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 quarter and
year ended December 31, 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).
Fourth Quarter 2017 Highlights (all percentage changes
compare Q4 2017 to Q4 2016 unless noted):
- Net patient service operating revenues
decreased 2% to $194.4 million;
- Net income attributable to American
Renal Associates Holdings, Inc. was $0.2 million as compared to a
loss of $7.1 million;
- Adjusted EBITDA less noncontrolling
interests (“Adjusted EBITDA-NCI”) was $28.6 million as compared to
$32.2 million;
- Adjusted net income attributable to
American Renal Associates Holdings, Inc. was $6.0 million or $0.18
per share for Q4 2017;
- Total dialysis treatments increased
6.7%, of which 6.1% was non-acquired growth; and
- As of December 31, 2017, the
Company operated 228 outpatient dialysis centers serving
approximately 15,600 patients.
Joseph (Joe) Carlucci, Chairman and Chief Executive Officer,
said, “We are pleased with our fourth quarter and full-year 2017
results. As I reflect on 2017, I could not be more proud of how our
organization has responded, and frankly risen above, many of the
challenges we faced a little over a year ago. I believe we have
entered 2018 in a stronger position to grow - driven by a more
sustainable cost structure, continued execution on our development
program, and other operational tailwinds. We also enter 2018 with
an even greater focus on building upon our operating model to
integrate patient care even more closely with our physician
partners. We are doing this from a position of strength because the
partnership model we’ve developed has been validated by strong
quality metrics, outstanding patient satisfaction and
industry-leading physician satisfaction rates.”
“During the fourth quarter of 2017, our organization maintained
its strong focus on delivering quality patient care, while
sustaining the performance in the operational initiatives we
outlined in early 2017. We delivered on the commitments we made by
achieving our 2017 financial guidance, and we are establishing 2018
guidance that is underpinned by solid fundamentals,” continued
Carlucci.
Financial and operating highlights include:
Revenue: Net patient service operating revenues for the
fourth quarter of 2017 were $194.4 million, a decrease of 2.4% as
compared to $199.1 million for the prior-year period due to adverse
changes in payor mix, partially offset by treatment growth. Net
patient service operating revenues for the year ending
December 31, 2017 were $745.1 million, a decrease of 0.6% as
compared to $749.8 million for the prior-year period.
Treatment Volume: Total dialysis treatments for the
fourth quarter of 2017 were 565,945, representing an increase of
6.7% over the fourth quarter of 2016. Non-acquired treatment growth
was 6.1% and acquired treatment growth was 0.6% for the fourth
quarter of 2017. Total dialysis treatments for the year ending
December 31, 2017 were 2,191,172, representing an increase of
8.1% over the prior year period. Non-acquired treatment growth was
7.9% and acquired treatment growth was 0.2% for the year ending
December 31, 2017.
Clinic Activity: As of December 31, 2017, the
Company provided services at 228 outpatient dialysis clinics
serving 15,637 patients. During the fourth quarter of 2017, we
opened nine de novo clinics, acquired three dialysis clinics and
merged one clinic into another. For the year ending December 31,
2017, we opened 15 de novo clinics, acquired three dialysis
clinics, merged two clinics and sold two clinics. As of
December 31, 2017, we had 25 signed de novo clinics scheduled
to open in the future.
Net income, Net income attributable to noncontrolling
interests, Net income (loss) attributable to American Renal
Associates Holdings, Inc., Adjusted EBITDA and Adjusted EBITDA less
noncontrolling interests:
(Unaudited)
Three Months
Ended December 31, Increase (Decrease) (in
thousands) 2017 2016 Amount
Percentage Change* Net income $ 19,718 $
16,560 $ 3,158 19.1 % Net income attributable to noncontrolling
interests (19,487 ) (23,679 ) (4,192 ) (17.7 )% Net income (loss)
attributable to ARA $ 231 $ (7,119 ) $ 7,350 NM
Non-GAAP financial measures**: Adjusted EBITDA $
48,051 $ 55,880 $ (7,829 ) (14.0 )% Adjusted EBITDA less
noncontrolling interests $ 28,564 $ 32,201 $ (3,637 ) (11.3 )%
(Unaudited)
Year Ended December 31, Increase
(Decrease) (in thousands) 2017
2016 Amount Percentage Change*
Net income $ 75,683 $ 88,205 $ (12,522 ) (14.2 )% Net income
attributable to noncontrolling interests
(70,826
) (88,590 ) (17,764 ) (20.1 )% Net income (loss)
attributable to ARA
$
4,857
$
(385
) $ 5,242 NM
Non-GAAP financial measures**:
Adjusted EBITDA
$
176,357
$ 212,172 $ (35,815 ) (16.9 )% Adjusted EBITDA less noncontrolling
interests $ 105,531 $ 123,582 $ (18,051 ) (14.6 )%
_________________________________
* NM - Not Meaningful
** See “Reconciliation of Non-GAAP
Financial Measures.”
