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 second
quarter ended June 30, 2017.
Certain metrics, including those expressed on an adjusted basis,
are Non-GAAP financial measures (See “Use of Non-GAAP Financial
Measures” and the reconciliation tables further below).
Second Quarter 2017 Highlights (all percentage changes
compare Q2 2017 to Q2 2016 unless noted):
- Net patient service operating revenues
increased 0.2% to $186.0 million;
- Net loss attributable to American Renal
Associates Holdings, Inc. was $2.1 million as compared to $9.4
million in Q2 2016;
- Adjusted EBITDA less noncontrolling
interests (“Adjusted EBITDA-NCI”) was $27.4 million as compared to
$31.6 million in Q2 2016;
- Adjusted net income attributable to
American Renal Associates Holdings, Inc. was $5.6 million, or $0.16
per share, for the second quarter of 2017;
- Total dialysis treatments increased
8.9%, of which 8.6% was non-acquired growth; and
- As of June 30, 2017, the Company
operated 217 outpatient dialysis centers serving approximately
15,000 patients.
Joseph (Joe) Carlucci, Chairman and Chief Executive Officer,
said, “In coordination with our physician partners, ARA’s dedicated
staff has remained focused on delivering the highest quality
patient care, while also executing well on the operational
initiatives we outlined earlier this year. Our second quarter
financial performance validates that the actions our organization
has taken thus far in 2017 are yielding positive results.”
“During the second quarter of 2017, we opened two new de novo
clinics and ended the period with a pipeline of 32 signed clinics
at June 30, 2017. Our pipeline continues to be strong and reflects
the growing acceptance of our operating philosophy within the
nephrology community. Our pipeline also reflects the high
satisfaction rates ARA enjoys among existing nephrology groups,
many of which continue to build on their relationship with ARA
through additional de novo development,” continued Carlucci.
Financial and operating highlights include:
Revenue: Net patient service operating revenues for the
second quarter of 2017 were $186.0 million, an increase of 0.2% as
compared to $185.6 million for the prior-year period due to
treatment growth and offset by adverse changes in payor mix. Net
patient service operating revenues for the six months ending
June 30, 2017 were $363.0 million, an increase of 1.5% as
compared to $357.7 million for the prior-year period.
Treatment Volume: Total dialysis treatments for the
second quarter of 2017 were 542,749 representing an increase of
8.9% over the second quarter of 2016. Non-acquired treatment growth
was 8.6%, and acquired treatment growth was 0.3% for the second
quarter of 2017.
Center Activity: As of June 30, 2017, the Company
provided services at 217 outpatient dialysis centers serving 15,023
patients. During the second quarter of 2017, we opened two de novo
centers, sold one center and merged one center into another. As of
June 30, 2017, we had 32 signed de novo 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 less
noncontrolling interests:
(Unaudited)
Three Months EndedJune 30, Increase (Decrease)
(in thousands, except per share amounts) 2017
2016 Amount
PercentageChange
Net income $ 16,391 $ 13,042 $ 3,349 25.7 % Net income attributable
to noncontrolling interests (18,497 ) (22,488 ) 3,991 (17.7
)%
Net loss attributable to American Renal Associates Holdings, Inc.
$
(2,106 ) $ (9,446 ) 7,340
NM*
Non-GAAP financial measures**: Adjusted EBITDA $ 45,900 $
54,118 $ (8,218
)
(15.2 )% Adjusted EBITDA less noncontrolling interests $ 27,403 $
31,630
$
(4,227 ) (13.4 )%
(Unaudited)
Six Months Ended June
30,
Increase (Decrease)
(in thousands, except per share
amounts)
2017
2016
Amount
PercentageChange
Net income
$
29,293
$
35,599
$
(6,306
)
(17.7
)%
Net income attributable to noncontrolling
interests
(32,650
)
(41,289
)
8,639
(20.9
)%
Net loss attributable to American Renal
Associates Holdings, Inc.
$
(3,357
)
$
(5,690
)
2,333
NM*
Non-GAAP financial measures**:
Adjusted EBITDA
$
81,468
$
100,138
$
(18,670
)
(18.6
)%
Adjusted EBITDA less noncontrolling
interests
$
48,818
$
58,849
$
(10,031
)
(17.0
)%
_______________________________________________________
* NM – Not Meaningful
** See reconciliation of Non-GAAP Financial Measures.
Operating Expenses: Patient care costs for the second
quarter of 2017 were $118.1 million or 63.5% (or 63.4% excluding
the Modification Expense, severance costs and gain on sale of
assets described below) of net patient service operating revenues
as compared to $109.8 million or 59.2% (or 58.4% excluding the
Modification Expense described below) of net patient service
operating revenues in the prior-year period. General and
administrative expenses were $26.4 million or 14.2% (or 12.6%
excluding the Modification Expense and severance costs described
below) of net patient service operating revenues as compared to
$31.9 million or 17.2% (or 12.7% excluding the Modification Expense
described below) of net patient service operating revenues in the
prior-year period. Patient care costs include $0.5 million and $1.4
million for the second quarter of 2017 and 2016, respectively, of
stock-based compensation related to modification of options at the
time of the Company’s initial public offering (the “Modification
Expense”). Patient care costs also include $0.1 million of
severance costs and $0.5 million gain on sale of assets for the
second quarter of 2017. General and administrative expenses include
$2.1 million and $8.0 million for the second quarter of 2017 and
2016, respectively, of Modification Expense. General and
administrative expenses also include $0.8 million of severance
costs for the second quarter of 2017.
