Market Overview

American Renal Associates Holdings, Inc. Announces Second Quarter 2018 Results

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American Renal Associates Holdings, Inc. (NYSE:ARA) (the "Company"), a
leading provider of outpatient dialysis services, today announced
financial and operating results for the second quarter ended June 30,
2018.

Certain metrics, including those expressed on an adjusted basis, are
Non-GAAP financial measures (See "Use of Non-GAAP Financial Measures"
and the reconciliation tables further below).

Second Quarter 2018 Highlights (all percentage changes compare Q2
2018 to Q2 2017 unless noted):

  • Net patient service operating revenues increased 16.8% to $217.2
    million;
  • Net loss attributable to American Renal Associates Holdings, Inc. was
    $18.0 million as compared to a net loss of $2.1 million in Q2 2017;
  • Adjusted EBITDA less noncontrolling interests ("Adjusted EBITDA-NCI")
    was $31.5 million as compared to $27.4 million in Q2 2017;
  • Adjusted net income attributable to American Renal Associates
    Holdings, Inc. was $6.9 million, or $0.20 per share, for Q2 2018;
  • Total dialysis treatments increased 5.6%, of which 4.5% was
    non-acquired growth. Normalized total treatment growth was 6.3% and
    normalized non-acquired growth was 5.3%; and
  • As of June 30, 2018, the Company operated 233 outpatient dialysis
    clinics serving approximately 16,000 patients.

Joseph (Joe) Carlucci, Chairman and Chief Executive Officer, said, "We
are very pleased with the Company's second quarter 2018 performance. We
executed well with our business development program by opening five de
novo clinics and signing three additional new deals during the second
quarter of 2018. Our opening schedule continues to be weighted to the
second half of 2018, and we continue to have strong visibility into
these future openings due to our signed pipeline of 26 clinics as of
June 30, 2018. Our normalized treatment growth was 6.3% during the
second quarter of 2018, and this rate of growth was essentially in-line
with our expectations. As a result of our second half 2018 openings, we
continue to expect normalized treatment growth to improve in subsequent
quarters of 2018. Our second quarter 2018 revenue growth was favorably
impacted by the new CMS coverage policy for Calcimimetics, as well as
broader adoption of coverage policies by other payors for these
pharmaceuticals. Importantly, on a volume basis, our commercial payor
mix remained stable with that of the first quarter of 2018."

"During the second quarter of 2018, we were able to sustain the more
efficient cost structure that was established through our 2017 operating
initiatives, while building on that success sequentially from the first
quarter of 2018 due to greater progress with the lower-cost
erythropoietin stimulating agent (ESA), Mircera, which we introduced as
a new alternative for prescribing physicians last year. As we look
forward, we continue to believe that our success will be driven by our
differentiated physician partnership model, which remains underpinned by
our Core Values and validated through strong quality metrics,
outstanding patient satisfaction rates and industry-leading physician
satisfaction rates," continued Carlucci.

Financial and operating highlights include:

Revenue: Patient service operating revenues for the second
quarter of 2018 were $217.2 million, an increase of 16.8% as compared to
$186.0 million for the prior-year period, primarily due to treatment
growth and reimbursement of certain pharmaceuticals under the Medicare
ESRD PPS Transitional Drug Add-on Payment Adjustment, which became
effective on January 1, 2018.

Treatment Volume: Total dialysis treatments for the second
quarter of 2018 were 572,929, representing an increase of 5.6% over the
second quarter of 2017. Non-acquired treatment growth was 4.5%, and
acquired treatment growth was 1.1% for the second quarter of 2018.
Normalized for clinic sales, Q2 2018 total treatment growth was 6.3% and
non-acquired treatment growth was 5.3% as compared to Q2 2017.

Clinic Activity: As of June 30, 2018, the Company provided
services at 233 outpatient dialysis clinics serving 16,018 patients.
During the second quarter of 2018, we opened five de novo clinics. As of
June 30, 2018, we had 26 signed clinics scheduled to open in the future.

           

Net income, Net income attributable to noncontrolling
interests, Net loss attributable to American Renal

Associates
Holdings, Inc., Adjusted EBITDA and Adjusted EBITDA-NCI:

 
(Unaudited)
Three Months Ended
June 30,
Increase (Decrease)
(in thousands) 2018     2017 Amount

Percentage
Change

Net income $ 2,277 $ 16,391 $ (14,114 ) (86.1 )%
Net income attributable to noncontrolling interests (20,285 ) (18,497 ) 1,788 9.7 %
Net loss attributable to American Renal Associates Holdings, Inc. $ (18,008 ) $ (2,106 ) $ (15,902 ) NM*
Non-GAAP financial measures**:
Adjusted EBITDA $ 51,793 $ 45,900 $ 5,893 12.8 %
Adjusted EBITDA-NCI $ 31,508 $ 27,403 $ 4,105 15.0 %
 
           
(Unaudited)

Six Months Ended
June 30,

Increase (Decrease)
(in thousands) 2018     2017 Amount

Percentage
Change

Net income $ 15,990 $ 29,293 $ (13,303 ) (45.4 )%
Net income attributable to noncontrolling interests (34,908 ) (32,650 ) (2,258 ) 6.9 %
Net loss attributable to American Renal Associates Holdings, Inc. $ (18,918 ) $ (3,357 ) $ (15,561 ) NM*
Non-GAAP financial measures**:
Adjusted EBITDA $ 89,154 $ 81,468 $ 7,686 9.4 %
Adjusted EBITDA-NCI $ 54,246 $ 48,818 $ 5,428 11.1 %
 

______________________________________________________
* Not
Meaningful
** See "Reconciliation of Non-GAAP Financial Measures."

