American Renal Associates Holdings, Inc. (NYSE:ARA) Q3 2018 Earnings Conference Call - Final Transcript

Nov 09, 2018 • 09:00 am ET

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American Renal Associates Holdings, Inc. (NYSE:ARA) Q3 2018 Earnings Conference Call - Final Transcript

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Presentation
Operator
Operator

Greetings. And welcome to the American Renal Associates Third Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Mr. Darren Lehrich, Senior Vice President of American Renal Associates. You may begin.

Executive
Darren Lehrich

Thank you, operator. And welcome everyone to ARA's third quarter 2018 earnings call and webcast. On the call today are Joe Carlucci, our CEO; Syed Kamal, our President; Jason Boucher, our Chief Financial Officer; Dr. Don Williamson, our Chief Operating Officer, and Dr. Michael Anger, our Chief Medical Officer.

(Forward-Looking Cautionary Statements)

Finally, as a reminder, we adopted ASC 606 effective January 1, 2018, and under this accounting standard for revenue, we are now reporting our revenue net of uncollectible accounts.

With that, I am pleased to turn the call over to Joe Carlucci.

Executive
Joe Carlucci

Thank you, Darren. We had a productive third quarter, which was supported by solid revenue growth, sustained performance with labor productivity, positive business development activity and continued stability with commercial payor mix in relation to the first half of the year.

That said, our third quarter earnings performance was impacted by treatment growth that did not accelerate as expected in higher self-funded employee health insurance benefit costs. We believe there are plenty of encouraging signs to report to you, which give us confidence in the strength of our operating model. Although, given our year-to-date performance, it does look probable that we will end the year at the lower end of our 2018 adjusted EBITDA less NCI guidance range of $105 million to $111 million.

First, let me speak to our treatment volume performance. Our third quarter normalized treatment growth was 6.1% and this was modestly below our expectations, due in part to slower ramping of de novo clinics, as well as more of our 2018 pipeline openings pushing into Q4. We expected a modest acceleration of volume growth in the second half, which has not materialized. As a result of our year-to-date performance and expectations for the fourth quarter, we now expect our full year 2018 normalized treatment growth to be between 6.0% and 6.5%, as compared to our previous expectation for 6.5% and 7.5%.

Over the medium term, we believe this revised treatment growth outlook should be sustained due to our healthy de novo pipeline, occasional acquisition opportunities and the underlying growth of ESRD. We do not believe anything has changed in the environment. Although, we think it's prudent to assume this more moderate rate of treatment growth as our facility base continues to get bigger and some newly opened clinics take longer to ramp due in part to certification delays. We believe there could be some relief from the certification delays in 2019 due to our ability to contract with third-party independent accreditation organizations who could expedite surveys in regions where CMS resources are constrained.

Second, we are