American Renal Associates Holdings, Inc. (NYSE: ARA) (the
“Company”), a leading provider of outpatient dialysis services,
today announced financial and operating results for the second
quarter ended June 30, 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).
Second Quarter 2018 Highlights (all percentage changes
compare Q2 2018 to Q2 2017 unless noted):
- Net patient service operating revenues
increased 16.8% to $217.2 million;
- Net loss attributable to American Renal
Associates Holdings, Inc. was $18.0 million as compared to a net
loss of $2.1 million in Q2 2017;
- Adjusted EBITDA less noncontrolling
interests (“Adjusted EBITDA-NCI”) was $31.5 million as compared to
$27.4 million in Q2 2017;
- Adjusted net income attributable to
American Renal Associates Holdings, Inc. was $6.9 million, or $0.20
per share, for Q2 2018;
- Total dialysis treatments increased
5.6%, of which 4.5% was non-acquired growth. Normalized total
treatment growth was 6.3% and normalized non-acquired growth was
5.3%; and
- As of June 30, 2018, the Company
operated 233 outpatient dialysis clinics serving approximately
16,000 patients.
Joseph (Joe) Carlucci, Chairman and Chief Executive Officer,
said, “We are very pleased with the Company’s second quarter 2018
performance. We executed well with our business development program
by opening five de novo clinics and signing three additional new
deals during the second quarter of 2018. Our opening schedule
continues to be weighted to the second half of 2018, and we
continue to have strong visibility into these future openings due
to our signed pipeline of 26 clinics as of June 30, 2018. Our
normalized treatment growth was 6.3% during the second quarter of
2018, and this rate of growth was essentially in-line with our
expectations. As a result of our second half 2018 openings, we
continue to expect normalized treatment growth to improve in
subsequent quarters of 2018. Our second quarter 2018 revenue growth
was favorably impacted by the new CMS coverage policy for
Calcimimetics, as well as broader adoption of coverage policies by
other payors for these pharmaceuticals. Importantly, on a volume
basis, our commercial payor mix remained stable with that of the
first quarter of 2018.”
“During the second quarter of 2018, we were able to sustain the
more efficient cost structure that was established through our 2017
operating initiatives, while building on that success sequentially
from the first quarter of 2018 due to greater progress with the
lower-cost erythropoietin stimulating agent (ESA), Mircera, which
we introduced as a new alternative for prescribing physicians last
year. As we look forward, we continue to believe that our success
will be driven by our differentiated physician partnership model,
which remains underpinned by our Core Values and validated through
strong quality metrics, outstanding patient satisfaction rates and
industry-leading physician satisfaction rates,” continued
Carlucci.
Financial and operating highlights include:
Revenue: Patient service operating revenues for the
second quarter of 2018 were $217.2 million, an increase of 16.8% as
compared to $186.0 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, which became effective on January 1, 2018.
Treatment Volume: Total dialysis treatments for the
second quarter of 2018 were 572,929, representing an increase of
5.6% over the second quarter of 2017. Non-acquired treatment growth
was 4.5%, and acquired treatment growth was 1.1% for the second
quarter of 2018. Normalized for clinic sales, Q2 2018 total
treatment growth was 6.3% and non-acquired treatment growth was
5.3% as compared to Q2 2017.
Clinic Activity: As of June 30, 2018, the Company
provided services at 233 outpatient dialysis clinics serving 16,018
patients. During the second quarter of 2018, we opened five de novo
clinics. As of June 30, 2018, we had 26 signed clinics
scheduled to open in the future.