Operating Expenses: Patient care costs for the
fourth quarter of 2017 were $124.5 million, or 64.0% of net patient
service operating revenues, as compared to $121.1 million, or 60.8%
(or 59.9% excluding the Modification Expense described below) of
net patient service operating revenues, in the prior-year period.
Patient care costs for the fourth quarter of 2016 include $1.9
million of stock-based compensation related to modification of
options at the time of the Company’s initial public offering
(“Modification Expense”).
General and administrative expenses were $22.7 million, or 11.7%
(or 12.0% excluding gain on sale of assets) of net patient service
operating revenues, as compared to $40.8 million, or 20.5% (or
12.2% excluding the Modification Expense and executive severance
expense described below) of net patient service operating revenues,
in the prior-year period. General and administrative expenses for
the fourth quarter of 2017 includes $0.7 million of gain on sale of
assets. Additionally, general and administrative expenses for the
fourth quarter of 2016 include $13.4 million of Modification
Expense and $1.7 million of executive severance expense.
Patient care costs for the year ended December 31, 2017
were $482.5 million, or 64.7% (or 64.5% excluding the Modification
Expense, executive severance expense and gain on sale of assets) of
net patient service operating revenues, as compared to $452.4
million, or 60.3% (or 59.6% excluding the Modification Expense and
Other Stock Compensation Expense described below) of net patient
service operating revenues in the prior-year period. Patient care
costs include $2.2 million and $5.2 million for
the years ended December 31, 2017 and 2016,
respectively, of stock-based compensation related to the
Modification Expense and other transactions (“Other Stock
Compensation Expense”) at the time of the Company's initial public
offering (“IPO”). Patient care costs also include $0.1 million of
executive severance expense and $0.6 million gain on sale of assets
for the year ended December 31, 2017.
General and administrative expenses during the year ended
December 31, 2017 were $102.6 million, or 13.8% (or 12.5%
excluding the Modification Expense, executive severance expense and
gain on sale of assets) of net patient service operating revenues,
as compared to $127.6 million, or 17.0% (or 12.5% excluding the
Modification Expense, Other Stock Compensation Expense and
executive severance expense) of net patient service operating
revenues in the prior-year period. General and administrative
expenses include $9.5 million and $31.7 million for
the years ended December 31, 2017 and 2016,
respectively, of Modification Expense. General and administrative
expenses also include $0.8 million and $1.7 million in severance
expense for the years ended December 31, 2017 and 2016,
respectively, and $0.7 million of gain on sale of assets for the
year ended December 31, 2017.
Income Taxes: During the fourth quarter of 2017, the
Company recognized income tax expense of $4.4 million related to
the 2017 Tax Cuts and Jobs Act (the "Act"). As a result of the
passage of the Act, the Company expects its effective tax rate to
be in the range of 27%-29% during 2018.
Cash Flow: Cash provided by operating activities for the
fourth quarter of 2017 was $31.2 million as compared to $30.3
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
fourth quarter of 2017 was $12.2 million as compared to $2.8
million in the prior-year period. Total capital expenditures for
the fourth quarter of 2017 were $11.3 million as compared to $14.8
million in the prior-year period. Capital expenditures for the
fourth quarter of 2017 included $0.9 million for maintenance and
$10.4 million for expansions and new clinic development.
Cash provided by operating activities for the year ended
December 31, 2017 was $128.5 million as compared to $172.2
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 year
ended December 31, 2017 was $49.8 million as compared to $80.0
million in the prior-year period. Total capital expenditures for
the year ended December 31, 2017 were $36.1 million as compared to
$61.4 million in the prior-year period. Capital expenditures for
the year ended December 31, 2017 included $6.4 million for
maintenance and $29.7 million for expansions and new clinic
development.
Balance Sheet: At December 31, 2017, the Company’s
balance sheet included consolidated cash of $71.5 million and
consolidated debt of $560.1 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 $459.5
million at December 31, 2017, as compared to $438.1 million at
December 31, 2016. Adjusted owned net debt to last twelve months
Adjusted EBITDA-NCI leverage ratio was 4.4x at December 31, 2017.
As of December 31, 2017, net patient accounts receivable were $79.7
million and DSO for the period was 37 days as compared to 39 days
as of September 30, 2017.
2018 Outlook for Adjusted EBITDA-NCI:
The Company expects 2018 Adjusted EBITDA-NCI to be in a range of
$110 million and $116 million.
The Company’s 2018 Adjusted EBITDA-NCI excludes certain legal
costs to the extent they occur during 2018.
