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American Renal Associates Holdings, Inc. Announces Fourth Quarter 2016 ResultsAmerican 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, 2016. 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 2016 Highlights (all percentage changes compare Q4 2016 to Q4 2015 unless noted):
Joseph (Joe) Carlucci, Chairman and Chief Executive Officer, said, "I am proud of the collective efforts of the ARA team during 2016. ARA's dedicated staff remained focused on our Company's first priority - delivering the highest quality patient care. We ended 2016 with very low dialysis clinic staff turnover of 6.9%, physician satisfaction rates that put ARA in the 99th percentile of health care organizations according to Press Ganey data, and very strong performance in the Centers for Medicare & Medicaid Services (CMS) end stage renal disease (ESRD) Quality Incentive Program (QIP). According to data recently released by CMS, only 10.9% of ARA's dialysis facilities will receive reductions under the 2017 ESRD QIP payment year as compared to 19.4% for the industry overall." "Our differentiated partnership model allows us to deliver high quality dialysis care in an integrated and coordinated manner with our physician partners. We opened 20 new de novo clinics and ended the year with a pipeline of 33 signed clinics at December 31, 2016. Our pipeline continues to be strong and reflects the growing acceptance of our operating philosophy within the nephrology community," continued Carlucci. Financial and operating highlights include: Revenue: Net patient service operating revenues for the fourth quarter of 2016 were $199.1 million, an increase of 14.3% as compared to $174.2 million for the prior-year period due to treatment growth and changes in payor mix, primarily related to an increase in patients covered by Affordable Care Act-compliant individual marketplace plans (both on-exchange and off-exchange) ("ACA Plans"). Net patient service operating revenues for the year ending December 31, 2016 were $749.8 million, an increase of 14.8% as compared to $653.0 million for the prior-year period. Treatment Volume: Total dialysis treatments for the fourth quarter of 2016 were 530,346, representing an increase of 11.4% over the fourth quarter of 2015. Non-acquired treatment growth was 10.3% and acquired treatment growth was 1.1% for the fourth quarter of 2016. Center Activity: As of December 31, 2016, the Company provided services at 214 outpatient dialysis centers serving 14,590 patients. During the fourth quarter of 2016, we opened seven de novo clinics. As of December 31, 2016, we had 33 signed de novo clinics scheduled to open in the future. Net income, Net income attributable to noncontrolling interests, Net income attributable to American Renal Associates Holdings, Inc., Adjusted EBITDA and Adjusted EBITDA less noncontrolling interests:
* NM - Not Meaningful Operating Expenses: Patient care costs for the fourth quarter of 2016 were $121.1 million, or 60.8% (or 59.9% excluding the Modification and Other Stock Compensation Expense described below), of net patient service operating revenues as compared to $102.6 million, or 58.9%, of net patient service operating revenues in the prior-year period. General and administrative expenses were $40.8 million, or 20.5% (or 12.2% excluding the Modification and Other Stock Compensation Expense, and Executive Severance Expense described below), of net patient service operating revenues as compared to $20.6 million, or 11.8%, of net patient service operating revenues in the prior-year period. Patient care costs and general and administrative expenses for the fourth quarter of 2016 include $1.9 million and $14.9 million, respectively, of stock-based compensation related to modification of options and other transactions at the time of the Company's initial public offering (the "Modification and Other Stock Compensation Expense"). General and administrative expenses for the fourth quarter of 2016 also include $1.65 million of executive severance expense primarily associated with the departure of the Company's former Chief Operating Officer, effective December 31, 2016. Patient care costs for the year ended December 31, 2016 were $452.4 million, or 60.3% (or 59.6% excluding the Modification and Other Stock Compensation Expense), of net patient service operating revenues as compared to $390.9 million, or 59.9%, of net patient service operating revenues in the prior-year period. General and administrative expenses during the year ended December 31, 2016 were $127.6 million, or 17.0% (or 12.3% excluding the Modification and Other Stock Compensation Expense, and Executive Severance Expense), of net patient service operating revenues as compared to $77.3 million, or 11.8%, of net patient service operating revenues in the prior-year period. Patient care costs and general and administrative expenses for the year ended December 31, 2016 include $5.2 million and $32.0 million, respectively, of Modification and Other Stock Compensation Expense. General and administrative expenses for the year ended December 31, 2016 also include $1.65 million of executive severance expense, as described above. Cash Flow: Cash provided by operating activities for the fourth quarter of 2016 was $30.3 million as compared to $29.1 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 2016 was $2.8 million as compared to $9.6 million in the prior-year period. Total capital expenditures for the fourth quarter of 2016 were $14.8 million as compared to $8.4 million in the prior-year period. Capital expenditures for the fourth quarter of 2016 included $4.5 million for maintenance and $10.3 million for expansions and new clinic development. Cash provided by operating activities for the year ended December 31, 2016 was $172.2 million as compared to $133.6 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, 2016 was $80.0 million as compared to $56.6 million in the prior-year period. Total capital expenditures for the year ended December 31, 2016 were $61.4 million as compared to $46.3 million in the prior-year period. Capital expenditures for the year ended December 31, 2016 