AMERICAN RENAL ASSOCIATES : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

This discussion contains management's discussion and analysis of our financial
condition and results of operations for the period covered by this Form 10-Q and
should be read in conjunction with the unaudited condensed consolidated
financial statements and notes thereto included elsewhere in this Form 10-Q and
the audited consolidated financial statements and the notes thereto included in
our Form 10-K for the fiscal year ended December 31, 2019 (the "2019 Form
10-K").

The following discussion contains forward-looking statements that reflect our
plans, estimates and beliefs and involve numerous risks and uncertainties.
Actual results may differ materially from those contained in any forward-looking
statement, due to a number of factors, including those discussed in the section
of this Form 10-Q entitled "Forward-Looking Statements" and the section entitled
"Risk Factors" in this Form 10-Q and in the 2019 Form 10-K. You should read
these sections carefully.

Executive Overview

We are the largest dialysis services provider in the United States focused on
joint venture partnerships with physicians. We provide high-quality patient care
and clinical outcomes through physicians, known as nephrologists, who specialize
in treating patients suffering from end stage renal disease ("ESRD"). Our core
values create a culture of clinical autonomy and operational accountability for
our nephrologist partners and staff members.

We derive our patient service operating revenues from providing outpatient and
inpatient dialysis treatments. The sources of payment of these patient service
operating revenues are principally government-based programs, including
Medicare, Medicaid and U.S. Department of Veterans Affairs ("VA") plans, as well
as commercial insurance plans. Substantially all of our payors (both
government-based and commercial) have moved toward a bundled payment system of
reimbursement, with a single lump-sum per treatment covering not only the
dialysis treatment itself but also the ancillary items and services provided to
a patient during the treatment, such as laboratory services and pharmaceuticals.

We operate our clinics principally through the joint venture ("JV") model, in
which we share the ownership and operational responsibility of our dialysis
clinics with our nephrologist partners and other joint venture partners, while
the providers of the majority of dialysis services in the United States operate
through a combination of wholly owned subsidiaries and joint ventures.
Substantially all of our clinics are maintained as separate joint ventures in
which generally we have the controlling interest and our nephrologist partners
and other joint venture partners have a noncontrolling interest. We believe that
our focus on a JV model makes us well-positioned to increase our market share by
attracting nephrologists who are interested in our service platform and want
greater clinical autonomy and a potential return on capital investment
associated with ownership of a noncontrolling interest in a dialysis clinic. We
believe the JV model best aligns our interests with those of our nephrologist
partners and their patients. By owning a portion of the clinics where their
patients are treated, our nephrologist partners have a shared interest in the
quality, reputation and performance of the clinics. We believe that this
enhances patient and staff satisfaction and retention, clinical outcomes,
patient growth, and operational and financial performance.
COVID-19 Pandemic

In December 2019, there was an outbreak of a new strain of severe acute
respiratory syndrome coronavirus 2, or SARS-CoV-2 ("COVID-19"), and in March
2020, the World Health Organization declared the outbreak of COVID-19, the
disease caused by the SARS-CoV-2 virus, a pandemic. As a provider of essential
healthcare services, we are significantly
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exposed to the health and economic effects of COVID-19 but have an obligation to
continue providing our life-sustaining dialysis services and are doing so with a
critical focus on the safety and well-being of our patients, staff and physician
partners.

We began to experience increased expenses and a reduction in treatment volume in
connection with the pandemic beginning in March. The impacts on our operating
and financial performance due to the COVID-19 pandemic became more significant
in the second quarter and have continued into the third quarter. We expect these
impacts may continue beyond the third quarter.

The situation surrounding COVID-19 remains fluid, and we continue to carefully
monitor the impacts of the COVID-19 pandemic on our operating and financial
performance. We cannot at this time accurately predict the ultimate impacts that
COVID-19 will have on our operating and financial performance, but the adverse
impacts may be material.

We began to experience increased expenses and a reduction in treatment volume in
connection with the pandemic beginning in March. For the six months ended
June 30, 2020, we incurred an additional $8.6 million in operating expenses as a
result of the measures we have taken in response to COVID-19, of which $8.4
million was offset by grant funds received under the CARES Act. We expect the
impacts to continue.

We have undertaken measures designed to mitigate these impacts, including
acceptance of government assistance intended to offset certain impacts, but
these measures may not be sufficient to fully offset the operating and financial
effects on our business from the pandemic. The amounts and types of future
revenue, expense and cash flow impacts will depend on numerous factors,
including the rate of spread of COVID-19, duration and geographic coverage of
the pandemic, impacts on our employees, patients, physician partners, suppliers
and other business partners, the pandemic's impact on the U.S. economy, the
administrative developments related to the pandemic at the federal, state and
local levels, and the results of our mitigation efforts, including our
infectious disease prevention and control efforts. See "-Item 1A. Risk
Factors-The ongoing COVID-19 pandemic and responses thereto have adversely
affected, and we expect will continue to adversely affect, our business, results
of operations and financial condition."

Taking Care of our Patients and Staff

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
("CDC") 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. Measures we have implemented 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, but it
may be further amended or discontinued as appropriate in light of developments
with the pandemic.
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These and other measures 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 work remotely. For the six months ended June 30, 2020, we estimate
that we incurred an additional $8.6 million in operating expenses as a result of
the measures we have taken in response to COVID-19, but $8.4 million of these
additional expenses were offset by grant funds received under the Coronavirus
Aid, Relief, and Economic Security Act (the "CARES Act") which was enacted on
March 27, 2020 in response to the pandemic. The CARES Act is a relief package
intended to assist many aspects of the American economy, and includes provisions
to expand existing and introduce new programs to provide additional sources of
liquidity to healthcare providers. 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.

Treatment Volume

Patients suffering from end-stage renal disease generally have co-morbidities
that often place them at increased risk with COVID-19, which may result in
increased patient hospitalizations, missed treatments and higher mortality.
While many of our COVID-19 positive patients have recovered, missed treatments,
which includes mortality, associated with COVID-19 positive patients during the
second quarter resulted in an estimated 1.0% reduction in treatment volume
growth compared to the three months ended June 30, 2019. This reduction in
treatment volume growth resulted in a COVID-19 related revenue loss of
approximately $1.5 million for the second quarter, substantially all of which
was offset by grant funds received under the CARES Act. Since the end of the
second quarter, we have seen an increase in the number of infected patients, but
this number currently remains below peak levels experienced during the second
quarter. The adverse impact on our treatment volume could increase in the event
of a prolonged or increasingly severe pandemic. Further, broad economic factors
resulting from the pandemic, including increasing unemployment rates, may lead
to increases in uninsured patients and patients with lower-paying government
insurance programs. The impact of this may be delayed or mitigated as a result
of patients accessing COBRA and exchange plans but could have a material impact
on our longer term earnings. A significant reduction in our treatment volume or
in the number of patients with commercial insurance would have a material
adverse effect on our revenues, earnings and cash flows.

Expense Management

In light of our increased expenses and the impact to revenue from the COVID-19
pandemic, we have and will continue to implement cost saving initiatives,
including temporary reductions in executive compensation, reducing discretionary
spending, including travel, increased management of existing corporate headcount
and other temporary corporate expense initiatives. To date, these cost savings
initiatives have not directly impacted clinic staff or regional operations teams
that are providing on-site support to our clinics during the pandemic. We also
have re-prioritized our capital expenditures and continued our slower pace of de
novo clinic development. Our expense reduction 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.

Balance Sheet, Cash Flow and Liquidity

As of June 30, 2020, we had consolidated cash of $148.7 million, of which $65.0
million was provided by advance payments on future Medicare revenue under the
Accelerated and Advance Payment Program.

In addition, as of June 30, 2020, we had $16.8 million of restricted cash, representing CARES Act grant funds available for qualifying expenses and lost revenues for the remainder of the qualifying period.

As of June 30, 2020, we had $27.0 million of borrowing capacity available under
our 2017 Revolving Credit Facility, and we were in compliance with the
consolidated net leverage ratio covenant in our Credit Agreement. While we
believe our cash balance and cash flows from operations provide sufficient
liquidity for at least the next 12 months, we continue to take steps to enhance
our financial flexibility, including the expense management initiatives
discussed above. Additionally, we are closely managing our working capital as we
continue to bill and collect for services rendered and extend payments on
traditional accounts payables where appropriate. During the second quarter of
2020, we did not experience any significant issues in billing or cash
collections directly associated with the COVID-19 pandemic; however, we may
experience delays in the future due to lower claims operations staffing levels
and longer call waiting times at certain of our commercial payors.

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During April 2020, our facilities received approximately $27 million in the
aggregate in healthcare provider relief grant funds provided under the CARES
Act. These funds are subject to terms and conditions established by the U.S.
Department of Health and Human Services, including that they may only be used to
offset lost revenue and increased expenses attributable to the COVID-19
pandemic. As of June 30, 2020, we had utilized $9.8 million of these funds, and
we expect to continue to use the funds during future periods in 2020. Our
ability to utilize and retain some or all of the remaining provider relief grant
funds will depend on the magnitude, timing and nature of the impact of COVID-19.

The CARES Act also provides for deferred payment of the employer portion of
social security taxes through the end of 2020, with 50% of the deferred amount
due December 31, 2021 and the remaining 50% due December 31, 2022. For the
second quarter, we deferred payment of $4.5 million as a result of this
provision. We expect this provision of the CARES Act to provide an additional
$7.5 to $8.5 million of liquidity during the remainder of the current year.
Furthermore, the CARES Act also provides for tax code relief that we estimate
will result in cash tax benefits of approximately $5 million during the current
year.

The CARES Act also suspended for the period from May 2020 through December 2020
the 2% Medicare sequestration reimbursement reduction that has been in place
since April 1, 2013. As a result, we received an increase in patient service
operating revenues of $1.1 million during the second quarter from this
suspension, and we currently expect to receive an additional $4.0 million for
the remainder of the year.

In April 2020, our facilities also applied for and received an aggregate of
approximately $83 million in advance payments under the Accelerated and Advance
Payment Program ("Advance Payments"), as expanded by the Centers for Medicare
and Medicaid Services in a regulatory action unrelated to the CARES Act. Funds
received under this program represent 90 days' worth of advances on future
Medicare payments to healthcare providers and will be required to be repaid,
interest-free, by our facilities within 210 days of the advance payment through
an automatic 100% offset against future claims payments. During the second
quarter, we used $19 million of these Advance Payments to reduce clinic-level
debt, and the remaining funds are included in our consolidated cash as of
June 30, 2020 to provide us with additional liquidity during the current year.
We expect to apply the Advance Payments on account of treatments provided to
Medicare patients during the third and fourth quarters of 2020.

We continue to closely monitor legislative actions at federal and state levels,
including the impact of the CARES Act and other governmental assistance, on our
business.
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Key Factors Affecting Our Results of Operations

Clinic Growth and Start-Up Clinic Costs

Our results of operations are dependent on increases in the number of, and
growth at, our de novo clinics and acquired clinics, as well as growth at our
existing clinics. As of June 30, 2020, we had developed 198 de novo clinics and
acquired 53 clinics. The following table shows the number of de novo and
acquired clinics over the periods indicated:
                                                                                                            Six Months Ended June
                                                  Three Months Ended June 30,                                        30,
                                                    2020                2019                2020                 2019
De novo clinics(1)                                       4                   2                   5                     4
Acquired clinics(2)                                      -                   -                   -                     2
Sold or merged clinics(3)                                -                   -                   -                    (2)

Net new clinics                                          4                   2                   5                     4

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(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.

