24,960 $ 23,364 $
23,859
As a % of patient service operating
revenues
12.8 % 12.0 % 13.5 % Per treatment $ 45 $ 41 $ 45
Accounts
receivable DSO (days) 40 37 39
Adjusted EBITDA* Adjusted
EBITDA including noncontrolling interests $ 37,361 $ 48,051 $
35,568
Adjusted EBITDA-NCI
$ 22,738 $ 28,564 $ 21,415
Clinical (quarterly averages):
Dialysis adequacy - % of patients with Kt/V > 1.2 98 % 98 % 98 %
Vascular access - % catheter in use > 90 days 11 % 10 % 11 %
* See “Reconciliation of Non-GAAP Financial Measures.”
(1) Adjusted patient care costs exclude $1.7 million of
stock-based compensation during the three months ended
March 31, 2017 related to modification of options at the time
of the Company’s IPO. The three months ended December 31, 2017 also
exclude an immaterial amount related to a gain on the sale of an
asset.
(2) Adjusted general and administrative expenses exclude $7.4
million of stock-based compensation during the three months ended
March 31, 2017 related to modification of options at the time
of the Company’s IPO. The three months ended March 31, 2017 also
exclude $0.7 million of gain on the sale of assets.
American Renal Associates Holdings,
Inc. and SubsidiariesNet Loss per Share
Reconciliation(Unaudited)(dollars in thousands,
except per share data)
Three Months EndedMarch
31,
2018 2017 Basic Net loss
attributable to American Renal Associates Holdings, Inc. $ (910 ) $
(1,251 ) Change in the difference between the redemption value and
estimated fair value for accounting purposes of the related
noncontrolling interests 582 (11,083 ) Net loss attributable
to common shareholders for basic earnings per share calculation $
(328 ) $ (12,334 ) Weighted-average common shares outstanding
31,800,553 30,907,482 Loss per share, basic $ (0.01 )
$ (0.40 )
Diluted Net loss attributable to American Renal
Associates Holdings, Inc. $ (910 ) $ (1,251 ) Change in the
difference between the redemption value and estimated fair value
for accounting purposes of the related noncontrolling interests 582
(11,083 ) Net loss attributable to common shareholders for
diluted earnings per share calculation $ (328 ) $ (12,334 )
Weighted-average common shares outstanding, basic 31,800,553
30,907,482 Weighted-average common shares outstanding, diluted
31,800,553 30,907,482 Loss per share, diluted $ (0.01
) $ (0.40 ) Outstanding options excluded as impact would be
anti-dilutive 3,257,802 1,315,091
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 and other non-income based tax, 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, 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;
- do not include executive and management
severance costs;
- do not include certain income tax
payments that represent a reduction in cash available to us and
other non-income based taxes; and
- do not reflect 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, stock-based compensation due to option
modifications and other transactions at the time of the Company’s
initial public offering, certain legal matter costs,
transaction-related costs, income tax receivable agreement
income/expense, tax valuation allowance and other tax
adjustments, and accounting changes in fair value of
non-controlling interest puts, net of taxes. We use the Adjusted
weighted average number of diluted shares to calculate Adjusted net
income attributable to American Renal Associates Holdings, Inc. per
share. For the first quarter of 2017, the 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-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 EndedMarch
31,
LTM (1) as ofMarch 31,
2018
2018 2017 Net income $ 13,713 $ 12,902
$ 76,494 Interest expense, net 7,457 7,609 29,137 Income tax
benefit and other non-income based tax (792 ) (3,524 ) 11,206
Depreciation and amortization 9,623 9,074 38,183
Transaction-related costs 856 — 1,573 Loss on early extinguishment
of debt — — 526 Income tax receivable agreement expense (income)
1,021 (4,517 ) (1,696 ) Certain legal matters (2) 4,103 3,936
15,416 Executive and management severance costs — — 917 Stock-based
compensation and related payroll taxes 1,380 10,088 7,651 Gain on
sale of assets — — (1,257 ) Adjusted EBITDA
(including noncontrolling interests) $ 37,361 $ 35,568 $ 178,150
Less: Net income attributable to noncontrolling interests (14,623 )
(14,153 ) (71,296 ) Adjusted EBITDA-NCI $ 22,738 $ 21,415
$ 106,854
__________________________________
(1) Last twelve months (“LTM”) is the period beginning April 1,
2017 through March 31, 2018.