We are not providing a quantitative reconciliation of our
Non-GAAP outlook to the corresponding GAAP information because the
GAAP measures that we exclude from our Non-GAAP outlook are not
available without unreasonable effort on a forward-looking basis
due to their unpredictability, high variability, complexity and low
visibility. These excluded GAAP measures include noncontrolling
interests, interest expense, income taxes, and other charges. We
expect the variability of these charges to have a potentially
unpredictable, and potentially significant, impact on our future
GAAP financial results.
Please see the “Forward-Looking Statements” section of this
release for a discussion of certain risks to our outlook.
Conference Call
American Renal Associates Holdings, Inc. will hold a conference
call to discuss this release on Wednesday, March 7, 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 13676237.
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 December 31, 2017, ARA operated 228 dialysis
clinic locations in 26 states and the District of Columbia serving
approximately 15,600 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 on
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 to be filed with the
Securities and Exchange Commission ("SEC") that may cause actual
results to differ materially from those that we expected.
Some of the factors that could cause actual results to differ
materially from those expressed or implied by the forward-looking
statements include, among others, the following:
- continuing decline in the number of
patients with commercial insurance, including as a result of
changes to the healthcare exchanges or changes in regulations or
enforcement of regulations regarding the healthcare exchanges and
challenges from commercial payors or any regulatory or other
changes leading to changes in the ability of patients with
commercial insurance coverage to receive charitable premium
support;
- decline in commercial payor
reimbursement rates;
- the ultimate resolution of the Centers
for Medicare and Medicaid Services (“CMS”) Interim Final Rule
published December 14, 2016 related to dialysis facilities
Conditions for Coverage (CMS 3337-IFC), including an issuance of a
different but related Final Rule;
- reduction of government-based payor
reimbursement rates or insufficient rate increases or adjustments
that do not cover all of our operating costs;
- our ability to successfully develop de
novo clinics, acquire existing clinics and attract new physician
partners;
- our ability to compete effectively in
the dialysis services industry;
- the performance of our joint venture
subsidiaries and their ability to make distributions to us;
- changes to the Medicare end-stage renal
disease (“ESRD”) program that could affect reimbursement rates and
evaluation criteria, as well as changes in Medicaid or other
non-Medicare government programs or payment rates, including the
ESRD prospective payment rate system final rule for 2018
issued on October 27, 2017;
- federal or state healthcare laws that
could adversely affect us;
- our ability to comply with all of the
complex federal, state and local government regulations that apply
to our business, including those in connection with federal and
state anti-kickback laws and state laws prohibiting the corporate
practice of medicine or fee-splitting;
- heightened federal and state
investigations and enforcement efforts;
- the impact of the litigation by
affiliates of UnitedHealth Group, Inc., the Department of Justice
inquiry, securities and derivative litigation and related
matters;
- changes in the availability and cost of
erythropoietin-stimulating agents and other pharmaceuticals used in
our business;
- development of new technologies that
could decrease the need for dialysis services or decrease our
in-center patient population;
- our ability to timely and accurately
bill for our services and meet payor billing requirements;
- claims and losses relating to
malpractice, professional liability and other matters; the
sufficiency of our insurance coverage for those claims and rising
insurances costs; and any negative publicity or reputational damage
arising from such matters;
- loss of any members of our senior
management;
- damage to our reputation or our brand
and our ability to maintain brand recognition;
- our ability to maintain relationships
with our medical directors and renew our medical director
agreements;
- shortages of qualified skilled clinical
personnel, or higher than normal turnover rates;
- competition and consolidation in the
dialysis services industry;
- deteriorations in economic conditions,
particularly in states where we operate a large number of clinics,
or disruptions in the financial markets;
- the participation of our physician
partners in material strategic and operating decisions and our
ability to favorably resolve any disputes;
- our ability to honor obligations under
the joint venture operating agreements with our physician partners
were they to exercise certain put rights and other rights;
- unauthorized disclosure of personally
identifiable, protected health or other sensitive or confidential
information;
- our ability to meet our obligations and
comply with restrictions under our substantial level of
indebtedness; and
- the ability of our principal
stockholder, whose interests may conflict with yours, to strongly
influence or effectively control our corporate decisions.
The forward-looking statements made in this press release are
made only as of the date 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: 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 measures determined in accordance with GAAP.
Rather, they are presented as supplemental measures of the
Company's performance that management believes may enhance the
evaluation of the Company's ongoing operating results. Please see
“Reconciliation of Non-GAAP Financial Measures” for additional
reasons for why these measures are provided.
