Company Provides Update on COVID-19 Pandemic
American Renal Associates Holdings, Inc. (NYSE: ARA) (the
“Company”), a leading kidney care and dialysis provider focused on
partnering with local nephrologists, today announced financial and
operating results for the third quarter ended September 30,
2020.
Certain metrics, including those expressed on an adjusted basis,
are Non-GAAP financial measures (See “Use of Non-GAAP Financial
Measures” and the reconciliation tables further below).
Third Quarter 2020 Highlights (all percentage changes
compare Q3 2020 to Q3 2019 unless noted):
- Patient service operating revenues decreased 0.8% to $209.7
million;
- Net income attributable to American Renal Associates Holdings,
Inc. decreased to $2.7 million as compared to $4.8 million in Q3
2019;
- Adjusted EBITDA-NCI was $25.2 million as compared to $26.5
million in Q3 2019;
- Adjusted net income attributable to American Renal Associates
Holdings, Inc. was $2.6 million, or $0.08 per share, for Q3 2020 as
compared to adjusted net income of $11.2 million, or $0.33 per
share, for Q3 2019;
- Total dialysis treatments increased 0.1%, all of which was
non-acquired growth. Normalized total and normalized non-acquired
treatment growth were each 3.2%; and
- As of September 30, 2020, the Company operated 248 outpatient
dialysis clinics serving more than 16,900 patients.
Agreement and Plan of Merger
On October 1, 2020, the Company entered into an Agreement and
Plan of Merger (the “Merger Agreement”) with IRC Superman Midco,
LLC, a Delaware limited liability company (“Parent”) and an
affiliate of Nautic Partners, LLC, and Superman Merger Sub, Inc., a
Delaware corporation and wholly owned subsidiary of Parent (“Merger
Sub”), pursuant to which Parent will acquire ARA for $11.50 per
share through the merger of Merger Sub with and into ARA, with ARA
surviving as a wholly owned subsidiary of Parent (the “Merger”).
The closing of the Merger is subject to customary closing
conditions, including the approval of our stockholders and
regulatory approvals.
Joseph (Joe) Carlucci, Chairman and Chief Executive Officer,
said “As the healthcare community operates in this new normal of
the COVID-19 pandemic, we continue to be humbled by the tireless
dedication of our staff and physician partners in providing
life-sustaining dialysis services to our patients across our
network of 248 clinics. Their commitment to providing compassionate
care, safely, has undoubtedly contributed to the health and
well-being of our patients and I cannot thank them enough for their
extraordinary work.”
Mr. Carlucci continued, “This quarter once again demonstrated
that our additional investments and focus on efficiencies in our
revenue cycle were well directed and resulted in an even greater
improvement in our revenue per treatment over the prior quarter. We
are also pleased, that although many uncertainties remain and we
continue to see some impacts on our treatment volume growth and our
expenses as a result of the pandemic, our performance and fiscal
restraint to date remains solid. As we look to the final months of
2020, we remain steadfast in our commitment to our Core Values, our
excellence in patient care and our exemplary physician partners and
our ability to continue to execute upon our corporate
initiatives.”
Financial and operating highlights include:
Revenue: Patient service operating revenues for the third
quarter of 2020 were $209.7 million, a decrease of $1.7 million, or
0.8%, as compared to $211.4 million for the prior-year period.
Patient service operating revenues for the nine months ended
September 30, 2020 were $608.0 million, a decrease of $8.4 million,
or 1.4%, as compared to $616.4 million for the prior-year period.
The decrease in the three and nine months ended September 30, 2020
was primarily due to lower contributions from calcimimetics, a
favorable resolution of certain commercial claims during the 2019
periods and adverse changes in commercial treatment reimbursement
rates reflecting a larger base of in-network commercial payor
relationships, partially offset by an increase of 0.1% and 2.2% in
the number of dialysis treatments in the three and nine months
ended September 30, 2020, respectively, and a recognition of $1.7
million and $2.8 million, respectively, from the temporary
suspension under the CARES Act of the 2% Medicare sequestration
reimbursement reduction, which became effective May 1, 2020.
Treatment Volume: Total dialysis treatments for the third
quarter of 2020 were 626,021, representing an increase of 0.1% over
the third quarter of 2019, normalized total treatment growth and
normalized non-acquired treatment growth were each 3.2%, as
compared to Q3 2019. Total dialysis treatments for the nine months
ended September 30, 2020 were 1,873,021, representing an increase
of 2.2% over the nine months ended September 30, 2019. Non-acquired
treatment growth was 2.1% for the nine months ended September 30,
2020. Normalized total treatment growth and normalized non-acquired
treatment growth were 3.8% and 3.7%, respectively, as compared to
the nine months ended September 30, 2019.