Patient care costs for the six months ended June 30, 2017
were $238.4 million or 65.7% (or 65.1% excluding the Modification
Expense, severance costs and gain on sale of assets) of net patient
service operating revenues as compared to $215.2 million or 60.2%
(or 59.8% excluding the Modification Expense) of net patient
service operating revenues in the prior-year period. Patient care
costs include $2.2 million and $1.4 million for the six months
ended June 30, 2017 and 2016, respectively, of Modification
Expense. Patient care costs also include $0.1 million of severance
costs and $0.5 million gain on sale of assets for the six months
ended June 30, 2017. General and administrative expenses during the
six months ended June 30, 2017, were $57.6 million or 15.9%
(or 13.0% excluding the Modification Expense) of net patient
service operating revenues as compared to $53.4 million or 14.9%
(or 12.7% excluding the Modification Expense) of net patient
service operating revenues in the prior-year period. General and
administrative expenses include $9.5 million and $8.0 million for
the six months ended June 30, 2017 and 2016, respectively, of
Modification Expense. General and administrative expenses also
include $0.8 million in severance costs for the six months ended
June 30, 2017.
Cash Flow: Cash provided by operating activities for the
second quarter of 2017 was $35.8 million as compared to $52.7
million in the prior-year period. Adjusted cash provided by
operating activities less distributions to noncontrolling interests
(see reconciliation of Non-GAAP Financial Measures) for the second
quarter of 2017 was $17.1 million as compared to $32.3 million in
the prior-year period. Total capital expenditures for the second
quarter of 2017 were $7.6 million as compared to $17.8 million in
the prior-year period. Capital expenditures for the three months
ended June 30, 2017 included $2.0 million for maintenance and
$5.7 million for expansions and new clinic development.
Cash provided by operating activities for the six months ended
June 30, 2017 were $52.4 million as compared to $89.2 million
in the prior-year period. Adjusted cash provided by operating
activities less distributions to noncontrolling interests (see
reconciliation of Non-GAAP Financial Measure) for the six months
ended June 30, 2017 were $14.5 million as compared to $47.5
million in the prior-year period. Total capital expenditures for
the six months ended June 30, 2017 were $14.1 million as
compared to $34.2 million in the prior-year period. Capital
expenditures for the six months ended June 30, 2017 included
$3.9 million for maintenance and $10.1 million for expansions and
new clinic development.
Balance Sheet: At June 30, 2017, the Company’s
balance sheet included consolidated cash of $74.9 million and
consolidated debt of $562.2 million, including the current portion
of long-term debt. Excluding clinic-level debt not guaranteed by
ARA and clinic-level cash not owned by ARA, Adjusted owned net debt
(see reconciliation of Non-GAAP Financial Measures) was $457.0
million at June 30, 2017, as compared to $438.1 million at
December 31, 2016. Adjusted owned net debt to last twelve months
Adjusted EBITDA less NCI leverage ratio was 4.0x at June 30,
2017. As of June 30, 2017, net patient accounts receivable was
$77.8 million, and DSO for the period was 38 days as compared to 39
days for the three months ended March 31, 2017.
2017 Outlook for Adjusted EBITDA less NCI:
The Company is reiterating its prior guidance for 2017 Adjusted
EBITDA less NCI to be in a range of $100 million and $106
million.
The Company’s 2017 Adjusted EBITDA less NCI Outlook excludes
severance costs, certain legal costs, and other future potential
costs, which could include potential closure and consolidation
costs, to the extent they occur during 2017.
We are not providing a quantitative reconciliation of our
Non-GAAP outlook to the corresponding GAAP information because the
GAAP measures that we exclude from our Non-GAAP outlook are not
available without unreasonable effort on a forward-looking basis
due to their unpredictability, high variability, complexity and low
visibility. These excluded GAAP measures include noncontrolling
interests, interest expense, income taxes, and other charges. We
expect the variability of these charges to have a potentially
unpredictable, and potentially significant, impact on our future
GAAP financial results.
Please see the “Forward-Looking Statements” section of this
release for a discussion of certain risks to our outlook.
Conference Call
American Renal Associates Holdings, Inc. will hold a conference
call to discuss this release on Wednesday, August 9, 2017, at 9:00
a.m. Eastern time. Investors will have the opportunity to listen to
the conference call by dialing (877) 407-8029, or for international
callers (201) 689-8029, or may listen over the Internet by going to
the Investor Relations section at www.ir.americanrenal.com. For
those who cannot listen to the live broadcast, a replay will be
available and can be accessed by dialing (877) 660-6853, or for
international callers (201) 612-7415. The conference ID for the
live call and the replay is 13664401.
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 June 30, 2017, ARA operated 217 dialysis clinic
locations in 25 states and the District of Columbia serving
approximately 15,000 patients with end stage renal disease. ARA
operates exclusively through a physician joint venture model, in
which it partners with approximately 386 local nephrologists to
develop, own and operate dialysis clinics. ARA’s Core Values
emphasize taking good care of patients, providing physicians with
clinical autonomy and operational support, hiring and retaining the
best possible staff and providing best practices management
services. For more information about American Renal Associates,
visit www.americanrenal.com.