Net income, Net income attributable to
noncontrolling interests, Net loss attributable to American
RenalAssociates Holdings, Inc., Adjusted EBITDA and Adjusted
EBITDA-NCI:
(Unaudited) Three Months EndedJune 30,
Increase (Decrease) (in thousands) 2018
2017 Amount
PercentageChange
Net income $ 2,277 $ 16,391 $ (14,114 ) (86.1 )% Net income
attributable to noncontrolling interests (20,285 ) (18,497 ) 1,788
9.7 % Net loss attributable to American Renal Associates Holdings,
Inc. $ (18,008 ) $ (2,106 ) $ (15,902 ) NM*
Non-GAAP financial
measures**: Adjusted EBITDA $ 51,793 $ 45,900 $ 5,893 12.8 %
Adjusted EBITDA-NCI $ 31,508 $ 27,403 $ 4,105 15.0 %
(Unaudited)
Six Months EndedJune 30,
Increase (Decrease) (in thousands) 2018
2017 Amount
PercentageChange
Net income $ 15,990 $ 29,293 $ (13,303 ) (45.4 )% Net income
attributable to noncontrolling interests (34,908 ) (32,650 ) (2,258
) 6.9 % Net loss attributable to American Renal Associates
Holdings, Inc. $ (18,918 ) $ (3,357 ) $ (15,561 ) NM*
Non-GAAP
financial measures**: Adjusted EBITDA $ 89,154 $ 81,468 $ 7,686
9.4 % Adjusted EBITDA-NCI $ 54,246 $ 48,818 $ 5,428 11.1 %
______________________________________________________*
Not Meaningful** See “Reconciliation of Non-GAAP Financial
Measures.”
Operating Expenses: Patient care costs for the second
quarter of 2018 were $140.6 million, or 64.7% of patient service
operating revenues, as compared to $118.1 million, or 63.5% (or
63.4% excluding the Modification Expense described below) of
patient service operating revenues, in the prior-year period.
General and administrative expenses were $26.8 million,
or 12.3% of patient service operating revenues, as compared to
$26.4 million, or 14.2% (or 12.6% excluding the Modification
Expense described below) of patient service operating revenues, in
the prior-year period. Patient care costs include $0.5 million for
the second 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 $2.1 million for the second quarter of 2017 of
Modification Expense.
Patient care costs for the six months
ended June 30, 2018 were $274.3
million, or 66.6% of patient service operating
revenues, as compared to $238.4
million, or 65.7% (or 65.1% excluding the
Modification Expense, severance expense and gain on sale of assets)
of patient service operating revenues, in the prior-year period.
Patient care costs include $2.2 million of Modification
Expense, $0.1 million of severance costs and $0.5 million gain on
sale of assets for the six months
ended June 30, 2017. General and administrative expenses
during the six months ended June 30, 2018
were $51.8 million, or 12.6% of patient service
operating revenues, as compared to $57.6
million, or 15.9% (or 13.0% excluding the
Modification Expense and severance expense) of patient service
operating revenues, in the prior-year period. General and
administrative expenses include $9.5 million of
Modification Expense and $0.8 million in severance costs for
the six months ended June 30, 2017.
Certain Legal Matters: On August 1, 2018, we executed a
Settlement Agreement with affiliates of UnitedHealth Group
Incorporated (“United”) to resolve all outstanding litigation
between the companies. Pursuant to the Settlement Agreement, the
Company will make total settlement payments of $32.0 million in
five annual installments. A first installment in the amount of
$10.0 million was made on August 1, 2018. In connection with the
$32.0 million settlement, the Company recognized the $29.6 million
present value of the settlement during the second quarter of 2018,
which was included as an expense in Certain legal matters on the
Company’s consolidated statement of operations for the three months
ended June 30, 2018. The Company also recognized an additional $2.9
million of expense within Certain legal matters during the second
quarter of 2018 primarily related to the United matter.
Cash Flow: Cash provided by operating activities for the
second quarter of 2018 was $37.5 million as compared to $35.8
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
second quarter of 2018 was $20.0 million as compared to $17.1
million in the prior-year period. Total capital expenditures for
the second quarter of 2018 were $8.6 million as compared to $7.6
million in the prior-year period. Capital expenditures for the
three months ended June 30, 2018 included $1.9 million for
maintenance and $6.6 million for expansions and new clinic
development.