Subsequent to June 30, 2020, we completed the sale of certain clinics in
Pennsylvania that accounted for, in the aggregate, $3.6 million of our patient
service operating revenues for each of the three months ended June 30, 2020 and
2019, and $7.5 million and $7.0 million of our patient service operating
revenues for the six months ended June 30, 2020 and 2019, respectively. These
clinics accounted for approximately 12,000 treatments for each of the three
months ended June 30, 2020 and 2019, and 25,000 treatments and 24,000 treatments
for the six months ended June 30, 2020 and 2019, respectively.

De novo clinics. We have primarily grown through de novo clinic development. A
typical de novo facility requires approximately $1.9 to $2.2 million of capital
for equipment purchases, leasehold improvements and initial working capital. For
the three months ended June 30, 2020 and June 30, 2019, our development capital
expenditures incurred in connection with our de novo clinic development were
$5.8 million and $4.2 million, respectively, representing 2.8% and 2.0% of our
patient service operating revenues, respectively. A portion of the total capital
required to develop a de novo clinic may be equity capital funded by us and our
nephrologist partners in proportion to our respective ownership interests. The
balance of such development cost may be funded through third-party debt
financing or through intercompany loans provided by one of our wholly owned
subsidiaries to the joint venture entity that, in each case, we and our
nephrologist partners generally guarantee on a basis proportionate to our
respective ownership interests. In the three months ended June 30, 2020, as in
recent quarters as we emerged from the process of restating certain of our prior
financial statements during the fiscal year ended December 31, 2019, we had a
slower pace of de novo clinic development. With the COVID-19 pandemic, we expect
that our slower pace of de novo clinic development will continue through the
remainder of 2020 and possibly beyond.

Our results of operations have been and will continue to be affected by the
timing and number of openings, the timing of certifications and the amount of
clinic opening costs incurred in conjunction with our de novo clinics program.
In particular, our patient care costs on an absolute basis and as a percentage
of our patient service operating revenues may fluctuate from quarter to quarter
due to the timing and number of de novo clinic openings, which affect our
operating income in a given quarter. Our patient care costs reflect pre-opening
expenses, which primarily consist of staff expenses, including the costs of
hiring and training new staff, as well as rent and utilities. In addition, a de
novo clinic builds its patient volumes over time and, as a result, generally has
lower revenue than our existing clinics. Newly established de novo clinics,
although contributing to increased revenues, have adversely affected our results
of operations in the short term due to a smaller patient base to absorb
operating expenses.

We consider a de novo clinic to be a "start-up clinic" until the earlier of 18
months or the first month it generates positive clinic-level EBITDA, which
differs from our consolidated EBITDA in that management fees, consisting of a
percentage of the clinic's net revenues paid to ARA for management services, are
eliminated in consolidation but are reflected on a clinic-level basis. Start-up
clinic losses affect the comparability of our results from period to period and
may disproportionately impact our operating margins in any given quarter,
including quarters during which we have a significant number of clinics
qualifying as start-up clinics. The following table sets forth the number of de
novo clinics opened during the periods indicated:
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                                Three Months Ended
           March 31,          June 30,      September 30,      December 31,      Total
2020                 1             4                  -                 -          5
2019                 2             2                  1                 2          7
2018                 1             5                  2                 5         13
2017                 3             2                  1                 9         15
2016                 2             6                  5                 7         20



Existing clinics. Depending on demand and capacity utilization, we may have
space within our existing clinics to accommodate a greater number of dialysis
stations or operate additional shifts in order to increase patient volume
without compromising our quality standards. Such expansions leverage the fixed
cost infrastructure of our existing clinics. From January 1, 2015 to June 30,
2020, we added 127 dialysis stations to our existing clinics, representing the
equivalent of nearly eight de novo clinics.

Acquired clinics. We have also grown through acquisitions of existing clinics,
and our results of operations have been and will continue to be affected by the
timing and number of our acquisitions. Our acquisition strategy is primarily
driven by the quality of the nephrologist in the market. We opportunistically
pursue acquisitions in situations where we believe the clinic offers us an
attractive opportunity to enter a new market or expand within an existing
market.

Our clinic growth drives our treatment growth. The following table summarizes the sources of our treatment growth for the periods indicated:

                                                                                                                Six Months Ended June
                                                     Three Months Ended June 30,                                         30,
Source of Treatment Growth:                           2020                 2019                 2020                 2019
Non-acquired treatment growth(1)                         2.1  %               5.1  %               3.2  %                4.5  %
Normalized non-acquired treatment growth(2)              3.6  %               5.6  %               4.0  %                5.5  %
Acquired treatment growth(3)                               -  %               2.2  %               0.2  %                2.1  %
Total treatment growth                                   2.1  %               7.3  %               3.4  %                6.6  %
Normalized total treatment growth(2)                     3.6  %               7.9  %               4.1  %                7.6  %

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(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)We calculate normalized total treatment growth and normalized non-acquired
treatment growth by dividing the number of treatments performed during the
applicable period by the number of treatments performed during the corresponding
prior period, excluding the number of treatments performed at clinics divested
subsequent to the corresponding prior period and, for the three and six months
ended June 30, 2020, the number of missed treatments, which includes mortality,
associated with COVID-19 positive patients, and expressing the resulting number
as a percentage. The calculation of normalized treatment growth and normalized
non-acquired treatment growth is further adjusted to equalize the number of
treatment days during the applicable period with the corresponding prior period,
to the extent there are differences due to the calendar. We estimate that missed
treatments associated with COVID-19 positive patients resulted in an
approximately 1.0% and 0.5% impact to our treatment growth for the three and six
months ended June 30, 2020, respectively.
(3)Represents net growth in treatments attributable to clinics acquired since
the end of the prior period.

Sources of Payment of Revenues by Payor

Our patient service operating revenues are principally driven by our mix of
commercial and government payor patients and commercial and government payment
rates. We are generally paid more for services provided to patients covered by
commercial healthcare plans than we are for patients covered by Medicare or
Medicaid. ESRD patients covered by employer group health plans generally
transition to Medicare coverage after a maximum of 33 months. Medicare payment
rates are determined under the Medicare ESRD prospective payment rate system
("PPS"), a bundled payment system, which sets a base rate on an annual basis
that is subject to adjustments to arrive at the actual payment rate for
individual clinics. Effective January 1, 2018, under the Medicare ESRD PPS
Transitional Drug Add-on Payment Adjustment Program ("TDAPA"), calcimimetic
pharmaceuticals became reimbursable as an add-on to the base rate. During the
years ended December 31, 2019, 2018 and 2017, the Medicare ESRD PPS payment
rates for our clinics were approximately $279, $281 and $248, respectively, per
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treatment, including payments under the TDAPA program for the years ended
December 31, 2019 and 2018. The Centers for Medicare and Medicaid Services
("CMS") issues annual updates to the ESRD PPS, which may impact the base rate as
well as the various adjusters. The ESRD PPS final rule for 2019 released on
November 1, 2018 by CMS increased the base rate from $232.37 to $235.27. The
ESRD PPS final rule for 2020 was released on October 31, 2019 by CMS (the "2020
Final Rule"). The 2020 Final Rule includes a base rate of $239.33, representing
a $4.06 increase from the 2019 base rate, as well as certain changes to the
TDAPA program, including an extension to the TDAPA program for calcimimetics to
a third year while also reducing the basis of payment for the TDAPA program for
calcimimetics in 2020 from the Average Selling Price ("ASP") plus 6% to ASP plus
0%. CMS has estimated that the 2020 Final Rule, including the TDAPA program
changes, would result in an overall increase of payments to ESRD facilities of
1.6%. On July 6, 2020, CMS issued the ESRD PPS proposed rule for 2021 (the "2021
Proposed Rule"). The 2021 Proposed Rule includes a base rate of $255.59,
representing an increase from the 2020 base rate of $239.33. However, the 2021
Proposed Rule's base rate includes the addition of $12.06 to reflect the
inclusion of calcimimetics as part of the base rate rather than as a separate
add-on to the base rate under the TDAPA program. CMS has estimated that the 2021
Proposed Rule, if finalized as proposed, would result in an overall increase of
payments to ESRD facilities of 1.6%. The ultimate impact of the 2021 Proposed
Rule cannot be determined at this time.

The CARES Act suspended for the period from May 2020 through December 2020 the
2% Medicare reimbursement reduction that has been in place since April 1, 2013.
As a result, we recognized an additional $1.1 million in patient service
operating revenues for the three months ended June 30, 2020, and we currently
expect to receive an additional approximately $4.0 million for the remainder of
the fiscal year, from this suspension.

Medicare and Medicaid payment rates are generally insufficient to cover our
total operating expenses allocable to providing dialysis treatments for Medicare
and Medicaid patients. As a result, our ability to generate operating income is
substantially dependent on revenues derived from commercial payors, which
typically pay us either negotiated payment rates or at a discount to our usual
and customary fee schedule. Negotiated in-network rates paid by commercial
payors are generally lower than out-of-network payment rates. Pressure from
commercial payors over pricing and related matters and our strategy of
increasing our in-network payor relationships has resulted in lower average
commercial payment rates.

The following table summarizes our percentage of patient service operating revenues by payor source for the periods indicated:

                                                                                                              Six Months Ended June
                                                   Three Months Ended June 30,                                         30,
Percentage of Revenues by Payor:                    2020                 2019                 2020                 2019
Medicare and Medicare Advantage                         69  %                70  %                69  %                 70  %
Commercial and other(1)                                 26  %                26  %                27  %                 25  %
Medicaid and Managed Medicaid                            4  %                 4  %                 4  %                  4  %
Other(2)                                                 1  %                 -  %                 -  %                  1  %
                                                       100  %               100  %               100  %                100  %

The following table summarizes the percentage of total dialysis treatments performed by payor source for the periods indicated:

                                                                                                            Six Months Ended June
                                                  Three Months Ended June 30,                                        30,
Percentage of Treatments by Payor:                  2020                                    2019                2020                  2019
Medicare and Medicare Advantage                         80  %              80  %                80  %                 80  %
Commercial and other(1)                                 13  %              12  %                12  %                 12  %
Medicaid and Managed Medicaid                            7  %               7  %                 7  %                  7  %
Other(2)                                                 -  %               1  %                 1  %                  1  %
                                                       100  %             100  %               100  %                100  %


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(1)Principally commercial insurance companies and also includes the VA.
Treatments covered by Affordable Care Act ("ACA")-compliant plans ("ACA plans")
were 0.6% and 0.7% for the three months ended June 30, 2020 and 2019,
respectively and 0.6% and 0.7% for the six months ended June 30, 2020 and, 2019,
respectively. Treatments covered by VA plans were 3.1% and 2.8% in the three
months ended June 30, 2020 and, 2019, respectively, and 3.1% and 2.7% for the
six months ended June 30, 2020 and 2019, respectively.
(2)Other sources of payment of revenues include hospitals and patient self-pay.
"Patient self-pay" revenues consist of payments received directly from patients
who are either uninsured or self-pay for a portion of the bill.
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The percentage of treatments by payor source does not necessarily correlate with
our results of operations or margins in any given period because of a number of
other factors, including the effect of the difference in rates per treatment
associated with each payor. We have experienced an increase in our commercial
treatment mix and the percentage of our commercial treatment mix represented by
in-network commercial payors as a result of our strategy to increase our
in-network commercial payor relationships. This trend has adversely affected our
margins and profitability because negotiated in-network rates paid by commercial
payors are generally lower than out-of-network payment rates.