Forward-Looking Statements
This press release contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. These statements, which have been included in reliance of
the “safe harbor” provisions of the Private Securities Litigation
Reform Act of 1995, involve risks and uncertainties and assumptions
relating to our operations, financial condition, business,
prospects, growth strategy and liquidity, which may cause our
actual results to differ materially from those projected by such
forward-looking statements, and the Company cannot give assurances
that such statements will prove to be correct. You can identify
forward-looking statements because they do not relate strictly to
historical or current facts. These statements may include words
such as “aim,” “anticipate,” “believe,” “estimate,” “expect,”
“forecast,” “outlook,” “potential,” “project,” “projection,”
“plan,” “intend,” “seek,” “may,” “could,” “would,” “will,”
“should,” “can,” “can have,” “likely,” the negatives thereof and
other words and terms of similar meaning in connection with any
discussion of the timing or nature of future operating or financial
performance or other events.
The forward-looking statements appear in a number of places
throughout this press release and include statements regarding our
intentions, beliefs or current expectations concerning, among other
things, our results of operations, financial condition, liquidity,
prospects, growth, strategies and the industry in which we operate.
All forward-looking statements are subject to risks and
uncertainties, including but not limited to those risks and
uncertainties described in “Risk Factors” and “Special Note
Regarding Forward-Looking Statements” in our Annual Report on Form
10-K for the year ended December 31, 2016, our 10-Q for the quarter
ended March 31, 2017 and our 10-Q for the quarter ended June 30,
2017 filed or to be filed with the SEC that may cause actual
results to differ materially from those that we expected.
Some of the factors that could cause actual results to differ
materially from those expressed or implied by the forward-looking
statements include, among others, the following:
- decline in the number of patients with
commercial insurance, including as a result of changes to the
healthcare exchanges or changes in regulations or enforcement of
regulations regarding the healthcare exchanges and challenges from
commercial payors or any other regulatory changes leading to
changes in the ability of patients with commercial insurance
coverage to receive charitable premium support;
- decline in commercial payor
reimbursement rates;
- the ultimate resolution of the Centers
for Medicare & Medicaid Services (“CMS”) Interim Final Rule
published December 14, 2016 related to dialysis facilities
Conditions for Coverage (CMS 3337-IFC), including an issuance of a
different but related Final Rule;
- reduction of government-based payor
reimbursement rates or insufficient rate increases or adjustments
that do not cover all of our operating costs;
- our ability to successfully develop de
novo clinics, acquire existing clinics and attract new physician
partners;
- our ability to compete effectively in
the dialysis services industry;
- the performance of our joint venture
subsidiaries and their ability to make distributions to us;
- changes to the Medicare ESRD program
that could affect reimbursement rates and evaluation criteria, as
well as changes in Medicaid or other non-Medicare government
programs or payment rates, including the ESRD PPS final rule for
2017 issued on October 28, 2016 and the ESRD PPS proposed rule for
2018 issued on June 29, 2017;
- federal or state healthcare laws that
could adversely affect us;
- our ability to comply with all of the
complex federal, state and local government regulations that apply
to our business, including those in connection with federal and
state anti-kickback laws and state laws prohibiting the corporate
practice of medicine or fee-splitting;
- heightened federal and state
investigations and enforcement efforts;
- the impact of the litigation by
affiliates of UnitedHealth Group, Inc., the Department of Justice
inquiry, securities litigation and related matters;
- changes in the availability and cost of
erythropoietin-stimulating agents (“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 timely and accurately
bill for our services and meet payor billing requirements;
- claims and losses relating to
malpractice, professional liability and other matters; the
sufficiency of our insurance coverage for those claims and rising
insurances costs; and any negative publicity or reputational damage
arising from such matters;
- loss of any members of our senior
management;
- damage to our reputation or our brand
and our ability to maintain brand recognition;
- our ability to maintain relationships
with our medical directors and renew our medical director
agreements;
- shortages of qualified skilled clinical
personnel, or higher than normal turnover rates;
- competition and consolidation in the
dialysis services industry;
- deteriorations in economic conditions,
particularly in states where we operate a large number of clinics,
or disruptions in the financial markets;
- the participation of our physician
partners in material strategic and operating decisions and our
ability to favorably resolve any disputes;
- our ability to honor obligations under
the joint venture operating agreements with our physician partners
were they to exercise certain put rights and other rights;
- unauthorized disclosure of personally
identifiable, protected health or other sensitive or confidential
information;
- our ability to meet our obligations and
comply with restrictions under our substantial level of
indebtedness; and
- the ability of our principal
stockholder, whose interests may conflict with yours, to strongly
influence or effectively control our corporate decisions.
The forward-looking statements made in this press release are
made only as of the date of the hereof. Except as required by law,
we undertake no obligation to update any forward-looking statement,
whether as a result of new information or otherwise. More
information about potential factors that could affect our business
and financial results is included in our filings with the SEC.
Use of Non-GAAP Financial Measures
In addition to the results prepared in accordance with generally
accepted accounting principles in the United States (“GAAP”)
provided throughout this press release, the Company has presented
the following Non-GAAP financial measures: EBITDA, Adjusted EBITDA,
Adjusted EBITDA less noncontrolling interests (NCI), Adjusted net
income (loss) attributable to American Renal Associates Holdings,
Inc., Adjusted cash provided (used) by operating activities and
Adjusted owned net debt, which exclude various items detailed in
the attached “Reconciliation of Non-GAAP Financial Measures.”
These Non-GAAP financial measures are not
intended to replace financial performance and liquidity measures
determined in accordance with GAAP. Rather, they are presented as
supplemental measures of the Company's performance and liquidity
that management believes may enhance the evaluation of the
Company's ongoing operating results. Please see “Reconciliation of
Non-GAAP Financial Measures” for additional reasons for why these
measures are provided.