Clinic Activity: As of September 30, 2020, the Company
provided services at 248 outpatient dialysis clinics serving 16,918
patients. During the three and nine months ended September 30,
2020, we opened one and six de novo clinics, respectively. During
the three months ended September 30, 2020, we divested four
clinics.
Net income, Net income attributable to noncontrolling
interests, Net (loss) income attributable to American Renal
Associates Holdings, Inc., Adjusted EBITDA and Adjusted
EBITDA-NCI:
(Unaudited)
Three Months Ended September
30,
Increase (Decrease)
(in thousands)
2020
2019
Amount
Percentage Change
Net income
$
12,787
$
17,027
$
(4,240
)
(24.9
)
%
Net income attributable to noncontrolling
interests
(15,478
)
(12,250
)
$
(3,228
)
(26.4
)
%
Net (loss) income attributable to American
Renal Associates Holdings, Inc.
$
(2,691
)
$
4,777
$
(7,468
)
NM*
Non-GAAP financial measures**:
Adjusted EBITDA
$
40,688
$
38,705
$
1,983
5.1
%
Adjusted EBITDA-NCI
$
25,210
$
26,455
$
(1,245
)
(4.7
)
%
(Unaudited)
Nine Months Ended September
30,
Increase (Decrease)
(in thousands)
2020
2019
Amount
Percentage Change
Net income
$
25,292
$
17,022
$
8,270
(48.6
)
%
Net income attributable to noncontrolling
interests
(34,422
)
(30,902
)
$
(3,520
)
(11.4
)
%
Net loss attributable to American Renal
Associates Holdings, Inc.
$
(9,130
)
$
(13,880
)
$
4,750
NM*
Non-GAAP financial measures**:
Adjusted EBITDA
$
98,345
$
95,537
$
2,808
2.9
%
Adjusted EBITDA-NCI
$
63,923
$
64,635
$
(712
)
(1.1
)
%
__________________________________________________
* Not Meaningful
** See “Reconciliation of Non-GAAP Financial Measures.”
Operating Expenses: Patient care costs for the third
quarter of 2020 were $150.4 million, or 71.7% of patient service
operating revenues, as compared to $154.6 million, or 73.1% of
patient service operating revenues, in the prior-year period.
General and administrative expenses were $23.4 million, or 11.1% of
patient service operating revenues, as compared to $18.8 million,
or 8.9% of patient service operating revenues, in the prior-year
period.
Patient care costs for the nine months ended September 30, 2020
were $451.5 million, or 74.3% of patient service operating
revenues, as compared to $455.8 million, or 73.9% of patient
service operating revenues, in the prior-year period. General and
administrative expenses during the nine months ended September 30,
2020 were $71.0 million, or 11.7% of patient service operating
revenues, as compared to $68.3 million, or 11.1% of patient service
operating revenues, in the prior-year period.
Cash Flow: Cash provided by operating activities for the
third quarter of 2020 was $19.5 million, as compared to $27.4
million in the prior-year period. Adjusted cash provided by
operating activities less distributions to noncontrolling interests
(see “Reconciliation of Non-GAAP Financial Measures”) for the third
quarter of 2020 was $0.1 million, as compared to $8.7 million in
the prior-year period. Cash provided by operating activities for
the nine months ended September 30, 2020 was $170.4 million as
compared to $35.1 million in the prior-year period. Adjusted cash
provided by operating activities less distributions to
noncontrolling interests for the nine months ended September 30,
2020 was $128.2 million as compared to adjusted cash used in
operating activities less distributions to noncontrolling interests
of $5.1 million in the prior-year period. The increase in each
period is largely due to additional investment and focus on our
revenue cycle and collections and the impact of cash received under
the provisions of the CARES Act.
Total capital expenditures for the third quarter of 2020 were
$3.5 million, compared to $3.7 million in the prior-year period.
Capital expenditures for the three months ended September 30, 2020
included $2.1 million for existing clinic expansions and de novo
clinic development and $1.4 million for other capital expenditures.
Total capital expenditures for the nine months ended September 30,
2020 were $16.3 million, compared to $17.9 million in the
prior-year period. Capital expenditures for the nine months ended
September 30, 2020 included $12.1 million for existing clinic
expansions and de novo clinic development and $4.2 million for
other capital expenditures.
Balance Sheet: At September 30, 2020, the Company’s
balance sheet included consolidated cash and restricted cash of
$136.5 million, including the impact of cash received under the
provisions of the CARES Act, and consolidated debt of $574.7
million, including the current portion of long-term debt. Excluding
clinic-level debt not guaranteed by the Company and clinic-level
cash not owned by the Company, Adjusted owned net debt (see
“Reconciliation of Non-GAAP Financial Measures”) was $449.2 million
at September 30, 2020, as compared to $515.2 million at December
31, 2019. As of September 30, 2020, we were in compliance with the
consolidated net leverage ratio covenant in our Credit Agreement.