Operating Expenses: Patient care costs for the second quarter of
2018 were $140.6 million, or 64.7% of patient service operating
revenues, as compared to $118.1 million, or 63.5% (or 63.4% excluding
the Modification Expense described below) of patient service operating
revenues, in the prior-year period. General and administrative expenses
were $26.8 million, or 12.3% of patient service operating revenues, as
compared to $26.4 million, or 14.2% (or 12.6% excluding the Modification
Expense described below) of patient service operating revenues, in the
prior-year period. Patient care costs include $0.5 million for the
second quarter of 2017 of stock-based compensation related to
modification of options at the time of the Company's initial public
offering (the "Modification Expense"). General and administrative
expenses include $2.1 million for the second quarter of 2017 of
Modification Expense.

Patient care costs for the six months ended June 30, 2018 were $274.3
million, or 66.6% of patient service operating revenues, as compared
to $238.4 million, or 65.7% (or 65.1% excluding the Modification
Expense, severance expense and gain on sale of assets) of patient
service operating revenues, in the prior-year period. Patient care costs
include $2.2 million of Modification Expense, $0.1 million of severance
costs and $0.5 million gain on sale of assets for the six months
ended June 30, 2017. General and administrative expenses during
the six months ended June 30, 2018 were $51.8 million, or 12.6% of
patient service operating revenues, as compared to $57.6
million, or 15.9% (or 13.0% excluding the Modification Expense and
severance expense) of patient service operating revenues, in the
prior-year period. General and administrative expenses include $9.5
million of Modification Expense and $0.8 million in severance costs for
the six months ended June 30, 2017.

Certain Legal Matters: On August 1, 2018, we executed a
Settlement Agreement with affiliates of UnitedHealth Group Incorporated
("United") to resolve all outstanding litigation between the companies.
Pursuant to the Settlement Agreement, the Company will make total
settlement payments of $32.0 million in five annual installments. A
first installment in the amount of $10.0 million was made on August 1,
2018. In connection with the $32.0 million settlement, the Company
recognized the $29.6 million present value of the settlement during the
second quarter of 2018, which was included as an expense in Certain
legal matters on the Company's consolidated statement of operations for
the three months ended June 30, 2018. The Company also recognized an
additional $2.9 million of expense within Certain legal matters during
the second quarter of 2018 primarily related to the United matter.

Cash Flow: Cash provided by operating activities for the second
quarter of 2018 was $37.5 million as compared to $35.8 million in the
prior-year period. Adjusted cash provided by operating activities less
distributions to noncontrolling interests (see "Reconciliation of
Non-GAAP Financial Measures") for the second quarter of 2018 was $20.0
million as compared to $17.1 million in the prior-year period. Total
capital expenditures for the second quarter of 2018 were $8.6 million as
compared to $7.6 million in the prior-year period. Capital expenditures
for the three months ended June 30, 2018 included $1.9 million for
maintenance and $6.6 million for expansions and new clinic development.

Cash provided by operating activities for the six months ended June 30,
2018 was $58.5 million as compared to $52.4 million in the prior-year
period. Adjusted cash provided by operating activities less
distributions to noncontrolling interests (see "Reconciliation of
Non-GAAP Financial Measures") for the six months ended June 30,
2018 was $25.1 million as compared to $14.5 million in the prior-year
period. Total capital expenditures for the six months ended June 30,
2018 were $18.4 million as compared to $14.1 million in the prior-year
period. Capital expenditures for the six months ended June 30,
2018 included $4.9 million for maintenance and $13.5 million for
expansions and new clinic development.

Balance Sheet: At June 30, 2018, the Company's balance sheet
included consolidated cash of $69.4 million and consolidated debt of
$556.6 million, including the current portion of long-term debt.
Excluding clinic-level debt not guaranteed by the Company and
clinic-level cash not owned by the Company, Adjusted owned net debt (see
"Reconciliation of Non-GAAP Financial Measures") was $459.6 million at
June 30, 2018, as compared to $459.5 million at December 31, 2017.
Adjusted owned net debt to last twelve months Adjusted EBITDA-NCI
leverage ratio was 4.1x at June 30, 2018, an improvement of 0.3x from
December 31, 2017. As of June 30, 2018, net patient accounts receivable
was $91.5 million, and days sales outstanding ("DSO") for the period was
38 days as compared to 40 days as of March 31, 2018.

2018 Outlook for Adjusted EBITDA-NCI:

The Company is reiterating its guidance for 2018 Adjusted EBITDA-NCI to
be in a range of $105 million to $111 million.

The expense recognized by the Company during the second quarter of 2018
representing the present value of the settlement with United described
above does not affect the Company's expected 2018 Adjusted EBITDA-NCI
guidance because the expenses relating to the United litigation are
added back in calculating Adjusted EBITDA-NCI.

The Company is not providing a quantitative reconciliation of our
Non-GAAP outlook to the corresponding GAAP information because the GAAP
measures that we exclude from our Non-GAAP outlook are not available
without unreasonable effort on a forward-looking basis due to their
unpredictability, high variability, complexity and low visibility. These
excluded GAAP measures include noncontrolling interests, interest
expense, income taxes, and other charges. We expect the variability of
these charges to have a potentially unpredictable, and potentially
significant, impact on our future GAAP financial results.

Please see the "Forward-Looking Statements" section of this release for
a discussion of certain risks to our outlook.