Cash provided by operating activities for
the six months ended June 30,
2018 was $58.5 million as compared to $52.4
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 six months ended June 30,
2018 was $25.1 million as compared to $14.5
million in the prior-year period. Total capital expenditures
for the six months ended June 30,
2018 were $18.4 million as compared to $14.1
million in the prior-year period. Capital expenditures for
the six months ended June 30,
2018 included $4.9 million for maintenance
and $13.5 million for expansions and new clinic
development.
Balance Sheet: At June 30, 2018, the Company’s
balance sheet included consolidated cash of $69.4 million and
consolidated debt of $556.6 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 $459.6 million at June 30, 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 4.1x at
June 30, 2018, an improvement of 0.3x from December 31, 2017.
As of June 30, 2018, net patient accounts receivable was $91.5
million, and days sales outstanding (“DSO”) for the period was 38
days as compared to 40 days as of March 31, 2018.
2018 Outlook for Adjusted EBITDA-NCI:
The Company is reiterating its guidance for 2018 Adjusted
EBITDA-NCI to be in a range of $105 million to $111 million.
The expense recognized by the Company during the second quarter
of 2018 representing the present value of the settlement with
United described above does not affect the Company's expected 2018
Adjusted EBITDA-NCI guidance because the expenses relating to the
United litigation are added back in calculating Adjusted
EBITDA-NCI.
The Company is 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, August 8, 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
13680635.
About American Renal Associates
American Renal Associates (“ARA”) is a leading provider of
outpatient dialysis services in the United States. As of
June 30, 2018, ARA operated 233 dialysis clinic locations in
26 states and the District of Columbia serving approximately 16,000
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 proposed rule for 2019 issued
July 11, 2018;
- 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. and the resolution thereof,
and the Department of Justice inquiry;
- 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 June 30,
Six Months Ended June 30, 2018
2017 2018 2017 Patient service
operating revenues $ 217,178 $ 185,992 $ 411,850 $ 363,017
Operating expenses: Patient care costs 140,562 118,059 274,293
238,360 General and administrative 26,803 26,381 51,763 57,625
Transaction-related costs — 717 856 717 Depreciation and
amortization 9,814 9,382 19,437 18,456 Certain legal matters 32,546
4,297 36,649 8,233 Total operating
expenses 209,725 158,836 382,998 323,391
Operating income 7,453 27,156 28,852 39,626 Interest
expense, net (8,131 ) (7,188 ) (15,588 ) (14,797 ) Loss on early
extinguishment of debt — (526 ) — (526 ) Income tax receivable
agreement income (expense) 1,736 (2,641 ) 715 1,876
Income before income taxes 1,058 16,801 13,979 26,179 Income
tax (benefit) expense (1,219 ) 410 (2,011 ) (3,114 ) Net
income 2,277 16,391 15,990 29,293 Less: Net income attributable to
noncontrolling interests (20,285 ) (18,497 ) (34,908 ) (32,650 )
Net loss attributable to American Renal
AssociatesHoldings, Inc.