As of September 30, 2020, net patient accounts receivable was $84.9
million.
Clinic Sales: On August 3, 2020, the Company sold 100% of
its equity in four dialysis clinics in Pennsylvania and received
combined cash consideration of $16,932. The transactions resulted
in the recognition of a combined loss of $293, which is included as
an increase to general and administrative expenses in the nine
months ended September 30, 2020.
COVID-19 Update
The safety of our patients, staff and physician partners
continues to be our primary focus, and we have undertaken and will
continue to undertake steps to provide for their protection and
enable our continued operation in the face of the pandemic. We are
following Centers for Disease Control and Prevention guidance and
working closely with local and national health authorities to
ensure we implement and maintain appropriate infection control and
clinical best practices in response to COVID-19. In addition, our
dedicated COVID-19 task force has proactively implemented business
continuity plans and developed measures to ensure the ongoing
availability of our dialysis services while maintaining patient and
staff safety. These measures include:
- Restricting entry to our clinics to only patients, staff and
medical professionals;
- Screening all individuals for symptoms and exposure to COVID-19
before allowing access to our clinics;
- Implementing a mask policy for every patient and staff member
who enters our clinics and requiring that masks be worn at all
times in our clinics;
- Increased purchases and use of personal protective equipment
for patients and staff and of cleaning and sanitization materials
at our facilities to maintain infection control protocols that meet
CDC guidelines;
- Securing COVID-19 testing for patients and staff;
- Implementing screening procedures for corporate office staff
prior to entering our corporate offices, requiring social
distancing within workspaces and throughout our corporate offices,
and restricting access to our corporate offices to only ARA
staff;
- Engaging a physician infectious disease consultant to assist us
in the development of policies and procedures to protect our
patients and staff;
- Establishing dedicated COVID-19 treatment shifts at certain of
our clinics, where necessary, to care for patients with confirmed
or suspected COVID-19 infection; and
- Modifying our sick leave policy to accommodate quarantine and
isolation when warranted.
In addition to these safety measures, in March 2020 we
implemented a hazard pay program to provide increased pay to our
clinic staff on the front lines of the pandemic. This program
remains in place for those clinic staff who provide direct care to
patients who have been identified as COVID-19 positive. These and
other measures we have taken in response to COVID-19 have resulted
in increased operating expenses, including higher salary and wage
expense from the hazard pay program, incremental hours and overtime
needed to staff the dedicated treatment shifts for patients with
confirmed or suspected COVID-19, increased expenses from the higher
utilization and cost of personal protective equipment, and
additional costs to purchase additional supplies and cleaning
materials. In addition, we have incurred additional corporate
office costs related to legal, consulting costs and cleaning costs,
as well as increased purchases of computer equipment and
information technology to provide additional infrastructure for
staff who are working remotely. Though significantly offset by
grant funds received under the Coronavirus Aid, Relief, and
Economic Security Act (the “CARES Act”), these added expenses began
to rise during March, and became more significant in the months
through September. We expect to incur many of these additional
operating expenses for the duration of the pandemic, and if the
severity or geographic coverage of the pandemic increases, these
additional expenses could increase. In light of our increased
expenses, we have and will continue to implement cost saving
initiatives; however, these initiatives may not offset the
additional expenses and reductions in revenue resulting from the
pandemic in the event we exhaust government funds provided for this
purpose.
From a volume perspective, patients suffering from end-stage
renal disease generally have co-morbidities that often place them
at increased risk for contracting COVID-19, resulting in increased
hospitalizations, missed treatments and higher mortality. For the
three and nine months ended September 30, 2020, we experienced a
negative 0.9% and 1.7%, respectively, impact in treatment volume
growth as a result of patients contracting COVID-19.
We are appreciative of Congress and the Administration’s
recognition of the burden this pandemic is having on our nation’s
healthcare system and providers like ARA who have remained fully
operational during this crisis to continue to provide
life-sustaining care and prevent, prepare and respond to COVID-19.