Effective in November 2016, for patients enrolled in minimum essential Medicaid
coverage, we suspended assistance in the application process for charitable
premium support from the American Kidney Fund ("AKF"), which caused an adverse
change in the mix of patients and treatments in 2017. Prior to the 2017 ACA open
enrollment period, approximately 2% of our total patients chose to enhance their
pre-existing minimum Medicaid coverage by electing to enroll in an ACA plan.
Virtually all of these low-income patients relied on charitable premium
assistance because they were ineligible for federal premium tax credits. Due to
the suspension of assistance in the application process for charitable
premium support from the AKF, virtually all of our patients with ACA primary
insurance coverage and secondary minimum essential Medicaid coverage reverted
back to Medicaid-only coverage during 2017. We continue to advise our other
patients about the potential availability of assistance with the payment of
premiums from the AKF under the AKF Health Insurance Premium Program, subject to
the suspension described above, and compliance with the AKF's policies and
procedures and approved regulatory guidance from CMS.

The aforementioned suspension has adversely impacted, and any CMS action
relating to establishing policies to restrict or limit charitable assistance for
ACA plans or other individual marketplace plans could adversely impact, the
number of patients covered by ACA plans and other individual marketplace plans,
our average reimbursement rate and our results of operations and cash flows,
which impact has been and may continue to be material. Further, the other
changes to our patient insurance education program, whether or not the
suspension continues or CMS restricts charitable premium assistance, together
with the other developments in the market, including the impact of such changes
on enrollment in ACA plans and other individual marketplace plans, other
insurance coverage, and/or potential regulatory changes in the future, have
adversely impacted, and are expected to continue to adversely impact, the number
of our patients covered by insurance, as well as our average reimbursement rate
in the future.
In addition to charitable premium support for patients enrolled in ACA plans,
the AKF provides charitable premium support to patients with other insurance
coverage, including Medicare supplemental insurance and commercial insurance. We
have, from time to time, received letters from certain insurance companies
indicating that they will not insure patients who receive premium payment
assistance from third-party charitable organizations. There have also been
legislative efforts to impose restrictions and obligations relating to the use
by patients on commercial plans of charitable premium support, including a
California bill (AB 290) that was signed into law in October 2019, but is
currently enjoined, that limits the amount of reimbursement paid to certain
providers for services provided to patients with commercial insurance who
receive charitable premium assistance. Furthermore, the AKF has suspended
charitable premium assistance payments from time to time and may continue to do
so in the future. If patients are unable to obtain or to continue to receive AKF
charitable premium support as a result of AKF suspension or otherwise, or if
payments that a dialysis provider can retain for treatment to patients receiving
such support is restricted, whether due to insurance company challenges to
covering patients receiving charitable premium support, legislative changes,
rules or interpretations limiting such support or other reasons, the financial
impact on our company could be materially greater than the annual financial
impact described above of patients previously enrolled in ACA plans and could
materially and adversely affect our results of operations. See "Item 1A. Risk
Factors-Risks Related to Our Business-If the number of patients with commercial
insurance declines, our operating results and cash flows would be adversely
affected" and "-If there is a decline in financial assistance from charitable
organizations to patients with commercial insurance, our operating results and
cash flows would be adversely affected" in our 2019 Form 10-K.
We believe that the operating environment will continue to be challenging due to
the ongoing and uncertain impact of COVID-19 as described above and the
government's response to it, adverse trends in our commercial payor mix,
continuing pressure on commercial rates, pressure on Medicare Advantage rates
due to the continued growth in this subset of the Medicare patient population,
the uncertainty around the ACA and the ability of our patients overall to access
charitable premium assistance from non-profit organizations such as the AKF
resulting from actions by the U.S. President and Congress. In addition, the
impact of many of the foregoing trends may be exacerbated by the impact of
COVID-19. We believe that the pressure on commercial rates due to more
restrictive health plan benefit design and our strategy of increasing our
in-network payor relationships could continue to create additional challenges.
In addition, certain members of Congress have proposed measures that would
expand government-sponsored coverage of healthcare expenses, including single
payor proposals, which, if adopted, could materially and adversely affect our
business, results of operations and financial condition. In addition, in July
2019, the U.S. President signed an executive order to launch the Advancing
American Kidney Health initiative that, among other things, will further
encourage dialysis in the home. We are unable to predict the full effect of the
foregoing factors on our business, results of operations and cash flows. See
also "Item 1A. Risk Factors-Risks Related to Our Business-If the rates
                                       41
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paid by commercial payors continue to decline, our operating results and cash
flow will be adversely affected" and "-The Advancing American Kidney Health
initiative may adversely affect our business, results of operations, cash flows
and revenues" in our 2019 Form 10-K.
Clinical Staff, Pharmaceutical and Medical Supply Costs
 Because our ability to influence the pricing of our services is limited, our
profitability depends not only on our ability to grow but also on our ability to
manage patient care costs, including clinical staff, pharmaceutical and medical
supply costs. The principal drivers of our patient care costs are clinical staff
hours per treatment, salary rates and vendor pricing and utilization of
pharmaceuticals, including Erythropoietin Stimulating Agents (" ESAs") and
medical supplies. We currently obtain the ESAs Aranesp and Epogen from Amgen
Inc. and the ESAs Mircera and Retacrit from Vifor International AG. Increased
utilization of ESAs for patients for whom the cost of ESAs is included in a
bundled reimbursement rate, including Medicare patients, could increase our
operating costs without any increase in revenue. In addition, any shortage of
supplies could have a negative impact on our revenues, earnings and cash flows.
Other cost categories, such as employee benefit costs and insurance costs, can
also result in significant cost changes from period to period. Our results of
operations are also affected by the start-up clinic costs described above. See
also "Item 1A. Risk Factors-Risks Related to Our Business-Changes in the
availability and cost of ESAs and other pharmaceuticals could adversely affect
our operating results and financial condition as well as our ability to care for
patients" and "-If our suppliers are unable to meet our needs, if there are
material price increases or if we are unable to effectively access new
technology, our operating results and financial condition could be adversely
affected" in our 2019 Form 10-K. See also "Item 1A. Risk Factors-The ongoing
COVID-19 pandemic and responses thereto have adversely affected, and we expect
will continue to adversely affect, our business, results of operations and
financial condition."

Seasonality

Our treatment volumes are sensitive to seasonal fluctuations due to generally
fewer treatment days during the first quarter of the calendar year.
Additionally, our patients are generally responsible for a greater percentage of
the cost of their treatments during the early months of the year due to
co-insurance, co-payments and deductibles, which may lead to lower total net
revenues and lower net revenues per treatment during the early months of the
year. Our quarterly operating results may fluctuate significantly in the future
depending on these and other factors.

Impact of the IPO and Certain Legal Matters

We are an emerging growth company as defined in the Jumpstart Our Business
Startups Act (the "JOBS Act") and may currently take advantage of exemptions
available under the JOBS Act including exemption from the auditor attestation
requirements under Section 404 of the Sarbanes-Oxley Act of 2002; reduced
disclosure obligations regarding executive compensation in our periodic reports
and proxy statements; exemption from the requirements of holding non-binding
stockholder votes on executive compensation arrangements; and exemption from any
rules requiring mandatory audit firm rotation and auditor discussion and
analysis and, unless the SEC otherwise determines, any future audit rules that
may be adopted by the Public Company Accounting Oversight Board. We will be an
emerging growth company until the earliest of (i) December 31, 2021, (ii) the
last day of the fiscal year in which we have annual gross revenue of $1 billion
or more, (iii) the date on which we have, during the previous three-year period,
issued more than $1 billion in non-convertible debt or (iv) the first day of the
first fiscal year after we have more than $700 million in aggregate market value
of outstanding common equity held by our non-affiliates as of the last day of
our second fiscal quarter. When the available exemptions under the JOBS Act
cease to apply, we expect to incur additional expenses and devote increased
management effort toward ensuring compliance with the applicable regulatory and
corporate governance requirements. In addition, we have incurred and expect to
incur additional legal expenses in connection with various legal and regulatory
matters and related matters. See "-Operating Expenses-Certain legal and other
matters" and "Item 1.  Legal Proceedings."

On April 26, 2016, we entered into an income tax receivable agreement (the
"TRA") for the benefit of our pre-IPO stockholders, which provides for the
payment by us to our pre-IPO stockholders on a pro rata basis of 85% of the
amount of cash savings, if any, in U.S. federal, state and local income tax that
we actually realize as a result of the option deductions (as defined in the
TRA). While the actual amount and timing of any payments under the TRA will vary
depending upon a number of factors, including the amount and timing of the
taxable income we generate in the future and whether and when any relevant stock
options, as defined in the TRA, are exercised and the value of our common stock
at such time, we expect that during the term of the TRA the payments that we
make will be material. We recorded a liability for the value of the TRA at the
time of the IPO. We calculated fair value of the TRA by using a Monte Carlo
simulation-based approach that relies on significant assumptions about our stock
price, stock volatility and risk-free rate as well as the timing and amounts of
options exercised. Any changes to the TRA liability will be recognized in our
statement of operations as Change in fair value of income tax
                                       42
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receivable agreement in future periods. See "Note 4 - Fair Value Measurements" of the notes to the unaudited condensed consolidated financial statements.

