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DaVita Inc. 2nd Quarter 2017 Results

DENVER, Aug. 1, 2017 /PRNewswire/ -- DaVita Inc. (NYSE: DVA) today announced results for the quarter ended June 30, 2017.

  • Net income attributable to DaVita Inc. for the quarter ended June 30, 2017 was $127 million, or $0.65 per share, and for the six months ended June 30, 2017 was $575 million, or $2.95 per share.
  • Adjusted net income attributable to DaVita Inc. for the quarter ended June 30, 2017 was $179 million, or $0.92 per share, and for the six months ended June 30, 2017 was $332 million, or $1.71 per share.
  • Adjusted net income attributable to DaVita Inc., further adjusted to exclude amortization for the quarter ended June 30, 2017, was $208 million, or $1.07 per share, and for the six months ended June 30, 2017, was $390 million, or $2.00 per share.
  • Net income attributable to DaVita Inc. for the quarter ended June 30, 2016 was $53 million, or $0.26 per share, and for the six months ended June 30, 2016 was $151 million, or $0.73 per share.
  • Adjusted net income attributable to DaVita Inc. for the quarter ended June 30, 2016 was $210 million, or $1.01 per share, and for the six months ended June 30, 2016 was $400 million, or $1.93 per share.
  • Adjusted net income attributable to DaVita Inc., further adjusted to exclude amortization for the quarter ended June 30, 2016 was $238 million, or $1.14 per share, and for the six months ended June 30, 2016 was $452 million, or $2.17 per share.

For the definitions of non-GAAP financial measures such as adjusted net income attributable to DaVita Inc. and adjusted net income attributable to DaVita Inc., as further adjusted to exclude amortization, see the note titled "Note on Non-GAAP Financial Measures" below.

Financial and operating highlights include:

Cash flow:  For the rolling twelve months ended June 30, 2017, operating cash flow was $2.029 billion and free cash flow was $1.467 billion. For the three months ended June 30, 2017, operating cash flow was $146 million and free cash flow was $18 million.

Operating income and adjusted operating income:  Operating income for the three months ended June 30, 2017 was $378 million, and adjusted operating income for the same period was $436 million. Operating income for the six months ended June 30, 2017 was $1.267 billion, and adjusted operating income for the same period was $828 million.

Operating income for the three months ended June 30, 2016 was $329 million, and adjusted operating income for the same period was $475 million. Operating income for the six months ended June 30, 2016 was $694 million, and adjusted operating income for the same period was $933 million.

Volume:  Total U.S. dialysis treatments for the second quarter of 2017 were 7,035,894, or 90,204 treatments per day, representing a per day increase of 4.3% over the second quarter of 2016. Normalized non-acquired treatment growth in the second quarter of 2017 as compared to the second quarter of 2016 was 3.6%.

The number of member months for which DMG provided care during the second quarter of 2017 was approximately 2.2 million, of which approximately 0.9 million, 1.0 million and 0.3 million related to senior, commercial and Medicaid members, respectively. 

Goodwill impairment charges: During the quarter ended June 30, 2017, we recognized goodwill impairment charges of $51 million in our DMG reporting units as a result of a reduction in expected future government reimbursement rates (including the effect of Medicare Advantage final benchmark payment rates for 2018 announced on April 3, 2017) and our expected ability to mitigate them, as well as increasing medical costs.

We also recognized an additional goodwill impairment charge of $10 million related to our vascular access reporting unit, of which $3 million was attributed to noncontrolling interests, as a result of continuing adjustments to its business model in light of recent Medicare reimbursement changes.

Effective tax rate:  Our effective tax rate was 41.4% and 37.8% for the three and six months ended June 30, 2017, respectively. The effective tax rate attributable to DaVita Inc. was 47.2% and 41.1% for the three and six months ended June 30, 2017, respectively.

Our effective tax rate for the three and six months ended June 30, 2017 was impacted by the non-deductible goodwill impairment charges in our DMG reporting units, non-deductible estimated accruals for legal matters and the amount of third-party owners' income attributable to non-tax paying entities. The effective tax rate for the six months ended June 30, 2017 was also impacted by an adjustment to true-up the gain on the formation of the Asia Pacific joint venture (APAC JV).

The adjusted effective tax rate attributable to DaVita Inc. for the three and six months ended June 30, 2017, excluding these items was 39.5% and 39.7%, respectively.