Conference Call

American Renal Associates Holdings, Inc. will hold a conference call to
discuss this release on Wednesday, August 8, 2018, at 9:00 a.m. Eastern
time. Investors will have the opportunity to listen to the conference
call by dialing (877) 407-8029, or for international callers (201)
689-8029, or may listen over the Internet by going to the Investor
Relations section at www.ir.americanrenal.com.
For those who cannot listen to the live broadcast, a replay will be
available and can be accessed by dialing (877) 660-6853, or for
international callers (201) 612-7415. The conference ID for the live
call and the replay is 13680635.

About American Renal Associates

American Renal Associates ("ARA") is a leading provider of outpatient
dialysis services in the United States. As of June 30, 2018, ARA
operated 233 dialysis clinic locations in 26 states and the District of
Columbia serving approximately 16,000 patients with end stage renal
disease. ARA operates principally through a physician partnership model,
in which it partners with approximately 400 local nephrologists to
develop, own and operate dialysis clinics. ARA's Core Values emphasize
taking good care of patients, providing physicians with clinical
autonomy and operational support, hiring and retaining the best possible
staff and providing best practices management services. For more
information about American Renal Associates, visit www.americanrenal.com.

Forward-Looking Statements

This press release contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These
statements, which have been included in reliance of the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995,
involve risks and uncertainties and assumptions relating to our
operations, financial condition, business, prospects, growth strategy
and liquidity, which may cause our actual results to differ materially
from those projected by such forward-looking statements, and the Company
cannot give assurances that such statements will prove to be correct.
You can identify forward-looking statements because they do not relate
strictly to historical or current facts. These statements may include
words such as "aim," "anticipate," "believe," "estimate," "expect,"
"forecast," "outlook," "potential," "project," "projection," "plan,"
"intend," "seek," "may," "could," "would," "will," "should," "can," "can
have," "likely," the negatives thereof and other words and terms of
similar meaning in connection with any discussion of the timing or
nature of future operating or financial performance or other events.

The forward-looking statements appear in a number of places throughout
this press release and include statements regarding our intentions,
beliefs or current expectations concerning, among other things, our
results of operations, financial condition, liquidity, prospects,
growth, strategies and the industry in which we operate. All
forward-looking statements are subject to risks and uncertainties,
including but not limited to those risks and uncertainties described in
"Risk Factors" and "Special Note Regarding Forward-Looking Statements"
in our Annual Report on Form 10-K for the year ended December 31, 2017,
as updated by our reports on Form 10-Q filed or to be filed with the
Securities and Exchange Commission ("SEC") that may cause actual results
to differ materially from those that we expected.

Some of the factors that could cause actual results to differ materially
from those expressed or implied by the forward-looking statements
include, among others, the following:

  • continuing decline in the number of patients with commercial
    insurance, including as a result of changes to the healthcare
    exchanges or changes in regulations or enforcement of regulations
    regarding the healthcare exchanges and challenges from commercial
    payors or any regulatory or other changes leading to changes in the
    ability of patients with commercial insurance coverage to receive
    charitable premium support;
  • decline in commercial payor reimbursement rates;
  • the ultimate resolution of the Centers for Medicare and Medicaid
    Services ("CMS") Interim Final Rule published December 14, 2016
    related to dialysis facilities Conditions for Coverage (CMS 3337-IFC),
    including an issuance of a different but related Final Rule;
  • reduction of government-based payor reimbursement rates or
    insufficient rate increases or adjustments that do not cover all of
    our operating costs;
  • our ability to successfully develop de novo clinics, acquire existing
    clinics and attract new physician partners;
  • our ability to compete effectively in the dialysis services industry;
  • the performance of our joint venture subsidiaries and their ability to
    make distributions to us;
  • changes to the Medicare end-stage renal disease ("ESRD") program that
    could affect reimbursement rates and evaluation criteria, as well as
    changes in Medicaid or other non-Medicare government programs or
    payment rates, including the ESRD prospective payment rate system
    proposed rule for 2019 issued July 11, 2018;
  • federal or state healthcare laws that could adversely affect us;
  • our ability to comply with all of the complex federal, state and local
    government regulations that apply to our business, including those in
    connection with federal and state anti-kickback laws and state laws
    prohibiting the corporate practice of medicine or fee-splitting;
  • heightened federal and state investigations and enforcement efforts;
  • the impact of the litigation by affiliates of UnitedHealth Group, Inc.
    and the resolution thereof, and the Department of Justice inquiry;
  • changes in the availability and cost of erythropoietin-stimulating
    agents and other pharmaceuticals used in our business;
  • development of new technologies that could decrease the need for
    dialysis services or decrease our in-center patient population;
  • our ability to timely and accurately bill for our services and meet
    payor billing requirements;
  • claims and losses relating to malpractice, professional liability and
    other matters; the sufficiency of our insurance coverage for those
    claims and rising insurances costs; and any negative publicity or
    reputational damage arising from such matters;
  • loss of any members of our senior management;
  • damage to our reputation or our brand and our ability to maintain
    brand recognition;
  • our ability to maintain relationships with our medical directors and
    renew our medical director agreements;
  • shortages of qualified skilled clinical personnel, or higher than
    normal turnover rates;
  • competition and consolidation in the dialysis services industry;
  • deteriorations in economic conditions, particularly in states where we
    operate a large number of clinics, or disruptions in the financial
    markets;
  • the participation of our physician partners in material strategic and
    operating decisions and our ability to favorably resolve any disputes;
  • our ability to honor obligations under the joint venture operating
    agreements with our physician partners were they to exercise certain
    put rights and other rights;
  • unauthorized disclosure of personally identifiable, protected health
    or other sensitive or confidential information;
  • our ability to meet our obligations and comply with restrictions under
    our substantial level of indebtedness; and,
  • the ability of our principal stockholder, whose interests may conflict
    with yours, to strongly influence or effectively control our corporate
    decisions.