The passage of the CARES Act in late March, in combination with
other regulatory relief from CMS, will help healthcare providers
like ARA manage through this public health crisis. Some aspects of
this relief received by ARA include the following:
- Approximately $2.8 million of additional revenue due to the
CARES Act provision that eliminates the 2% sequestration reduction
from May 1 through September 30, 2020;
- Approximately $27 million of CARES Act grant funds received
during April 2020, although these funds are subject to terms and
conditions, and we may not be able to utilize and retain all of
this money;
- Approximately $83 million of advance payments on future
Medicare revenue received during April 2020 under CMS’ Accelerated
and Advance Payment Program;
- An estimated $12 million to $13 million liquidity benefit from
Q2 2020 through Q4 2020 related to the CARES Act provision that
permits payment deferral of the employer portion of social security
payroll taxes; and
- An estimated cash tax refund of approximately $8 million,
expected before December 31, 2020, related to specific tax code
provisions of the CARES Act.
Conference Call
In light of the Merger, American Renal Associates Holdings, Inc.
will not be holding a conference call to discuss this release.
Please see the “Forward-Looking Statements” section of this
release for a discussion of certain risks.
About American Renal Associates
American Renal Associates (“ARA”) is a leading provider of
outpatient dialysis services in the United States. As of September
30, 2020, ARA operated 248 dialysis clinic locations in 27 states
and the District of Columbia serving more than 16,900 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 comprehensive management services. For more
information about American Renal Associates, visit
www.americanrenal.com.
Forward-Looking Statements
All statements addressing our future operating performance, and
statements addressing events and developments that we expect or
anticipate will occur in the future, including those that relate to
the Merger Agreement by and among Parent and Merger Sub, pursuant
to which Merger Sub will be merged with and into ARA, with ARA
surviving as a wholly owned subsidiary of Parent, are
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 “forward-looking
statements” within the meaning of the Private Securities Litigation
Reform Act of 1995, are based upon currently available information,
operating plans and projections about future events and trends.
Terminology such as “anticipate,” “believe,” “contemplate,”
“estimate,” “expect,” “forecast,” “intend,” “may,” “objective,”
“outlook,” “plan,” “potential,” “project,” “seek,” “should,”
“strategy,” “target” or “will” or variations of such words or
similar expressions are intended to identify forward-looking
statements, although not all forward-looking statements contain
such terms.
Forward-looking statements inherently involve risks and
uncertainties that could cause actual results to differ materially
from those predicted in such forward-looking statements. Such risks
and uncertainties include, among others, the effect of the ongoing
COVID-19 pandemic and responses thereto; the effect of the
restatement of our previously issued financial results and related
matters; our ability to remediate material weaknesses in our
internal controls over financial reporting; 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, including
with respect to Medicare Advantage plans; the ultimate resolution
of the Centers for Medicare and Medicaid Services 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 nephrologist 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 2020 issued
October 31, 2019; 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 SEC
investigation; changes in the availability and cost of
erythropoietin-stimulating agents and other pharmaceuticals used in
our business; changes in the reimbursement rates of the
calcimimetics pharmaceutical class reimbursed under the Medicare
Transitional Drug Add-on Payment Adjustment; development of new
technologies or government regulation 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 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; deterioration in
economic conditions, particularly in states where we operate a
large number of clinics, or disruptions in the financial markets or
the effects of natural or other disasters, public health crises or
adverse weather events; 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.
For additional information and other factors that could cause
ARA’s actual results to materially differ from those set forth
herein, please see ARA’s filings with the SEC. Investors are
cautioned not to place undue reliance on any such forward-looking
statements, which speak only as of the date they are made. ARA
undertakes no obligation to update any forward-looking statement,
whether as a result of new information, future events or
otherwise.
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-NCI, Adjusted net income (loss) attributable to
American Renal Associates Holdings, Inc., Adjusted cash provided by
(used in) operating activities and Adjusted owned net debt, which
exclude various items detailed in the attached “Reconciliation of
Non-GAAP Financial Measures.”
These Non-GAAP financial measures are not intended to replace
financial performance and liquidity measures determined in
accordance with GAAP. Rather, they are presented as supplemental
measures of the Company's performance and liquidity that management
believes may enhance the evaluation of the Company's ongoing
operating results. Please see “Reconciliation of Non-GAAP Financial
Measures” for additional reasons why these measures are
provided.
American Renal Associates
Holdings, Inc. and Subsidiaries
Condensed Consolidated
Statements of Operations
(Unaudited)
(dollars in thousands, except
for share data)
Three Months Ended September
30,
Nine Months Ended September
30,
2020
2019
2020
2019
Patient service operating revenues
$
209,689
$
211,429
$
608,021
$
616,443
Operating expenses:
Patient care costs
150,357
154,588
451,462
455,785
General and administrative
23,379
18,783
70,950
68,309
Depreciation, amortization and
impairment
9,259
10,220
26,760
30,585
Certain legal and other matters
6,420
9,634
9,548
23,306
Total operating expenses
189,415
193,225
558,720
577,985
Operating income
20,274
18,204
49,301
38,458
Other income - CARES Act
1,920
—
3,393
—
Interest expense, net
(9,501
)
(12,242
)
(30,235
)
(32,533
)
Change in fair value of income tax
receivable agreement
(42
)
(30
)
1,301
1,348
Income before income taxes
12,651
5,932
23,760
7,273
Income tax expense (benefit)
(136
)
(11,095
)
(1,532
)
(9,749
)
Net income
12,787
17,027
25,292
17,022
Less: Net income attributable to
noncontrolling interests
(15,478
)
(12,250
)
(34,422
)
(30,902
)
Net income (loss) attributable to American
Renal Associates Holdings, Inc.