American Renal Associates Holdings, Inc. Consolidated
Statements of Operations (Unaudited) (dollars in
thousands except per share amounts)
Three Months Ended December 31, Year Ended December
31, 2017 2016 2017
2016 Patient service operating revenues $ 196,779 $
200,980 $ 752,510 $ 756,329 Provision for uncollectible accounts
(2,401 ) (1,866 ) (7,404 ) (6,562 ) Net patient service operating
revenues 194,378 199,114 745,106 749,767 Operating expenses:
Patient care costs 124,491 121,100 482,450 452,449 General and
administrative 22,681 40,831 102,598 127,631 Transaction-related
costs — — 717 2,239 Depreciation and amortization 9,740 9,246
37,634 33,862 Certain legal matters 3,535 2,737
15,249 6,779 Total operating expenses 160,447
173,914 638,648 622,960 Operating income
33,931 25,200 106,458 126,807 Interest expense, net (7,237 ) (7,362
) (29,289 ) (35,933 ) Loss on early extinguishment of debt — — (526
) (4,708 ) Income tax receivable agreement income (expense) 1,773
(3,444 ) 7,234 1,286 Income before income
taxes 28,467 14,394 83,877 87,452 Income tax expense (benefit)
8,749 (2,166 ) 8,194 (753 ) Net income 19,718 16,560
75,683 88,205 Less: Net income attributable to noncontrolling
interests (19,487 ) (23,679 ) (70,826 ) (88,590 ) Net income (loss)
attributable to ARA $ 231 $ (7,119 ) $ 4,857 $ (385 ) Less: Change
in the difference between the redemption value and estimated fair
value for accounting purposes of the related noncontrolling
interests 1,329 6,481 (12,276 ) (7,404 ) Net income
(loss) attributable to common shareholders $ 1,560 $ (638 )
$ (7,419 ) $ (7,789 ) Earnings (loss) per share: Basic $ 0.05 $
(0.02 ) $ (0.24 ) $ (0.28 ) Diluted $ 0.05 $ (0.02 ) $ (0.24 ) $
(0.28 ) Weighted-average number of common shares outstanding Basic
31,556,772 30,889,677 31,081,824 28,118,673 Diluted 34,014,593
30,889,677 31,081,824 28,118,673 Cash dividends declared per share*
$ — $ — $ — $ 1.30 _____________________________________
* Paid to shareholders prior to the
Company’s initial public offering.
American Renal Associates Holdings, Inc.
Consolidated Balance Sheets (Unaudited) (dollars
in thousands except for share data)
December 31,2017
December 31,2016
Assets Cash $ 71,521 $ 100,916 Accounts receivable, less
allowance for doubtful accounts of $6,757 and $8,726 at December
31, 2017 and 2016, respectively 79,662 81,127 Inventories 4,665
4,676 Prepaid expenses and other current assets 24,998 18,498
Income tax receivable 6,745 5,163 Total current
assets 187,591 210,380 Property and equipment, net 168,537 170,118
Intangible assets, net 25,368 25,626 Other long-term assets 9,285
6,753 Goodwill 573,427 573,147 Total assets $ 964,208
$ 986,024
Liabilities and Equity Accounts
payable $ 33,421 $ 31,127 Accrued compensation and benefits 28,985
29,103 Accrued expenses and other current liabilities 49,963 45,286
Current portion of long-term debt 44,534 48,274 Total
current liabilities 156,903 153,790 Long-term debt, less current
portion 515,554 522,058 Income tax receivable agreement payable
7,500 21,200 Other long-term liabilities 14,880 11,670 Deferred tax
liabilities 8,991 1,278 Total liabilities 703,828
709,996 Commitments and contingencies Noncontrolling interests
subject to put provisions 139,895 130,365 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, 32,034,439
and 30,894,962 issued and outstanding at December 31, 2017 and
2016, respectively 193 184 Additional paid-in capital 67,853 95,062
Receivable from noncontrolling interests (358 ) (544 ) Accumulated
deficit (123,789 ) (128,646 ) Accumulated other comprehensive loss,
net of tax (677 ) (100 ) Total American Renal Associates Holdings,
Inc. deficit (56,778 ) (34,044 ) Noncontrolling interests not
subject to put provisions 177,263 179,707 Total
equity 120,485 145,663 Total liabilities and equity $
964,208 $ 986,024
American Renal Associates Holdings,
Inc.