The forward-looking statements made in this press release are made only
as of the date hereof. Except as required by law, we undertake no
obligation to update any forward-looking statement, whether as a result
of new information or otherwise. More information about potential
factors that could affect our business and financial results is included
in our filings with the SEC.

Use of Non-GAAP Financial Measures

In addition to the results prepared in accordance with generally
accepted accounting principles in the United States ("GAAP") provided
throughout this press release, the Company has presented the following
Non-GAAP financial measures: Adjusted EBITDA, Adjusted EBITDA less
noncontrolling interests, Adjusted net income attributable to American
Renal Associates Holdings, Inc., Adjusted cash provided by operating
activities and Adjusted owned net debt, which exclude various items
detailed in the attached "Reconciliation of Non-GAAP Financial Measures."

These Non-GAAP financial measures are not intended to replace financial
performance and liquidity measures determined in accordance with GAAP.
Rather, they are presented as supplemental measures of the Company's
performance and liquidity that management believes may enhance the
evaluation of the Company's ongoing operating results. Please see
"Reconciliation of Non-GAAP Financial Measures" for additional reasons
why these measures are provided.

 

American Renal Associates Holdings, Inc. and Subsidiaries
Consolidated
Statements of Operations

(Unaudited)
(dollars
in thousands, except for share data)

       
Three Months Ended June 30, Six Months Ended June 30,
2018     2017 2018     2017
Patient service operating revenues $ 217,178 $ 185,992 $ 411,850 $ 363,017
Operating expenses:
Patient care costs 140,562 118,059 274,293 238,360
General and administrative 26,803 26,381 51,763 57,625
Transaction-related costs 717 856 717
Depreciation and amortization 9,814 9,382 19,437 18,456
Certain legal matters 32,546   4,297   36,649   8,233  
Total operating expenses 209,725   158,836   382,998   323,391  
Operating income 7,453 27,156 28,852 39,626
Interest expense, net (8,131 ) (7,188 ) (15,588 ) (14,797 )
Loss on early extinguishment of debt (526 ) (526 )
Income tax receivable agreement income (expense) 1,736   (2,641 ) 715   1,876  
Income before income taxes 1,058 16,801 13,979 26,179
Income tax (benefit) expense (1,219 ) 410   (2,011 ) (3,114 )
Net income 2,277 16,391 15,990 29,293
Less: Net income attributable to noncontrolling interests (20,285 ) (18,497 ) (34,908 ) (32,650 )

Net loss attributable to American Renal Associates
Holdings,
Inc.

(18,008 ) (2,106 ) (18,918 ) (3,357 )

Less: Change in the difference between the redemption
value
and estimated fair value for accounting purposes of
the
related noncontrolling interests

(884 ) (2,527 ) (302 ) (13,610 )
Net loss attributable to common shareholders $ (18,892 ) $ (4,633 ) $ (19,220 ) $ (16,967 )
 
Loss per share:
Basic $ (0.59 ) $ (0.15 ) $ (0.60 ) $ (0.55 )
Diluted $ (0.59 ) $ (0.15 ) $ (0.60 ) $ (0.55 )
Weighted-average number of common shares outstanding:
Basic 31,932,705 30,986,689 31,877,286 30,947,304
Diluted 31,932,705 30,986,689 31,877,286 30,947,304
 
 

American Renal Associates Holdings, Inc. and Subsidiaries
Consolidated
Balance Sheets

(dollars in thousands, except for share
data)

       
June 30, 2018 December 31, 2017
Assets (Unaudited)
Cash $ 69,403 $ 71,521
Accounts receivable, less allowance for doubtful accounts of $1,834
and $6,757, respectively
91,508 79,662
Inventories 6,535 4,665
Prepaid expenses and other current assets 20,338 24,998
Income tax receivable 4,713   6,745  
Total current assets 192,497 187,591
Property and equipment, net of accumulated depreciation of $183,077
and $167,390, respectively
167,621 168,537
Intangible assets, net of accumulated amortization of $23,819 and
$23,419, respectively
24,966 25,368
Other long-term assets 19,639 9,285
Goodwill 570,946   573,427  
Total assets $ 975,669   $ 964,208  
Liabilities and Equity
Accounts payable $ 52,849 $ 33,421
Accrued compensation and benefits 30,881 28,985
Accrued expenses and other current liabilities 48,961 49,963
Current portion of long-term debt 46,660   44,534  
Total current liabilities 179,351 156,903
Long-term debt, less current portion 509,983 515,554
Income tax receivable agreement payable 6,037 7,500
Other long-term liabilities 33,819 14,880
Deferred tax liabilities 4,696   8,991  
Total liabilities 733,886 703,828
Commitments and contingencies
Noncontrolling interests subject to put provisions 145,500 139,895
Equity
Preferred stock, $0.01 par value; 1,000,000 shares authorized; none
issued

Common stock, $0.01 par value; 300,000,000 shares authorized;
32,458,837
and 32,034,439 issued and outstanding at June 30, 2018 and
December
31, 2017, respectively