American Renal Associates Holdings,
Inc. and Subsidiaries
Consolidated Statements of
Operations
(Unaudited)
(dollars in thousands except per share
amounts)
Three Months Ended June 30, Six Months Ended June
30, 2017 2016 2017
2016 Patient service operating revenues $ 187,602 $
186,938 $ 366,234 $ 360,492 Provision for uncollectible accounts
(1,610 ) (1,371 ) (3,217 ) (2,794 ) Net patient service operating
revenues 185,992 185,567 363,017 357,698 Operating expenses:
Patient care costs 118,059 109,779 238,360 215,234 General and
administrative 26,381 31,942 57,625 53,441 Transaction-related
costs 717 2,215 717 2,239 Depreciation and amortization 9,382 8,252
18,456 15,929 Certain legal matters 4,297 — 8,233
— Total operating expenses 158,836 152,188
323,391 286,843 Operating income 27,156 33,379
39,626 70,855 Interest expense, net (7,188 ) (8,941 ) (14,797 )
(21,199 ) Loss on early extinguishment of debt (526 ) (4,708 ) (526
) (4,708 ) Income tax receivable agreement (expense) income (2,641
) (7,835 ) 1,876 (7,835 ) Income before income taxes 16,801
11,895 26,179 37,113 Income tax expense (benefit) 410 (1,147
) (3,114 ) 1,514 Net income 16,391 13,042 29,293 35,599
Less: Net income attributable to noncontrolling interests (18,497 )
(22,488 ) (32,650 ) (41,289 ) Net loss attributable to American
Renal Associates Holdings, Inc. (2,106 ) (9,446 ) (3,357 ) (5,690 )
Less: Change in the difference between the redemption value and
estimated fair values for accounting purposes of the related
noncontrolling interests (2,527 ) (12,133 ) (13,610 ) (12,133 ) Net
loss attributable to common shareholders $ (4,633 ) $ (21,579 ) $
(16,967 ) $ (17,823 ) Loss per share: Basic $ (0.15 ) $ (0.76 ) $
(0.55 ) $ (0.70 ) Diluted (0.15 ) (0.76 ) (0.55 ) (0.70 )
Weighted-average number of common shares
outstanding:
Basic 30,986,689 28,406,999 30,947,304 25,344,510 Diluted
30,986,689 28,406,999 30,947,304 25,344,510 Cash dividends declared
per share* $ — $ 1.30 $ — $ 1.30
* Paid to shareholders prior to the Company's initial public
offering.
American Renal Associates Holdings,
Inc. and Subsidiaries
Consolidated Balance Sheets
(dollars in thousands except per share
data)
June 30, 2017 December 31, 2016 Assets
(Unaudited) Cash $ 74,933 $ 100,916 Accounts receivable, less
allowance for doubtful accounts of $9,144 and $8,726, respectively
77,841 81,127 Inventories 4,960 4,676 Prepaid expenses and other
current assets 23,150 18,498 Income tax receivable 10,254
5,163 Total current assets 191,138 210,380 Property and
equipment, net of accumulated depreciation of $138,033 and
$121,242, respectively 165,495 170,118 Intangible assets, net of
accumulated amortization of $23,149 and $23,489, respectively
25,638 25,626 Other long-term assets 8,885 6,753 Goodwill 573,147
573,147 Total assets $ 964,303 $ 986,024
Liabilities and Equity Accounts payable $ 28,184 $
31,127 Accrued compensation and benefits 28,654 29,103 Accrued
expenses and other current liabilities 60,663 45,286 Current
portion of long-term debt 45,711 48,274 Total current
liabilities 163,212 153,790 Long-term debt, less current portion
516,442 522,058 Income tax receivable agreement payable 15,600
21,200 Other long-term liabilities 13,859 11,670 Deferred tax
liabilities 1,128 1,278 Total liabilities 710,241
709,996 Commitments and contingencies Noncontrolling interests
subject to put provisions 113,925 130,365 Equity: Preferred stock,
$0.01 par value; 1,000,000 shares authorized; none issued Common
stock, $0.01 par value; 300,000,000 shares authorized; 31,283,812
and 30,894,962 issued and outstanding at June 30, 2017 and December
31, 2016, respectively 185 184 Additional paid-in capital 95,369
95,062 Receivable from noncontrolling interests (415 ) (544 )
Accumulated deficit (132,003 ) (128,646 ) Accumulated other
comprehensive loss, net of tax (1,420 ) (100 ) Total American Renal
Associates Holdings, Inc. deficit (38,284 ) (34,044 )
Noncontrolling interests not subject to put provisions 178,421
179,707 Total equity 140,137 145,663
Total liabilities and equity $ 964,303 $ 986,024
American Renal Associates Holdings,
Inc. and Subsidiaries
Consolidated Statements of Cash
Flows
(Unaudited)
(dollars in thousands)
Three Months Ended June 30, Six Months Ended June
30, Operating activities 2017
2016 2017 2016 Net income $
16,391 $ 13,042 $ 29,293 $ 35,599 Adjustments to reconcile net
income to cash provided by operating activities: Depreciation and
amortization 9,382 8,252 18,456 15,929 Amortization of discounts,
fees and deferred financing costs 535 1,010 1,065 1,807 Loss on
extinguishment of debt 526 4,708 526 4,708 Stock-based compensation
3,643 10,179 13,731 10,565 Premium paid for interest rate cap
agreements — — (1,186 ) — Deferred taxes 56 (7,836 ) 729 (7,769 )