(2,691
)
4,777
(9,130
)
(13,880
)
Less: Change in the difference between the
redemption value and estimated fair value for accounting purposes
of the related noncontrolling interests
—
(1,161
)
(703
)
(877
)
Net income (loss) attributable to common
shareholders
$
(2,691
)
$
3,616
$
(9,833
)
$
(14,757
)
Earnings (loss) per share:
Basic
$
(0.08
)
$
0.11
$
(0.30
)
$
(0.46
)
Diluted
$
(0.08
)
$
0.11
$
(0.30
)
$
(0.46
)
Weighted-average number of common shares
outstanding:
Basic
33,472,127
32,281,818
32,931,503
32,248,791
Diluted
33,472,127
33,618,723
32,931,503
32,248,791
American Renal Associates
Holdings, Inc. and Subsidiaries
Condensed Consolidated
Statements of Cash Flows
(Unaudited)
(dollars in thousands)
Three Months Ended September
30,
Nine Months Ended September
30,
Operating activities
2020
2019
2020
2019
Net income
$
12,787
$
17,027
$
25,292
$
17,022
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation, amortization and
impairment
9,259
10,220
26,760
30,585
Amortization of discounts, fees and
deferred financing costs
816
873
2,433
2,078
Stock-based compensation
1,530
979
5,770
3,230
Deferred taxes
4,048
5,630
5,622
5,492
Change in fair value of income tax
receivable agreement
42
30
(1,301
)
(1,348
)
Loss (gain) on sale of assets
276
1,078
708
(681
)
Other non-cash charges, net
222
1,193
430
4
Change in operating assets and
liabilities, net of acquisitions:
Accounts receivable
6,806
4,189
17,277
(3,832
)
Inventories
153
(487
)
(252
)
3,533
Prepaid expenses and other current
assets
(4,964
)
2,908
(11,333
)
(213
)
Other assets
(6,745
)
5,907
(13,937
)
4,632
Right-of-use assets and operating lease
liabilities
319
(2,420
)
265
(2,420
)
Accounts payable
(3,799
)
406
(7,214
)
(1,028
)
Accrued compensation and benefits
3,825
2,815
4,366
3,055
Accrued expenses and other liabilities
(5,101
)
(22,993
)
115,549
(25,006
)
Cash provided by operating activities
19,473
27,355
170,435
35,103
Investing activities
Purchases of property, equipment and
intangible assets
(4,053
)
(3,736
)
(15,809
)
(17,905
)
Proceeds from sale of clinics
17,167
3,000
17,167
6,300
Cash paid for acquisitions
—
—
—
(6,590
)
Cash provided by (used in) investing
activities
13,114
(736
)
1,358
(18,195
)
Financing activities
Proceeds from revolving credit facility
and term loans, net of deferred financing costs
14,029
(164
)
60,018
73,387
Payments on long-term debt
(25,077
)
(17,914
)
(75,158
)
(40,983
)
Dividends and dividend equivalents
paid
(1
)
(19
)
(12
)
(44
)
Proceeds from exercise of stock
options
(245
)
(14
)
967
53
Repurchase of vested restricted stock
awards withheld on net share settlement
—
(24
)
(430
)
(362
)
Distributions to noncontrolling
interests
(19,324
)
(18,620
)
(42,285
)
(40,249
)
Contributions from noncontrolling
interests
2,503
749
4,526
4,684
Purchases of noncontrolling interests
(17,392
)
(509
)
(17,392
)
(8,504
)
Cash (used in) financing activities
(44,800
)
(36,515
)
(69,766
)
(12,018
)
Increase in cash and restricted cash
(12,213
)
(9,896
)
102,027
4,890
Cash and restricted cash at beginning of
period
148,734
70,086
34,494
55,300
Cash and restricted cash at end of
period
$
136,521
$
60,190
$
136,521
$
60,190
Supplemental Disclosure of Cash Flow
Information
Cash paid for income taxes
$
894
$
908
$
1,060
$
1,005
Cash paid for interest
3,486
19,095
17,809
25,420
American Renal Associates
Holdings, Inc. and Subsidiaries
Condensed Consolidated Balance
Sheets
(dollars in thousands, except
for share data)
September 30, 2020
December 31, 2019
Assets
(Unaudited)
Cash
$
126,737
$
34,494
Restricted cash
9,784
—
Accounts receivable, net
84,873
102,150
Inventories