195 193
Additional paid-in capital 69,170 67,853
Receivable from noncontrolling interests (477 ) (358 )
Accumulated deficit (142,493 ) (123,789 )
Accumulated other comprehensive income (loss), net of tax 1,227   (677 )
Total American Renal Associates Holdings, Inc. deficit (72,378 ) (56,778 )
Noncontrolling interests not subject to put provisions 168,661   177,263  
Total equity 96,283   120,485  
Total liabilities and equity $ 975,669   $ 964,208  
 
 

American Renal Associates Holdings, Inc. and Subsidiaries
Consolidated
Statements of Cash Flows

(Unaudited) (dollars in
thousands)

       

Three Months Ended
June 30,

Six Months Ended
June 30,

Operating activities 2018     2017 2018     2017
Net income $ 2,277 $ 16,391 $ 15,990 $ 29,293
Adjustments to reconcile net income to cash provided by operating
activities:
Depreciation and amortization 9,814 9,382 19,437 18,456
Amortization of discounts, fees and deferred financing costs 492 535 989 1,065
Loss on extinguishment of debt 526 526
Stock-based compensation 1,663 3,643 2,927 13,731
Premium paid for interest rate cap agreements (1,186 )
Deferred taxes (5,014 ) 56 (5,014 ) 729
Income tax receivable agreement (income) expense (1,736 ) 2,641 (715 ) (1,876 )
Non-cash charge related to derivative agreements 4 5 173
Non-cash rent charges (6 ) 142 161 431
Loss on disposal of assets 29 133 279 190
Change in operating assets and liabilities, net of acquisitions:
Accounts receivable (5,785 ) (346 ) (11,846 ) 3,286
Inventories 1,107 (312 ) (1,870 ) (284 )
Prepaid expenses and other current assets 7,576 (5,767 ) 7,119 (9,637 )
Other assets (4,422 ) (489 ) (8,733 ) (552 )
Accounts payable 11,964 3,579 19,428 (2,943 )
Accrued compensation and benefits 3,721 2,562 1,896 (449 )
Accrued expenses and other liabilities 15,786   3,162   18,426   1,407  
Cash provided by operating activities 37,470 35,838 58,479 52,360
Investing activities
Purchases of property, equipment and intangible assets (8,567 ) (7,647 ) (18,418 ) (14,053 )
Proceeds from asset sales     2,500    
Cash used in investing activities (8,567 ) (7,647 ) (15,918 ) (14,053 )
Financing activities
Net proceeds from issuance of long-term debt 267,564 267,564
Cash paid for financing costs (3,914 ) (3,914 )
Proceeds from term loans, net of deferred financing costs 18,440 7,110 28,946 11,991
Payments on long-term debt (20,138 ) (276,836 ) (33,198 ) (286,525 )
Dividends and dividend equivalents paid (21 ) (8,409 ) (278 ) (8,680 )
Proceeds from exercise of stock options 60 506 396 536
Vested restricted stock awards withheld on net share settlement (367 )
Distributions to noncontrolling interests (17,471 ) (19,498 ) (34,189 ) (38,542 )
Contributions from noncontrolling interests 790 1,177 2,520 2,887
Purchases of noncontrolling interests (5,443 ) (4,961 ) (8,601 ) (9,507 )
Proceeds from sales of additional noncontrolling interests     92    
Cash used in financing activities (23,783 ) (37,261 ) (44,679 ) (64,190 )
 
Increase (decrease) in cash and restricted cash 5,120 (9,070 ) (2,118 ) (25,883 )
Cash and restricted cash at beginning of period 64,383   84,103   71,621   100,916  
Cash and restricted cash at end of period $ 69,503   $ 75,033   $ 69,503   $ 75,033  
 
Supplemental Disclosure of Cash Flow Information
Cash paid for income taxes $ 1,227 $ 1,193 $ 1,525 $ 1,320
Cash paid for interest 5,669 6,603 12,665 13,435
 
 

American Renal Associates Holdings, Inc. and Subsidiaries
Unaudited
GAAP, Non-GAAP, and Other Supplemental Business Metrics

(dollars
in thousands, except per treatment amounts)

   
Three Months Ended
June 30, 2018     March 31, 2018     June 30, 2017
Dialysis Clinic Activity:
Number of clinics (as of end of period) 233 228 217
Number of de novo clinics opened (during period) 5 1 2
Number of acquired clinics (during period)
Sold or merged clinics (during period) (1 )
Signed clinics (as of end of period) 26 28 32
Patients and Treatment Volume:
Patients (as of end of period) 16,018 15,776 15,023
Number of treatments 572,929 558,936 542,749
Number of treatment days 78 78 78
Treatments per day 7,345 7,166 6,958
Sources of treatment growth (year over year % change):
Non-acquired growth 4.5 % 4.2 % 8.6 %
Acquired growth 1.1 % 1.0 % 0.3 %
Total treatment growth 5.6 % 5.2 % 8.9 %
Revenue:
Patient service operating revenues $ 217,178 $ 194,672 $ 185,992
Patient service operating revenues per treatment $ 379 $ 348 $ 343
Expenses:
Adjusted patient care costs (1)
Amount $ 140,562 $ 133,731 $ 117,913
As a % of patient service operating revenues 64.7 % 68.7 % 63.4 %
Per treatment $ 245 $ 239 $ 217
Adjusted general and administrative expenses (2)
Amount $ 26,803 $ 24,960 $ 23,483
As a % of patient service operating revenues 12.3 % 12.8 % 12.6 %
Per treatment $ 47 $ 45 $ 43
Accounts receivable DSO (days) 38 40 38
Adjusted EBITDA*
Adjusted EBITDA including noncontrolling interests $ 51,793 $ 37,361 $ 45,900
Adjusted EBITDA-NCI $ 31,508 $ 22,738 $ 27,403
Clinical (quarterly averages):
Dialysis adequacy - % of patients with Kt/V > 1.2 98 % 98 % 98 %
Vascular access - % catheter in use > 90 days 12 % 11 % 11 %
 

* See "Reconciliation of Non-GAAP Financial Measures."
(1) Adjusted
patient care costs exclude $0.5 million of Modification Expense, $0.1
million of severance expense and $0.5 million of gain on sale of assets
during the three months ended June 30, 2017.
(2) Adjusted
general and administrative expenses exclude $2.1 million of Modification
Expense and $0.8 million of severance expense during the three months
ended June 30, 2017.