Key Performance Indicators

We use a variety of financial and other information to evaluate our financial
condition and operating performance. Some of this information is financial
information that is prepared in accordance with U.S. generally accepted
accounting principles ("GAAP"), while other financial information, such as
Adjusted EBITDA and Adjusted EBITDA-NCI, is not prepared in accordance with
GAAP. The following table presents certain operating data, which we monitor as
key performance indicators, for the periods indicated.
                                                        Three Months Ended                                             Six Months Ended

Operating Data and Non-GAAP Financial Data: June 30, 2020 June 30, 2019 June 30, 2020

           June 30, 2019
Number of clinics (as of end of period)                 251                    245                    251                      245
Number of de novo clinics opened (during
period)                                                   4                      2                      5                        4
Patients (as of end of period)                       17,356                 17,138                 17,356                   17,138
Number of treatments                                627,451                614,844              1,247,000                1,206,209
Non-acquired treatment growth                           2.1  %                 5.1  %                 3.2  %                   4.5  %
Normalized non-acquired treatment growth(1)             3.6  %                 5.6  %                 4.0  %                   5.5  %
Acquired treatment growth                                 -  %                 2.2  %                 0.2  %                   2.1  %
Total treatment growth                                  2.1  %                 7.3  %                 3.4  %                   6.6  %
Normalized total treatment growth(1)                    3.6  %                 7.9  %                 4.1  %                   7.6  %
Patient service operating revenues per
treatment                                     $         327          $         347          $         319          $           336
Patient care costs per treatment              $         234          $         249          $         241          $           250
General and administrative expenses per
treatment                                     $          36          $          39          $          38          $            41

Adjusted EBITDA (including noncontrolling
interests)(2)                                 $      39,830          $      37,622          $      57,658          $        56,833
Adjusted EBITDA-NCI(2)                        $      25,791          $      24,304          $      38,713          $        38,181


_____________________________
(1)We calculate normalized total treatment growth and normalized non-acquired
treatment growth by dividing the number of treatments performed during the
applicable period by the number of treatments performed during the corresponding
prior period, excluding the number of treatments performed at clinics divested
subsequent to the corresponding prior period and, for the three and six months
ended June 30, 2020, the number of missed treatments, which included mortality,
associated with COVID-19 positive patients, and expressing the resulting number
as a percentage. The calculation of normalized treatment growth and normalized
non-acquired treatment growth is further adjusted to equalize the number of
treatment days during the applicable period with the corresponding prior period,
to the extent there are differences due to the calendar. We estimate that missed
treatments associated with COVID-19 positive patients resulted in an
approximately 1.0% and 0.5% impact to our treatment growth for the three and six
months ended June 30, 2020, respectively.
(2)Includes approximately $1.1 attributable to the temporary suspension under
the CARES Act of the 2% Medicare sequestration reimbursement reduction.
(3)See "-Non-GAAP Financial Measures" below.

Number of Clinics

We track our number of clinics as an indicator of growth. The number of clinics
as of the end of the period includes all opened de novo clinics, acquired
clinics and existing clinics. See "-Key Factors Affecting Our Results of
Operations-Clinic Growth and Start-Up Clinic Costs" for a discussion of clinic
growth and start-up costs as a factor affecting our operating performance.

Patient Volume

The number of patients as of the end of the period is an indicator we use to
assess our performance. Our patient volumes are correlated with our de novo
clinic openings and, to a lesser extent, our marketing efforts and certain
external factors, such as the overall economic environment. We believe that
patients choose to get their dialysis services at one of our clinics due to
their relationship with our physicians, as well as the quality of care, comfort
and patient-friendly features and convenience of location and clinic hours.



                                       43
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Non-Acquired Treatments

We evaluate our operating performance based on the growth in number of
non-acquired treatments, or treatments performed at our existing and de novo
clinics, including those de novo clinics opened during the applicable period.
Accordingly, our non-acquired treatment growth rate is affected by the timing
and number of de novo clinic openings. We calculate non-acquired treatment
growth by dividing the number of treatments performed during the applicable
period by the number of treatments performed during the corresponding prior
period, excluding the number of treatments performed at clinics acquired during
the applicable period, and expressing the resulting number as a percentage.

Per Treatment Metrics

We evaluate our patient service operating revenues, patient care costs, and general and administrative expenses on a per treatment basis to assess our operational efficiency.

Non-GAAP Financial Measures

This Form 10-Q makes reference to certain non-GAAP financial measures. These
non-GAAP financial measures are not recognized measures under GAAP and do not
have a standardized meaning prescribed by GAAP. When used, these measures are
defined in such terms as to allow the reconciliation to the closest GAAP
measure. These measures are therefore unlikely to be comparable to similar
measures presented by other companies. Rather, these measures are provided as
additional information to complement those GAAP measures by providing further
understanding of our results of operations from management's perspective.
Accordingly, they should not be considered in isolation nor as a substitute for
analysis of our financial information reported under GAAP. We use non-GAAP
financial measures, such as Adjusted EBITDA and Adjusted EBITDA-NCI, to provide
investors with a supplemental measure of our operating performance and thus
highlight trends in our core business that may not otherwise be apparent when
relying solely on GAAP financial measures.

Adjusted EBITDA

We use Adjusted EBITDA and Adjusted EBITDA-NCI to track our performance.
"Adjusted EBITDA" is defined as net income before stock-based compensation and
associated payroll taxes, depreciation, amortization and impairment, interest
expense, net, income taxes and other non-income-based tax, change in fair value
of income tax receivable agreement, certain legal and other matters, severance,
executive retirement and related costs and gain or loss on sale or closure of
clinics. "Adjusted EBITDA-NCI" is defined as Adjusted EBITDA less net income
attributable to noncontrolling interests. We believe Adjusted EBITDA and
Adjusted EBITDA-NCI provide information useful for evaluating our business and a
further understanding of our results of operations from management's
perspective. We believe Adjusted EBITDA is helpful in highlighting trends
because Adjusted EBITDA excludes certain expenses that can differ significantly
from company to company depending on, among other things, long-term strategic
decisions regarding capital structure and investments, and the tax jurisdictions
in which companies operate, or that we believe do not reflect our core business
operations. 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 and differ from the calculation of
"Consolidated EBITDA" under our credit agreement. Adjusted EBITDA and Adjusted
EBITDA-NCI may not be indicative of historical operating results, and we do not
mean for these items to be predictive of future results of operations or cash
flows. Adjusted EBITDA and Adjusted EBITDA-NCI have limitations as analytical
tools, and they should not be considered in isolation, or as substitutes for an
analysis of our results as reported under GAAP. Some of these limitations are
that Adjusted EBITDA and Adjusted EBITDA-NCI:

•do not include stock-based compensation expense and associated payroll taxes;
•do not include depreciation, amortization and impairment-because construction
and operation of our dialysis clinics requires significant capital expenditures,
depreciation and amortization are a necessary element of our costs and our
ability to generate profits;
•do not include interest expense-as we have borrowed money for general corporate
and facility purposes, interest expense is a necessary element of our costs and
ability to generate profits and cash flows;
•do not include income tax expense or benefits and other non-income-based taxes;
•do not include change in fair value of income tax receivable agreement;
•do not include costs related to certain legal and other matters;
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•do not include severance, executive retirement and related costs; and •do not reflect the gain or loss on sale or closure of clinics.

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

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

                                                                                                                     Six Months Ended June
                                                             Three Months Ended June 30,                                      30,
(in thousands)                                                 2020                 2019              2020                2019
Net income (loss)                                        $      14,834

$ 5,140 $ 12,506 $ (5) Add: Stock-based compensation and associated payroll taxes

            1,607                853             4,400               2,292
Depreciation, amortization and impairment                        8,974             10,299            17,501              20,365
Interest expense, net                                            9,721             11,541            20,733              20,291

Income tax expense (benefit) and other non-income-based tax(a)

                                                           2,451                861            (1,243)              1,653

Change in fair value of income tax receivable
agreement(b)                                                       356                304            (1,343)             (1,378)
Certain legal and other matters(c)                                 841              8,381             3,128              13,672
Severance, executive retirement and related costs                1,046                243             1,561                 455
(Gain) loss on sale or closure of clinics                            -                  -               415                (512)

Adjusted EBITDA (including noncontrolling interests) $ 39,830

      $ 37,622          $ 57,658          $   56,833
Less: Net income attributable to noncontrolling
interests                                                      (14,039)           (13,318)          (18,945)            (18,652)
Adjusted EBITDA -NCI                                     $      25,791           $ 24,304          $ 38,713          $   38,181

_____________________________

(a)Non-income-based tax includes franchise, gross receipts, and similar tax
assessments.
(b)See "Note 4 - Fair Value Measurements" of the notes to the unaudited
condensed consolidated financial statements.
(c)For the six months ended June 30, 2020 and June 30, 2019, includes $2.2
million and $13.1 million, respectively, relating to our restatement of certain
of our prior financial statements and other financial information, as described
in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018
(the "Restatement") and the related SEC investigation and Audit Committee review
and litigation relating to the foregoing. The amounts also include other
expenses relating to matters that we believe do not reflect our core business
operations.
Components of Operations

Patient Service Operating Revenues

Patient service operating revenues. Patient service operating revenues, the
major component of our revenues, are derived from dialysis treatments and
related services. Sources of payment of revenues are principally from
government-based programs, including Medicare, Medicaid, and state workers'
compensation programs, commercial insurance payors and other sources such as the
VA and hospitals, as well as patient self-pay. Patient service operating
revenues are reported at the amounts that reflect the consideration to which we
expect to be entitled in exchange for providing dialysis treatments and related
services. Amounts may include variable consideration for discounts, price
concessions and retroactive revenue adjustments due to new information obtained,
such as actual payment receipt, as well as settlement of audits, reviews, and
investigations. Third-party payors, patients and other payors are generally
billed at least monthly, typically in the month the dialysis treatment is
performed.

We maintain a usual and customary fee schedule for dialysis treatment and other
related services. However, the transaction price is typically recorded at a
discount to the fee schedule. The transaction prices for Medicare and Medicaid
programs are based on predetermined net realizable rates per treatment that are
established by statutes or regulations. The transaction prices for contracted
payors are based on contracted rates. For other payors, we estimate the
transaction price based on usual and customary rates for services provided,
reduced by contractual and other adjustments that result from differences
between the rates charged for services performed and expected reimbursements
from third-party payors, discounts provided to
                                       45
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uninsured patients in accordance with our policy and/or implicit price
concessions. We determine our estimates of contractual allowances and discounts
based on contractual agreements, regulatory compliance and historical collection
experience. We determine our estimate of implicit price concessions based on our
historical collection experience with each payor, and where no prior experience
exists, we consider information from the patient's health plan. Amounts billed
that have not yet been collected and that meet the conditions for unconditional
right to payment are presented as net accounts receivable.

Contractual and other adjustments as well as discounts with third-party payors
are considered variable consideration and are included in the determination of
the estimated transaction price for providing patient care. In assessing the
probability of these claim payments, we review previous payment history and
record a reserve at the patient level that results in an estimate of expected
revenue such that it is probable that a significant revenue reversal will not
occur in future periods.

Operating Expenses

Patient care costs. Patient care costs are those costs directly associated with
operating our dialysis clinics. Patient care costs principally include salaries,
wages and benefits, stock-based compensation expense, pharmaceuticals, medical
supplies, rent and utilities, laboratory testing, medical director fees and
insurance costs and exclude depreciation, amortization and impairment.

General and administrative expenses. General and administrative expenses
generally consist of salaries, wages and benefits, and stock-based compensation
expense to personnel at our corporate office for clinic and corporate
administration, including accounting, billing and cash collection functions;
costs of patient insurance education; costs of regulatory compliance and legal
oversight; charitable contributions; and professional fees, and exclude
depreciation, amortization and impairment.

Depreciation, amortization and impairment. Depreciation, amortization and
impairment expense is primarily attributable to our clinics' equipment and
leasehold improvements and amortizing intangible assets. We calculate
depreciation and amortization expense using a straight-line method over the
assets' estimated useful lives. Impairment expense is attributable to our assets
held for sale. See "Note 3 - Assets Held for Sale" of the notes to the unaudited
condensed consolidated financial statements.