(18,008 ) (2,106 ) (18,918 ) (3,357 )
Less: Change in the difference between the
redemptionvalue and estimated fair value for accounting purposes
ofthe related noncontrolling interests
(884 ) (2,527 ) (302 ) (13,610 ) Net loss attributable to common
shareholders $ (18,892 ) $ (4,633 ) $ (19,220 ) $ (16,967 )
Loss per share: Basic $ (0.59 ) $ (0.15 ) $ (0.60 ) $ (0.55 )
Diluted $ (0.59 ) $ (0.15 ) $ (0.60 ) $ (0.55 ) Weighted-average
number of common shares outstanding: Basic 31,932,705 30,986,689
31,877,286 30,947,304 Diluted 31,932,705 30,986,689 31,877,286
30,947,304
American Renal Associates Holdings,
Inc. and SubsidiariesConsolidated Balance
Sheets(dollars in thousands, except for share data)
June 30, 2018 December 31,
2017 Assets (Unaudited) Cash $ 69,403 $ 71,521 Accounts
receivable, less allowance for doubtful accounts of $1,834 and
$6,757, respectively 91,508 79,662 Inventories 6,535 4,665 Prepaid
expenses and other current assets 20,338 24,998 Income tax
receivable 4,713 6,745 Total current assets 192,497
187,591 Property and equipment, net of accumulated depreciation of
$183,077 and $167,390, respectively 167,621 168,537 Intangible
assets, net of accumulated amortization of $23,819 and $23,419,
respectively 24,966 25,368 Other long-term assets 19,639 9,285
Goodwill 570,946 573,427 Total assets $ 975,669
$ 964,208
Liabilities and Equity Accounts
payable $ 52,849 $ 33,421 Accrued compensation and benefits 30,881
28,985 Accrued expenses and other current liabilities 48,961 49,963
Current portion of long-term debt 46,660 44,534 Total
current liabilities 179,351 156,903 Long-term debt, less current
portion 509,983 515,554 Income tax receivable agreement payable
6,037 7,500 Other long-term liabilities 33,819 14,880 Deferred tax
liabilities 4,696 8,991 Total liabilities 733,886
703,828 Commitments and contingencies Noncontrolling interests
subject to put provisions 145,500 139,895
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;32,458,837 and 32,034,439 issued and outstanding
at June 30, 2018 andDecember 31, 2017, respectively
195 193 Additional paid-in capital 69,170 67,853 Receivable from
noncontrolling interests (477 ) (358 ) Accumulated deficit (142,493
) (123,789 ) Accumulated other comprehensive income (loss), net of
tax 1,227 (677 ) Total American Renal Associates Holdings,
Inc. deficit (72,378 ) (56,778 ) Noncontrolling interests not
subject to put provisions 168,661 177,263 Total
equity 96,283 120,485 Total liabilities and equity $
975,669 $ 964,208
American Renal Associates Holdings,
Inc. and SubsidiariesConsolidated Statements of Cash
Flows(Unaudited) (dollars in thousands)
Three Months EndedJune
30,
Six Months EndedJune 30,
Operating activities 2018 2017
2018 2017 Net income $ 2,277 $ 16,391 $
15,990 $ 29,293 Adjustments to reconcile net income to cash
provided by operating activities: Depreciation and amortization
9,814 9,382 19,437 18,456 Amortization of discounts, fees and
deferred financing costs 492 535 989 1,065 Loss on extinguishment
of debt — 526 — 526 Stock-based compensation 1,663 3,643 2,927
13,731 Premium paid for interest rate cap agreements — — — (1,186 )
Deferred taxes (5,014 ) 56 (5,014 ) 729 Income tax receivable
agreement (income) expense (1,736 ) 2,641 (715 ) (1,876 ) Non-cash
charge related to derivative agreements 4 — 5 173 Non-cash rent
charges (6 ) 142 161 431 Loss on disposal of assets 29 133 279 190
Change in operating assets and liabilities, net of acquisitions:
Accounts receivable (5,785 ) (346 ) (11,846 ) 3,286 Inventories
1,107 (312 ) (1,870 ) (284 ) Prepaid expenses and other current
assets 7,576 (5,767 ) 7,119 (9,637 ) Other assets (4,422 ) (489 )
(8,733 ) (552 ) Accounts payable 11,964 3,579 19,428 (2,943 )