Income tax receivable agreement income 2,641 7,835 (1,876 ) 7,835
Payment related to tax receivable agreement (878 ) — (878 ) —
Non-cash charge related to interest rate swap — 227 173 850
Non-cash rent charges 142 408 431 920 Loss on disposal of assets
133 — 190 — Change in operating assets and liabilities, net of
acquisitions: Accounts receivable (346 ) (1,073 ) 3,286 15
Inventories (312 ) 725 (284 ) (499 ) Prepaid expenses and other
current assets (5,767 ) 1,457 (9,637 ) 1,305 Other assets (489 )
710 (552 ) 692 Accounts payable 3,579 (342 ) (2,943 ) 944 Accrued
compensation and benefits 2,562 3,973 (449 ) 2,965 Accrued expenses
and other liabilities 4,040 9,378 2,285 13,363
Cash provided by operating activities 35,838 52,653 52,360
89,229
Investing activities Purchases of property, equipment
and intangible assets (7,647 ) (17,825 ) (14,053 ) (34,221 ) Cash
paid for acquisitions — (800 ) — (800 ) Cash used in
investing activities (7,647 ) (18,625 ) (14,053 ) (35,021 )
Financing activities Proceeds from issuance of common stock
sold in initial public offering, net of underwriting discounts and
offering expense — 175,378 — 175,378 Proceeds from issuance of
long-term debt 7,401 60,000 7,401 60,000 Cash paid for debt
issuance and other financing costs (8,542 ) (1,350 ) (8,542 )
(1,350 ) Proceeds from term loans, net of deferred financing costs
7,110 27,482 11,991 39,764 Payments on long-term debt (12,045 )
(248,344 ) (21,734 ) (255,806 ) Dividends and dividend equivalents
paid (8,409 ) (30,176 ) (8,680 ) (30,176 ) Proceeds from exercise
of stock options 506 — 536 — Payments of deferred offering costs —
467 — — Common stock repurchases for tax withholdings of net
settlement equity awards — (71 ) — (71 ) Distributions to
noncontrolling interests (19,498 ) (22,533 ) (38,542 ) (43,973 )
Contributions from noncontrolling interests 1,177 2,557 2,887 4,441
Purchases of noncontrolling interests (4,961 ) (277 ) (9,507 ) (277
) Proceeds from sales of additional noncontrolling interests —
142 — 142 Cash used in
financing activities (37,261 ) (36,725 ) (64,190 ) (51,928 )
(Decrease) increase in cash (9,070 ) (2,697 ) (25,883 )
2,280 Cash and restricted cash at beginning of period 84,103
95,965 100,916 90,988 Cash and
restricted cash at end of period $ 75,033 $
93,268 $ 75,033 $ 93,268
Supplemental Disclosure of Cash Flow Information Cash paid
for income taxes $ 1,193 $ 5,183 $ 1,320 $ 5,376 Cash paid for
interest 6,603 8,019 13,435 18,600
Supplemental Disclosure of
Non-Cash Financing Activities Accrued offering expense — 314 —
314 Tax Receivable Agreement — 23,400 — 23,400 Non-Cash Dividend —
26,232 — 26,232 Accrued purchases of noncontrolling interests
16,500 — 16,500 — Liability for accrued dividend equivalent
payments 710 1,540 2,544 1,540
American Renal Associates Holdings,
Inc. and Subsidiaries
Unaudited GAAP, Non-GAAP, and Other
Supplemental Business Metrics
(dollars in thousands except per
treatment amounts)
Three Months Ended Dialysis Clinic
Activity: June 30, 2017 March 31,
2017 June 30, 2016 Number of clinics (as
of end of period)
217 217 201 Number of de
novo clinics opened (during period)
2 3 6
Number of acquired clinics (during period)
— —
1 Signed clinics (as of end of period)
32 32
36 Patients and Treatment Volume: Patients (as of end
of period) 15,023 14,735 13,755 Treatments 542,749 531,220 498,368
Number of treatment days 78 77 78 Treatments per day 6,958 6,899
6,389
Sources of treatment growth (year over year % change):
Non-acquired growth 8.6 % 9.2 % 10.8 % Acquired growth 0.3 % 0.9 %
1.0 % Total treatment growth 8.9 % 10.1 % 11.8 %
Revenue:
Patient service operating revenues $ 187,602 $ 178,632 $ 186,938
Patient service operating revenues per treatment $ 346 $ 336 $ 375
Net patient service operating revenues $ 185,992 $ 177,025 $
185,567
Expenses: Adjusted Patient care costs (1) Amount $
117,913 $ 118,582 $ 108,290 As a % of net patient service operating
revenues 63.4 % 67.0 % 58.4 % Per treatment $ 217 $ 223 $ 217
Adjusted General and administrative expenses (2) Amount $ 23,483 $
23,859 $ 23,629 As a % of net patient service operating revenues
12.6 % 13.5 % 12.7 % Per treatment $ 43 $ 45 $ 47 Provision for
uncollectible accounts Amount $ 1,610 $ 1,607 $ 1,371 As a % of net
patient service operating revenues 0.9 % 0.9 % 0.7 % Per treatment
$ 3 $ 3 $ 3
Accounts receivable DSO (days) 38 39 37
Adjusted EBITDA* Adjusted EBITDA including noncontrolling
interests $ 45,900 $ 35,568 $ 54,118 Adjusted EBITDA - NCI $ 27,403
$ 21,415 $ 31,630
Clinical (quarterly averages): Dialysis
adequacy - % of patients with Kt/V > 1.2 98 % 99 % 98 % Vascular
access - % catheter in use > 90 days 11 % 11 % 10 %
* See reconciliation of Non-GAAP Financial Measures.