Consolidated Statements of Cash Flows (Unaudited)
(dollars in thousands) Three
Months Ended Year Ended December 31, December
31, Operating activities 2017
2016 2017 2016 Net income $
19,718 $ 16,560 $ 75,683 $ 88,205 Adjustments to reconcile net
income to cash provided by operating activities: Depreciation and
amortization 9,740 9,246 37,634 33,862 Amortization of discounts,
fees and deferred financing costs 497 163 2,031 2,595 Noncash loss
on early extinguishment of debt — — 526 4,708 Stock-based
compensation 1,110 17,047 15,872 40,285 Premium paid for interest
rate cap agreement — — (1,186 ) — Deferred taxes 7,725 (5,510 )
8,455 (14,018 ) Income tax receivable agreement (income) expense
(1,773 ) 3,444 (7,234 ) (1,286 ) Payment related to income tax
receivable agreement — — (878 ) — Non-cash charge related to
interest rate swap — (16 ) 173 473 Non-cash rent charges 456 427
1,044 2,191 Loss on disposal of assets 288 857 485 857 Gain on sale
of assets (683 ) — (1,257 ) — Change in operating assets and
liabilities, net of acquisitions: Accounts receivable 1,572 (3,874
) 1,465 (4,208 ) Inventories 7 (208 ) 11 (385 ) Prepaid expenses
and other current assets (6,511 ) (6,055 ) (7,936 ) (7,226 ) Other
assets (767 ) (263 ) (1,325 ) (219 ) Accounts payable (442 ) 7,850
2,294 8,556 Accrued compensation and benefits (2,782 ) 11 (118 )
6,599 Accrued expenses and other liabilities 3,020 (9,371 )
2,808 11,222 Cash provided by operating activities
31,175 30,308 128,547 172,211
Investing activities Purchases
of property and equipment (11,293 ) (14,773 ) (36,073 ) (61,432 )
Proceeds from asset and business sales 1,250 — 2,325 — Cash paid
for acquisitions (1,555 ) (40 ) (1,555 ) (4,507 ) Cash used in
investing activities (11,598 ) (14,813 ) (35,303 ) (65,939 )
Financing activities Proceeds from issuance of common stock
sold in initial public offering, net of underwriting discounts and
offering expense — — — 175,254 Net proceeds from issuance of
long-term debt — — 267,564 60,000 Cash paid for financing costs — —
(3,914 ) (1,350 ) Net proceeds from term loans 15,179 15,884 49,921
70,590 Payments on long-term debt (14,531 ) (9,203 ) (327,331 )
(275,243 ) Dividends and dividend equivalents paid (14 ) (18 )
(8,729 ) (30,241 ) Proceeds from exercise of stock options 1,697
170 2,380 170 Common stock repurchases for tax withholdings of net
settlement equity awards — — — (356 ) Distributions to
noncontrolling interests (18,969 ) (27,483 ) (79,478 ) (94,468 )
Contributions from noncontrolling interests 2,675 894 6,522 7,470
Purchases of noncontrolling interests (1,686 ) — (29,540 ) (8,397 )
Proceeds from sales of additional noncontrolling interests —
28 66 227
Cash used in financing activities
(15,649 ) (19,728 ) (122,539 ) (96,344 ) Increase (decrease) in
cash and restricted cash 3,928 (4,233 ) (29,295 ) 9,928 Cash and
restricted cash at beginning of year 67,693 105,149
100,916 90,988
Cash and restricted cash at end of
year $ 71,621 $ 100,916 $ 71,621 $ 100,916
Supplemental
Disclosure of Cash Flow Information Cash paid for income taxes
$ 314 $ 4,239 $ 1,885 $ 16,095 Cash paid for interest 6,701 6,778
26,812 32,499
American Renal Associates Holdings,
Inc. Unaudited Supplemental Business Metrics (dollars
in thousands) Three Months
Ended Year Ended December 31, 2017
September 30, 2017 December 31, 2016 December 31,
2017 December 31, 2016
Dialysis Clinic
Activity: Number of clinics (as of end of period)
228
217 214 228 214 Number of de novo
clinics opened (during period)
9 1 7 15
20 Number of acquired clinics (during period)
3
— — 3 2 Sold or merged clinics (during
period)
(1 ) (1 ) — (4
) — Signed clinics (as of end of period)
25
36 33 25 33 Patients and Treatment
Volume: Patients (as of end of period)
15,637
15,237 14,590 15,637 14,590 Treatments
565,945 551,258 530,346 2,191,172 2,027,423 Number of treatment
days 78 79 79 312 314 Treatments per day 7,256 6,978 6,713 7,023
6,457
Sources of treatment growth (year over year % change):
Non-acquired growth 6.1 % 6.8 % 10.3 % 7.9 % 11.7 % Acquired growth
0.6 % — % 1.1 % 0.2 % 0.6 % Total treatment growth 6.7 % 6.8 % 11.4
% 8.1 % 12.3 %
Revenue: Patient service operating revenues $
196,779 $ 189,497 $ 200,980 $ 752,510 $ 756,329 Patient service
operating revenues per treatment $ 348 $ 344 $ 379 $ 343 $ 373 Net
patient service operating revenues $ 194,378 $ 187,711 $ 199,114 $
745,106 $ 749,767 Net patient service operating revenues per
treatment $ 343 $ 341 $ 375 $ 340 $ 370
Expenses: Adjusted
patient care costs (1) Amount $ 124,512 $ 119,599 $ 119,221 $
480,642 $ 447,175 As a % of net patient service operating revenues
64.1 % 63.7 % 59.9 % 64.5 % 59.6 % Per treatment $ 220 $ 217 $ 225
$ 219 $ 221 Adjusted general and administrative expenses (2) Amount
$ 23,364 $ 22,292 $ 24,235 $ 92,998 $ 92,499 As a % of net patient
service operating revenues 12.0 % 11.9 % 12.2 % 12.5 % 12.3 % Per
treatment $ 41 $ 40 $ 46 $ 42 $ 46 Provision for uncollectible
accounts Amount $ 2,401 $ 1,786 $ 1,866 $ 7,404 $ 6,562 As a % of
net patient service operating revenues 1.2 % 0.9 % 0.9 % 1.0 % 0.9
% Per treatment $ 4 $ 3 $ 4 $ 3 $ 3
Accounts receivable DSO
(days) 37 39 37 37 37
Adjusted EBITDA* Adjusted EBITDA
including noncontrolling interests $ 48,051 $ 46,838 $ 55,880 $
176,357 $ 212,172 Adjusted EBITDA - NCI $ 28,564 $ 28,149 $ 32,201
$ 105,531 $ 123,582
Clinical (quarterly averages): Dialysis
adequacy - % of patients with Kt/V > 1.2 98 % 98 % 98 % 98 % 98
%
Vascular access - % catheter in use >
90 days
10 % 10 % 10 % 10 % 11 %
_______________________________
* See "Reconciliation of Non-GAAP
Financial Measures."