7,636
7,752
Prepaid expenses and other current
assets
19,214
22,268
Income tax receivable
11,220
3,251
Current assets held for sale
4,079
50,099
Total current assets
263,543
220,014
Property and equipment, net of accumulated
depreciation of $247,700 and $215,471, respectively
142,437
151,175
Operating lease right-of-use assets
135,563
133,899
Intangible assets, net of accumulated
amortization of $25,709 and $25,087, respectively
23,871
24,486
Other long-term assets
32,545
18,608
Goodwill
562,242
538,609
Total assets
$
1,160,201
$
1,086,791
Liabilities and Equity
Accounts payable
$
42,621
$
49,539
Accrued compensation and benefits
41,562
37,196
Accrued expenses and other current
liabilities
107,351
37,593
Current portion of long-term debt
35,931
38,779
Current portion of operating lease
liabilities
23,713
22,061
Current liabilities held for sale
—
5,767
Total current liabilities
251,178
190,935
Long-term debt, less current portion
538,788
548,835
Long-term operating lease liabilities,
less current portion
124,043
123,792
Income tax receivable agreement
payable
1,515
3,000
Other long-term liabilities
52,646
6,501
Deferred tax liabilities
8,063
2,706
Total liabilities
976,233
875,769
Commitments and contingencies
Noncontrolling interests subject to put
provisions
112,510
126,483
Equity
Common stock, $0.01 par value; 300,000,000
shares authorized; 34,485,827 and 32,976,416 issued and outstanding
at September 30, 2020 and December 31, 2019, respectively
335
197
Additional paid-in capital
109,821
100,744
Receivable from noncontrolling
interests
(1,448
)
(531
)
Accumulated deficit
(187,371
)
(178,241
)
Accumulated other comprehensive loss, net
of tax
(1,760
)
(1,619
)
Total American Renal Associates Holdings,
Inc. deficit
(80,423
)
(79,450
)
Noncontrolling interests not subject to
put provisions
151,881
163,989
Total equity
71,458
84,539
Total liabilities and equity
$
1,160,201
$
1,086,791
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
September 30,
2020
June 30, 2020
September 30,
2019
Dialysis Clinic Activity:
Number of clinics (as of end of
period)
248
251
244
Number of de novo clinics opened (during
period)
1
4
1
Patients and Treatment Volume:
Patients (as of end of period)
16,918
17,356
17,159
Number of treatments
626,021
627,451
625,684
Number of treatment days
79
78
79
Treatments per day
7,924
8,044
7,920
Sources of treatment growth (year over
year % change):
Non-acquired growth
0.1
%
2.1
%
5.8
%
Normalized non-acquired growth
3.2
%
3.6
%
5.7
%
Acquired growth
—
%
—
%
2.3
%
Total treatment growth
0.1
%
2.1
%
8.1
%
Normalized total treatment growth
3.2
%
3.6
%
7.9
%
Revenue:
Patient service operating revenues
$
209,689
$
205,148
$
211,429
Patient service operating revenues per
treatment
$
335
$
327
$
338
Expenses:
Patient care costs
Amount
$
150,357
$
146,882
$
154,588
As a % of patient service operating
revenues
71.7
%
71.6
%
73.1
%
Per treatment
$
240
$
234
$
247
General and administrative expenses
Amount
$
23,379
$
22,665
$
18,783
As a % of patient service operating
revenues
11.1
%
11.0
%
8.9
%
Per treatment
$
37
$
36
$
30
Adjusted general and administrative
expenses(1)
Amount
$
22,225
$
21,684
$
19,930
As a % of patient service operating
revenues
10.6
%
10.6
%
9.4
%
Per treatment
$
36
$
35
$
30
Adjusted EBITDA*
Adjusted EBITDA including noncontrolling
interests
$
40,688
$
39,830
$
38,705
Adjusted EBITDA-NCI
$
25,210
$
25,791
$
26,455
Clinical (quarterly averages):
Dialysis adequacy - % of patients with
Kt/V > 1.2
99
%
99
%
98
%
Vascular access - % catheter in use >
90 days
15
%
14
%
13
%
∗See “Reconciliation of Non-GAAP Financial Measures.”
