|
|
☒
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
☐
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
|
Delaware
|
27-2170749
|
(State or other jurisdiction of
incorporation or organization)
|
(IRS Employer
Identification Number)
|
|
|
500 Cummings Center
Beverly, Massachusetts
|
01915
|
(Address of principal executive offices)
|
(Zip code)
|
|
Large accelerated filer
|
☐
|
Accelerated filer
|
☐
|
Non-accelerated filer
|
☒ (Do not check if a smaller reporting company)
|
Smaller reporting company
|
☐
|
|
|
Emerging growth company
|
☒
|
|
|
PAGE
|
|
||
|
|
|
|
||
|
||
|
||
|
||
|
||
|
||
|
||
|
|
|
|
|
|
|
||
|
|
|
|
|
|
•
|
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 & Medicaid Services (“CMS”) Interim Final Rule published December 14, 2016 related to dialysis facilities Conditions for Coverage (CMS 3337-IFC), including an issuance of a different but related Final Rule;
|
•
|
reduction of government-based payor reimbursement rates or insufficient rate increases or adjustments that do not cover all of our operating costs;
|
•
|
our ability to successfully develop de novo clinics, acquire existing clinics and attract new physician partners;
|
•
|
our ability to compete effectively in the dialysis services industry;
|
•
|
the performance of our joint venture subsidiaries and their ability to make distributions to us;
|
•
|
changes to the Medicare ESRD program that could affect reimbursement rates and evaluation criteria, as well as changes in Medicaid or other non-Medicare government programs or payment rates, including the ESRD PPS final rule for 2018 issued on October 27, 2017;
|
•
|
federal or state healthcare laws that could adversely affect us;
|
•
|
our ability to comply with all of the complex federal, state and local government regulations that apply to our business, including those in connection with federal and state anti-kickback laws and state laws prohibiting the corporate practice of medicine or fee-splitting;
|
•
|
heightened federal and state investigations and enforcement efforts;
|
•
|
the impact of the litigation by affiliates of UnitedHealth Group, Inc., the Department of Justice inquiry, securities litigation and related matters;
|
•
|
changes in the availability and cost of erythropoietin-stimulating agents and other pharmaceuticals used in our business;
|
•
|
development of new technologies that could decrease the need for dialysis services or decrease our in-center patient population;
|
•
|
our ability to timely and accurately bill for our services and meet payor billing requirements;
|
•
|
claims and losses relating to malpractice, professional liability and other matters; the sufficiency of our insurance coverage for those claims and rising insurances costs; and any negative publicity or reputational damage arising from such matters;
|
•
|
loss of any members of our senior management;
|
•
|
damage to our reputation or our brand and our ability to maintain brand recognition;
|
•
|
our ability to maintain relationships with our medical directors and renew our medical director agreements;
|
•
|
shortages of qualified skilled clinical personnel, or higher than normal turnover rates;
|
•
|
competition and consolidation in the dialysis services industry;
|
•
|
deteriorations in economic conditions, particularly in states where we operate a large number of clinics, or disruptions in the financial markets;
|
•
|
the participation of our physician partners in material strategic and operating decisions and our ability to favorably resolve any disputes;
|
•
|
our ability to honor obligations under the joint venture operating agreements with our physician partners were they to exercise certain put rights and other rights;
|
•
|
unauthorized disclosure of personally identifiable, protected health or other sensitive or confidential information;
|
•
|
our ability to meet our obligations and comply with restrictions under our substantial level of indebtedness; and
|
•
|
the ability of our principal stockholder, whose interests may conflict with yours, to strongly influence or effectively control our corporate decisions.
|
ITEM 1.
|
FINANCIAL STATEMENTS
|
|
September 30, 2017
|
|
December 31, 2016
|
||||
|
(Unaudited)
|
|
|
||||
Assets
|
|
|
|
||||
Cash
|
$
|
67,593
|
|
|
$
|
100,916
|
|
Accounts receivable, less allowance for doubtful accounts of $7,937 and $8,726, respectively
|
81,234
|
|
|
81,127
|
|
||
Inventories
|
4,672
|
|
|
4,676
|
|
||
Prepaid expenses and other current assets
|
17,133
|
|
|
18,498
|
|
||
Income tax receivable
|
8,071
|
|
|
5,163
|
|
||
Total current assets
|
178,703
|
|
|
210,380
|
|
||
Property and equipment, net of accumulated depreciation of $146,057 and $121,242, respectively
|
166,890
|
|
|
170,118
|
|
||
Intangible assets, net of accumulated amortization of $23,300 and $23,489, respectively
|
25,488
|
|
|
25,626
|
|
||
Other long-term assets
|
8,636
|
|
|
6,753
|
|
||
Goodwill
|
572,702
|
|
|
573,147
|
|
||
Total assets
|
$
|
952,419
|
|
|
$
|
986,024
|
|
|
|
|
|
||||
Liabilities and Equity
|
|
|
|
||||
Accounts payable
|
$
|
33,863
|
|
|
$
|
31,127
|
|
Accrued compensation and benefits
|
31,767
|
|
|
29,103
|
|
||
Accrued expenses and other current liabilities
|
43,797
|
|
|
45,286
|
|
||
Current portion of long-term debt
|
44,189
|
|
|
48,274
|
|
||
Total current liabilities
|
153,616
|
|
|
153,790
|
|
||
Long-term debt, less current portion
|
514,846
|
|
|
522,058
|
|
||
Income tax receivable agreement payable
|
11,900
|
|
|
21,200
|
|
||
Other long-term liabilities
|
15,713
|
|
|
11,670
|
|
||
Deferred tax liabilities
|
1,110
|
|
|
1,278
|
|
||
Total liabilities
|
697,185
|
|
|
709,996
|
|
||
Commitments and contingencies (Note 15 and Note 16)
|
|
|
|
||||
Noncontrolling interests subject to put provisions
|
110,988
|
|
|
130,365
|
|
||