(2) Certain legal matters costs include legal fees and other
expenses associated with matters outside the ordinary course of our
business, including, but not limited to, our handling of, and
response to, the UnitedHealth litigation, a now-concluded SEC
inquiry, the CMS request for information, the securities and
derivative 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
March 31, 2018. 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 loss
attributable to American Renal Associates Holdings, Inc. to
Adjusted net income attributable to American Renal Associates
Holdings, Inc. for the periods indicated:
Reconciliation of Net Loss Attributable
to American Renal Associates Holdings, Inc. to Adjusted Net
IncomeAttributable to American Renal Associates Holdings,
Inc.:
(dollars in thousands, except per share data)
(Unaudited)
Three Months Ended March 31, 2018
2017 Net loss attributable to American Renal
Associates Holdings, Inc. $ (910 ) $ (1,251 ) Change in the
difference between the redemption value and estimated fair value
for accounting purposes of the related noncontrolling interests (1)
582 (11,083 ) Net loss attributable to common
shareholders $ (328 ) $ (12,334 ) Adjustments: Stock-based
compensation due to option modification and IPO transactions (2) —
9,104 Certain legal matters (3) 4,103 3,936 Transaction-related
costs 856 — Total pre-tax adjustments $ 4,959 $
13,040 Tax effect 1,289 5,408 Net taxable adjustments
$ 3,670 $ 7,632 Income tax receivable agreement expense (income)
1,021 (4,517 ) Tax valuation allowance and other tax adjustments —
673 Change in the difference between the redemption value and
estimated fair value for accounting purposes of the related
noncontrolling interests (1) 582 (11,083 ) Total
adjustments, net $ 4,109 $ 14,871 Adjusted net income
attributable to American Renal Associates Holdings, Inc. $ 3,781
$ 2,537 Basic shares outstanding 31,800,553
30,907,482 Adjusted effect of dilutive stock options (4) 2,261,434
2,957,928 Adjusted weighted average number of diluted
shares used to compute adjusted net income attributable to American
Renal Associates Holdings, Inc. per share (4) 34,061,987
33,865,410
Adjusted net income attributable to American
Renal Associates Holdings, Inc. per share $ 0.11 $ 0.07
__________________________
(1) Changes in fair values of contractual noncontrolling
interest put provisions are related to certain put rights that were
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 legal fees and other
expenses associated with matters outside the ordinary course of our
business, including, but not limited to, our handling of, and
response to, the UnitedHealth litigation, a now-concluded SEC
inquiry, the CMS request for information, the securities and
derivative 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
March 31, 2018. 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 March 31, 2017, 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 SubsidiariesUnaudited Supplemental Cash
Flow(dollars in thousands)
Three Months EndedMarch
31,
2018 2017 Cash provided by operating
activities $ 21,009 $ 16,522 Plus: Transaction-related costs
(1) 856 —
Adjusted cash provided by operating
activities $ 21,865 $ 16,522 Distributions to noncontrolling
interests (16,718 ) (19,044 )
Adjusted cash provided by (used
in) operating activities less distributions to NCI $ 5,147
$ (2,522 )
Capital expenditure breakdown: Routine and
maintenance capital expenditures $ 2,980 $ 1,918 Development
capital expenditures 6,871 4,488
Total capital
expenditures $ 9,851 $ 6,406
_________________________
(1) Transaction-related costs due to the registration statement
and withdrawn secondary offering, including accounting, valuation,
legal and other consulting and professional fees.
American Renal Associates Holdings,
Inc. and SubsidiariesUnaudited Supplemental Leverage
Statistics(dollars in thousands)
As of March 31, 2018 Total ARA
ARA "Owned" Cash (other than clinic-level cash) $
2,078 $ 2,078 Clinic-level cash 62,205 32,701 Total
cash $ 64,283 $ 34,779 Debt (other than clinic-level
debt) $ 439,163 $ 439,163 Clinic-level debt 127,993 67,286
Unamortized debt discounts and fees (9,213 ) (8,996 ) Total debt $
557,943 $ 497,453
Adjusted owned net debt (total
debt - total cash) $ 462,674
Adjusted EBITDA-NCI, LTM $
106,854
Leverage ratio (2) 4.3x
_________________________
(2) Leverage ratio is calculated as follows: Adjusted owned net
debt divided by Adjusted EBITDA-NCI, last twelve months.
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version on businesswire.com: https://www.businesswire.com/news/home/20180508006305/en/
American Renal Associates Holdings, Inc.Darren Lehrich,
978-522-6063SVP Strategy & Investor
Relationsdlehrich@americanrenal.com
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