(1) Excludes $1.9 million of stock-based
compensation related to modification of options and other
transactions at the time of the Company’s IPO during the three
months ended December 31, 2016. For the years ended December
31, 2017 and 2016, $2.2 million and $5.2 million,
respectively, of similar stock-based compensation is excluded,
which includes $0.1 million of stock-based compensation related to
the early adoption of ASU 2016-09 in 2016. Additionally, $0.1
million of executive severance costs is excluded from the year
ended December 31, 2016 and $0.6 million of gain on sale of assets
is excluded from the year ended December 31, 2017.
(2) Excludes $13.4 million of stock-based
compensation related to modification of options and other
transactions at the time of the Company’s IPO during the three
months ended December 31, 2016. The three months and year ended
December 31, 2016 also exclude $1.7 million of executive severance
costs and $1.5 million of stock compensation primarily related to
the departure of our former chief operating officer. For the years
ended December 31, 2017 and 2016, $9.5 million and $32.0 million,
respectively, of similar stock-based compensation is excluded,
which includes $0.3 million of stock-based compensation related to
the early adoption of ASU 2016-09 in 2016. Additionally, $0.8
million of executive severance costs is excluded from the year
ended December 31, 2017 and $0.7 million of gain on sale of assets
is excluded from the three months and year ended December 31,
2017.
American Renal Associates Holdings, Inc. Net
Income (Loss) per Share Reconciliation (Unaudited)
(dollars in thousands except for share data)
Three Months Ended December 31, Year
Ended
December 31,
2017 2016 2017
2016 Basic Net income (loss) attributable to ARA $
231 $ (7,119 ) $ 4,857 $ (385 ) Change in the difference between
the redemption value and estimated fair value for accounting
purposes of the related noncontrolling interests 1,329 6,481
(12,276 ) (7,404 ) Net income (loss) attributable to ARA for
basic earnings per share calculation $ 1,560 $ (638 ) $
(7,419 ) $ (7,789 ) Weighted-average common shares outstanding
31,556,772 30,889,677 31,081,824 28,118,673
Earnings (loss) per share, basic $ 0.05 $ (0.02 ) $
(0.24 ) $ (0.28 )
Diluted Net income (loss) attributable to
ARA $ 231 $ (7,119 ) $ 4,857 $ (385 ) Change in the difference
between the redemption value and estimated fair value for
accounting purposes of the related noncontrolling interests 1,329
6,481 (12,276 ) (7,404 ) Net income (loss)
attributable to ARA for diluted earnings per share calculation $
1,560 $ (638 ) $ (7,419 ) $ (7,789 ) Weighted-average common
shares outstanding, basic 31,556,772 30,889,677 31,081,824
28,118,673 Weighted-average effect of dilutive securities: Effect
of assumed exercise of stock options 2,233,933 — — — Effect of
unvested restricted stock 223,888 — — —
Weighted-average common shares outstanding, diluted 34,014,593
30,889,677 31,081,824 28,118,673
Earnings (loss) per share, diluted $ 0.05 $ (0.02 ) $ (0.24
) $ (0.28 ) Outstanding options excluded as impact would be
anti-dilutive 1,612,591 1,277,584 1,894,340 572,097
American Renal Associates Holdings,
Inc.Reconciliation of Non-GAAP Financial
Measures:(Unaudited)(dollars in thousands)
We use Adjusted EBITDA and Adjusted EBITDA-NCI to track our
performance. “Adjusted EBITDA” is defined as net income before
income taxes 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, gain on sale of assets and
management fees. “Adjusted EBITDA-NCI” is defined as Adjusted
EBITDA less net income attributable to noncontrolling interests. We
believe Adjusted EBITDA and Adjusted EBITDA-NCI provide information
useful for evaluating our business and 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 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, share-based compensation due to option
modifications and other transactions at the time of the Company’s
initial public offering, certain legal matter costs, loss on early
extinguishment of debt, transaction-related costs, executive and
management severance costs, gain on sale of assets, income tax
receivable agreement income/expense, tax valuation allowance
and other tax adjustments, and accounting changes in fair value of
noncontrolling interest puts, net of taxes as applicable. We use
the Adjusted weighted average number of diluted shares to calculate
Adjusted net income attributable to American Renal Associates
Holdings, Inc. per share. 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 vest.