Certain legal and other matters. Certain legal and other matters include legal
fees and other expenses associated with matters that we believe do not reflect
our core business operations, including, but not limited to, our handling of,
and response to the following:

•the SEC investigation and related Audit Committee review and Restatement
process (2019-2020),
•the securities and derivative litigation related to the foregoing (2019-2020),
and
•our internal review and analysis of factual and legal issues relating to the
aforementioned matters and legal fees and other expenses relating to matters
that we believe do not reflect our core business operations.

See "Item 1. Legal Proceedings" and "Note 15 - Certain Legal and Other Matters" of the notes to the unaudited consolidated financial statements.

Operating Income

Operating income is equal to our patient service operating revenues minus our
operating expenses. Our operating income is impacted by the factors described
above and reflects the effects of losses relating to our start-up clinics.

Interest, Change in Fair Value of Income Tax Receivable and Income Taxes

Interest expense, net. Interest expense represents charges for interest associated with our corporate level debt and credit facilities entered into by our dialysis clinics.

Change in fair value of income tax receivable agreement. Change in fair value of
income tax receivable agreement is the non-cash gain or loss associated with the
change in the fair value of the TRA during the period indicated.

Income tax (benefit) expense. Income tax (benefit) expense is recorded on our
share of pre-tax income from our wholly owned subsidiaries and joint ventures as
these entities are pass-through entities for tax purposes. We are not taxed on
the share of pre-tax income attributable to noncontrolling interests, and net
income attributable to noncontrolling interests in our financial statements has
not been presented net of income taxes attributable to these noncontrolling
interests.
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Net Income Attributable to Noncontrolling Interests

Noncontrolling interests represent the equity interests in our consolidated
entities that we do not wholly own, which are primarily the equity interests of
our nephrologist partners in our JV clinics. Our financial statements reflect
100% of the revenues and expenses for our joint ventures (after elimination of
intercompany transactions and accounts) and 100% of the assets and liabilities
of these joint ventures (after elimination of intercompany assets and
liabilities), although we do not own 100% of the equity interests in these
consolidated entities. Our net income attributable to noncontrolling interests
may fluctuate in future periods depending on the purchases or sales by us of
noncontrolling interests in our clinics from our nephrologist partners,
including pursuant to put obligations as described below under "-Liquidity and
Capital Resources-Put Obligations." The net income attributable to owners of our
consolidated entities, other than our company, is classified within the line
item Net income attributable to noncontrolling interests. See also "Part II.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations-Critical Accounting Policies and Estimates-Noncontrolling
Interests" in our 2019 Form 10-K and "Note 7 - Noncontrolling Interests Subject
to Put Provisions" of the notes to the unaudited condensed consolidated
financial statements.

Results of Operations

Three Months Ended June 30, 2020 Compared With Three Months Ended June 30, 2019

The following table summarizes our results of operations for the periods
indicated:
                                                       Three Months Ended June 30,                                     Increase (Decrease)
                                                                                                                         Percentage
(in thousands)                                           2020                  2019             Amount                     Change

Patient service operating revenues                 $     205,148           $ 213,252          $ (8,104)                              (3.8) %
Operating expenses:
Patient care costs                                       146,882             153,016            (6,134)                              (4.0) %
General and administrative                                22,665              23,927            (1,262)                              (5.3) %

Depreciation, amortization and impairment                  8,974              10,299            (1,325)                             (12.9) %
Certain legal and other matters                              841               8,381            (7,540)                             (90.0) %
Total operating expenses                                 179,362             195,623           (16,261)                              (8.3) %
Operating income                                          25,786              17,629             8,157                                    NM
Other income - CARES Act                                   1,474                   -             1,474                                    NM
Interest expense, net                                     (9,721)            (11,541)            1,820                               15.8  %

Change in fair value of income tax receivable
agreement                                                   (356)               (304)              (52)                                   NM
Income before income taxes                                17,183               5,784            11,399                                    NM
Income tax expense                                         2,349                 644             1,705                                    NM
Net income                                                14,834               5,140             9,694                                    NM
Less: Net income attributable to noncontrolling
interests                                                (14,039)            (13,318)             (721)                              (5.4) %
Net income (loss) attributable to American Renal
Associates Holdings, Inc.                          $         795           $  (8,178)         $  8,973                                    NM


_____________________
NM - Not Meaningful

Patient Service Operating Revenues

Patient service operating revenues. Patient service operating revenues for the
three months ended June 30, 2020 were $205.1 million, a decrease of $8.1
million, or 3.8%, from $213.3 million for the three months ended June 30, 2019.
The three months ended June 30, 2019 included favorable resolutions of certain
commercial out-of-network claims. During the three months ended June 30, 2020,
the decrease was also due to lower contributions from calcalcimimetics
reflecting lower reimbursement rates from Medicare and adverse changes in
commercial treatment reimbursement rates, which reflect a larger base of
in-network commercial payor relationships, partially offset by an increase of
2.1% in the number of dialysis treatments, driven primarily by de novo clinic
openings, and a recognition of $1.1 million from the temporary suspension under
the CARES Act of the 2% Medicare sequestration reimbursement reduction, which
became effective May 1, 2020. We estimate
                                       47
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that treatments missed due to COVID-19 resulted in $1.5 million of reduced
patient service operating revenues during the quarter, which was offset by
grants under the CARES Act, which is reflected as Other income - CARES Act on
the condensed consolidated statements of operations for the three months ended
June 30, 2020. As a percentage of revenue by payor type, government-based and
other payors accounted for 74% of our revenues for each of the three months
ended June 30, 2020 and 2019. Patient service operating revenues per treatment
for the three months ended June 30, 2020 and 2019 were $327 and $347,
respectively, primarily due to the suspension of the sequestration reimbursement
reduction.

Non-acquired treatment growth was 2.1% and acquired treatment growth was 0.0%.
Normalized total treatment growth was 3.6% and normalized non-acquired treatment
growth was 3.6% for the three months ended June 30, 2020. Missed treatments due
to COVID-19 resulted in an estimated 1.0% impact to treatment growth during the
period. Patient service operating revenues relating to start-up clinics for the
three months ended June 30, 2020 were $1.5 million, compared to $3.5 million for
the three months ended June 30, 2019, decrease of $2.0 million due to the timing
of opening and certification of de novo clinics, as described under " - Key
Factors Affecting our Results of Operations - Clinic Growth and Start-Up Clinic
Costs."

Operating Expenses

Patient care costs. Patient care costs for the three months ended June 30, 2020
were $146.9 million, a decrease of $6.1 million, or 4.0%, from $153.0 million
for the three months ended June 30, 2019, which was primarily due to reduced
ancillary costs, including ESAs and calcimimetics, partially offset by the 2.1%
increase in the number of treatments. We estimate that we incurred $6.9 million
of COVID-19 related patient care expenses during the period, primarily
attributable to higher personnel costs due to hazard pay, overtime and
additional staffing expense, as well as higher supply costs for personal
protective equipment and infection control materials. During the three months
ended June 30, 2020, we applied CARES Act grant funds of approximately $8.0
million to offset additional expenses. Our patient care costs per treatment for
the three months ended June 30, 2020 were $234, compared to $249 for the three
months ended June 30, 2019.

As a percentage of patient service operating revenues, patient care costs were
71.6% for the three months ended June 30, 2020, compared to 71.8% for the three
months ended June 30, 2019.

General and administrative expenses. General and administrative expenses for the
three months ended June 30, 2020 were $22.7 million, a decrease of $1.3 million,
or 5.3%, from $23.9 million for the three months ended June 30, 2019, which was
primarily due to a decrease in charitable contributions and lower corporate
headcount in the three months ended June 30, 2020, partially offset by an
increase in stock compensation expense. We estimate that we incurred $0.4
million of COVID-19 related general and administrative expenses during the
period, substantially all of which were offset by grants under the CARES Act.
General and administrative expenses per treatment were $36 for the three months
ended June 30, 2020, compared to $39 for the three months ended June 30, 2019.

As a percentage of patient service operating revenues, general and administrative expenses were 11.0% for the three months ended June 30, 2020, compared to 11.2% for the three months ended June 30, 2019.

Depreciation, amortization and impairment. Depreciation, amortization and
impairment expense for the three months ended June 30, 2020 was $9.0 million,
compared to $10.3 million for the three months ended June 30, 2019. As a
percentage of patient service operating revenues, depreciation, amortization and
impairment expense was 4.4% for the three months ended June 30, 2020, compared
to 4.8% for the three months ended June 30, 2019.

Certain legal and other matters. Certain legal and other matter costs for the
three months ended June 30, 2020 were $0.8 million, compared to $8.4 million for
the three months ended June 30, 2019. The three months ended June 30, 2020 and
June 30, 2019 include $0.8 million and $8.3 million, respectively, of expenses
relating to the Restatement and related SEC investigation and Audit Committee
review discussed in our Form 10-K for the fiscal year ended December 31, 2018.
See "-Components of Operations-Certain legal and other matters."

Operating Income

Operating income for the three months ended June 30, 2020 was $25.8 million, an
increase of $8.2 million, from $17.6 million for the three months ended June 30,
2019, which was primarily due to the factors described above.

As a percentage of patient service operating revenues, operating income was 12.6% for the three months ended June 30, 2020, compared to 8.3% for the three months ended June 30, 2019, reflecting the factors described above.

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Interest, Change in Fair Value of Income Tax Receivable Agreement, and Income Taxes

Interest expense, net. Interest expense, net for the three months ended June 30,
2020 was $9.7 million, and for the three months ended June 30, 2019 was $11.5
million, a decrease of 15.8%. The decrease is primarily attributable to lower
interest rates under the amended 2017 Credit Agreement described in "Liquidity
and Capital Resources" below partially offset by the impact of higher
borrowings.

Change in fair value of income tax receivable agreement. Change in fair value of
income tax receivable agreement for the three months ended June 30, 2020 and
June 30, 2019 was $(0.4) million and $(0.3) million, respectively.

Income tax (benefit) expense. The income tax (benefit) expense for the three
months ended June 30, 2020 and June 30, 2019 represented an effective tax rate
of 13.7% and 11.1%, respectively. The variation from the statutory federal rate
of 21% on our share of pre-tax income during the three months ended June 30,
2020 and 2019, respectively, is primarily due to the tax impact of the
noncontrolling interest in the clinics as a result of the joint venture model,
the valuation allowance and the change in fair value of the TRA liability, which
is not deductible for income tax purposes and also other non-deductible
expenses. Additionally, as a result of the CARES Act, during the six months
ended June 30, 2020, we determined we would be able to carry our forecasted 2019
net operating losses of $16,3 million back to tax years when the statutory tax
rate was 35% resulting in an income tax benefit of $2.3 million which is
included in income tax benefit in the condensed consolidated statements of
operations as well as release of $3.2 million of valuation allowance during the
six months ended June 30, 2020. We have and will continue to incorporate and
evaluate the impact the CARES Act has on our overall tax provision. See "Note 10
- Income Taxes" of the notes to the unaudited condensed consolidated financial
statements for additional information.

Net Income Attributable to Noncontrolling Interests

Net income attributable to noncontrolling interests for the three months ended
June 30, 2020 was $14.0 million, representing an increase of $0.7 million, or
5.4%, from $13.3 million for the three months ended June 30, 2019. The increase
was primarily due to increased profitability in our joint ventures due to the
factors described above.