Center activity:  As of June 30, 2017, we provided dialysis services to a total of approximately 214,700 patients at 2,662 outpatient dialysis centers, of which 2,445 centers were located in the United States and 217 centers were located in 11 countries outside of the United States. During the second quarter of 2017, we acquired 44 dialysis centers, including the dialysis centers acquired from Renal Ventures, opened a total of 27 new dialysis centers, closed two centers and divested six centers in the United States. We also opened four new dialysis centers and acquired 52 dialysis centers outside of the United States.

Share repurchases:  During the quarter ended June 30, 2017, we repurchased a total of 3,574,573 shares of our common stock for $232 million, or an average price of $64.81 per share. We have not repurchased any shares of our common stock subsequent to June 30, 2017. As a result of these transactions we have a total of approximately $445 million in outstanding Board repurchase authorizations.

Note on Non-GAAP Financial Measures

As used in this press release the term "adjusted" refers to non-GAAP measures as follows, each as reconciled to the most comparable GAAP measure in the non-GAAP reconciliations in the notes to this press release: (i) for income measures, the term "adjusted" refers to operating performance measures that exclude certain items such as impairment charges, gains (losses) on ownership changes, and gains and charges associated with settlements; (ii) the term "adjusted net income excluding amortization" represents the Company's net income excluding certain items as well as amortization of intangibles associated with acquisitions; and (iii) the term "adjusted effective income tax rate attributable to DaVita Inc." represents the Company's effective tax rate excluding certain non-GAAP items and noncontrolling owners' income that primarily relates to non-tax paying entities.

These non-GAAP or "adjusted" measures are presented because management believes these measures are useful adjuncts to GAAP results. Non-GAAP or "adjusted" measures should not be considered as an alternative to the corresponding measures determined under GAAP. Management uses these non-GAAP measures to compare and evaluate our performance period over period and relative to competitors, to analyze the underlying trends in our business, to establish operational budgets and forecasts and for incentive compensation purposes. We believe that these non-GAAP measures are useful to investors and analysts in evaluating our performance over time and relative to competitors, as well as in analyzing the underlying trends in our business.

The Company's adjusted net income attributable to DaVita Inc., adjusted diluted net income per share, adjusted net income attributable to DaVita Inc. excluding amortization, adjusted diluted net income per share excluding amortization, adjusted operating income, adjusted effective income tax rate attributable to DaVita Inc., and free cash flow discussed in this press release are reconciled to their most comparable GAAP measures at Notes 2, 3, 4, and 5.

Outlook

The following forward-looking measures and the underlying assumptions involve significant risks and uncertainties, including those described below, and actual results may vary significantly from these current forward-looking measures. We do not provide guidance for consolidated operating income, Kidney Care operating income, DMG operating income or effective tax rate attributable to DaVita Inc. on a GAAP basis nor a reconciliation of those forward-looking non-GAAP financial measures to the most directly comparable GAAP financial measures on a forward-looking basis because we are unable to predict certain items contained in the GAAP measures without unreasonable efforts. These non-GAAP financial measures do not include certain items, including the gain related to the VA settlement, goodwill and asset impairment charges, an adjustment to the accrual for legal matters, the gain on the APAC JV ownership changes and currency fluctuations.

  • We are updating our adjusted consolidated operating income guidance for 2017 to be in the range of $1.675 billion to $1.775 billion.

Our previous adjusted consolidated operating income guidance for 2017 was in the range of $1.635 billion to $1.775 billion.

  • We are updating our adjusted operating income guidance for Kidney Care for 2017 to be in the range of $1.565 billion to $1.625 billion.

Our previous adjusted operating income guidance for Kidney Care for 2017 was in the range of $1.525 billion to $1.625 billion.

  • We still expect our adjusted operating income guidance for DMG for 2017 to be in the range of $110 million to $150 million, and we still expect it is more likely than not to be in the lower half of the range.
  • We still expect our consolidated operating cash flow guidance for 2017 to be in the range of $1.750 billion to $1.950 billion, which includes the net benefit of the settlement with the U.S. Department of Veterans Affairs (VA) in the first quarter of 2017.
  • We are updating our 2017 guidance for adjusted effective tax rate attributable to DaVita Inc. to be approximately 39.0% to 40.0%.