 

American Renal Associates Holdings, Inc. and Subsidiaries
Net
Loss per Share Reconciliation

(Unaudited)
(dollars
in thousands, except per share data)

       

Three Months Ended
June 30,

Six Months Ended
June 30,

2018     2017 2018     2017
Basic
Net loss attributable to American Renal Associates Holdings, Inc. $ (18,008 ) $ (2,106 ) $ (18,918 ) $ (3,357 )

Change in the difference between the redemption value and
estimated fair value
for accounting purposes of the related
noncontrolling interests

(884 ) (2,527 ) (302 ) (13,610 )
Net loss attributable to common shareholders for basic earnings per
share calculation
$ (18,892 ) $ (4,633 ) $ (19,220 ) $ (16,967 )
Weighted-average common shares outstanding 31,932,705   30,986,689   31,877,286   30,947,304  
Loss per share, basic $ (0.59 ) $ (0.15 ) $ (0.60 ) $ (0.55 )
Diluted
Net loss attributable to American Renal Associates Holdings, Inc. $ (18,008 ) $ (2,106 ) $ (18,918 ) $ (3,357 )

Change in the difference between the redemption value and
estimated fair value
for accounting purposes of the related
noncontrolling interests

(884 ) (2,527 ) (302 ) (13,610 )
Net loss attributable to common shareholders for diluted earnings
per share calculation
$ (18,892 ) $ (4,633 ) $ (19,220 ) $ (16,967 )
Weighted-average common shares outstanding, basic 31,932,705 30,986,689 31,877,286 30,947,304
Weighted-average common shares outstanding, diluted 31,932,705   30,986,689   31,877,286   30,947,304  
Loss per share, diluted $ (0.59 ) $ (0.15 ) $ (0.60 ) $ (0.55 )
Outstanding options excluded as impact would be anti-dilutive 3,716,353 3,291,722 3,487,078 2,303,407
 

American Renal Associates Holdings, Inc. and 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 income taxes and other
non-income based tax, interest expense, net, depreciation and
amortization, as adjusted for stock-based compensation and associated
payroll taxes, loss on early extinguishment of debt, transaction-related
costs, certain legal matters costs, executive and management severance
costs, income tax receivable agreement income and expense, and gain on
sale of assets. "Adjusted EBITDA-NCI" is defined as Adjusted EBITDA less
net income attributable to noncontrolling interests. We believe Adjusted
EBITDA and Adjusted EBITDA-NCI provide information useful for evaluating
our business and a further understanding of the Company's results of
operations from management's perspective. We believe Adjusted EBITDA is
helpful in highlighting trends because Adjusted EBITDA excludes the
results of actions that are outside the operational control of
management, but can differ significantly from company to company
depending on long-term strategic decisions regarding capital structure,
the tax jurisdictions in which companies operate and capital
investments. We believe Adjusted EBITDA-NCI is helpful in highlighting
the amount of Adjusted EBITDA that is available to us after reflecting
the interests of our joint venture partners. Adjusted EBITDA and
Adjusted EBITDA-NCI are not measures of operating performance computed
in accordance with GAAP and should not be considered as a substitute for
operating income, net income, cash flows from operations, or other
statement of operations or cash flow data prepared in conformity with
GAAP, or as measures of profitability or liquidity. In addition,
Adjusted EBITDA and Adjusted EBITDA-NCI may not be comparable to
similarly titled measures of other companies. Adjusted EBITDA and
Adjusted EBITDA-NCI may not be indicative of historical operating
results, and we do not mean for these items to be predictive of future
results of operations or cash flows. Adjusted EBITDA and Adjusted
EBITDA-NCI have limitations as analytical tools, and you should
not consider these items in isolation, or as substitutes for an analysis
of our results as reported under GAAP. Some of these limitations are
that Adjusted EBITDA and Adjusted EBITDA-NCI:

  • do not include stock-based compensation expense, and beginning with
    the quarter ended June 30, 2017, do not include associated payroll
    taxes;
  • do not include transaction-related costs;
  • do not include depreciation and amortization—because construction and
    operation of our dialysis clinics requires significant capital
    expenditures, depreciation and amortization are a necessary element of
    our costs and ability to generate profits;
  • do not include interest expense—as we have borrowed money for general
    corporate purposes, interest expense is a necessary element of our
    costs and ability to generate profits and cash flows;
  • do not include income tax receivable agreement income and expense;
  • do not include loss on early extinguishment of debt;
  • do not include costs related to certain legal matters;
  • do not include executive and management severance costs;
  • do not include income tax expense or benefit and other non-income
    based taxes; and
  • do not reflect gain on sale of assets.

In addition, Adjusted EBITDA is not adjusted for the portion of earnings
that we distribute to our joint venture partners.