included $13.0 million for maintenance and $48.4 million for expansions and new clinic development. Balance Sheet: At December 31, 2016, the Company's balance sheet included consolidated cash of $100.9 million and consolidated debt of $570.3 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 $502.7 million at December 31, 2016. Adjusted owned net debt to last twelve months Adjusted EBITDA less NCI leverage ratio was 3.5x at December 31, 2016. As of December 31, 2016, net patient accounts receivable were $81.1 million and DSO for the period was 37 days as compared to 37 days for the three months ended September 30, 2016. Certain Factors Expected to Impact 2017 Adjusted EBITDA less NCI: The Company expects 2017 Adjusted EBITDA less NCI to be lower than in 2016, due primarily to the impact from an estimated decline of approximately $25 million related to reductions from Affordable Care Act-compliant individual marketplace plans (both on-exchange and off-exchange) ("ACA Plans"), as compared to 2016, for patients who also received charitable premium assistance. The estimated $25 million decline from 2016 Adjusted EBITDA less NCI takes ARA's weighted average dialysis facility ownership into account, and represents an increase of approximately $1 million to the Company's prior estimate. In addition to this $25 million impact described above, the Company believes 2017 Adjusted EBITDA less NCI could be impacted by other headwinds, including Medicare rebasing, in which Medicare ESRD PPS updates are not keeping pace with the inflationary effects on our operating costs, as well as potential pressure on commercial mix and rate, including challenges from commercial payors or any regulatory changes leading to changes in the ability of patients with other commercial insurance coverage to receive charitable premium assistance. These factors could be partially offset by certain tailwinds, including non-acquired treatment growth and expected efficiencies from better resource productivity and potential opportunities with our clinic footprint, although we expect the benefit of these operating initiatives to be more back-half weighted during 2017. The Company's 2017 Adjusted EBITDA less NCI is expected to exclude severance costs, certain legal costs, and other future potential costs, which could include potential closure and consolidation costs, to the extent they occur during 2017. Conference Call American Renal Associates Holdings, Inc. will hold a conference call to discuss this release on Wednesday, March 8, 2017, at 9:00 a.m. Eastern time. Investors will have the opportunity to listen to the conference call by dialing (877) 407-8029, or for international callers (201) 689-8029, or may listen over the Internet by going to the Investor Relations section at www.ir.americanrenal.com. For those who cannot listen to the live broadcast, a replay will be available and can be accessed by dialing (877) 660-6853, or for international callers (201) 612-7415. The conference ID for the live call and the replay is 13652864. 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, 2016, ARA operated 214 dialysis clinic locations in 25 states and the District of Columbia serving approximately 14,500 patients with end stage renal disease. ARA operates exclusively through a physician partnership model, in which it partners with approximately 380 local nephrologists to develop, own and operate dialysis clinics. ARA's Core Values emphasize taking good care of patients, providing physicians with clinical autonomy and operational support, hiring and retaining the best possible staff and providing best practices management services. For more information about American Renal Associates, visit www.americanrenal.com. Forward-Looking Statements This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements, which have been included in reliance of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, involve risks and uncertainties and assumptions relating to our operations, financial condition, business, prospects, growth strategy and liquidity, which may cause our actual results to differ materially from those projected by such forward-looking statements, and the Company cannot give assurances that such statements will prove to be correct. You can identify forward-looking statements because they do not relate strictly to historical or current facts. These statements may include words such as "aim," "anticipate," "believe," "estimate," "expect," "forecast," "outlook," "potential," "project," "projection," "plan," "intend," "seek," "may," "could," "would," "will," "should," "can," "can have," "likely," the negatives thereof and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. The forward-looking statements appear in a number of places throughout this press release and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the industry in which we operate. All forward-looking statements are subject to risks and uncertainties, including but not limited to those risks and uncertainties described in "Risk Factors" and "Special Note Regarding Forward-Looking Statements" in our Annual Report on Form 10-K for the year ended December 31, 2016 to be filed with the SEC that may cause actual results to differ materially from those that we expected. Some of the factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements include, among others, the following:
The forward-looking statements made in this press release are made only as of the date of the hereof. Except as required by law, we undertake no obligation to update any forward-looking statement, whether as a result of new information or otherwise. More information about potential factors that could affect our business and financial results is included in our filings with the SEC. Use of Non-GAAP Financial Measures In addition to the results prepared in accordance with generally accepted accounting principles in the United States ("GAAP") provided throughout this press release, the Company has presented the following Non-GAAP financial measures: EBITDA, Adjusted EBITDA, Adjusted EBITDA less noncontrolling interests (NCI), Adjusted net income 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.