Accrued compensation and benefits 3,721 2,562 1,896 (449 ) Accrued
expenses and other liabilities 15,786 3,162 18,426
1,407 Cash provided by operating activities 37,470
35,838 58,479 52,360
Investing activities Purchases of
property, equipment and intangible assets (8,567 ) (7,647 ) (18,418
) (14,053 ) Proceeds from asset sales — — 2,500
Cash used in investing activities (8,567 ) (7,647 )
(15,918 ) (14,053 )
Financing activities Net proceeds from
issuance of long-term debt — 267,564 — 267,564 Cash paid for
financing costs — (3,914 ) — (3,914 ) Proceeds from term loans, net
of deferred financing costs 18,440 7,110 28,946 11,991 Payments on
long-term debt (20,138 ) (276,836 ) (33,198 ) (286,525 ) Dividends
and dividend equivalents paid (21 ) (8,409 ) (278 ) (8,680 )
Proceeds from exercise of stock options 60 506 396 536 Vested
restricted stock awards withheld on net share settlement — — (367 )
— Distributions to noncontrolling interests (17,471 ) (19,498 )
(34,189 ) (38,542 ) Contributions from noncontrolling interests 790
1,177 2,520 2,887 Purchases of noncontrolling interests (5,443 )
(4,961 ) (8,601 ) (9,507 ) Proceeds from sales of additional
noncontrolling interests — — 92 — Cash
used in financing activities (23,783 ) (37,261 ) (44,679 ) (64,190
) Increase (decrease) in cash and restricted cash 5,120
(9,070 ) (2,118 ) (25,883 ) Cash and restricted cash at beginning
of period 64,383 84,103 71,621 100,916
Cash and restricted cash at end of period $ 69,503 $ 75,033
$ 69,503 $ 75,033
Supplemental
Disclosure of Cash Flow Information Cash paid for income taxes
$ 1,227 $ 1,193 $ 1,525 $ 1,320 Cash paid for interest 5,669 6,603
12,665 13,435
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 June 30, 2018
March 31, 2018 June 30, 2017
Dialysis Clinic Activity: Number of clinics (as of end of
period) 233 228 217 Number of de novo clinics opened (during
period) 5 1 2 Number of acquired clinics (during period) — — — Sold
or merged clinics (during period) — (1 ) — Signed clinics (as of
end of period) 26 28 32
Patients and Treatment Volume:
Patients (as of end of period) 16,018 15,776 15,023 Number of
treatments 572,929 558,936 542,749 Number of treatment days 78 78
78 Treatments per day 7,345 7,166 6,958
Sources of treatment
growth (year over year % change): Non-acquired growth 4.5 % 4.2
% 8.6 % Acquired growth 1.1 % 1.0 % 0.3 % Total treatment growth
5.6 % 5.2 % 8.9 %
Revenue: Patient service operating
revenues $ 217,178 $ 194,672 $ 185,992 Patient service operating
revenues per treatment $ 379 $ 348 $ 343
Expenses: Adjusted
patient care costs (1) Amount $ 140,562 $ 133,731 $ 117,913 As a %
of patient service operating revenues 64.7 % 68.7 % 63.4 % Per
treatment $ 245 $ 239 $ 217 Adjusted general and administrative
expenses (2) Amount $ 26,803 $ 24,960 $ 23,483 As a % of patient
service operating revenues 12.3 % 12.8 % 12.6 % Per treatment $ 47
$ 45 $ 43
Accounts receivable DSO (days) 38 40 38
Adjusted EBITDA* Adjusted EBITDA including noncontrolling
interests $ 51,793 $ 37,361 $ 45,900 Adjusted EBITDA-NCI $ 31,508 $
22,738 $ 27,403
Clinical (quarterly averages): Dialysis
adequacy - % of patients with Kt/V > 1.2 98 % 98 % 98 % Vascular
access - % catheter in use > 90 days 12 % 11 % 11 %
* See “Reconciliation of Non-GAAP Financial Measures.”(1)
Adjusted patient care costs exclude $0.5 million of Modification
Expense, $0.1 million of severance expense and $0.5 million of gain
on sale of assets during the three months ended June 30,
2017.(2) Adjusted general and administrative expenses exclude $2.1
million of Modification Expense and $0.8 million of severance
expense during the three months ended June 30, 2017.