(1) Adjusted patient care costs exclude $0.5 million, $1.7
million and $1.4 million of stock-based compensation related to
modification of options at the time of the Company’s IPO during the
three months ended June 30, 2017, March 31, 2017 and
June 30, 2016, respectively. The three months ended June 30,
2017 also excludes $0.1 million severance expense and $0.5 million
gain on sale of assets. The three months ended June 30, 2016
excludes $0.1 million of stock-based compensation related to the
early adoption of ASU 2016-09, as the stock compensation relates to
the modified options referenced above.
(2) Adjusted general and administrative expenses exclude $2.1
million, $7.4 million and $8.0 million of stock-based compensation
related to modification of options at the time of the Company’s IPO
during the three months ended June 30, 2017, March 31,
2017 and June 30, 2016, respectively. The three months ended
June 30, 2017 also excludes $0.8 million severance expense. The
three months ended June 30, 2016 excludes $0.3 million of
stock-based compensation related to the early adoption of ASU
2016-09, as the stock compensation relates to the modified options
referenced above.
American Renal Associates Holdings,
Inc. and Subsidiaries
Net (Loss) Income per Share
Reconciliation
(Unaudited)
(dollars in thousands except per share
data)
Three Months Ended June
30,
Six Months Ended June
30,
2017 2016 2017
2016 Basic Net loss attributable to American Renal
Associates Holdings, Inc. $ (2,106 ) $ (9,446 ) $ (3,357 ) $ (5,690
) Change in the difference between the redemption value and
estimated fair values for accounting purposes of the related
noncontrolling interests (2,527 ) (12,133 ) (13,610 ) (12,133 ) Net
loss attributable to common shareholders for basic earnings per
share calculation $ (4,633 ) $ (21,579 ) $ (16,967 ) $ (17,823 )
Weighted-average common shares outstanding 30,986,689
28,406,999 30,947,304 25,344,510 Loss per
share, basic $ (0.15 ) $ (0.76 ) $ (0.55 ) $ (0.70 )
Diluted
Net loss attributable to American Renal Associates Holdings, Inc. $
(2,106 ) $ (9,446 ) $ (3,357 ) $ (5,690 ) Change in the difference
between the redemption value and estimated fair values for
accounting purposes of the related noncontrolling interests (2,527
) (12,133 ) (13,610 ) (12,133 ) Net loss attributable to common
shareholders for diluted earnings per share calculation $ (4,633 )
$ (21,579 ) $ (16,967 ) $ (17,823 ) Weighted-average common shares
outstanding, basic 30,986,689 28,406,999 30,947,304 25,344,510
Weighted-average effect of dilutive securities: Effect of assumed
exercise of stock options — — — —
Weighted-average common shares outstanding, diluted 30,986,689
28,406,999 30,947,304 25,344,510 Loss
per share, diluted $ (0.15 ) $ (0.76 ) $ (0.55 ) $ (0.70 )
Outstanding options excluded as impact would be anti-dilutive
3,291,722 555,329 2,303,407 336,133
American Renal Associates Holdings, Inc. and
SubsidiariesReconciliation of Non-GAAP Financial
Measures:(Unaudited)(dollars in thousands)
We use Adjusted EBITDA and Adjusted EBITDA-NCI to track our
performance. “Adjusted EBITDA” is defined as net income before
income taxes, interest expense, net, depreciation and amortization,
as adjusted for stock-based compensation and associated payroll
taxes, loss on early extinguishment of debt, transaction-related
costs, certain legal matters costs, executive and management
severance costs, income tax receivable agreement income and
expense, management fees and gain on sale of assets. “Adjusted
EBITDA-NCI” is defined as Adjusted EBITDA less net income
attributable to noncontrolling interests. We believe Adjusted
EBITDA and Adjusted EBITDA-NCI provide information useful for
evaluating our business and a further understanding of the
Company's results of operations from management's perspective. We
believe Adjusted EBITDA is helpful in highlighting trends because
Adjusted EBITDA excludes the results of actions that are outside
the operational control of management, but can differ significantly
from company to company depending on long-term strategic decisions
regarding capital structure, the tax jurisdictions in which
companies operate and capital investments. We believe Adjusted
EBITDA-NCI is helpful in highlighting the amount of Adjusted EBITDA
that is available to us after reflecting the interests of our joint
venture partners. Adjusted EBITDA and Adjusted EBITDA-NCI are not
measures of operating performance computed in accordance with GAAP
and should not be considered as a substitute for operating income,
net income, cash flows from operations, or other statement of
operations or cash flow data prepared in conformity with GAAP, or
as measures of profitability or liquidity. In addition, Adjusted
EBITDA and Adjusted EBITDA-NCI may not be comparable to similarly
titled measures of other companies. Adjusted EBITDA and Adjusted
EBITDA-NCI may not be indicative of historical operating results,
and we do not mean for these items to be predictive of future
results of operations or cash flows. Adjusted EBITDA and Adjusted
EBITDA-NCI have limitations as analytical tools, and you should
not consider these items in isolation, or as substitutes for
an analysis of our results as reported under GAAP. Some of these
limitations are that Adjusted EBITDA and Adjusted EBITDA-NCI:
- do not include stock-based compensation
expense, and beginning with the quarter ended June 30, 2017, do not
include associated payroll taxes;
- do not include transaction-related
costs;
- do not include depreciation and
amortization—because construction and operation of our dialysis
clinics requires significant capital expenditures, depreciation and
amortization are a necessary element of our costs and ability to
generate profits;
- do not include interest expense—as we
have borrowed money for general corporate purposes, interest
expense is a necessary element of our costs and ability to generate
profits and cash flows;
- do not include income tax receivable
agreement income and expense;
- do not include loss on early
extinguishment of debt;
- do not include costs related to certain
legal matters;
- beginning with the quarter ended
December 31, 2016, do not include executive and management
severance costs;
- do not include management fees;
- do not include certain income tax
payments that represent a reduction in cash available to us;
- do not include changes in, or cash
requirements for, our working capital needs; and
- do not include gain on sale of
assets.