Equity:
|
|
|
|
||||
Preferred stock, $0.01 par value; 1,000,000 shares authorized; none issued
|
|
|
|
||||
Common stock, $0.01 par value; 300,000,000 shares authorized; 31,314,217 and 30,894,962 issued and outstanding at September 30, 2017 and December 31, 2016, respectively
|
186
|
|
|
184
|
|
||
Additional paid-in capital
|
94,158
|
|
|
95,062
|
|
||
Receivable from noncontrolling interests
|
(484
|
)
|
|
(544
|
)
|
||
Accumulated deficit
|
(124,020
|
)
|
|
(128,646
|
)
|
||
Accumulated other comprehensive loss, net of tax
|
(1,447
|
)
|
|
(100
|
)
|
||
Total American Renal Associates Holdings, Inc. deficit
|
(31,607
|
)
|
|
(34,044
|
)
|
||
Noncontrolling interests not subject to put provisions
|
175,853
|
|
|
179,707
|
|
||
Total equity
|
144,246
|
|
|
145,663
|
|
||
Total liabilities and equity
|
$
|
952,419
|
|
|
$
|
986,024
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||
Patient service operating revenues
|
$
|
189,497
|
|
|
$
|
194,857
|
|
|
$
|
555,731
|
|
|
$
|
555,349
|
|
Provision for uncollectible accounts
|
(1,786
|
)
|
|
(1,902
|
)
|
|
(5,003
|
)
|
|
(4,696
|
)
|
||||
Net patient service operating revenues
|
187,711
|
|
|
192,955
|
|
|
550,728
|
|
|
550,653
|
|
||||
Operating expenses:
|
|
|
|
|
|
|
|
||||||||
Patient care costs
|
119,599
|
|
|
116,115
|
|
|
357,959
|
|
|
331,349
|
|
||||
General and administrative
|
22,292
|
|
|
33,359
|
|
|
79,917
|
|
|
86,800
|
|
||||
Transaction-related costs (Notes 1 and 10)
|
—
|
|
|
—
|
|
|
717
|
|
|
2,239
|
|
||||
Depreciation and amortization
|
9,438
|
|
|
8,687
|
|
|
27,894
|
|
|
24,616
|
|
||||
Certain legal matters (Note 16)
|
3,481
|
|
|
4,042
|
|
|
11,714
|
|
|
4,042
|
|
||||
Total operating expenses
|
154,810
|
|
|
162,203
|
|
|
478,201
|
|
|
449,046
|
|
||||
Operating income
|
32,901
|
|
|
30,752
|
|
|
72,527
|
|
|
101,607
|
|
||||
Interest expense, net
|
(7,255
|
)
|
|
(7,372
|
)
|
|
(22,052
|
)
|
|
(28,571
|
)
|
||||
Loss on early extinguishment of debt
|
—
|
|
|
—
|
|
|
(526
|
)
|
|
(4,708
|
)
|
||||
Income tax receivable agreement income
|
3,585
|
|
|
12,565
|
|
|
5,461
|
|
|
4,730
|
|
||||
Income before income taxes
|
29,231
|
|
|
35,945
|
|
|
55,410
|
|
|
73,058
|
|
||||
Income tax expense (benefit)
|
2,559
|
|
|
(101
|
)
|
|
(555
|
)
|
|
1,413
|
|
||||
Net income
|
26,672
|
|
|
36,046
|
|
|
55,965
|
|
|
71,645
|
|
||||
Less: Net income attributable to noncontrolling interests
|
(18,689
|
)
|
|
(23,622
|
)
|
|
(51,339
|
)
|
|
(64,911
|
)
|
||||
Net income attributable to American Renal Associates Holdings, Inc.
|
7,983
|
|
|
12,424
|
|
|
4,626
|
|
|
6,734
|
|
||||
Less: Change in the difference between the redemption value and estimated fair values for accounting purposes of the related noncontrolling interests
|
5
|
|
|
(1,752
|
)
|
|
(13,605
|
)
|
|
(13,885
|
)
|
||||
Net income (loss) attributable to common shareholders
|
$
|
7,988
|
|
|
$
|
10,672
|
|
|
$
|
(8,979
|
)
|
|
$
|
(7,151
|
)
|
|
|
|
|
|
|
|
|
||||||||
Earnings (loss) per share (Note 13):
|
|
|
|
|
|
|
|
||||||||
Basic
|
$
|
0.26
|
|
|
$
|
0.35
|
|
|
$
|
(0.29
|
)
|
|
$
|
(0.26
|
)
|
Diluted
|
$
|
0.24
|
|
|
$
|
0.34
|
|
|
$
|
(0.29
|
)
|
|
$
|
(0.26
|
)
|
Weighted-average number of common shares outstanding
|
|
|
|
|
|
|
|
||||||||
Basic
|
31,095,418
|
|
|
30,865,350
|
|
|
30,997,218
|
|
|
27,198,297
|
|
||||
Diluted
|
33,833,822
|
|
|
31,436,814
|
|
|
30,997,218
|
|
|
27,198,297
|
|
||||
Cash dividends declared per share
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1.30
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||
Net income
|
$
|
26,672
|
|
|
$
|
36,046
|
|
|
$
|
55,965
|
|
|
$
|
71,645
|
|
Unrealized (loss) gain on derivative agreements, net of tax
|
(27
|
)
|
|
100
|
|
|
(1,347
|
)
|
|
300
|
|
||||
Total comprehensive income
|
26,645
|
|
|
36,146
|
|
|
54,618
|
|
|
71,945
|
|
||||
Less: Comprehensive income attributable to noncontrolling interests
|
(18,689
|
)
|
|
(23,622
|
)
|
|
(51,339
|
)
|
|
(64,911
|
)
|
||||
Total comprehensive income attributable to American Renal Associates Holdings, Inc.
|
$
|
7,956
|
|
|
$
|
12,524
|
|
|
$
|
3,279
|
|
|
$
|
7,034
|
|
|
|
|
Total American Renal Associates Holdings, Inc. Equity (Deficit)
|
|
|
|||||||||||||||||||||||||||||
|
Noncontrolling
Interests
subject to put provisions
|
|
Common Stock
|
|
Additional
Paid-in
Capital
|
|
Receivable
from
Noncontrolling
Interest
Holders
|
|
Retained Earnings (Deficit)
|
|
Accumulated
Other
Comprehensive Income (loss)
|
|
|
|
Noncontrolling
Interests not
subject to put provisions
|
|||||||||||||||||||
|
|
Shares
|
|
Par Value
|
|
|
|
|
|
Total
|
|
|||||||||||||||||||||||
Balance at December 31, 2016
|
$
|
130,365
|
|
|
30,894,962
|
|
|
$
|
184
|
|
|
$
|
95,062
|
|
|
$
|
(544
|
)
|
|
$
|
(128,646
|
)
|
|
$
|
(100
|
)
|
|
$
|
(34,044
|
)
|
|
$
|
179,707
|
|
Net income
|
15,931
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,626
|
|
|
—
|
|
|
4,626
|
|
|
35,408
|
|
||||||||
Stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
14,762
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
14,762
|
|
|
—
|
|
||||||||
Exercise of stock options
|
—
|
|
|
192,297
|
|
|
2
|
|
|
681
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
683
|
|
|
—
|
|
||||||||
Issuance of restricted stock
|
—
|
|
|
226,958
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||||
Cash dividend equivalents accrued on share-based payments
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,711
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,711
|
)
|
|
—
|
|
||||||||
Distributions to noncontrolling interests
|
(17,923
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(42,586
|
)
|
||||||||
Contributions from noncontrolling interests
|
1,344
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
60
|
|
|
—
|
|
|
—
|
|
|
60
|
|
|
2,443
|
|
||||||||
Purchases of noncontrolling interests
