BEVERLY, Mass.--(BUSINESS WIRE)--American Renal Associates Holdings, Inc. (NYSE: ARA), a leading kidney care and dialysis provider focused on partnering with local nephrologists, today announced financial and operating results for the third quarter ended September 30, 2020.

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

Third Quarter 2020 Highlights (all percentage changes compare Q3 2020 to Q3 2019 unless noted):

• Patient service operating revenues decreased 0.8% to $209.7 million;
• Net income attributable to American Renal Associates Holdings, Inc. decreased to $2.7 million as compared to $4.8 million in Q3 2019;
• Adjusted EBITDA-NCI was $25.2 million as compared to $26.5 million in Q3 2019;
• Adjusted net income attributable to American Renal Associates Holdings, Inc. was $2.6 million, or $0.08 per share, for Q3 2020 as compared to adjusted net income of $11.2 million, or $0.33 per share, for Q3 2019;
• Total dialysis treatments increased 0.1%, all of which was non-acquired growth. Normalized total and normalized non-acquired treatment growth were each 3.2%; and
• As of September 30, 2020, the Company operated 248 outpatient dialysis clinics serving more than 16,900 patients.

Agreement and Plan of Merger

On October 1, 2020, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with IRC Superman Midco, LLC, a Delaware limited liability company (“Parent”) and an affiliate of Nautic Partners, LLC, and Superman Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of Parent (“Merger Sub”), pursuant to which Parent will acquire ARA for $11.50 per share through the merger of Merger Sub with and into ARA, with ARA surviving as a wholly owned subsidiary of Parent (the “Merger”). The closing of the Merger is subject to customary closing conditions, including the approval of our stockholders and regulatory approvals.

Joseph (Joe) Carlucci, Chairman and Chief Executive Officer, said “As the healthcare community operates in this new normal of the COVID-19 pandemic, we continue to be humbled by the tireless dedication of our staff and physician partners in providing life-sustaining dialysis services to our patients across our network of 248 clinics. Their commitment to providing compassionate care, safely, has undoubtedly contributed to the health and well-being of our patients and I cannot thank them enough for their extraordinary work.”

Mr. Carlucci continued, “This quarter once again demonstrated that our additional investments and focus on efficiencies in our revenue cycle were well directed and resulted in an even greater improvement in our revenue per treatment over the prior quarter. We are also pleased, that although many uncertainties remain and we continue to see some impacts on our treatment volume growth and our expenses as a result of the pandemic, our performance and fiscal restraint to date remains solid. As we look to the final months of 2020, we remain steadfast in our commitment to our Core Values, our excellence in patient care and our exemplary physician partners and our ability to continue to execute upon our corporate initiatives.”

Financial and operating highlights include:

Revenue: Patient service operating revenues for the third quarter of 2020 were $209.7 million, a decrease of $1.7 million, or 0.8%, as compared to $211.4 million for the prior-year period. Patient service operating revenues for the nine months ended September 30, 2020 were $608.0 million, a decrease of $8.4 million, or 1.4%, as compared to $616.4 million for the prior-year period. The decrease in the three and nine months ended September 30, 2020 was primarily due to lower contributions from calcimimetics, a favorable resolution of certain commercial claims during the 2019 periods and adverse changes in commercial treatment reimbursement rates reflecting a larger base of in-network commercial payor relationships, partially offset by an increase of 0.1% and 2.2% in the number of dialysis treatments in the three and nine months ended September 30, 2020, respectively, and a recognition of $1.7 million and $2.8 million, respectively, from the temporary suspension under the CARES Act of the 2% Medicare sequestration reimbursement reduction, which became effective May 1, 2020.

Treatment Volume: Total dialysis treatments for the third quarter of 2020 were 626,021, representing an increase of 0.1% over the third quarter of 2019, normalized total treatment growth and normalized non-acquired treatment growth were each 3.2%, as compared to Q3 2019. Total dialysis treatments for the nine months ended September 30, 2020 were 1,873,021, representing an increase of 2.2% over the nine months ended September 30, 2019. Non-acquired treatment growth was 2.1% for the nine months ended September 30, 2020. Normalized total treatment growth and normalized non-acquired treatment growth were 3.8% and 3.7%, respectively, as compared to the nine months ended September 30, 2019.