American Renal Associates Holdings,
Inc. and SubsidiariesNet Loss per Share
Reconciliation(Unaudited)(dollars in thousands,
except per share data)
Three Months EndedJune
30,
Six Months EndedJune 30,
2018 2017 2018
2017 Basic Net loss attributable to American Renal
Associates Holdings, Inc. $ (18,008 ) $ (2,106 ) $ (18,918 ) $
(3,357 )
Change in the difference between the
redemption value and estimated fair valuefor accounting purposes of
the related noncontrolling interests
(884 ) (2,527 ) (302 ) (13,610 ) Net loss attributable to common
shareholders for basic earnings per share calculation $ (18,892 ) $
(4,633 ) $ (19,220 ) $ (16,967 ) Weighted-average common shares
outstanding 31,932,705 30,986,689 31,877,286
30,947,304 Loss per share, basic $ (0.59 ) $ (0.15 ) $ (0.60
) $ (0.55 )
Diluted Net loss attributable to American Renal
Associates Holdings, Inc. $ (18,008 ) $ (2,106 ) $ (18,918 ) $
(3,357 )
Change in the difference between the
redemption value and estimated fair valuefor accounting purposes of
the related noncontrolling interests
(884 ) (2,527 ) (302 ) (13,610 ) Net loss attributable to common
shareholders for diluted earnings per share calculation $ (18,892 )
$ (4,633 ) $ (19,220 ) $ (16,967 ) Weighted-average common shares
outstanding, basic 31,932,705 30,986,689 31,877,286 30,947,304
Weighted-average common shares outstanding, diluted 31,932,705
30,986,689 31,877,286 30,947,304 Loss
per share, diluted $ (0.59 ) $ (0.15 ) $ (0.60 ) $ (0.55 )
Outstanding options excluded as impact would be anti-dilutive
3,716,353 3,291,722 3,487,078 2,303,407
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 income tax expense or
benefit 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 and second 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 EndedJune
30,
Six Months EndedJune 30,
LTM (1)as of June30,
2018
2018 2017 2018
2017 Net income $ 2,277 $ 16,391 $ 15,990 $ 29,293 $ 62,380
Interest expense, net 8,131 7,188 15,588 14,797 30,080 Income tax
(benefit) expense and other non-income based tax (917 ) 410 (1,709
) (3,114 ) 9,879 Depreciation and amortization 9,814 9,382 19,437
18,456 38,615 Transaction-related costs — 717 856 717 856 Loss on
early extinguishment of debt — 526 — 526 — Income tax receivable
agreement (income) expense (1,736 ) 2,641 — (1,876 ) (6,073 )
Certain legal matters (2) 32,546 4,297 36,649 8,233 43,665
Executive and management severance costs — 917 — 917 — Stock-based
compensation and related payroll taxes 1,678 3,948 3,058 14,036
5,381 Gain on sale of assets — (517 ) (715 ) (517 ) (740 )
Adjusted EBITDA (including noncontrolling interests) $ 51,793 $
45,900 $ 89,154 $ 81,468 $ 184,043 Less: Net income attributable to
noncontrolling interests (20,285 ) (18,497 ) (34,908 ) (32,650 )
(73,084 ) Adjusted EBITDA-NCI $ 31,508 $ 27,403 $
54,246 $ 48,818 $ 110,959
__________________________________(1) Last twelve months (“LTM”)
is the period beginning July 1, 2017 through June 30, 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 Group Incorporated litigation and
settlement, the subpoena from the United States Attorney's Office,
District of Massachusetts, 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 June 30, 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 EndedJune
30,
Six Months EndedJune 30,
2018 2017 2018
2017 Net loss attributable to American Renal Associates
Holdings, Inc. $ (18,008 ) $ (2,106 ) $ (18,918 ) $ (3,357 )
Change in the difference between the
redemption value and estimatedfair value for accounting purposes of
the related noncontrollinginterests (1)
(884 ) (2,527 ) (302 ) (13,610 ) Net loss attributable to
common shareholders $ (18,892 ) $ (4,633 ) $ (19,220 ) $ (16,967 )
Adjustments: Stock-based compensation due to option