|
(25,317
|
)
|
|
—
|
|
|
—
|
|
|
(5,980
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,980
|
)
|
|
(253
|
)
|
||||||||
Sales of noncontrolling interests
|
32
|
|
|
—
|
|
|
—
|
|
|
34
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
34
|
|
|
—
|
|
||||||||
Reclassification/other adjustments
|
(1,134
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,134
|
|
||||||||
Change in fair value of derivative agreements, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,347
|
)
|
|
(1,347
|
)
|
|
—
|
|
||||||||
Change in fair value of noncontrolling interests
|
7,690
|
|
|
—
|
|
|
—
|
|
|
(7,690
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7,690
|
)
|
|
—
|
|
||||||||
Balance at September 30, 2017
|
$
|
110,988
|
|
|
31,314,217
|
|
|
$
|
186
|
|
|
$
|
94,158
|
|
|
$
|
(484
|
)
|
|
$
|
(124,020
|
)
|
|
$
|
(1,447
|
)
|
|
$
|
(31,607
|
)
|
|
$
|
175,853
|
|
|
Nine Months Ended September 30,
|
||||||
Operating activities
|
2017
|
|
2016
|
||||
Net income
|
$
|
55,965
|
|
|
$
|
71,645
|
|
Adjustments to reconcile net income to cash provided by operating activities:
|
|
|
|
||||
Depreciation and amortization
|
27,894
|
|
|
24,616
|
|
||
Amortization of discounts, fees and deferred financing costs
|
1,534
|
|
|
2,432
|
|
||
Loss on extinguishment of debt
|
526
|
|
|
4,708
|
|
||
Stock-based compensation
|
14,762
|
|
|
23,238
|
|
||
Premium paid for interest rate cap agreements
|
(1,186
|
)
|
|
—
|
|
||
Deferred taxes
|
730
|
|
|
(8,508
|
)
|
||
Income tax receivable agreement income
|
(5,461
|
)
|
|
(4,730
|
)
|
||
Payment related to tax receivable agreement
|
(878
|
)
|
|
—
|
|
||
Non-cash charge related to derivative agreements
|
173
|
|
|
489
|
|
||
Non-cash rent charges
|
588
|
|
|
1,764
|
|
||
Gain on disposal of assets
|
(377
|
)
|
|
—
|
|
||
Change in operating assets and liabilities, net of acquisitions:
|
|
|
|
||||
Accounts receivable
|
(107
|
)
|
|
(334
|
)
|
||
Inventories
|
4
|
|
|
(177
|
)
|
||
Prepaid expenses and other current assets
|
(1,425
|
)
|
|
(1,171
|
)
|
||
Other assets
|
(558
|
)
|
|
44
|
|
||
Accounts payable
|
2,736
|
|
|
706
|
|
||
Accrued compensation and benefits
|
2,664
|
|
|
6,588
|
|
||
Accrued expenses and other liabilities
|
(212
|
)
|
|
20,593
|
|
||
Cash provided by operating activities
|
97,372
|
|
|
141,903
|
|
||
Investing activities
|
|
|
|
|
|||
Purchases of property, equipment and intangible assets
|
(24,780
|
)
|
|
(46,659
|
)
|
||
Proceeds from asset sales
|
1,075
|
|
|
—
|
|
||
Cash paid for acquisitions
|
—
|
|
|
(4,467
|
)
|
||
Cash used in investing activities
|
(23,705
|
)
|
|
(51,126
|
)
|
||
Financing activities
|
|
|
|
|
|||
Proceeds from issuance of common stock sold in initial public offering, net of underwriting discounts and offering expense
|
—
|
|
|
175,254
|
|
||
Proceeds from issuance of long-term debt
|
7,401
|
|
|
60,000
|
|
||
Cash paid for debt issuance and other financing costs
|
(8,542
|
)
|
|
(1,350
|
)
|
||
Proceeds from term loans, net of deferred financing costs
|
34,742
|
|
|
54,706
|
|
||
Payments on long-term debt
|
(48,009
|
)
|
|
(266,040
|
)
|
||
Dividends and dividend equivalents paid
|
(8,715
|
)
|
|
(30,223
|
)
|
||
Proceeds from exercise of stock options
|
683
|
|
|
—
|
|
||
Common stock repurchases for tax withholdings of net settlement equity awards
|
—
|
|
|
(356
|
)
|
||
Distributions to noncontrolling interests
|
(60,509
|
)
|
|
(66,985
|
)
|
||
Contributions from noncontrolling interests
|
3,847
|
|
|
6,576
|
|
||
Purchases of noncontrolling interests
|
(27,854
|
)
|
|
(8,397
|
)
|
||
Proceeds from sales of additional noncontrolling interests
|
66
|
|
|
199
|
|
||
Cash used in financing activities
|
(106,890
|
)
|
|
(76,616
|
)
|
||
|
|
|
|
||||
(Decrease) increase in cash and restricted cash
|
(33,223
|
)
|
|
14,161
|
|
||
Cash and restricted cash at beginning of period
|
100,916
|
|
|
90,988
|
|
||
Cash and restricted cash at end of period
|
$
|
67,693
|
|
|
$
|
105,149
|
|
|
|
|
|
||||
Supplemental Disclosure of Cash Flow Information
|
|
|
|
|
|||
Cash paid for income taxes
|
$
|
1,571
|
|
|
$
|
11,856
|
|
Cash paid for interest
|
20,111
|
|
|
25,721
|
|
||
Supplemental Disclosure of Non-Cash Financing Activities
|
|
|
|
|
|||
Accrued offering expense
|
—
|
|
|
314
|
|
||
Tax Receivable Agreement
|
—
|
|
|
23,400
|
|
||
Non-Cash Dividend
|
—
|
|
|
26,232
|
|
||
Accrued purchases of noncontrolling interests
|
3,696
|
|
|
—
|
|
||
Liability for accrued dividend equivalent payments
|
2,711
|
|
|
3,818
|
|
|
September 30, 2017
|
|
||
Cash
|
$
|
67,593
|
|
|
Restricted cash included in prepaid expenses and other current assets
|
100
|
|
|
|
Total cash and restricted cash shown in the statement of cash flows
|
$
|
67,693
|
|
|
Balance at January 1, 2017
|
$
|
573,147
|
|
Acquisitions
|
—
|
|
|
Divestitures
|
(445
|
)
|
|
Balance at September 30, 2017
|
$
|
572,702
|
|
|
September 30, 2017
|
||||||||||||||
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
||||||||
Assets
|
|
|
|
|
|
|
|
||||||||
Interest rate derivative agreements (included in Prepaid expenses and other current assets)
|
$
|
18
|
|
|
$
|
—
|
|
|
$
|
18
|
|
|
$
|
—
|
|
Interest rate derivative agreements (included in Other long-term assets)
|
281
|
|
|
—
|
|
|
281
|
|
|
—
|
|
||||
Total Assets
|
$
|
299
|
|
|
$
|
—
|
|
|
$
|
299
|
|
|
$
|
—
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
||||||
Tax Receivable Agreement Liability (included in Income tax receivable agreement payable)
|
$
|
11,900
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11,900
|
|
Interest rate swap agreement (included in Other long-term liabilities)
|
1,525
|
|
|
—
|
|
|
1,525
|
|
|
—
|
|
||||
Total Liabilities
|
$
|
13,425
|
|
|
$
|
—
|
|
|
$
|
1,525
|
|
|
$
|
11,900
|
|
Temporary Equity
|
|
|
|
|
|
|
|
|
|
||||||
Noncontrolling interests subject to put provisions