* Paid to shareholders prior to the Company's initial public offering.
(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 each of the three months ended December 31, 2016 and September 30, 2016, respectively. For the year ended December 31, 2016, $5.3 million 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. (2) Excludes $13.4 million and $10.3 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 and September 30, 2016, respectively. For the year ended December 31, 2016, $32.0 million 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. 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 chief operating officer.
American Renal Associates Holdings, Inc. We use Adjusted EBITDA and Adjusted EBITDA-NCI to track our performance. "Adjusted EBITDA" is defined as net income before income taxes, interest expense, depreciation and amortization, as adjusted for stock-based compensation, loss on early extinguishment of debt, transaction-related costs, income tax receivable agreement expense, certain legal matters costs, executive severance costs 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 understanding our operating performance in a manner similar to management. 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 Adjusted EBITDA 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 it 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:
In addition, Adjusted EBITDA is not adjusted for the portion of earnings that we distribute to our joint venture partners. You should not consider Adjusted EBITDA and Adjusted EBITDA-NCI as alternatives to income from operations or net income, determined in accordance with GAAP, as an indicator of our operating performance, or as alternatives to cash provided by operating activities, determined in accordance with GAAP, as an indicator of cash flows or as a measure of liquidity. This presentation of Adjusted EBITDA and Adjusted EBITDA-NCI may not be directly comparable to similarly titled measures of other companies, since not all companies use identical calculations. We use Adjusted net income attributable to American Renal Associates Holdings, Inc. because it is a useful measure to evaluate our performance by excluding the impact of certain items that we believe are not related to our normal business operations and/or are a result of changes in our liabilities from period to period. See the notes to the tables below for further explanation of the exclusion of certain items. By excluding these items we believe Adjusted net income allows us and investors to evaluate our net income on a more consistent basis. "Adjusted net income attributable to American Renal Associates Holdings, Inc." is defined as Net income (loss) attributable to American Renal Associates Holdings, Inc. plus or minus, as applicable, income tax receivable agreement income/expense, accounting changes in fair value of non-controlling interest puts, certain legal matter costs, executive severance costs, and share-based compensation due to option modifications and other transactions at the time of the Company's initial public offering, 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. 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 less NCI. The following table presents the reconciliation from net income to Adjusted EBITDA and Adjusted EBITDA-NCI for the periods indicated:
(1) Certain legal matters costs include professional fees and other expenses associated with the Company's handling of, and response to, the UnitedHealth litigation, the SEC inquiry, the CMS request for information, the securities litigation, and the Company's internal review and analysis of factual and legal issues relating to the aforementioned matters as described in our Form 10-K for the year ended December 31, 2016. 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 severance costs primarily related to the departure of our chief operating officer. 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:
(1) Share-based compensation due to option modification and other transactions at the time of the IPO which will be 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. (2) Certain legal matters costs include professional fees and other expenses associated with the Company's handling of, and response to, the UnitedHealth litigation, the SEC inquiry, the CMS request for information, the securities litigation, and the Company's internal review and analysis of factual and legal issues relating to the aforementioned matters as described in our Form 10-K for the year ended December 31, 2016. We have excluded these costs because they represent unusual fees and expenses that are not related to the usual operation of our business. (3) Represents executive severance costs primarily related to the departure of our chief operating officer. (4) Changes in fair values of contractual noncontrolling interest put provisions are related to certain put rights that may be accelerated as a result of the IPO. (5) 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.
(1) Transaction-related costs due to the IPO and debt refinancing, including accounting, valuation, legal and other consulting and professional fees. (2) Leverage ratio calculated as follows: Owned net debt divided by Adjusted EBITDA less NCI, last twelve months. View source version on businesswire.com: http://www.businesswire.com/news/home/20170307006378/en/ |
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