In addition, Adjusted EBITDA is not adjusted for the portion of
earnings that we distribute to our joint venture partners.
You should not consider Adjusted EBITDA and Adjusted EBITDA-NCI
as alternatives to income from operations or net income, determined
in accordance with GAAP, as an indicator of our operating
performance, or as alternatives to cash provided by operating
activities, determined in accordance with GAAP, as an indicator of
cash flows or as a measure of liquidity. This presentation of
Adjusted EBITDA and Adjusted EBITDA-NCI may not be directly
comparable to similarly titled measures of other companies, since
not all companies use identical calculations.
We use Adjusted net income attributable to American Renal
Associates Holdings, Inc. because it is a useful measure to
evaluate our performance by excluding the impact of certain items
that we believe are not related to our normal business operations
and/or are a result of changes in our liabilities from period to
period. See the notes to the tables below for further explanation
of the exclusion of certain items. By excluding these items, we
believe Adjusted net income allows us and investors to evaluate our
net income on a more consistent basis. “Adjusted net income
attributable to American Renal Associates Holdings, Inc.” is
defined as Net income (loss) attributable to American Renal
Associates Holdings, Inc. plus or minus, as applicable, income
tax receivable agreement income/expense, accounting changes in
fair value of non-controlling interest puts, certain legal matter
costs, and stock-based compensation due to option modifications and
other transactions at the time of the Company’s initial public
offering, net of taxes. We use Adjusted weighted average number of
diluted shares to calculate Adjusted net income attributable to
American Renal Associates Holdings, Inc. per share. Adjusted
weighted average number of diluted shares outstanding is calculated
using the treasury method as if certain unvested in-the-money
options subject to a contingency are treated as being vested to
provide investors with a calculation of the fully-diluted number of
shares assuming certain pre-IPO options vested prior to their
actual vesting on April 21, 2017.
We use Adjusted cash provided (used) by operating activities
less distributions to NCI because it is a useful measure to
evaluate the cash flow that is available to the Company for
investment in property, plant and equipment, debt service, growth
and other general corporate purposes. “Adjusted cash provided
(used) by operating activities less distributions to noncontrolling
interests” is defined as cash provided by operating activities plus
transaction-related expenses less distributions to noncontrolling
interests.
We use Adjusted owned net debt because it is a useful metric to
evaluate the Company’s share of interests in the cash on our
consolidated balance sheet and the debt of the Company. “Adjusted
owned net debt” is defined as Debt (other than clinic-level debt)
plus Clinic-level debt guaranteed by our wholly owned subsidiaries
of American Renal Associates Holdings, Inc. less Cash (other than
clinic-level cash) less the Company’s pro rata interest in
Clinic-level cash. “Owned Net Leverage” is defined as the ratio of
Owned Net Debt to our trailing twelve months Adjusted EBITDA less
NCI.
The following table presents the reconciliation from net income
to Adjusted EBITDA and Adjusted EBITDA-NCI for the periods
indicated:
(Unaudited)
Reconciliation of Net income to Adjusted EBITDA
Three Months Ended June
30,
Six Months Ended June
30,
LTM (1) as of June 30,
2017
2017 2016 2017
2016 Net income $ 16,391 $ 13,042 $ 29,293 $ 35,599 $ 81,899
Interest expense, net 7,188 8,941 14,797 21,199 29,531 Income tax
expense (benefit) 410 (1,147 ) (3,114 ) 1,514 (5,381 ) Depreciation
and amortization 9,382 8,252 18,456 15,929 36,389
Transaction-related costs 717 2,215 717 2,239 717 Loss on early
extinguishment of debt 526 4,708 526 4,708 526 Income tax
receivable agreement expense (income) 2,641 7,835 (1,876 ) 7,835
(10,997 ) Certain legal matters (2) 4,297 — 8,233 — 15,012
Executive and management severance costs (3) 917 — 917 — 2,567
Stock-based compensation and related payroll taxes 3,948 10,192
14,036 10,578 43,756 Gain on sale of assets (517 ) — (517 ) — (517
) Management fees — 80 — 537 —
Adjusted EBITDA (including noncontrolling interests) $ 45,900 $
54,118 $ 81,468 $ 100,138 $ 193,502 Less: Net income attributable
to noncontrolling interests (18,497 ) (22,488 ) (32,650 ) (41,289 )
(79,951 ) Adjusted EBITDA-NCI $ 27,403 $ 31,630 $
48,818 $ 58,849 $ 113,551
__________________________________
(1) Last twelve months (“LTM”) is the period beginning July 1,
2016 through June 30, 2017.