|
$
|
110,988
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
110,988
|
|
|
December 31, 2016
|
||||||||||||||
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
||||||||
Assets
|
|
|
|
|
|
|
|
||||||||
Interest rate swap agreements (included in Prepaid expenses and other current assets)
|
$
|
7
|
|
|
$
|
—
|
|
|
$
|
7
|
|
|
$
|
—
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|||||||
Tax Receivable Agreement Liability
|
$
|
21,200
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
21,200
|
|
Temporary Equity
|
|
|
|
|
|
|
|
|
|||||||
Noncontrolling interests subject to put provisions
|
$
|
130,365
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
130,365
|
|
Balance at December 31, 2016
|
$
|
21,200
|
|
Options exercised and dividend equivalent payment vesting
|
(3,839
|
)
|
|
Total realized/unrealized gains:
|
|
||
Included in earnings and reported as Income tax receivable agreement income
|
(5,461
|
)
|
|
Balance at September 30, 2017
|
$
|
11,900
|
|
|
September 30, 2017
|
|
December 31, 2016
|
||||
Accrued compensation
|
$
|
18,951
|
|
|
$
|
18,077
|
|
Accrued vacation pay
|
12,816
|
|
|
11,026
|
|
||
|
$
|
31,767
|
|
|
$
|
29,103
|
|
|
September 30, 2017
|
|
December 31, 2016
|
||||
Payor refunds and retractions
|
$
|
30,694
|
|
|
$
|
32,902
|
|
Accrued purchases of noncontrolling interests
|
1,848
|
|
|
—
|
|
||
Tax receivable agreement liability
|
3,875
|
|
|
914
|
|
||
Dividend equivalent payments
|
157
|
|
|
6,438
|
|
||
Other
|
7,223
|
|
|
5,032
|
|
||
|
$
|
43,797
|
|
|
$
|
45,286
|
|
|
September 30, 2017
|
|
December 31, 2016
|
||||
Redemption value
|
$
|
12,211
|
|
|
$
|
24,239
|
|
Estimated fair values for accounting purposes
|
5,221
|
|
|
16,835
|
|
||
Difference between the redemption value and estimated fair values for accounting purposes of the related noncontrolling interests
|
$
|
6,990
|
|
|
$
|
7,404
|
|
|
September 30, 2017
|
|
December 31, 2016
|
||||
Noncontrolling interest subject to put provisions - estimated fair values
|
$
|
103,998
|
|
|
$
|
122,961
|
|
Difference between the redemption value and estimated fair values for accounting purposes of the related noncontrolling interests
|
6,990
|
|
|
7,404
|
|
||
Noncontrolling interests subject to put provisions - maximum redemption value
|
$
|
110,988
|
|
|
$
|
130,365
|
|
|
Nine Months Ended
September 30, 2017 |
|
Year Ended
December 31, 2016
|
||||
Change in estimated fair values for accounting purposes
|
$
|
(5,915
|
)
|
|
$
|
13,536
|
|
Change in the difference between the redemption value and estimated fair values for accounting purposes of the related noncontrolling interests
|
13,605
|
|
|
7,404
|
|
||
Total change in fair value of noncontrolling interests subject to put provisions - maximum redemption
|
$
|
7,690
|
|
|
$
|
20,940
|
|
|
September 30, 2017
|
|
December 31, 2016
|
||||
2017 Credit Agreement and First Lien Credit Agreement
|
$
|
438,900
|
|
|
$
|
433,758
|
|
Term Loans (1)
|
122,337
|
|
|
118,503
|
|
||
Lines of Credit
|
4,925
|
|
|
19,360
|
|
||
Other
|
2,737
|
|
|
3,041
|
|
||
|
568,899
|
|
|
574,662
|
|
||
Less: discounts and fees, net of accumulated amortization
|
(9,864
|
)
|
|
(4,330
|
)
|
||
Less: current maturities
|
(44,189
|
)
|
|
(48,274
|
)
|
||
|
$
|
514,846
|
|
|
$
|
522,058
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||
Patient care costs
|
$
|
127
|
|
|
$
|
2,040
|
|
|
$
|
2,620
|
|
|
$
|
3,713
|
|
General and administrative
|
904
|
|
|
10,633
|
|
|
12,142
|
|
|
19,538
|
|
||||
Total stock-based compensation before tax
|
$
|
1,031
|
|
|
$
|
12,673
|
|
|
$
|
14,762
|
|
|
$
|
23,251
|
|
Income tax benefit
|
(412
|
)
|
|
(5,069
|
)
|
|
(5,905
|
)
|
|
(9,300
|
)
|
|
Nine Months Ended September 30, 2017
|
Expected volatility
|
30.00%
|
Weighted average expected term in years
|
6.00
|
Weighted average risk-free interest rate
|
1.92 - 2.26%
|
Expected annual dividend yield
|
—%
|
Weighted average grant-date fair value
|
$5.77
|
|
Nine Months Ended September 30, 2017
|
|||||
|
Number
of Options
|
|
Weighted-Average
Exercise Price
|
|||
Outstanding, beginning of period
|
318,877
|
|
|
$
|
21.90
|
|
Granted (1)
|
517,984
|
|
|
17.23
|
|
|
Forfeited
|
(40,953
|
)
|
|
20.15
|
|
|
Outstanding, end of period
|
795,908
|
|
|
$
|
18.95
|
|
Options vested and expected to vest, end of period
|
795,908
|
|
|
$
|
18.95
|
|
Options exercisable, end of period
|
58,338
|
|
|
$
|
22.65
|
|
|
Nine Months Ended September 30, 2017
|
|||||
|
Number Outstanding
|
|
Weighted-Average Grant Date Fair Value per Award
|
|||
Balance at December 31, 2016
|
—
|
|
|
—
|
|
|
Granted
|
227,821
|
|
|
$
|
17.38
|
|
Vested
|
(25,304
|
)
|
|
$
|
17.39
|
|
Forfeited
|
(863
|
)
|
|
$
|
17.39
|
|
Balance at September 30, 2017
|
201,654
|
|
|
$
|
17.38
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
||||||||||||
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
||||||||
Basic
|
|
|
|
|
|
|
|
|
|
|
||||||
Net income attributable to American Renal Associates Holdings, Inc.
|
$
|
7,983
|
|
|
$
|
12,424
|
|
|
$
|
4,626
|
|
|
$
|
6,734
|
|
|
Change in the difference between the redemption value and estimated fair values for accounting purposes of the related noncontrolling interests
|
5
|
|
|
(1,752
|
)
|
|
(13,605
|
)
|
|
(13,885
|
)
|
|
||||
Net income (loss) attributable to common shareholders for basic earnings per share calculation
|
$
|
7,988
|
|
|
$
|
10,672
|
|
|
$
|
(8,979
|
)
|
|
$
|
(7,151
|
)
|
|
Weighted-average common shares outstanding used to calculate basic net loss per share
|
31,095,418
|
|
|
30,865,350
|
|
|
30,997,218
|
|
|
27,198,297
|
|
|
||||
Earnings (loss) per share, basic
|
$
|
0.26
|
|
|
$
|
0.35
|
|
|
$
|
(0.29
|
)
|
|
$
|
(0.26
|
)
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
||||||
Net income attributable to American Renal Associates Holdings, Inc.