- Adjusted general and administrative expenses per treatment
during the three months ended September 30, 2020 and June 30, 2020
is adjusted for severance, executive retirement and related costs
of approximately $2.4 million and approximately $1.0 million
respectively. Adjusted general and administrative expenses per
treatment during the three months ended September 30, 2019 is
adjusted for a $0.8 million reduction of bonus compensation for
certain executives repaid in respect of prior financial statements
and other financial information in our Annual Report on Form 10-K,
a $0.3 million gain on sale of clinics and approximately $0.1
million of severance expense adjustments.
American Renal Associates
Holdings, Inc. and Subsidiaries
Net Earnings (Loss) per Share
Reconciliation
(Unaudited)
(dollars in thousands, except
per share data)
Three Months Ended September
30,
Nine Months Ended September
30,
2020
2019
2020
2019
Basic
Net income (loss) attributable to American
Renal Associates Holdings, Inc.
$
(2,691
)
$
4,777
$
(9,130
)
$
(13,880
)
Change in the difference between the
redemption value and estimated fair value for accounting purposes
of the related noncontrolling interests
—
(1,161
)
(703
)
(877
)
Net income (loss) attributable to common
shareholders
$
(2,691
)
$
3,616
$
(9,833
)
$
(14,757
)
Weighted-average common shares
outstanding
33,472,127
32,281,818
32,931,503
32,248,791
Earnings (loss) per share, basic
$
(0.08
)
$
0.11
$
(0.30
)
$
(0.46
)
Diluted
Net income (loss) attributable to American
Renal Associates Holdings, Inc.
$
(2,691
)
$
4,777
$
(9,130
)
$
(13,880
)
Change in the difference between the
redemption value and estimated fair value for accounting purposes
of the related noncontrolling interests
—
(1,161
)
(703
)
(877
)
Net income (loss) attributable to common
shareholders for diluted earnings per share calculation
$
(2,691
)
$
3,616
$
(9,833
)
$
(14,757
)
Weighted-average common shares
outstanding, basic
33,472,127
32,281,818
32,931,503
32,248,791
Weighted-average common shares
outstanding, assuming dilution
33,472,127
33,618,723
32,931,503
32,248,791
Earning (loss) per share, diluted
$
(0.08
)
$
0.11
$
(0.30
)
$
(0.46
)
Outstanding options and restricted stock
excluded as impact would be anti-dilutive
3,142,845
2,013,920
3,012,959
2,940,936
American Renal Associates Holdings, Inc. and
Subsidiaries
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
stock-based compensation and associated payroll taxes,
depreciation, amortization and impairment, interest expense, net,
income taxes and other non-income-based tax, change in fair value
of income tax receivable agreement, certain legal and other
matters, severance, executive retirement and related costs and gain
or loss on sale or closure of clinics. “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 our results of operations from
management’s perspective. We believe Adjusted EBITDA is helpful in
highlighting trends because Adjusted EBITDA excludes certain
expenses that can differ significantly from company to company
depending on, among other things, long-term strategic decisions
regarding capital structure and investments, and the tax
jurisdictions in which companies operate, or that we believe do not
reflect our core business operations. 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 and may differ from the
calculation of “Consolidated EBITDA” under our credit agreement.
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 they should not be considered 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 associated
payroll taxes;
- do not include depreciation, amortization and
impairment—because construction and operation of our dialysis
clinics requires significant capital expenditures, depreciation and
amortization are a necessary element of our costs and our ability
to generate profits;
- do not include interest expense—as we have borrowed money for
general corporate and facility purposes, interest expense is a
necessary element of our costs and ability to generate profits and
cash flows;
- do not include income tax expense or benefits and other
non-income-based taxes;
- do not include change in fair value of income tax receivable
agreement;
- do not include costs related to certain legal and other
matters;
- do not include severance, executive retirement and related
costs; and
- do not reflect the gain or loss on sale or closure of
clinics.
In addition, Adjusted EBITDA is not adjusted for the portion of
earnings that we distribute to our joint venture partners.
We use Adjusted net income (loss) 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 (loss) allows us and investors to
evaluate our net loss on a more consistent basis. “Adjusted net
income (loss) 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,
certain legal and other matters costs, severance, executive
retirement and related costs, loss (gain) on sale or closure of
clinics, change in valuation allowance for held for sale assets,
change in fair value of income tax receivable agreement, tax
valuation allowance and accounting changes in fair value of
non-controlling interest puts, net of taxes. We use the Adjusted
weighted average number of diluted shares to calculate Adjusted net
income (loss) attributable to American Renal Associates Holdings,
Inc. per share.
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 (used) by
operating activities less distributions to NCI” is defined as cash
provided by operating activities less distributions to
noncontrolling interests.