(2) Certain legal matters costs include professional fees and
other expenses associated with the Company’s handling of, and
response to, the UnitedHealth litigation, the now-concluded SEC
inquiry, the CMS request for information, the securities
litigation, and the Company’s internal review and analysis of
factual and legal issues relating to the aforementioned matters as
described in our Form 10-Q for the period ended June 30, 2017.
We have excluded these costs because they represent unusual fees
and expenses that are not related to the usual operation of our
business.
(3) Represents executive and management severance costs.
The following table presents the reconciliation from Net loss
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 Loss Attributable
to American Renal Associates Holdings, Inc. to Adjusted Net
Income Attributable to American Renal Associates Holdings,
Inc.:
(Unaudited)
Three Months Ended June
30,
2017 2016 Net loss attributable to
American Renal Associates Holdings, Inc. (2,106 ) (9,446 ) Change
in the difference between the redemption value and estimated fair
values for accounting purposes of the related noncontrolling
interests (1) (2,527 ) (12,133 ) Net loss
attributable to common shareholders $ (4,633 ) $ (21,579 )
Adjustments: Stock-based compensation due to option modification
and IPO transactions (2) 2,644 9,448 Certain legal matters (3)
4,297 — Loss on early extinguishment of debt 526 4,708
Transaction-related costs 717 2,215 Executive and management
severance costs 917 — Gain on sale of assets (517 ) — Total
pre-tax adjustments $ 8,584 $ 16,371 Tax effect 3,560 6,789 Income
tax receivable agreement expense 2,641 7,835 Change in the
difference between the redemption value and estimated fair values
for accounting purposes of the related noncontrolling interests (1)
(2,527 ) (12,133 ) Total adjustments, net $
10,192 $ 29,550 Adjusted net income attributable to American Renal
Associates Holdings, Inc. $ 5,559 $ 7,971 Basic shares
outstanding 30,986,689 28,406,999 Adjusted effect of dilutive stock
options (4) 2,957,728 3,322,325
Adjusted weighted average number of diluted shares used to compute
adjusted net income attributable to American Renal Associates
Holdings, Inc. per share (4) 33,944,417
31,729,324
Adjusted net income attributable to American
Renal Associates Holdings, Inc. per share $ 0.16
$ 0.25
__________________________
(1) Changes in fair values of contractual noncontrolling
interest put provisions are related to certain put rights that may
be accelerated as a result of the IPO.
(2) Stock-based compensation due to option modification and
other transactions at the time of the IPO which were expensed
within 12 months after the IPO have been excluded since they arose
based on transactions that are not expected to occur in the
future.
(3) Certain legal matters costs include
professional fees and other expenses associated with the Company’s
handling of, and response to, the UnitedHealth litigation, the
now-concluded SEC inquiry, the CMS request for information, the
securities litigation, and the Company’s internal review and
analysis of factual and legal issues relating to the aforementioned
matters as described in our Form 10-Q for the period ended
June 30, 2017. We have excluded these costs because they
represent unusual fees and expenses that are not related to the
usual operation of our business.
(4) Adjusted weighted average number of diluted
shares outstanding calculated using the treasury method as if 2.5
million shares related to unvested in-the-money options subject to
a contingency are vested.
American Renal Associates Holdings,
Inc. and Subsidiaries
Unaudited Supplemental Cash
Flow
(dollars in thousands)
Three Months Ended June 30, Six Months
Ended June 30, 2017 2016
2017 2016 Cash provided by operating
activities $ 35,838 $ 52,653 $ 52,360 $ 89,229 Plus:
Transaction-related costs (1) 717 2,215 717
2,239
Adjusted cash provided by operating activities
$ 36,555 $ 54,868 $ 53,077 $ 91,468 Distributions to noncontrolling
interests (19,498 ) (22,533 ) (38,542 ) (43,973 )
Adjusted cash
provided by operating activities less distributions to NCI $
17,057 $ 32,335 $ 14,535 $ 47,495
Capital expenditure
breakdown: Routine and maintenance capital expenditures $ 1,996
$ 2,890 $ 3,914 $ 5,748 Development capital expenditures 5,651
14,935 10,139 28,473
Total capital
expenditures $ 7,647 $ 17,825 $ 14,053 $ 34,221
American Renal Associates Holdings,
Inc. and Subsidiaries
Unaudited Supplemental Leverage
Statistics
(dollars in thousands)
As of June 30, 2017 Total ARA
ARA "Owned" Cash (other than clinic-level cash) $ 8,407 $
8,407 Clinic-level cash 66,526 34,403 Total cash $
74,933 $ 42,810 Debt (other than clinic-level debt) $ 442,872 $
442,872 Clinic-level debt 129,541 67,247 Unamortized debt discounts
and fees (10,260 ) (10,260 ) Total debt $ 562,153 $ 499,859
Adjusted owned net debt (total debt - total cash) $ 457,049
Adjusted EBITDA less NCI, LTM $ 113,551
Leverage ratio
(2) 4.0x
_________________________
(1) Transaction-related costs due to the IPO and debt
refinancing in the three and six months ended June 30, 2016 and the
debt refinancing in the three and six months ended June 30, 2017,
including accounting, valuation, legal and other consulting and
professional fees.
(2) Leverage ratio calculated as follows: Adjusted owned net
debt divided by Adjusted EBITDA less NCI, last twelve months.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170808006087/en/
American Renal Associates Holdings, Inc. Contact:Darren
Lehrich, 978-522-6063SVP Strategy & Investor
Relationsdlehrich@americanrenal.com
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