|
$
|
7,983
|
|
|
$
|
12,424
|
|
|
$
|
4,626
|
|
|
$
|
6,734
|
|
|
Change in the difference between the redemption value and estimated fair values for accounting purposes of the related noncontrolling interests
|
5
|
|
|
(1,752
|
)
|
|
(13,605
|
)
|
|
(13,885
|
)
|
|
||||
Net income (loss) attributable to common shareholders for diluted earnings per share calculation
|
$
|
7,988
|
|
|
$
|
10,672
|
|
|
$
|
(8,979
|
)
|
|
$
|
(7,151
|
)
|
|
Weighted-average common shares outstanding, basic
|
31,095,418
|
|
|
30,865,350
|
|
|
30,997,218
|
|
|
27,198,297
|
|
|
||||
Weighted-average effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
||||||
Effect of assumed exercise of stock options
|
2,536,750
|
|
|
571,464
|
|
|
—
|
|
|
—
|
|
|
||||
Effect of unvested restricted stock
|
201,654
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
||||
Weighted-average common shares outstanding used to calculate diluted net income (loss) per share
|
33,833,822
|
|
|
31,436,814
|
|
|
30,997,218
|
|
|
27,198,297
|
|
|
||||
Earnings (loss) per share, diluted
|
$
|
0.24
|
|
|
$
|
0.34
|
|
|
$
|
(0.29
|
)
|
|
$
|
(0.26
|
)
|
|
Outstanding options excluded as impact would be anti-dilutive
|
1,357,957
|
|
|
338,538
|
|
|
1,988,257
|
|
|
336,935
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||
Net income attributable to American Renal Holdings Associates, Inc.
|
$
|
7,983
|
|
|
$
|
12,424
|
|
|
$
|
4,626
|
|
|
$
|
6,734
|
|
Increase in paid-in capital for the sales of noncontrolling interest
|
34
|
|
|
27
|
|
|
34
|
|
|
86
|
|
||||
Decrease in paid-in capital for the purchase of noncontrolling interest and adjustments to ownership interest
|
—
|
|
|
(7,464
|
)
|
|
(5,980
|
)
|
|
(7,680
|
)
|
||||
Net transfers to/from noncontrolling interests
|
34
|
|
|
(7,437
|
)
|
|
(5,946
|
)
|
|
(7,594
|
)
|
||||
Net income attributable to American Renal Holdings Associates, Inc., net of transfers to/from noncontrolling interests
|
$
|
8,017
|
|
|
$
|
4,987
|
|
|
$
|
(1,320
|
)
|
|
$
|
(860
|
)
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||
De novo clinics (1)
|
1
|
|
|
5
|
|
|
6
|
|
|
13
|
|
Acquired clinics (2)
|
—
|
|
|
1
|
|
|
—
|
|
|
2
|
|
Sold or merged clinics (3)
|
(1
|
)
|
|
—
|
|
|
(3
|
)
|
|
—
|
|
Total net new clinics
|
—
|
|
|
6
|
|
|
3
|
|
|
15
|
|
(1)
|
Clinics formed by us which began to operate and dialyze patients in the applicable period.
|
(2)
|
Clinics acquired by us in the applicable period.
|
(3)
|
Clinics sold or merged by us in the applicable period.
|
|
Three Months Ended
|
|
|
|||||||||||
|
March 31,
|
|
June 30,
|
|
September 30,
|
|
December 31,
|
|
Total
|
|||||
2017
|
3
|
|
|
2
|
|
|
1
|
|
|
—
|
|
|
6
|
|
2016
|
2
|
|
|
6
|
|
|
5
|
|
|
7
|
|
|
20
|
|
2015
|
1
|
|
|
5
|
|
|
6
|
|
|
4
|
|
|
16
|
|
2014
|
2
|
|
|
4
|
|
|
3
|
|
|
6
|
|
|
15
|
|
2013
|
1
|
|
|
3
|
|
|
2
|
|
|
11
|
|
|
17
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||
Source of Treatment Growth:
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||
Non-acquired treatment growth(1)
|
6.8
|
%
|
|
10.2
|
%
|
|
8.6
|
%
|
|
11.8
|
%
|
Acquired treatment growth(2)
|
—
|
%
|
|
1.2
|
%
|
|
—
|
%
|
|
0.9
|
%
|
Total treatment growth
|
6.8
|
%
|
|
11.4
|
%
|
|
8.6
|
%
|
|
12.7
|
%
|
(1)
|
Represents net growth in treatments attributable to clinics operating at the end of the period that were also open at the end of the prior period and de novo clinics opened since the end of the prior period.
|
(2)
|
Represents net growth in treatments attributable to clinics acquired since the end of the prior period.
|
(1)
|
Principally Medicare and Medicaid and also includes hospitals and patient pay, which we refer to collectively as “Government-based and other”. “Patient pay” revenues consist of payments received directly from patients who are either uninsured or self-pay a portion of the bill.
|
(2)
|
Principally commercial insurance companies and also includes the Department of Veterans Affairs (the “VA”), which we refer to collectively as “Commercial and other”.
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||
Operating Data and Other Non-GAAP Financial Data:
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||
Number of clinics (as of end of period)
|
217
|
|
|
207
|
|
|
217
|
|
|
207
|
|
||||
Number of de novo clinics opened (during period)
|
1
|
|
|
5
|
|
|
6
|
|
|
13
|
|
||||
Patients (as of end of period)
|
15,237
|
|
|
14,166
|
|
|
15,237
|
|
|
14,166
|
|
||||
Number of treatments
|
551,258
|
|
|
516,043
|
|
|
1,625,227
|
|
|
1,497,077
|
|
||||
Non-acquired treatment growth
|
6.8
|
%
|
|
10.2
|
%
|
|
8.6
|
%
|
|
11.8
|
%
|
||||
Patient service operating revenues per treatment
|
$
|
344
|
|
|
$
|
378
|
|
|
$
|
342
|
|
|
$
|
371
|
|
Patient care costs per treatment
|
$
|
217
|
|
|
$
|
225
|
|
|
$
|
220
|
|
|
$
|
221
|
|
Adjusted patient care costs per treatment (1)
|
$
|
217
|
|
|
$
|
221
|
|
|
$
|
219
|
|
|
$
|
219
|
|
General and administrative expenses per treatment
|
$
|
40
|
|
|
$
|
65
|
|
|
$
|
49
|
|
|
$
|
58
|
|
Adjusted general and administrative expenses per treatment (2)
|
$
|
40
|
|
|
$
|
45
|
|
|
$
|
43
|
|
|
$
|
46
|
|
Provision for uncollectible accounts per treatment
|
$
|
3
|
|
|
$
|
4
|
|
|
$
|
3
|
|
|
$
|
3
|
|
Adjusted EBITDA (including noncontrolling interests) (3)
|
$
|
46,838
|
|
|
$
|
56,154
|
|
|
$
|
128,306
|
|
|
$
|
156,292
|
|
Adjusted EBITDA-NCI (3)
|
$
|
28,149
|
|
|
$
|
32,532
|
|
|
$
|
76,967
|
|
|
$
|
91,381
|
|
(1)
|
Adjusted patient care costs per treatment excludes
$2.2 million
of Modification Expense during the
nine
months ended
September 30, 2017
, and
$1.9 million
and
$3.3 million
of Modification Expense during the three and
nine
months ended
September 30, 2016
. Additionally, the
nine
months ended
September 30, 2017
exclude $0.1 million severance expense and $0.5 million gain on sale of assets. Additionally the
nine
months ended
September 30, 2016
exclude $0.1 million of stock compensation expense as a result of early adoption of ASU 2016-09, as it relates to the modified options.