Six Months Ended June 30, 2020 Compared With Six Months Ended June 30, 2019

The following table summarizes our results of operations for the periods
indicated:
                                                          Six Months Ended June 30,                                       Increase (Decrease)
                                                                                                                            Percentage
(in thousands)                                           2020                     2019             Amount                     Change

Patient service operating revenues                 $    398,330               $ 405,014          $ (6,684)                              (1.7) %
Operating expenses:
Patient care costs                                      301,104                 301,197               (93)                                 -  %
General and administrative                               47,570                  49,526            (1,956)                              (3.9) %

Depreciation, amortization and impairment                17,501                  20,365            (2,864)                             (14.1) %
Certain legal and other matters                           3,128                  13,672           (10,544)                             (77.1) %
Total operating expenses                                369,303                 384,760           (15,457)                              (4.0) %
Operating income                                         29,027                  20,254             8,773                               43.3  %
Other income - CARES Act                                  1,474                       -             1,474                                    NM
Interest expense, net                                   (20,733)                (20,291)             (442)                              (2.2) %

Change in fair value of income tax receivable
agreement                                                 1,343                   1,378               (35)                              (2.5) %
Income before income taxes                               11,111                   1,341             9,770                                    NM
Income tax benefit (expense)                             (1,395)                  1,346            (2,741)                                   NM
Net income (loss)                                        12,506                      (5)           12,511                                    NM
Less: Net income attributable to noncontrolling
interests                                               (18,945)                (18,652)             (293)                              (1.6) %
Net loss attributable to American Renal Associates
Holdings, Inc.                                     $     (6,439)              $ (18,657)         $ 12,218                               65.5  %


_____________________
NM - Not Meaningful

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Patient Service Operating Revenues

Patient service operating revenues. Patient service operating revenues for the
six months ended June 30, 2020 were $398.3 million, a decrease of $6.7 million,
or 1.7% from $405.0 million. The six months ended June 30, 2019 included
favorable resolutions of certain commercial out-of-network claims. During the
six months ended June 30, 2020, the decrease was also due to lower contributions
from calcimimetics reflecting lower reimbursement rates from Medicare and
adverse changes in commercial treatment reimbursement rates resulting from the
increase in our in-network commercial payor relationships, partially offset by
an increase of 3.4% in the number of dialysis treatments driven primarily by de
novo clinic openings, and a recognition of $1.1 million from the temporary
suspension under the CARES Act of the 2% Medicare sequestration reimbursement
reduction, which became effective May 1, 2020. We estimate that COVID-19 related
volume disruptions resulted in $1.5 million of reduced patient service operating
revenues during the period, of which $1.5 million was offset by grants under the
CARES Act and is reflected in Other income. As a percentage of revenue by payor
type, government-based and other payors accounted for 73% and 75%, respectively,
of our revenues for the six months ended June 30, 2020 and 2019. Patient service
operating revenues per treatment for the six months ended June 30, 2020 was
$319, compared with $336 for the six months ended June 30, 2019, a decrease of
5.1%.

Non-acquired treatment growth was 3.2%, and acquired treatment growth was 0.2%.
Normalized total treatment growth was 4.1% and normalized non-acquired treatment
growth was 4.0% for the six months ended June 30, 2020. Missed treatments due to
COVID-19 resulted in an estimated 0.5% impact to treatment growth during the
period. Patient service operating revenues relating to start-up clinics for the
six months ended June 30, 2020 were $4.16 million, compared to $4.24 million for
the six months ended June 30, 2019, a decrease of $0.1 million due to the timing
of opening and certification of de novo clinics, as described under " - Key
Factors Affecting our Results of Operations - Clinic Growth and Start-Up Clinic
Costs."

Operating Expenses

Patient care costs. Patient care costs for the six months ended June 30, 2020
were $301.1 million, a decrease of $0.1 million from $301.2 million for the six
months ended June 30, 2019, which was primarily due to reduced ancillary costs,
including ESAs and calcimimetics, partially offset by the 4.8% increase in the
number of treatments. We estimate that we incurred $8.2 million of COVID-19
related patient care expenses during the period, primarily attributable to
higher personnel costs due to hazard pay, overtime and additional staffing
expense, as well as higher supply costs for personal protective equipment and
infection control materials. These additional expenses were offset by $8.0
million of grants under the CARES Act. Patient care costs per treatment for the
six months ended June 30, 2020 were $241, compared to $250 for the six months
ended June 30, 2019.

As a percentage of patient service operating revenues, patient care costs were 75.6% for the six months ended June 30, 2020, compared to 74.4% for the six months ended June 30, 2019.

General and administrative expenses. General and administrative expenses for the
six months ended June 30, 2020 were $47.6 million, a decrease of $2.0 million,
or 3.9%, from $49.5 million for the six months ended June 30, 2019, which was
primarily due to a decrease in charitable contributions, lower corporate
headcount, and $0.8 million reduction related to bonus compensation repaid by
certain executives in respect of prior years in light of the Restatement.
General and administrative expenses per treatment for the six months ended
June 30, 2020 were $38, compared to $41 for the six months ended June 30, 2019.

As a percentage of patient service operating revenues, general and administrative expenses were 11.9% for the six months ended June 30, 2020, compared to 12.2% for the six months ended June 30, 2019.

Depreciation, amortization and impairment. Depreciation, amortization and
impairment expense for the six months ended June 30, 2020 was $17.5 million,
compared to $20.4 million for the six months ended June 30, 2019. The six months
ended June 30, 2020 included a reduction to the valuation allowance of $0.5
million related to assets held for sale. As a percentage of patient service
operating revenues, depreciation, amortization and impairment expense was 4.4%
for the six months ended June 30, 2020, compared to 5.0% for the six months
ended June 30, 2019.

Certain legal and other matters. Certain legal and other matter costs for the
six months ended June 30, 2020 were $3.1 million, compared to $13.7 million for
the six months ended June 30, 2019. The six months ended June 30, 2020 and
June 30, 2019 include $2.2 million and $13.1 million, respectively, of expenses
relating to the SEC investigation and related Audit Committee examination and
Restatement process discussed in our 2018 Form 10-K. See "-Components of
Operations-Certain legal and other matters."
                                       50
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Operating Income

Operating income for the six months ended June 30, 2020 was $29.0 million, an
increase of $8.8 million, or 43.3%, from $20.3 million for the six months ended
June 30, 2019, which was primarily due to the factors described above. For the
six months ended June 30, 2020 and 2019, start-up clinics reduced operating
income by $4.5 million and $4.2 million, respectively.

As a percentage of patient service operating revenues, operating income was 7.3% for the six months ended June 30, 2020, compared to 5.0% for the six months ended June 30, 2019, reflecting the factors described above.

Interest and Taxes

Interest expense, net. Interest expense, net for the six months ended June 30,
2020 was $20.7 million, and for the six months ended June 30, 2019 was $20.3
million, an increase of 2.2%. The increase is primarily attributable to
increased interest rates as a result of our April 2019 debt amendment as
described in "Liquidity and Capital Resources" below and higher borrowings.

Change in fair value of income tax receivable agreement. Change in fair value of
income tax receivable agreement for the six months ended June 30, 2020 and 2019
was $1.3 million and $1.4 million, respectively.

Income tax (benefit) expense. The income tax (benefit) expense for the six
months ended June 30, 2020 and June 30, 2019 represented an effective tax rate
of (12.6)% and 100.4%, respectively. The variation from the statutory federal
rate of 21% on our share of pre-tax income during the six months ended June 30,
2020 and 2019 is primarily due to the tax impact of the noncontrolling interest
in the clinics as a result of the joint venture model, the valuation allowance
and the change in fair value of the TRA liability, which is not deductible for
income tax purposes and also other non-deductible expenses. Additionally, as a
result of the CARES Act, during the six months ended June 30, 2020, we
determined we will be able to carry our forecasted 2019 net operating losses of
$16.3 million back to tax years when the statutory tax rate was 35% resulting in
an income tax benefit of $2.3 which is included in income tax benefit in the
condensed consolidated statements of operations. As a result of the CARES Act,
we have released $3.2 million of valuation allowance during the six months ended
June 30, 2020. We have and will continue to incorporate and evaluate the impacts
the CARES Act has on our overall tax provision. See "Note 10 - Income Taxes" of
the notes to the unaudited condensed consolidated financial statements for
additional information.

Net Income Attributable to Noncontrolling Interests

Net income attributable to noncontrolling interests for the six months ended
June 30, 2020 was $18.9 million, representing an increase of $0.3 million, or
1.6%, from $18.7 million for the six months ended June 30, 2019. The increase
was primarily due to increased profitability in our joint ventures due to the
factors described above.

Liquidity and Capital Resources

Our primary sources of liquidity are funds generated from our operations,
short-term borrowings under our revolving credit facility and borrowings of
long-term debt. Our principal needs for liquidity are to pay our operating
expenses, to fund the development and acquisition of new clinics, to fund
capital expenditures, to service our debt and to fund purchases of equity held
by our nephrologist partners. A significant portion of our cash flows is used to
make distributions to the noncontrolling equity interests held by our
nephrologist partners in our JV clinics. Except as otherwise indicated, the
following discussion of our liquidity and capital resources presents information
on a consolidated basis, without adjusting for the effect of noncontrolling
interests.

For the six months ended June 30, 2020, in addition to our typical requirements
for operating capital and capital expenditures, we incurred approximately $5
million in professional accounting, consulting, legal fees and additional
interest as a result of the SEC investigation, private litigation and in-process
remediation of material weaknesses in our internal control over financial
reporting. We believe that we will continue to incur fees for these services
during 2020 in amounts in excess of our ordinary course legal and other
professional expenses in connection with the ongoing SEC investigation, private
litigation and ongoing remediation of material weaknesses in our internal
control over financial reporting.

In light of the uncertainty in the global economy and financial capital markets
resulting from the COVID-19 pandemic, in March 2020, we drew down all of the
$30.5 million that was available under our 2017 Revolving Credit Facility (as
defined below) as a precautionary measure to strengthen our liquidity. During
the three months ended June 30, 2020, we repaid $27.0 million of these
borrowings. In addition, as part of its response to the COVID-19 pandemic, the
federal government has
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expanded existing or introduced new programs to provide additional sources of liquidity to healthcare providers. Programs that benefit us include:

•CMS Provider Relief Fund Grants. The CARES Act includes $100 billion in funds
to be provided to hospitals and other healthcare providers to support
healthcare-related expenses or lost revenue attributable to COVID-19 and to
ensure uninsured individuals are able to obtain testing and treatment for
COVID-19. On April 10, 2020, CMS began distribution of $30 billion of the funds
to providers based on the provider's share of total Medicare fee-for-service
reimbursements in 2019. As part of this distribution, our facilities received
approximately $27 million in the aggregate during April 2020. As of June 30,
2020, we had utilized $9.8 million of these funds, and expect to use some or all
of the funds during future periods in 2020. Our ability to utilize and retain
some or all of the remaining provider relief grant funds will depend on the
magnitude, timing and nature of the impact of COVID-19.