We use Adjusted cash provided by operating activities less
distributions to NCI because it is a useful measure to evaluate the
cash flow that is available to the Company for investment in
property, plant and equipment, debt service, growth and other
general corporate purposes. “Adjusted cash provided by operating
activities less distributions to noncontrolling interests” is
defined as cash provided by operating activities plus
transaction-related expenses less distributions to noncontrolling
interests.
We use Adjusted owned net debt because it is a useful metric to
evaluate the Company’s share of interests in the cash on our
consolidated balance sheet and the debt of the Company. “Adjusted
owned net debt” is defined as debt (other than clinic-level debt)
plus clinic-level debt guaranteed by our wholly owned subsidiaries
of American Renal Associates Holdings, Inc. less cash (other than
clinic-level cash) less the Company’s pro rata interest in
Clinic-level cash. “Owned net leverage” is defined as the ratio of
Owned net debt to our trailing twelve months Adjusted
EBITDA-NCI.
The following table presents the reconciliation from net income
to Adjusted EBITDA and Adjusted EBITDA-NCI for the periods
indicated:
(Unaudited) (Unaudited)
Reconciliation of Net income to Three Months Ended
Year Ended Adjusted EBITDA: December 31,
December 31, 2017 2016
2017 2016 Net income $ 19,718 $ 16,560
$ 75,683 $ 88,205 Add: Stock-based compensation 1,269 17,047 16,359
40,298 Depreciation and amortization 9,740 9,246 37,634 33,862
Interest expense, net 7,237 7,362 29,289 35,933 Income tax expense
(benefit) and other non-income based tax 9,029 (2,166 ) 8,474 (753
) Transaction-related costs — — 717 2,239 Loss on early
extinguishment of debt — — 526 4,708 Income tax receivable
agreement (income) expense (1,773 ) 3,444 (7,234 ) (1,286 ) Certain
legal matters (1) 3,535 2,737 15,249 6,779 Executive and management
severance costs (2) — 1,650 917 1,650 Gain on sale of assets (704 )
— (1,257 ) — Management fees — — — 537
Adjusted EBITDA (including noncontrolling interests) $ 48,051
$ 55,880 $ 176,357 $ 212,172 Less: Net
income attributable to noncontrolling interests (19,487 ) (23,679 )
(70,826 ) (88,590 ) Adjusted EBITDA –NCI $ 28,564 $ 32,201
$ 105,531 $ 123,582
_____________
(1) Certain legal matters costs include
legal fees and other expenses associated with matters outside the
ordinary course of our business, including, but not limited to, our
handling of, and response to, the UnitedHealth litigation, a
now-concluded SEC inquiry, the CMS request for information, the
securities and derivative litigation, and the Company’s internal
review and analysis of factual and legal issues relating to the
aforementioned matters as described in our Form 10-K for the year
ended December 31, 2017. We have excluded these costs because they
represent unusual fees and expenses that we believe are not related
to the usual operation of our business.
(2) Represents executive and management
severance costs.
The following table presents the reconciliation from Net income
attributable to American Renal Associates Holdings, Inc. to
Adjusted net income attributable to American Renal Associates
Holdings, Inc. for the periods indicated:
American Renal Associates Holdings,
Inc.
Reconciliation of Net Income
Attributable to American Renal Associates Holdings, Inc. to
Adjusted Net Income Attributable to American Renal Associates
Holdings, Inc.