You should not consider Adjusted EBITDA and Adjusted EBITDA-NCI as
alternatives to income from operations or net income, determined in
accordance with GAAP, as an indicator of our operating performance, or
as alternatives to cash provided by operating activities, determined in
accordance with GAAP, as an indicator of cash flows or as a measure of
liquidity. This presentation of Adjusted EBITDA and Adjusted EBITDA-NCI
may not be directly comparable to similarly titled measures of other
companies, since not all companies use identical calculations.

We use Adjusted net income attributable to American Renal Associates
Holdings, Inc. because it is a useful measure to evaluate our
performance by excluding the impact of certain items that we believe are
not related to our normal business operations and/or are a result of
changes in our liabilities from period to period. See the notes to the
tables below for further explanation of the exclusion of certain items.
By excluding these items, we believe Adjusted net income allows us and
investors to evaluate our net income on a more consistent basis.
"Adjusted net income attributable to American Renal Associates Holdings,
Inc." is defined as Net income (loss) attributable to American Renal
Associates Holdings, Inc. plus or minus, as applicable, stock-based
compensation due to option modifications and other transactions at the
time of the Company's initial public offering, certain legal matter
costs, transaction-related costs, income tax receivable agreement
income/expense, tax valuation allowance and other tax adjustments, and
accounting changes in fair value of non-controlling interest puts, net
of taxes. We use the Adjusted weighted average number of diluted shares
to calculate Adjusted net income attributable to American Renal
Associates Holdings, Inc. per share. For the first and second quarter of
2017, the Adjusted weighted average number of diluted shares outstanding
is calculated using the treasury method as if certain unvested
in-the-money options subject to a contingency are treated as being
vested to provide investors with a calculation of the fully-diluted
number of shares assuming certain pre-IPO options vested prior to their
actual vesting on April 21, 2017.

We use Adjusted cash provided (used) by operating activities less
distributions to NCI because it is a useful measure to evaluate the cash
flow that is available to the Company for investment in property, plant
and equipment, debt service, growth and other general corporate
purposes. "Adjusted cash provided (used) by operating activities less
distributions to noncontrolling interests" is defined as cash provided
by operating activities plus transaction-related expenses less
distributions to noncontrolling interests.

We use Adjusted owned net debt because it is a useful metric to evaluate
the Company's share of interests in the cash on our consolidated balance
sheet and the debt of the Company. "Adjusted owned net debt" is defined
as debt (other than clinic-level debt) plus clinic-level debt guaranteed
by our wholly owned subsidiaries of American Renal Associates Holdings,
Inc. less cash (other than clinic-level cash) less the Company's pro
rata interest in clinic-level cash. "Owned net leverage" is defined as
the ratio of Owned net debt to our trailing twelve months Adjusted
EBITDA-NCI.

The following table presents the reconciliation from net income to
Adjusted EBITDA and Adjusted EBITDA-NCI for the periods indicated:

   
(Unaudited)
Reconciliation of Net income to Adjusted EBITDA

Three Months Ended
June 30,

   

Six Months Ended
June 30,

   

LTM (1)
as of June
30, 2018

2018     2017 2018     2017
Net income $ 2,277 $ 16,391 $ 15,990 $ 29,293 $ 62,380
Interest expense, net 8,131 7,188 15,588 14,797 30,080
Income tax (benefit) expense and other non-income based tax (917 ) 410 (1,709 ) (3,114 ) 9,879
Depreciation and amortization 9,814 9,382 19,437 18,456 38,615
Transaction-related costs 717 856 717 856
Loss on early extinguishment of debt 526 526
Income tax receivable agreement (income) expense (1,736 ) 2,641 (1,876 ) (6,073 )
Certain legal matters (2) 32,546 4,297 36,649 8,233 43,665
Executive and management severance costs 917 917
Stock-based compensation and related payroll taxes 1,678 3,948 3,058 14,036 5,381
Gain on sale of assets   (517 ) (715 ) (517 ) (740 )
Adjusted EBITDA (including noncontrolling interests) $ 51,793 $ 45,900 $ 89,154 $ 81,468 $ 184,043
Less: Net income attributable to noncontrolling interests (20,285 ) (18,497 ) (34,908 ) (32,650 ) (73,084 )
Adjusted EBITDA-NCI $ 31,508   $ 27,403   $ 54,246   $ 48,818   $ 110,959  
 

__________________________________
(1) Last twelve months ("LTM")
is the period beginning July 1, 2017 through June 30, 2018.
(2)
Certain legal matters costs include legal fees and other expenses
associated with matters outside the ordinary course of our business,
including, but not limited to, our handling of, and response to, the
UnitedHealth Group Incorporated litigation and settlement, the subpoena
from the United States Attorney's Office, District of Massachusetts, a
now-concluded SEC inquiry, the CMS request for information, the
securities and derivative litigation, and the Company's internal review
and analysis of factual and legal issues relating to the aforementioned
matters as described in our Form 10-Q for the period ended June 30,
2018. We have excluded these costs because they represent unusual fees
and expenses that are not related to the usual operation of our business.