•Social Security Payroll Match. The CARES Act provides for the deferral of the
social security payroll tax match of 6.2% through the end of 2020. For the
second quarter, we recognized $4.5 million as a result of this provision, all of
which is included in our consolidated cash as of June 30, 2020. We expect this
provision of the CARES Act to allow us to delay funding an additional
approximately $7.5 to $8.5 million of social security payroll taxes during the
remainder of the current year. Half of the amount ultimately deferred
(approximately $6.0 to $6.5 million) will be payable in December 2021 and the
other half in December 2022. While this expense will continue to be reflected in
our Condensed Consolidated Statement of Operations and accrued on our Condensed
Consolidated Balance Sheet during 2020, the deferral of the payment will provide
us additional liquidity during the deferral period.

•Tax Benefit. The CARES Act also permits the acceleration of tax depreciation in
previous income tax returns, which we estimate will result in cash tax benefits
of approximately $8.0 million during the current year.

•Medicare Advance Payment Programs. In March 2020, in an action unrelated to the
CARES Act, CMS expanded its existing Accelerated and Advance Payment Program to
a broader group of Medicare providers and suppliers for the duration of the
COVID-19 public health emergency. Payments under this program are intended to
provide necessary funds when there is a disruption in Medicare claims submission
and/or claims processing. Our facilities can request up to 100% of the Medicare
fee-for-service payment amount for a three-month period. CMS has instructed its
Medicare Administrative Contractors to review and issue advance payments within
seven calendar days of receiving an advance payment request. Repayment of
advance payments will commence 120 days after the date the payment is issued and
will be effectuated via an automatic 100% offset against future claims payments.
Our facilities that use this program will have 210 days to repay the advance
payment. In April 2020, our facilities applied for and received an aggregate of
$83 million in advanced payments under this program. During the second quarter,
we used $19 million of these advanced payments to reduce clinic-level debt, and
the remaining funds are included in our consolidated cash as of June 30, 2020 to
provide us with additional liquidity during the current year.

See also "Item 1A. Risk Factors-The ongoing COVID-19 pandemic and responses thereto have adversely affected and we expect will continue to adversely affect, our business, results of operations and financial condition."

We believe our cash balance and cash flows from operations provide sufficient
liquidity to fund our current obligations, projected working capital
requirements and capital spending for a period that includes the next 12 months.
If existing cash and cash generated from operations and borrowings under our
revolving credit facility are insufficient to satisfy our liquidity
requirements, we may seek to obtain additional debt or equity financing. If
additional funds are raised through the issuance of debt, this debt could
contain covenants that would restrict our operations. Any financing may not be
available in amounts or on terms acceptable to us. If we are unable to obtain
required financing, we may be required to reduce the scope of our planned growth
efforts, which could harm our financial condition and operating results.

If we decide to pursue one or more acquisitions, we may incur additional debt or sell additional equity to finance such acquisitions.

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Cash Flows

The following table shows a summary of our cash flows for the periods indicated:

                                                                              Six Months Ended June 30,
(dollars in thousands)                                                      2020                       2019
Net cash provided by operating activities                             $     150,962                $   7,748
Net cash used in investing activities                                       (11,756)                 (17,459)
Net cash (used in) provided by financing activities                         (24,966)                  24,497
Net increase in cash and restricted cash                              $     114,240                $  14,786

Cash Flows from Operations

Net cash provided by operating activities for the six months ended June 30, 2020
was $151.0 million compared to net cash used in operating activities of $7.7
million for the same period in 2019, an increase of $143.2 million, primarily
attributable to an increase in net income and the timing of working capital
fluctuations, particularly those in the accounts receivable and accrued expenses
and other liabilities which increased as of June 30, 2020 largely due to the $83
million of advance payments received under the Accelerated and Advance Payment
Program as described above.

Cash Flows from Investing Activities

Net cash used in investing activities for the six months ended June 30, 2020 was
$11.8 million compared to $17.5 million for the same period in 2019, a decrease
of $5.7 million, or 32.7%, due to the timing of acquisitions and clinic sales.

Cash Flows from Financing Activities

Net cash used in financing activities for the six months ended June 30, 2020 was
$25.0 million compared to $24.5 million net cash provided by financing
activities for the same period in 2019, an increase of $49.5 million largely due
to the change in proceeds from revolving credit facility and term loans net of
payments on long-term debt, which were $4.1 million for the six months ended
June 30, 2020 compared to $50.5 million for the same period in 2019. Our
distributions to our partners were $23.0 million for the six months ended
June 30, 2020, compared to $21.6 million for the same period in 2019. Our
distributions to noncontrolling interests for the six months ended June 30, 2020
were in excess of Net income attributable to noncontrolling interests on the
Condensed Consolidated Statements of Operations due, in part, to initiatives to
optimize clinic-level cash balances. Additionally, our contributions from
noncontrolling interests were $2.0 million for the six months ended June 30,
2020, compared to $3.9 million for the same period in 2019.

Capital Expenditures

For the six months ended June 30, 2020 and 2019, we made capital expenditures of
$12.8 million and $14.2 million, respectively, of which $10.1 million and $11.1
million were development capital expenditures, respectively, primarily incurred
in connection with de novo clinic development and clinic expansions, and $2.7
million and $3.1 million, respectively, were other capital expenditures,
primarily consisting of capital improvements at our existing clinics, including
renovations and equipment replacement. For 2020, we expect to spend
approximately 2% to 2.5% of total annual patient service operating revenues for
development capital expenditures and 0.5% to 1% of total annual patient service
operating revenues on other capital expenditures.

Debt Facilities

As of June 30, 2020, we had outstanding $596.1 million in aggregate principal
amount of indebtedness, with an additional $27.0 million of borrowing capacity
available under our 2017 Revolving Credit Facility (and no outstanding letters
of credit). Our outstanding indebtedness included $424.6 million of term B loans
under our 2017 Credit Agreement, $73.0 million of borrowings under our 2017
Revolving Credit Facility. Our outstanding indebtedness also included our
third-party clinic-level debt, which includes term loans and lines of credit
(other than Assigned Clinic Loans (as defined below)), totaling $90.8 million as
of June 30, 2020 with maturities ranging from July 2020 to December 2028 and
interest rates ranging from 3.10% to 7.68%, and $7.6 million of finance lease
obligations. See "Note 8 - Debt" of the notes to the condensed consolidated
financial statements for further information about our debt.

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On June 22, 2017, ARH and American Renal Holdings Intermediate Company, LLC
("ARHIC") entered into a new credit agreement to refinance the credit facilities
under ARH's then existing prior first lien credit agreement. The credit
agreement was amended on April 26, 2019 (as amended, the "2017 Credit
Agreement") as discussed below. The 2017 Credit Agreement provides for (i) a
$100 million senior secured revolving credit facility (the "2017 Revolving
Credit Facility") and (ii) a $440 million senior secured term B loan facility
(the "2017 Term B Loan Facility" and, together with the 2017 Revolving Credit
Facility, the "2017 Facilities"). In addition, the 2017 Credit Agreement
includes a feature under which maximum borrowings under the 2017 Facilities may
be increased by an amount in the aggregate equal to the sum of (i) the greater
of $125 million and 100% of Consolidated EBITDA (as defined in the 2017 Credit
Agreement) plus (ii) an amount such that certain leverage ratios will not be
exceeded after giving pro forma effect to the increase.

On June 22, 2017, ARH borrowed the full amount of the 2017 Term B Loan Facility
and used such borrowings to repay outstanding balances under the then existing
prior first lien credit agreement and the payment of customary fees and expenses
incurred in connection with the foregoing.
On April 26, 2019, ARH entered into an amendment (the "Amendment") to the 2017
Credit Agreement, waiving certain actual or potential defaults and amending
certain covenants and other provisions. Among other things, the waiver addressed
actual or potential defaults that may have resulted from our failure to (i)
satisfy the maximum consolidated net leverage ratio when required, and (ii)
deliver when required certain prior period financial information prepared in
accordance with GAAP. In connection with the Amendment, we paid fees of $6.0
million including a consent fee of $5.2 million during the quarter ended June
30, 2019 and agreed to increase the interest rate on borrowings under the 2017
Credit Agreement.
The 2017 Revolving Credit Facility is scheduled to mature in June 2022 and the
2017 Term B Loan Facility is scheduled to mature in June 2024. The principal
amount of the term B loans under the 2017 Term B Loan Facility ("term B loan")
amortize in equal quarterly installments in an aggregate annual amount of (i)
1.00% of the original principal amount of such term B loans through December 31,
2019 and (ii) 2.00% thereafter. The maturity dates under the 2017 Revolving
Credit Facility and the 2017 Term Loan Facility are subject to extension with
lender consent according to the terms of the 2017 Credit Agreement. The 2017
Credit Agreement includes provisions requiring ARH to offer to prepay term B
loans in an amount equal to (i) the net cash proceeds above certain thresholds
received from (a) asset sales and (b) casualty events resulting in the receipt
of insurance proceeds, subject to customary provisions for the reinvestment of
such proceeds, (ii) the net cash proceeds from the incurrence of debt not
otherwise permitted under the 2017 Credit Agreement, and (iii) a percentage of
consolidated excess cash flow retained in the business from the preceding fiscal
year minus voluntary prepayments.
For the period from April 26, 2019 until September 4, 2019, the date of filing
of our Form 10-Q for the fiscal quarter ended March 31, 2019 (the "Covenant
Reversion Date"), the loans under the 2017 Term B Loan Facility bore interest at
a rate equal to, at ARH's option, either (a) an alternate base rate equal to the
higher of (1) the prime rate in effect on such day, (2) the federal funds
effective rate plus 0.5% or (3) the Eurodollar rate applicable for a one-month
interest period plus 1.0% (collectively, the "ABR Rate"), plus an applicable
margin of 4.50% (increased from 2.25% prior to the Amendment), or (b) LIBOR,
adjusted for changes in Eurodollar reserves ("Eurodollar Rate"), plus an
applicable margin of 5.50% (increased from 3.25% prior to the Amendment). From
and after the Covenant Reversion Date, the applicable margin on term B loans is
4.00% for ABR Rate loans and 5.00% for Eurodollar rate loans. As of June 30,
2020, the interest payable quarterly was 5.18%.
For the period from April 26, 2019 until the Covenant Reversion Date,
outstanding loans under the 2017 Revolving Credit Facility bore interest at a
rate equal to, at ARH's option, either (a) the ABR Rate, plus an applicable
margin of 4.25%, or (b) the Eurodollar Rate, plus an applicable margin of 5.25%.
From and after the Covenant Reversion Date, any outstanding loans under the 2017
Revolving Credit Facility bear interest at a rate equal to, at ARH's option,
either the ABR Rate or the Eurodollar Rate, plus, in each case, an applicable
margin priced off a grid based upon the consolidated net leverage ratio of ARH
and its restricted subsidiaries, which margin is 1.75% higher than the
applicable margin prior to the Amendment. There were $73.0 million of borrowings
outstanding under the 2017 Revolving Credit Facility as of June 30, 2020, which
had an interest rate of 4.94%. Prior to the Amendment, the commitment fee
applicable to undrawn revolving commitments under the 2017 Revolving Credit
Facility was priced off a grid based upon the consolidated net leverage ratio of
ARH and its restricted subsidiaries. For the period from April 26, 2019 until
the Covenant Reversion Date, the commitment fee applicable to undrawn revolving
commitments under the 2017 Revolving Credit Facility was 0.50% without regard to
the consolidated net leverage ratio.
The 2017 Credit Agreement contains customary events of default, the occurrence
of which would permit the lenders to accelerate payment of the full amounts
outstanding. Additionally, the 2017 Credit Agreement contains customary
representations and warranties, affirmative covenants and negative covenants,
including restrictive financial and operating covenants. As of June 30, 2020,
ARH was in compliance with all covenants. The 2017 Credit Agreement includes a
springing maximum consolidated net leverage ratio financial covenant of
6.00:1.00 for the benefit of the lenders under the 2017
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Revolving Credit Facility (the "Revolver Financial Covenant") and, following the
Amendment, a maximum consolidated net leverage ratio maintenance financial
covenant of 7.00:1.00 for the benefit of the lenders under both the 2017
Revolving Credit Facility and the 2017 Term B Loan Facility. As of June 30,
2020, we were in compliance with the consolidated net leverage ratio covenant in
the 2017 Credit Agreement.