(Unaudited)
(dollars in thousands, except per share
data)
Three Months Ended Year
Ended March 31, 2017 June 30, 2017
September 30, 2017 December
31, 2017 December 31, 2017 Net (loss) income
attributable to ARA $ (1,251 ) $ (2,106 ) $ 7,983 $ 231 $ 4,857
Change in the difference between the redemption value and estimated
fair value for accounting purposes of the related noncontrolling
interests (1) (11,083 ) (2,527 ) 5
1,329 (12,276 ) Net
(loss) income attributable to ARA for basic earnings per share
calculation $ (12,334 ) $ (4,633 ) $ 7,988 $ 1,560 $ (7,419 )
Adjustments: Share-based compensation due to option modification
and IPO transactions (2) 9,104 2,644 — — 11,748 Certain legal
matters (3) 3,936 4,297 3,481 3,535 15,249 Loss on early
extinguishment of debt — 526 — — 526 Transaction-related costs —
717 — — 717 Executive and management severance costs (4) — 917 — —
917 Gain on sale of assets — (517 ) (36 ) (704 ) (1,257 )
Total pre-tax adjustments $ 13,040 $ 8,584 $ 3,445 $ 2,831 $ 27,900
Tax effect 5,408 3,560 1,429 1,174
11,570 Net taxable adjustments $ 7,632 $ 5,024 $ 2,016 $
1,657 $ 16,330 Income tax receivable agreement (income) expense
(4,517 ) 2,641 (3,585 ) (1,773 ) (7,234 ) Tax valuation allowance
and other tax adjustments (5) 673 57 — 5,867 6,597
Change in the difference between the
redemption value and estimated fair value for accounting purposes
of the related noncontrolling interests (1)
(11,083 ) (2,527 ) 5 1,329 (12,276 ) Total
adjustments, net $ 14,871 $ 10,249 $ (1,574 ) $ 4,422 $ 27,969
Adjusted net income attributable to ARA $ 2,537 $ 5,616 $ 6,414 $
5,982 $ 20,550 Basic shares outstanding 30,907,482
30,986,689 31,095,418 31,556,772 31,081,824 Adjusted effect of
dilutive stock options (6) 2,957,928 2,957,728
2,738,404 2,457,821 2,777,970 Adjusted
weighted average number of diluted shares used to compute adjusted
net income attributable to ARA per share (6) 33,865,410
33,944,417 33,833,822 34,014,593 33,859,794
Adjusted net income attributable to ARA per share $
0.07 $ 0.17 $ 0.19 $ 0.18 $ 0.61
__________
1. Change in the difference between the
redemption value and estimated fair value for accounting purposes
of the related noncontrolling interests are related to certain put
rights that were accelerated as a result of the IPO.
2. Share-based compensation due to option
modifications and other transactions at the time of the IPO that
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. Also includes option modification costs
related to executive severance agreements.
3. Certain legal matters costs include
legal fees and other expenses associated with matters outside the
ordinary course of our business, including, but not limited to, our
handling of, and response to, the UnitedHealth litigation, a
now-concluded SEC inquiry, the CMS request for information, the
securities and derivative litigation, and the Company’s internal
review and analysis of factual and legal issues relating to the
aforementioned matters as described in our Form 10-K for the year
ended December 31, 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. Represents executive and management
severance costs.
5. Tax valuation allowance and other tax
adjustments primarily relates to a valuation allowance that the
Company has established for certain tax items that are expiring in
2017 as well as future periods.
6. 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 for the periods ending March
31, 2017 and June 30, 2017.
American Renal Associates Holdings, Inc. Unaudited
Supplemental Cash Flow (dollars in thousands)
Three Months Ended
Year Ended
December 31, December 31, 2017
2016 2017 2016 Cash provided
by operating activities $ 31,175 $ 30,308 $ 128,547 $ 172,211
Plus: Transaction-related costs (1) — — 717
2,239
Adjusted cash provided by operating activities
$ 31,175 $ 30,308 $ 129,264 $ 174,450 Distributions to
noncontrolling interests (18,969 ) (27,483 ) (79,478 ) (94,468 )
Adjusted cash provided by operating activities less
distributions to NCI $ 12,206 $ 2,825 $ 49,786 $ 79,982
Capital expenditure breakdown: Routine and maintenance
capital expenditures $ 941 $ 4,535 $ 6,377 $ 12,995 Development
capital expenditures 10,352 10,238 29,696
48,437
Total capital expenditures $ 11,293 $ 14,773 $
36,073 $ 61,432
_____________
(1) Transaction-related costs due to the
debt refinancing in 2017 and the IPO in 2016, including accounting,
valuation, legal and other consulting and professional fees.
American Renal Associates Holdings, Inc. Unaudited
Supplemental Leverage Statistics (dollars in thousands)
As of December 31, 2017 Total ARA
ARA "Owned" Cash (other than clinic-level cash) $ 1,638 $
1,638 Clinic-level cash 69,883 36,959 Total cash $
71,521 $ 38,597 Debt (other than clinic-level debt) $ 440,401 $
440,401 Clinic-level debt 129,219 67,276 Unamortized debt discounts
and fees (9,532 ) (9,532 ) Total debt $ 560,088 $ 498,145
Adjusted owned net debt (total debt - total cash) $ 459,548
Adjusted EBITDA-NCI, LTM $ 105,531
Leverage ratio (2)
4.4x ____________
(2) Leverage ratio calculated as follows:
Owned net debt divided by Adjusted EBITDA -NCI, last twelve
months.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20180306006183/en/
American Renal Associates Holdings, Inc.Darren Lehrich,
978-522-6063SVP Strategy & Investor
Relationsdlehrich@americanrenal.com
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