The following table presents the reconciliation from Net loss
attributable to American Renal Associates Holdings, Inc. to Adjusted net
income attributable to American Renal Associates Holdings, Inc. for the
periods indicated:

 

Reconciliation of Net Loss Attributable to American Renal
Associates Holdings, Inc. to Adjusted Net Income

Attributable
to American Renal Associates Holdings, Inc.:

   
(dollars in thousands, except per share data) (Unaudited)

Three Months Ended
June 30,

   

Six Months Ended
June 30,

2018     2017 2018     2017
Net loss attributable to American Renal Associates Holdings, Inc. $ (18,008 ) $ (2,106 ) $ (18,918 ) $ (3,357 )

Change in the difference between the redemption value and estimated
fair
value for accounting purposes of the related noncontrolling
interests
(1)

(884 )   (2,527 ) (302 ) (13,610 )
Net loss attributable to common shareholders $ (18,892 ) $ (4,633 ) $ (19,220 ) $ (16,967 )
 
Adjustments:
Stock-based compensation due to option modification and IPO
transactions (2)
2,644 11,748
Certain legal matters (3) 32,546 4,297 36,649 8,233
Loss on early extinguishment of debt 526 526
Transaction-related costs 717 856 717
Executive and management severance costs 917 917
Gain on sale of assets   (517 )   (517 )
Total pre-tax adjustments $ 32,546 $ 8,584 $ 37,505 $ 21,624
Tax effect 5,890   3,560   7,179   8,967  
Net taxable adjustments $ 26,656 $ 5,024 $ 30,326 $ 12,657
Income tax receivable agreement (income) expense (1,736 ) 2,641 (715 ) (1,876 )
Tax valuation allowance and other tax adjustments 57 730

Change in the difference between the redemption value and
estimated
fair value for accounting purposes of the related
noncontrolling
interests (1)

(884 ) (2,527 ) (302 ) (13,610 )
Total adjustments, net $ 25,804   $ 10,249   $ 29,913   $ 25,121  
Adjusted net income attributable to American Renal Associates
Holdings, Inc.
$ 6,912   $ 5,616   $ 10,693   $ 8,154  
 
Basic shares outstanding 31,932,705 30,986,689 31,877,286 30,947,304
Adjusted effect of dilutive stock options (4) 1,915,574   2,957,728   2,088,504   2,957,828  

Adjusted weighted average number of diluted shares used to compute
adjusted
net income attributable to American Renal Associates
Holdings,
Inc. per share (4)

33,848,279   33,944,417   33,965,790   33,905,132  
Adjusted net income attributable to American Renal Associates
Holdings, Inc. per share
$ 0.20   $ 0.17   $ 0.31   $ 0.24  
 

________________________
(1) Changes in fair values of
contractual noncontrolling interest put provisions are related to
certain put rights that were accelerated as a result of the IPO.
(2)
Stock-based compensation due to option modification and other
transactions at the time of the IPO which were expensed within 12 months
after the IPO have been excluded since they arose based on transactions
that are not expected to occur in the future.
(3) Certain legal
matters costs include legal fees and other expenses associated with
matters outside the ordinary course of our business, including, but not
limited to, our handling of, and response to, the UnitedHealth Group
Incorporated litigation and settlement, the subpoena from the United
States Attorney's Office, District of Massachusetts, a now-concluded SEC
inquiry, the CMS request for information, the securities and derivative
litigation, and the Company's internal review and analysis of factual
and legal issues relating to the aforementioned matters as described in
our Form 10-Q for the period ended June 30, 2018. We have excluded these
costs because they represent unusual fees and expenses that are not
related to the usual operation of our business.
(4) For the three
and six months ended June 30, 2017, adjusted weighted average number of
diluted shares outstanding calculated using the treasury method as if
2.5 million shares related to unvested in-the-money options subject to a
contingency are vested.

       

American Renal Associates Holdings, Inc. and Subsidiaries
Unaudited
Supplemental Cash Flow

(dollars in thousands)

 

Three Months Ended
June 30,

Six Months Ended
June 30,

2018     2017 2018     2017
Cash provided by operating activities $ 37,470 $ 35,838 $ 58,479 $ 52,360
Plus:
Transaction-related costs (1)   717   856   717  
Adjusted cash provided by operating activities $ 37,470 $ 36,555 $ 59,335 $ 53,077
Distributions to noncontrolling interests (17,471 ) (19,498 ) (34,189 ) (38,542 )
Adjusted cash provided by operating activities less distributions
to NCI
$ 19,999   $ 17,057   $ 25,146   $ 14,535  
Capital expenditure breakdown:
Routine and maintenance capital expenditures $ 1,939 $ 1,996 $ 4,894 $ 3,914
Development capital expenditures 6,628   5,651   13,524   10,139  
Total capital expenditures $ 8,567   $ 7,647   $ 18,418   $ 14,053  
 

_________________________
(1) Transaction-related costs
represent costs associated with our registration statement and the
secondary offering that was withdrawn in March 2018. These costs include
legal, accounting, valuation and other professional or consulting fees.

   

American Renal Associates Holdings, Inc. and Subsidiaries
Unaudited
Supplemental Leverage Statistics

(dollars in thousands)

 
As of June 30, 2018
Total ARA     ARA "Owned"
Cash (other than clinic-level cash) $ 3,477 $ 3,477
Clinic-level cash 65,926   34,457  
Total cash $ 69,403   $ 37,934  
Debt (other than clinic-level debt) $ 439,023 $ 439,023
Clinic-level debt 126,470 67,128
Unamortized debt discounts and fees (8,850 ) (8,647 )
Total debt $ 556,643   $ 497,504  
Adjusted owned net debt (total debt - total cash) $ 459,570
Adjusted EBITDA-NCI, LTM $ 110,959
Leverage ratio (2) 4.1x

_________________________
(2) Leverage ratio is calculated
as follows: Adjusted owned net debt divided by Adjusted EBITDA -NCI,
last twelve months.

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