|
(2)
|
Adjusted general and administrative expenses per treatment excludes
$9.5 million
of Modification Expense during the
nine
months ended
September 30, 2017
, and
$10.3 million
and
$18.3 million
of Modification Expense during the three and
nine
months ended
September 30, 2016
. Additionally, the
nine
months ended
September 30, 2017
excludes $0.8 million severance expense. Additionally, the
nine
months ended
September 30, 2016
excludes $0.3 million of stock compensation expense as a result of early adoption of ASU 2016-09, as it relates to the modified options.
|
(3)
|
See “Non-GAAP Financial Measures” below.
|
•
|
do not include stock-based compensation expense, and beginning with the quarter ended June 30, 2017, do not include associated payroll taxes;
|
•
|
do not include transaction-related costs;
|
•
|
do not include depreciation and amortization—because construction and operation of our dialysis clinics requires significant capital expenditures, depreciation and amortization are a necessary element of our costs and ability to generate profits;
|
•
|
do not include interest expense—as we have borrowed money for general corporate purposes, interest expense is a necessary element of our costs and ability to generate profits and cash flows;
|
•
|
do not include income tax receivable agreement income and expense;
|
•
|
do not include loss on early extinguishment of debt;
|
•
|
do not include costs related to certain legal matters;
|
•
|
beginning with the quarter ended December 31, 2016, do not include executive and management severance costs;
|
•
|
do not include management fees;
|
•
|
do not include certain income tax payments that represent a reduction in cash available to us;
|
•
|
do not include changes in, or cash requirements for, our working capital needs; and
|
•
|
do not reflect the gain on sale of assets.
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||
(in thousands)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||
Net Income
|
$
|
26,672
|
|
|
$
|
36,046
|
|
|
$
|
55,965
|
|
|
$
|
71,645
|
|
Add:
|
|
|
|
|
|
|
|
||||||||
Interest expense, net
|
7,255
|
|
|
7,372
|
|
|
22,052
|
|
|
28,571
|
|
||||
Income tax expense (benefit)
|
2,559
|
|
|
(101
|
)
|
|
(555
|
)
|
|
1,413
|
|
||||
Depreciation and amortization
|
9,438
|
|
|
8,687
|
|
|
27,894
|
|
|
24,616
|
|
||||
Transaction-related costs (a)
|
—
|
|
|
—
|
|
|
717
|
|
|
2,239
|
|
||||
Loss on early extinguishment of debt (b)
|
—
|
|
|
—
|
|
|
526
|
|
|
4,708
|
|
||||
Income tax receivable agreement income (c)
|
(3,585
|
)
|
|
(12,565
|
)
|
|
(5,461
|
)
|
|
(4,730
|
)
|
||||
Certain legal matters (d)
|
3,481
|
|
|
4,042
|
|
|
11,714
|
|
|
4,042
|
|
||||
Executive and management severance costs (e)
|
—
|
|
|
—
|
|
|
917
|
|
|
—
|
|
||||
Stock-based compensation and related payroll taxes
|
1,054
|
|
|
12,673
|
|
|
15,090
|
|
|
23,251
|
|
||||
Gain on sale of assets (f)
|
(36
|
)
|
|
—
|
|
|
(553
|
)
|
|
—
|
|
||||
Management fees (g)
|
—
|
|
|
—
|
|
|
—
|
|
|
537
|
|
||||
Adjusted EBITDA (including noncontrolling interests)
|
46,838
|
|
|
56,154
|
|
|
128,306
|
|
|
156,292
|
|
||||
Less: Net income attributable to noncontrolling interests
|
(18,689
|
)
|
|
(23,622
|
)
|
|
(51,339
|
)
|
|
(64,911
|
)
|
||||
Adjusted EBITDA –NCI
|
$
|
28,149
|
|
|
$
|
32,532
|
|
|
$
|
76,967
|
|
|
$
|
91,381
|
|
(a)
|
Represents costs related to debt refinancing and other transactions at the time of the IPO and the 2017 refinancing described below. See “
Note 2 - Initial Public Offering
” and “
Note 10 - Debt
” of the notes to the consolidated financial statements.
|
(b)
|
Represents costs related to debt refinancing. See “
Note 2 - Initial Public Offering
” and “
Note 10 - Debt
” of the notes to the consolidated financial statements.
|
(c)
|
Represents income associated with the change in fair value of the TRA liability. See “—Components of Earnings—Interest and Taxes” and “
Note 6 - Fair Value Measurements
” of the notes to the consolidated financial statements.
|
(d)
|
Represents costs related to the specific legal and regulatory matters described in “Part II. Item 1. Legal Proceedings” and “
Note 16 - Certain Legal Matters
” of the notes to the consolidated financial statements.
|
(e)
|
Represents executive and management severance costs.
|
(f)
|
Represents sale of clinic assets.
|
(g)
|
Represents management fees paid to Centerbridge prior to the termination of our Advisory Services Agreement in connection with our IPO. See “
Note 14 - Related Party Transactions
” of the notes to the consolidated financial statements.