The obligations of ARH under the 2017 Credit Agreement are guaranteed by ARHIC
and all of its existing and future wholly owned domestic subsidiaries
(collectively, the "Guarantors") and secured by a pledge of all of ARH's capital
stock and substantially all of the assets of ARH and the Guarantors, including
their respective interests in their joint ventures.

Our clinic-level debt includes third-party term loans and lines of credit, as
well as the Assigned Clinic Loans. The loan documents for these clinic-level
loans generally include representations and warranties, affirmative covenants
and negative covenants, including restrictive financial and operating covenants.
We have in the past and may in the future be required to seek waivers or
amendments to the loan documents for one or more of our clinics as a result of
clinic performance issues or otherwise. We recently entered into agreements with
certain of our third-party clinic lenders waiving defaults arising from certain
financial covenants at the clinic level. Pursuant to these agreements, as of
June 30, 2020, we are obliged to prepay up to an aggregate of approximately $8
million during 2020 and up to an aggregate of approximately $10 million during
the second quarter of 2021 of the outstanding clinic-level debt, depending on
the satisfaction of certain financial covenants for these clinic loans. Of these
amounts, we are responsible for up to approximately $4 million and approximately
$5 million, respectively, and our physician partners are responsible for the
remainder.

Contractual Obligations and Commitments

The following is a summary of contractual obligations and commitments as of June 30, 2020 (excluding put obligations relating to our joint ventures, dividend equivalent payments due to our pre-IPO option holders, obligations under our income tax receivable agreement, and obligations related to our United litigation settlement, which are described separately below): Scheduled payments under contractual obligations

                            Less than 1                                      More than 5
(in thousands)                                               Total          

year 1-3 years 3-5 years years 2017 Credit Agreement loans(1)

$   497,600       $    8,800       $ 117,600       $ 371,200       $        -
Operating leases(2)                                          187,172           32,137          30,290          27,563           97,182
Purchase obligations(3)                                      173,000           74,500          94,000           4,500                -
Interest payments(4)                                         101,915           30,980          48,865          21,873              197
Third-party clinic-level debt                                 90,872           28,547          36,213          21,053            5,059
Finance leases(5)                                             13,629            1,194           1,210           1,225           10,000
Total                                                    $ 1,064,188       $  176,158       $ 328,178       $ 447,414       $  112,438

_____________________________

(1)Includes the 2017 Term B Loan Facility with total borrowings of $424.6
million, which bears interest at a variable rate, with principal payments of
$2.2 million and interest payments due quarterly, and the 2017 Revolving Credit
Facility, which also bears interest at a variable rate, with total borrowings
outstanding of $73.0 million.
(2)Net of estimated sublease proceeds of approximately $1.6 million per year
from 2020 through 2022 and approximately $4.2 million in the aggregate
thereafter. The above includes $1.0 million related to lease obligations that
have not yet commenced.
(3)Reflects amounts payable pursuant to minimum purchase commitments under our
agreements with certain suppliers. In the event of a shortfall, we are required
to pay in cash a portion or all of the amount of such shortfall or may, under
certain circumstances, be subject to a price increase or other fee.
(4)Represents interest payments on debt obligations, including the 2017 Term B
Loan Facility under the 2017 Credit Agreement described above. To project
interest payments on floating rate debt, we have used the rate as of June 30,
2020 which is described above.
(5)Includes $1.0 million related to lease obligations that have not yet
commenced.

Put Obligations

We are party to agreements which contain put provisions that require us to
purchase a portion or all of the noncontrolling interests held by third parties
in certain of our consolidated subsidiaries. These put provisions are
exercisable at the third-party owners' discretion either within specified
periods ("time-based puts") or, in certain cases, upon the occurrence of
specific events ("event-based puts"), including the sale of all or substantially
all of our assets, closure of the clinic, change of control, departure of key
executives, third-party members' death, disability, bankruptcy, retirement, or
if third-party members are dissolved and other events, which could accelerate
time-based vesting. Some of these puts accelerated as a result of the IPO,
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of which some were exercised during the six months ended June 30, 2020. If the
put obligations are exercised by a nephrologist partner, we are required to
purchase, at the estimated fair value calculated as set forth in the applicable
joint venture agreements, a previously agreed upon percentage of such
nephrologist partner's ownership interest. See "Note 7 - Noncontrolling
Interests Subject to Put Provisions" in the notes to the unaudited condensed
consolidated financial statements for discussion of these put provisions. The
table below summarizes our potential obligations as of June 30, 2020.

Noncontrolling interests subject to put provisions
(dollars in thousands)                                    June 30, 2020
Time-based puts                                          $      88,311
Event-based puts                                                22,094
Total Obligation                                         $     110,405



As of June 30, 2020, $59.5 million of time-based put obligations were
exercisable by our nephrologist partners, including those accelerated as a
result of physician IPO put rights. The following is a summary of the estimated
potential cash payments in each of the specified years under all time-based puts
existing as of June 30, 2020 and reflects the payments that would be made,
assuming (a) all vested puts as of June 30, 2020 were exercised on July 1, 2020
and paid according to the applicable agreement and (b) all puts exercisable
thereafter were exercised as soon as they vest and are paid accordingly.

(dollars in thousands)            Amount
Year                           Exercisable
2020                          $     64,128
2021                                 9,184
2022                                 8,248
2023                                 4,458
2024                                 1,255
Thereafter                           1,038
Total                         $     88,311



The estimated fair values of the interests subject to these put provisions can
fluctuate, and the implicit multiple of earnings at which these obligations may
be settled will vary depending upon clinic performance, market conditions and
access to the credit and capital markets.

Dividend Equivalent Payments

On April 26, 2016, we declared and paid a cash dividend to our pre-IPO
stockholders equal to $1.30 per share, or $28.9 million in the aggregate. In
connection with the dividend, all employees with outstanding options had their
option exercise price reduced and in some cases were awarded future dividend
equivalent payment, which were paid on vested options and become due upon
vesting for unvested options. Additionally, in connection with the cash
dividend, we have made payments to date equal to $1.30 per share, or $5.4
million in the aggregate, to option holders, and, in the case of some
performance and market options, as of June 30, 2020 a future payment will be due
upon vesting totaling $1.2 million.

Income Tax Receivable Agreement

On April 26, 2016, upon the completion of the IPO, we entered into the TRA,
which provides for the payment by us to our pre-IPO stockholders on a pro rata
basis of 85% of the amount of cash savings, if any, in U.S. federal, state and
local income tax that we actually realize as a result of any deductions
(including net operating losses resulting from such deductions) attributable to
the exercise of (or any payment, including any dividend equivalent right or
payment, in respect of) any compensatory stock option issued by us that was
outstanding (whether vested or unvested) as of the day before the date of our
IPO prospectus (such stock options, "Relevant Stock Options" and such
deductions, "Option Deductions"). We plan to fund the payments under the TRA
with cash flows from operations and, to the extent necessary, the proceeds of
borrowings under our 2017 Revolving Credit Facility. The amounts and timing of
our obligations under the TRA are subject to a number of factors, including the
amount and timing of the taxable income we generate in the future, whether and
when any Relevant Stock Options are exercised and the value of our common stock
at the time of such exercise, and to uncertainty relating to the future events
that could impact such obligations. Estimating the amount of payments that may
be made under the TRA is by its nature imprecise given such uncertainty.
However, we expect that during the term of the TRA the payments that we make
will be
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material. Such payments will reduce the liquidity that would otherwise have been
available to us. The amount of cash savings for 2019 is estimated to be $10.6
million as of June 30, 2020.

United Settlement

On July 2, 2018, ARA OpCo and ARM executed a binding Settlement Term Sheet with
plaintiff United to resolve all ongoing litigation, and on August 1, 2018, the
parties entered into a final settlement agreement (the "Settlement Agreement")
on substantially the terms provided in the Settlement Term Sheet. The Settlement
Agreement included a release of all claims that were asserted or that could have
been asserted against us or against the nephrologists or other healthcare
providers who have entered into joint venture arrangements or medical
directorships with us (the "Joint Venture Providers") and the joint venture
entities without any admission of liability or wrongdoing. Pursuant to the
Settlement Agreement, we will make total settlement payments of $32.0 million,
inclusive of administrative fees and fees for plaintiffs' counsel, in five
installments, with an initial present value of $29.6 million, which is included
in "Certain legal and other matters" in the Consolidated Statement of Operations
for the year ended December 31, 2018. We paid the first installment in the
amount of $10.0 million on August 1, 2018, the second installment in the amount
of $8.0 million on August 1, 2019 and the third installment in the amount of
$7.0 million on August 1, 2020, and we expect to pay the fourth installment in
the amount of $3.5 million on August 1, 2021 and the final installment of $3.5
million on August 1, 2022. As of June 30, 2020, $6.9 million is classified as
Accrued expenses and other current liabilities and $5.8 million is classified in
Other long-term liabilities. We also agreed to share certain information with
United and to follow certain procedures with respect to patients covered by
United. Subject to the mutual releases provided in the Settlement Agreement,
United also agreed to renew, reinstate, and/or not to terminate the network
agreements for any Joint Venture Providers whose network agreements United
terminated or chose not to renew from August 1, 2017 through the date of the
Settlement Agreement. The Settlement Agreement included customary terms and
conditions. In connection with the Settlement Agreement, we also entered into a
three-year national network agreement with United on August 1, 2018 that
provides for specified reimbursement rates for patients covered by Medicare
Advantage, Medicaid HMO and commercial insurance products over the term of the
agreement. The in-network agreement went into effect on September 1, 2018.
Off Balance Sheet Arrangements

We have no off-balance sheet arrangements that have, or are reasonably likely to
have, a current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that would be material to investors.

Recent Accounting Pronouncements

See "Note 1 - Basis of Presentation, Organization and Recent Events" of the notes to the condensed consolidated financial statements.

Critical Accounting Policies and Estimates

For a description of our critical accounting policies and use of estimates,
refer to "Part II. Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations-Critical Accounting Policies and Estimates"
in our 2019 Form 10-K.

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