Clinic Activity: As of September 30, 2020, the Company provided services at 248 outpatient dialysis clinics serving 16,918 patients. During the three and nine months ended September 30, 2020, we opened one and six de novo clinics, respectively. During the three months ended September 30, 2020, we divested four clinics.

Operating Expenses: Patient care costs for the third quarter of 2020 were $150.4 million, or 71.7% of patient service operating revenues, as compared to $154.6 million, or 73.1% of patient service operating revenues, in the prior-year period. General and administrative expenses were $23.4 million, or 11.1% of patient service operating revenues, as compared to $18.8 million, or 8.9% of patient service operating revenues, in the prior-year period.

Patient care costs for the nine months ended September 30, 2020 were $451.5 million, or 74.3% of patient service operating revenues, as compared to $455.8 million, or 73.9% of patient service operating revenues, in the prior-year period. General and administrative expenses during the nine months ended September 30, 2020 were $71.0 million, or 11.7% of patient service operating revenues, as compared to $68.3 million, or 11.1% of patient service operating revenues, in the prior-year period.

Cash Flow: Cash provided by operating activities for the third quarter of 2020 was $19.5 million, as compared to $27.4 million in the prior-year period. Adjusted cash provided by operating activities less distributions to noncontrolling interests (see “Reconciliation of Non-GAAP Financial Measures”) for the third quarter of 2020 was $0.1 million, as compared to $8.7 million in the prior-year period. Cash provided by operating activities for the nine months ended September 30, 2020 was $170.4 million as compared to $35.1 million in the prior-year period. Adjusted cash provided by operating activities less distributions to noncontrolling interests for the nine months ended September 30, 2020 was $128.2 million as compared to adjusted cash used in operating activities less distributions to noncontrolling interests of $5.1 million in the prior-year period. The increase in each period is largely due to additional investment and focus on our revenue cycle and collections and the impact of cash received under the provisions of the CARES Act.

Total capital expenditures for the third quarter of 2020 were $3.5 million, compared to $3.7 million in the prior-year period. Capital expenditures for the three months ended September 30, 2020 included $2.1 million for existing clinic expansions and de novo clinic development and $1.4 million for other capital expenditures. Total capital expenditures for the nine months ended September 30, 2020 were $16.3 million, compared to $17.9 million in the prior-year period. Capital expenditures for the nine months ended September 30, 2020 included $12.1 million for existing clinic expansions and de novo clinic development and $4.2 million for other capital expenditures.

Balance Sheet: At September 30, 2020, the Company’s balance sheet included consolidated cash and restricted cash of $136.5 million, including the impact of cash received under the provisions of the CARES Act, and consolidated debt of $574.7 million, including the current portion of long-term debt. Excluding clinic-level debt not guaranteed by the Company and clinic-level cash not owned by the Company, Adjusted owned net debt (see “Reconciliation of Non-GAAP Financial Measures”) was $449.2 million at September 30, 2020, as compared to $515.2 million at December 31, 2019. As of September 30, 2020, we were in compliance with the consolidated net leverage ratio covenant in our Credit Agreement. As of September 30, 2020, net patient accounts receivable was $84.9 million.

Clinic Sales: On August 3, 2020, the Company sold 100% of its equity in four dialysis clinics in Pennsylvania and received combined cash consideration of $16,932. The transactions resulted in the recognition of a combined loss of $293, which is included as an increase to general and administrative expenses in the nine months ended September 30, 2020.

COVID-19 Update

The safety of our patients, staff and physician partners continues to be our primary focus, and we have undertaken and will continue to undertake steps to provide for their protection and enable our continued operation in the face of the pandemic. We are following Centers for Disease Control and Prevention guidance and working closely with local and national health authorities to ensure we implement and maintain appropriate infection control and clinical best practices in response to COVID-19. In addition, our dedicated COVID-19 task force has proactively implemented business continuity plans and developed measures to ensure the ongoing availability of our dialysis services while maintaining patient and staff safety. These measures include:

• Restricting entry to our clinics to only patients, staff and medical professionals;
• Screening all individuals for symptoms and exposure to COVID-19 before allowing access to our clinics;
• Implementing a mask policy for every patient and staff member who enters our clinics and requiring that masks be worn at all times in our clinics;
• Increased purchases and use of personal protective equipment for patients and staff and of cleaning and sanitization materials at our facilities to maintain infection control protocols that meet CDC guidelines;
• Securing COVID-19 testing for patients and staff;
• Implementing screening procedures for corporate office staff prior to entering our corporate offices, requiring social distancing within workspaces and throughout our corporate offices, and restricting access to our corporate offices to only ARA staff;
• Engaging a physician infectious disease consultant to assist us in the development of policies and procedures to protect our patients and staff;
• Establishing dedicated COVID-19 treatment shifts at certain of our clinics, where necessary, to care for patients with confirmed or suspected COVID-19 infection; and
• Modifying our sick leave policy to accommodate quarantine and isolation when warranted.

In addition to these safety measures, in March 2020 we implemented a hazard pay program to provide increased pay to our clinic staff on the front lines of the pandemic. This program remains in place for those clinic staff who provide direct care to patients who have been identified as COVID-19 positive. These and other measures we have taken in response to COVID-19 have resulted in increased operating expenses, including higher salary and wage expense from the hazard pay program, incremental hours and overtime needed to staff the dedicated treatment shifts for patients with confirmed or suspected COVID-19, increased expenses from the higher utilization and cost of personal protective equipment, and additional costs to purchase additional supplies and cleaning materials. In addition, we have incurred additional corporate office costs related to legal, consulting costs and cleaning costs, as well as increased purchases of computer equipment and information technology to provide additional infrastructure for staff who are working remotely. Though significantly offset by grant funds received under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), these added expenses began to rise during March, and became more significant in the months through September. We expect to incur many of these additional operating expenses for the duration of the pandemic, and if the severity or geographic coverage of the pandemic increases, these additional expenses could increase. In light of our increased expenses, we have and will continue to implement cost saving initiatives; however, these initiatives may not offset the additional expenses and reductions in revenue resulting from the pandemic in the event we exhaust government funds provided for this purpose.

From a volume perspective, patients suffering from end-stage renal disease generally have co-morbidities that often place them at increased risk for contracting COVID-19, resulting in increased hospitalizations, missed treatments and higher mortality. For the three and nine months ended September 30, 2020, we experienced a negative 0.9% and 1.7%, respectively, impact in treatment volume growth as a result of patients contracting COVID-19.

We are appreciative of Congress and the Administration’s recognition of the burden this pandemic is having on our nation’s healthcare system and providers like ARA who have remained fully operational during this crisis to continue to provide life-sustaining care and prevent, prepare and respond to COVID-19. The passage of the CARES Act in late March, in combination with other regulatory relief from CMS, will help healthcare providers like ARA manage through this public health crisis. Some aspects of this relief received by ARA include the following:

• Approximately $2.8 million of additional revenue due to the CARES Act provision that eliminates the 2% sequestration reduction from May 1 through September 30, 2020;
• Approximately $27 million of CARES Act grant funds received during April 2020, although these funds are subject to terms and conditions, and we may not be able to utilize and retain all of this money;
• Approximately $83 million of advance payments on future Medicare revenue received during April 2020 under CMS’ Accelerated and Advance Payment Program;
• An estimated $12 million to $13 million liquidity benefit from Q2 2020 through Q4 2020 related to the CARES Act provision that permits payment deferral of the employer portion of social security payroll taxes; and
• An estimated cash tax refund of approximately $8 million, expected before December 31, 2020, related to specific tax code provisions of the CARES Act.

About American Renal Associates

American Renal Associates (“ARA”) is a leading provider of outpatient dialysis services in the United States. As of September 30, 2020, ARA operated 248 dialysis clinic locations in 27 states and the District of Columbia serving more than 16,900 patients with end stage renal disease. ARA operates principally through a physician partnership model, in which it partners with approximately 400 local nephrologists to develop, own and operate dialysis clinics. ARA’s Core Values emphasize taking good care of patients, providing physicians with clinical autonomy and operational support, hiring and retaining the best possible staff and providing comprehensive management services. For more information about American Renal Associates, visit www.americanrenal.com.