modification and IPO transactions (2) — 2,644 — 11,748 Certain
legal matters (3) 32,546 4,297 36,649 8,233 Loss on early
extinguishment of debt — 526 — 526 Transaction-related costs — 717
856 717 Executive and management severance costs — 917 — 917 Gain
on sale of assets — (517 ) — (517 ) Total pre-tax
adjustments $ 32,546 $ 8,584 $ 37,505 $ 21,624 Tax effect 5,890
3,560 7,179 8,967 Net taxable
adjustments $ 26,656 $ 5,024 $ 30,326 $ 12,657 Income tax
receivable agreement (income) expense (1,736 ) 2,641 (715 ) (1,876
) Tax valuation allowance and other tax adjustments — 57 — 730
Change in the difference between the
redemption value andestimated fair value for accounting purposes of
the relatednoncontrolling interests (1)
(884 ) (2,527 ) (302 ) (13,610 ) Total adjustments, net $ 25,804
$ 10,249 $ 29,913 $ 25,121 Adjusted net
income attributable to American Renal Associates Holdings, Inc. $
6,912 $ 5,616 $ 10,693 $ 8,154
Basic shares outstanding 31,932,705 30,986,689 31,877,286
30,947,304 Adjusted effect of dilutive stock options (4) 1,915,574
2,957,728 2,088,504 2,957,828
Adjusted weighted average number of
diluted shares used to computeadjusted net income attributable to
American Renal AssociatesHoldings, Inc. per share (4)
33,848,279 33,944,417 33,965,790 33,905,132
Adjusted net income attributable to American Renal
Associates Holdings, Inc. per share $ 0.20 $ 0.17
$ 0.31 $ 0.24
________________________(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 Group Incorporated litigation and
settlement, the subpoena from the United States Attorney's Office,
District of Massachusetts, 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 June 30, 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 and six months ended June 30, 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 EndedJune
30,
Six Months EndedJune 30,
2018 2017 2018
2017 Cash provided by operating activities $ 37,470 $
35,838 $ 58,479 $ 52,360 Plus: Transaction-related costs (1) —
717 856 717
Adjusted cash provided
by operating activities $ 37,470 $ 36,555 $ 59,335 $ 53,077
Distributions to noncontrolling interests (17,471 ) (19,498 )
(34,189 ) (38,542 )
Adjusted cash provided by operating
activities less distributions to NCI $ 19,999 $ 17,057
$ 25,146 $ 14,535
Capital expenditure
breakdown: Routine and maintenance capital expenditures $ 1,939
$ 1,996 $ 4,894 $ 3,914 Development capital expenditures 6,628
5,651 13,524 10,139
Total capital
expenditures $ 8,567 $ 7,647 $ 18,418 $
14,053
_________________________(1) Transaction-related costs
represent costs associated with our registration statement and the
secondary offering that was withdrawn in March 2018. These costs
include legal, accounting, valuation and other professional or
consulting fees.
American Renal Associates Holdings,
Inc. and SubsidiariesUnaudited Supplemental Leverage
Statistics(dollars in thousands)
As of June 30, 2018 Total ARA
ARA "Owned" Cash (other than clinic-level cash) $ 3,477 $
3,477 Clinic-level cash 65,926 34,457 Total cash $
69,403 $ 37,934 Debt (other than clinic-level debt) $
439,023 $ 439,023 Clinic-level debt 126,470 67,128 Unamortized debt
discounts and fees (8,850 ) (8,647 ) Total debt $ 556,643 $
497,504
Adjusted owned net debt (total debt - total
cash) $ 459,570
Adjusted EBITDA-NCI, LTM $ 110,959
Leverage ratio (2) 4.1x
_________________________(2) Leverage ratio is calculated
as follows: Adjusted owned net debt divided by Adjusted EBITDA
-NCI, last twelve months.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20180807005701/en/
American Renal Associates Holdings, Inc.Darren Lehrich,
978-522-6063SVP Strategy & Investor
Relationsdlehrich@americanrenal.com
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