We use Adjusted owned net debt because we believe it is a useful
metric to evaluate the Company’s share of interests in the cash on
our condensed 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 less unamortized debt discounts and fees less
cash (other than clinic-level cash) less the Company’s pro rata
interest in clinic-level cash.
The following table presents the reconciliation from net income
(loss) income to Adjusted EBITDA and Adjusted EBITDA-NCI for the
periods indicated:
(Unaudited)
Reconciliation of Net income (loss) to
Adjusted EBITDA
Three Months Ended September
30,
Nine Months Ended September
30,
LTM (1) as of September 30,
2020
2020
2019
2020
2019
Net income (loss)
$
12,787
$
17,027
$
25,292
$
17,022
$
34,415
Stock-based compensation and associated
payroll taxes
1,534
986
5,934
3,277
7,463
Depreciation, amortization and
impairment
9,259
10,220
26,760
30,585
39,940
Interest expense, net
9,501
12,242
30,235
32,533
41,288
Income tax expense (benefit) and other
non-income based tax
(57
)
(11,195
)
(1,301
)
(9,542
)
(8,938
)
Change in fair value of income tax
receivable agreement
42
30
(1,301
)
(1,348
)
(174
)
Certain legal and other matters(2)
6,420
9,634
9,548
23,306
12,066
Severance, executive retirement and
related costs
909
25
2,470
480
2,470
Loss (gain) on sale or closure of
clinics
293
(264
)
708
(776
)
1,826
Adjusted EBITDA (including noncontrolling
interests)
$
40,688
$
38,705
$
98,345
$
95,537
$
130,298
Less: Net income attributable to
noncontrolling interests
(15,478
)
(12,250
)
(34,422
)
(30,902
)
(43,456
)
Adjusted EBITDA-NCI
$
25,210
$
26,455
$
63,923
$
64,635
$
86,900
__________________________________
- Last twelve months (“LTM”) is the period beginning October 1,
2019 through September 30, 2020.
- Certain legal and other matters include legal fees and other
expenses associated with matters that we believe do not reflect our
core business operations, including, but not limited to, our
handling of, and response to the following: the United litigation
and settlement; the restatement of certain of the Company’s prior
financial statements and other financial information (the
“Restatement”) and the related SEC investigation and Audit
Committee review; the securities and derivative litigation related
to the foregoing; our internal review and analysis of factual and
legal issues relating to the aforementioned matters; and legal fees
and other expenses relating to matters that we believe do not
reflect our core business operations.
American Renal Associates
Holdings, Inc. and Subsidiaries
Unaudited Supplemental Cash
Flow Information
(dollars in thousands)
Three Months Ended September
30,
Nine Months Ended September
30,
2020
2019
2020
2019
Cash provided by operating
activities(1)
$
19,473
$
27,355
$
170,435
$
35,103
Distributions to noncontrolling
interests
(19,324
)
(18,620
)
(42,285
)
(40,249
)
Adjusted cash provided by (used in)
operating activities less distributions to NCI
$
149
$
8,735
$
128,150
$
(5,146
)
Capital expenditure breakdown:
Development capital expenditures
$
2,067
$
2,897
$
12,149
$
13,967
Other capital expenditures
1,438
839
4,191
3,938
Total capital expenditures
$
3,505
$
3,736
$
16,340
$
17,905
(1) Included in Cash provided by operating activities are grant
funds received under the CARES Act of $16.8 million, Medicare
Accelerated and Advance Payment Program funds of $83.2 million and
cash resulting from the deferral of the social security payroll tax
under provisions of the CARES Act of $3.9 million.
American Renal Associates
Holdings, Inc. and Subsidiaries
Unaudited Supplemental Net
Debt Calculation
(dollars in thousands)
As of September 30,
2020
Total ARA
ARA “Owned”
Cash (other than clinic-level cash)
$
18,504
$
18,504
Escrow cash(1)
76,987
41,573
Clinic-level cash
41,030
21,949
Total cash
$
136,521
$
82,026
Debt (other than clinic-level debt)
$
490,400
$
490,400
Clinic-level debt
94,502
50,865
Unamortized debt discounts and fees
(10,183
)
(10,024
)
Total debt
$
574,719
$
531,241
Adjusted owned net debt (total debt -
total cash)
$
449,215
(1) Included in Escrow cash above are grant funds received under
the CARES Act of $9.8 million, Medicare Accelerated and Advance
Payment Program funds of $59.4 million and cash resulting from the
deferral of the social security payroll tax under provisions of the
CARES Act of $7.7 million.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20201106005124/en/
Investor: Mark Herbers, Interim CFO Telephone:
(978)-522-3945; Email: mherbers@americanrenal.com
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