|
|
Three Months Ended September 30,
|
|
Increase (Decrease)
|
|||||||||||
|
|
|
|
|
|
|
Percentage
|
|||||||
|
2017
|
|
2016
|
|
Amount
|
|
Change
|
|||||||
Patient service operating revenues
|
$
|
189,497
|
|
|
$
|
194,857
|
|
|
$
|
(5,360
|
)
|
|
(2.8
|
)%
|
Provision for uncollectible accounts
|
(1,786
|
)
|
|
(1,902
|
)
|
|
116
|
|
|
(6.1
|
)%
|
|||
Net patient service operating revenues
|
187,711
|
|
|
192,955
|
|
|
(5,244
|
)
|
|
(2.7
|
)%
|
|||
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|||||
Patient care costs
|
119,599
|
|
|
116,115
|
|
|
3,484
|
|
|
3.0
|
%
|
|||
General and administrative
|
22,292
|
|
|
33,359
|
|
|
(11,067
|
)
|
|
(33.2
|
)%
|
|||
Depreciation and amortization
|
9,438
|
|
|
8,687
|
|
|
751
|
|
|
8.6
|
%
|
|||
Certain legal matters
|
3,481
|
|
|
4,042
|
|
|
(561
|
)
|
|
(13.9
|
)%
|
|||
Total operating expenses
|
154,810
|
|
|
162,203
|
|
|
(7,393
|
)
|
|
(4.6
|
)%
|
|||
Operating income
|
32,901
|
|
|
30,752
|
|
|
2,149
|
|
|
7.0
|
%
|
|||
Interest expense, net
|
(7,255
|
)
|
|
(7,372
|
)
|
|
117
|
|
|
(1.6
|
)%
|
|||
Income tax receivable agreement income
|
3,585
|
|
|
12,565
|
|
|
(8,980
|
)
|
|
(71.5
|
)%
|
|||
Income before income taxes
|
29,231
|
|
|
35,945
|
|
|
(6,714
|
)
|
|
(18.7
|
)%
|
|||
Income tax expense (benefit)
|
2,559
|
|
|
(101
|
)
|
|
2,660
|
|
|
NM
|
|
|||
Net income
|
26,672
|
|
|
36,046
|
|
|
(9,374
|
)
|
|
(26.0
|
)%
|
|||
Less: Net income attributable to noncontrolling interests
|
(18,689
|
)
|
|
(23,622
|
)
|
|
4,933
|
|
|
(20.9
|
)%
|
|||
Net income attributable to American Renal Associates Holdings, Inc.
|
$
|
7,983
|
|
|
$
|
12,424
|
|
|
$
|
(4,441
|
)
|
|
(35.7
|
)%
|
|
Nine Months Ended September 30,
|
|
Increase (Decrease)
|
|||||||||||
|
|
|
|
|
|
|
Percentage
|
|||||||
|
2017
|
|
2016
|
|
Amount
|
|
Change
|
|||||||
Patient service operating revenues
|
$
|
555,731
|
|
|
$
|
555,349
|
|
|
$
|
382
|
|
|
0.1
|
%
|
Provision for uncollectible accounts
|
(5,003
|
)
|
|
(4,696
|
)
|
|
(307
|
)
|
|
6.5
|
%
|
|||
Net patient service operating revenues
|
550,728
|
|
|
550,653
|
|
|
75
|
|
|
—
|
%
|
|||
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|||||
Patient care costs
|
357,959
|
|
|
331,349
|
|
|
26,610
|
|
|
8.0
|
%
|
|||
General and administrative
|
79,917
|
|
|
86,800
|
|
|
(6,883
|
)
|
|
(7.9
|
)%
|
|||
Transaction-related costs
|
717
|
|
|
2,239
|
|
|
(1,522
|
)
|
|
NM
|
|
|||
Depreciation and amortization
|
27,894
|
|
|
24,616
|
|
|
3,278
|
|
|
13.3
|
%
|
|||
Certain legal matters
|
11,714
|
|
|
4,042
|
|
|
7,672
|
|
|
NM
|
|
|||
Total operating expenses
|
478,201
|
|
|
449,046
|
|
|
29,155
|
|
|
6.5
|
%
|
|||
Operating income
|
72,527
|
|
|
101,607
|
|
|
(29,080
|
)
|
|
(28.6
|
)%
|
|||
Interest expense, net
|
(22,052
|
)
|
|
(28,571
|
)
|
|
6,519
|
|
|
(22.8
|
)%
|
|||
Loss on early extinguishment of debt
|
(526
|
)
|
|
(4,708
|
)
|
|
4,182
|
|
|
NM
|
|
|||
Income tax receivable agreement income
|
5,461
|
|
|
4,730
|
|
|
731
|
|
|
15.5
|
%
|
|||
Income before income taxes
|
55,410
|
|
|
73,058
|
|
|
(17,648
|
)
|
|
(24.2
|
)%
|
|||
Income tax (benefit) expense
|
(555
|
)
|
|
1,413
|
|
|
(1,968
|
)
|
|
NM
|
|
|||
Net income
|
55,965
|
|
|
71,645
|
|
|
(15,680
|
)
|
|
(21.9
|
)%
|
|||
Less: Net income attributable to noncontrolling interests
|
(51,339
|
)
|
|
(64,911
|
)
|
|
13,572
|
|
|
(20.9
|
)%
|
|||
Net income attributable to American Renal Associates Holdings, Inc.
|
$
|
4,626
|
|
|
$
|
6,734
|
|
|
$
|
(2,108
|
)
|
|
(31.3
|
)%
|
|
Nine Months Ended September 30,
|
||||||
(dollars in thousands)
|
2017
|
|
2016
|
||||
Net cash provided by operating activities
|
$
|
97,372
|
|
|
$
|
141,903
|
|
Net cash used in investing activities
|
(23,705
|
)
|
|
(51,126
|
)
|
||
Net cash used in financing activities
|
(106,890
|
)
|
|
(76,616
|
)
|
||
Net (decrease) increase in cash and restricted cash
|
$
|
(33,223
|
)
|
|
$
|
14,161
|
|
Scheduled payments under contractual obligations (dollars in thousands)
|
|
Total
|
|
Less than 1
year
|
|
1-3 years
|
|
3-5 years
|
|
More than 5
years
|
||||||||||
Third-party clinic-level debt
|
|
$
|
127,262
|
|
|
$
|
13,945
|
|
|
$
|
65,400
|
|
|
$
|
35,648
|
|
|
$
|
12,269
|
|
Term B loans(1)
|
|
438,900
|
|
|
1,100
|
|
|
8,800
|
|
|
8,800
|
|
|
420,200
|
|
|||||
Other corporate debt
|
|
2,737
|
|
|
137
|
|
|
1,143
|
|
|
1,240
|
|
|
217
|
|
|||||
Operating leases(2)
|
|
183,331
|
|
|
5,132
|
|
|
53,542
|
|
|
44,874
|
|
|
79,783
|
|
|||||
Interest payments(3)
|
|
144,639
|
|
|
6,502
|
|
|
47,573
|
|
|
42,199
|
|
|
48,365
|
|
|||||
Total
|
|
$
|
896,869
|
|
|
$
|
26,816
|
|
|
$
|
176,458
|
|
|
$
|
132,761
|
|
|
$
|
560,834
|
|
(1)
|
Bear interest at a variable rate, with principal payments of $1.1 million and interest payments due quarterly.
|
(2)
|
Net of estimated sublease proceeds of approximately $1.2 million per year from 2017 through 2022 and approximately $0.1 million or less thereafter.
|
(3)
|
Represents interest payments on debt obligations, including the 2017 Term B Loan Facility described above. To project interest payments on floating rate debt, we have used the rate as of
September 30, 2017
.
|
(dollars in thousands)
Year
|
|
Amount
Exercisable
|
||
2017
|
|
26,319
|
|
|
2018
|
|
6,679
|
|
|
2019
|
|
8,722
|
|
|
2020
|
|
13,934
|
|
|
2021
|
|
12,123
|
|
|
Thereafter
|
|
12,418
|
|
|
Total
|
|
$
|
80,195
|
|
ITEM 3.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
ITEM 1.
|
LEGAL PROCEEDINGS
|
ITEM 1A.
|
RISK FACTORS
|
ITEM 5.
|
OTHER INFORMATION
|
ITEM 6.
|
EXHIBITS
|
EXHIBIT
NUMBER
|
|
EXHIBIT DESCRIPTION
|
|
|
|
|
||
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
101*
|
|
The following financial information from the Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2017, formatted in XBRL (Extensible Business Reporting Language) and furnished electronically herewith: (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Operations ; (iii) the Consolidated Statements of Cash Flows; and (iv) the Notes to the Consolidated Financial Statements.
|
|
AMERICAN RENAL ASSOCIATES HOLDINGS INC.
|
|
(Registrant)
|
|
|
|
/s/ Jonathan L. Wilcox
|
|
Name: Jonathan L. Wilcox
|
|
Title: Chief Financial Officer
(Principal Financial Officer and Authorized Signatory)
|
November 14, 2017
|
|
(Date)
|
(i)
|
In addition to the Base Salary, with respect to each full fiscal year during the Term, the Executive shall be eligible to earn an annual cash bonus award (a
"Bonus"
) that is up to 100% of his annual salary based on the achievement of objectives set by the Company. For the year 2017, the Executive shall receive a prorated Bonus for the remainder of the fiscal year.
|
(ii)
|
For any fiscal year in which the Bonus is not subject to the deduction limit under Section 162(m) of the Code pursuant to the transition relief provisions of Treasury Regulation Section 1.162-27(f)(1) (the “
Transition Period
”), the full estimated Bonus (less applicable withholding taxes) shall be paid no later than December 31 of the fiscal year to which such Bonus relates based on estimated Consolidated EBITDA for such fiscal year (the “
Estimated Bonus
”); provided that, if ARAH Group’s Consolidated EBITDA, as reflected, without duplication, in the audited financial statements of the ARAH Group for such fiscal year differs from the ARAH Group’s estimated Consolidated EBITDA for such fiscal year, as reflected in the unaudited, internal financial statements used to determine the Estimated Bonus, then the Bonus shall be recalculated by the Board, and the Company or the Executive, as the case may be, shall pay to the other, within 30 days of such determination, any amounts that are required to reflect the actual amount of the Bonus for such fiscal year, based upon the ARAH Group’s Consolidated EBITDA, as reflected in the audited financial statements of the ARAH Group. Following the Transition Period, the Bonus (less applicable withholding taxes) shall be paid to Executive at the same time as bonuses are generally payable to other senior executives of the Company, but in no event later than two and one-half months following the close of the fiscal year to which the Bonus relates.
|
(a)
|
Subject to final approval by the Board, on or about October 26, 2017, the Company shall grant to Executive an award of Restricted Stock Units (the “Initial Sign-On RSUs”) and options to purchase shares of Common Stock (the “Initial Sign-On Options”) which shall commence vesting upon the Commencement Date and shall vest in equal annual installments, on the anniversary date of the Commencement Date, over three (3) years thereafter, subject to the Executive’s continuing employment with the Company as of each such vesting date. The number of Initial Sign-On RSUs shall be determined by dividing (i) $320,833 by (ii) the closing trading price per share of the Company’s common stock as of the date of grant. The number of Initial Sign-On Options shall be (a) determined by dividing (i) $320,833 by (ii) the per share Black-Scholes value of the option, determined as of the date of grant based upon the closing trading price per share of the Company’s common stock as of the date of grant and such other variables as determined by the Company in a manner consistent with the Company’s financial reporting, which determination shall be final and dispositive. The per share exercise price of the Initial Sign-On Options shall be equal to the per share closing price of the Company’s common stock on the date of grant.
|
(b)
|
The Initial Sign-On RSUs and Initial Sign-On Options, shall otherwise be subject to the terms and conditions of the Company’s 2016 Omnibus Incentive Plan, as may be amended, restated or supplemented from time to time (the “Plan”), a copy of which has been provided to the Executive.
|
(a)
|
The Company will pay up to $5,000 per month for rental and other amenities for the Executive a furnished residence in Massachusetts, for the period until he purchases and moves into a home in Massachusetts, this period temporary assistance not to exceed nine (9) months (the “Temporary Relocation Allowance”). This residence would be maintained for the Company’s convenience and business needs of the Company so that Executive is in a position to more fully devote himself to his position with the Company, during his early months of transition with the Company and not be diverted to seeking a permanent residence during that time.
|
(b)
|
The Company will establish for the Executive an arrangement to pay or reimburse the Executive up to $100,000 for moving and relocation assistance for a permanent move from Georgia to Massachusetts, with the arrangements structured by the Company so that amounts paid under the arrangement are treated as paid under an “accountable plan”, under IRC Section 62(c) (the “Permanent Relocation Allowance”). It is the intention of the parties that amounts treated as paid under an accountable plan shall be excluded from the Executive's gross income, and will be reported as wages or other compensation on the Executive's Form W-2, and are exempt from the withholding and payment of employment taxes (Federal Insurance Contributions Act (FICA), Federal Unemployment Tax Act (FUTA), Railroad Retirement Tax Act (RRTA), Railroad Unemployment Repayment Tax (RURT), and income tax.) Moving and relocation expenses include without limitation the cost of packing, crating, and transporting household goods and personal effects and those of the members of the Executive’s household from his former home to his new home, costs of connecting or disconnecting utilities required because Executive is moving his household goods, appliances, or personal effects, cost of shipping your car and his household pets to his new home.
|
(c)
|
In the event there occurs a Resignation without Cause or a Termination for Cause, in either case, prior to the first anniversary of the Commencement Date, Executive shall promptly repay to the Company in cash a pro-rated portion of the Permanent Relocation Allowance (not to exceed the amount received by Executive) equal to the product of (x) $100,000 multiplied by (y) a fraction, the numerator of which is 365 minus the number of days elapsed between the Commencement Date and the applicable termination date and the denominator of which is 365.
|
1.
|
I have reviewed this Quarterly Report on Form 10-Q for the quarter ended
September 30, 2017
of American Renal Associates Holdings, Inc. (the “registrant”);
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)) and 15d-15(e)) for the registrant and have:
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
(c)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
/s/ Joseph A. Carlucci
|
Joseph A. Carlucci
|
Chief Executive Officer
|
1.
|
I have reviewed this Quarterly Report on Form 10-Q for the quarter ended
September 30, 2017
of American Renal Associates Holdings, Inc. (the “registrant”);
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)) and 15d-15(e)) for the registrant and have:
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
(c)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
/s/ Jonathan L. Wilcox
|
Jonathan L. Wilcox
|
Chief Financial Officer
|
1.
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
2.
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
/s/ Joseph A. Carlucci
|
Joseph A. Carlucci
|
Chief Executive Officer
|
1.
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
2.
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
/s/ Jonathan L. Wilcox
|
Jonathan L. Wilcox
|
Chief Financial Officer
|