     Our previous 2017 adjusted effective tax rate attributable to DaVita Inc. guidance was 39.5% to 40.5%.

We will be holding a conference call to discuss our results for the second quarter ended June 30, 2017 on August 1, 2017 at 5:00 p.m. Eastern Time. To join the conference call, please dial (877) 918-6630 from the U.S. or (517) 308-9087 from outside the U.S. A replay of the conference call will be available on our website at investors.davita.com, for the following 30 days.

DaVita Inc. and its representatives may from time to time make written and oral forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 ("PSLRA"), including statements in this release, filings with the Securities and Exchange Commission ("SEC"), reports to stockholders and in meetings with investors and analysts. All such statements in this release, during the related presentation or other meetings, other than statements of historical fact, are forward-looking statements and as such are intended to be covered by the safe harbor for "forward-looking statements" provided by the PSLRA. Without limiting the foregoing, statements including the words "expect," "will," "plan," "anticipate," "believe," "forecast," "guidance," "outlook," "goals," and similar expressions are intended to identify forward-looking statements.

The forward-looking statements should be considered in light of these risks and uncertainties. All forward-looking statements in this release are based on information available to us on the date of this presentation. We undertake no obligation to publicly update or revise any of our guidance, the assessment of the underlying assumptions or other forward-looking statements, whether as a result of changed circumstances, new information, future events or otherwise.

These forward-looking statements could include but are not limited to statements related to our guidance and expectations for our 2017 adjusted consolidated operating income, our 2017 Kidney Care adjusted operating income, DMG's 2017 adjusted operating income, our 2017 consolidated operating cash flows and our 2017 adjusted effective tax rate attributable to DaVita Inc. and uncertainties associated with the other risk factors set forth in our most recent quarterly report on Form 10-Q for the quarter ended March 31, 2017, and the other risks discussed in our subsequent periodic and current reports filed with the SEC from time to time.

Our actual results could differ materially from any forward-looking statements due to numerous factors that involve substantial known and unknown risks and uncertainties. These risks and uncertainties include, among other things, and are qualified in their entirety by reference to the full text of those risk factors in our SEC filings relating to:

  • the concentration of profits generated by higher-paying commercial payor plans for which there is continued downward pressure on average realized payment rates, and a reduction in the number of patients under such plans, which may result in the loss of revenues or patients;
  • the extent to which the ongoing implementation of healthcare exchanges or changes in or new legislation, regulations or guidance, or enforcement thereof, including among other things those regarding the exchanges, results in a reduction in reimbursement rates for our services from and/or the number of patients enrolled in higher-paying commercial plans;
  • a reduction in government payment rates under the Medicare End Stage Renal Disease program or other government-based programs;
  • the impact of the Medicare Advantage benchmark structure;
  • risks arising from potential and proposed federal and/or state legislation or regulation, including healthcare-related and labor-related legislation or regulation, that could have a material adverse effect on our operations and profitability;
  • the impact of the 2016 Congressional and Presidential elections and subsequent developments in 2017 on the current health care marketplace and on our business, including with respect to the future of the Affordable Care Act, the exchanges and many other core aspects of the current health care marketplace;
  • changes in pharmaceutical or anemia management practice patterns, payment policies, or pharmaceutical pricing;
  • legal compliance risks, including our continued compliance with complex government regulations and the provisions of our current corporate integrity agreement and current or potential investigations by various government entities and related government or private-party proceedings, and restrictions on our business and operations required by our corporate integrity agreement and other current or potential settlement terms, and the financial impact thereof and our ability to recover any losses related to such legal matters from third parties;
  • continued increased competition from large- and medium-sized dialysis providers that compete directly with us;
  • our ability to reduce administrative expenses while maintaining targeted levels of service and operating performance;
  • our ability to maintain contracts with physician medical directors, changing affiliation models for physicians, and the emergence of new models of care introduced by the government or private sector that may erode our patient base and reimbursement rates, such as accountable care organizations, independent practice associations and integrated delivery systems;
  • our ability to complete acquisitions, mergers or dispositions that we might be considering or announce, or to integrate and successfully operate any business we may acquire or have acquired, including DMG, or to successfully expand our operations and services to markets outside the United States, or to businesses outside of dialysis and DMG's business;
  • noncompliance by us or our business associates with any privacy laws or any security breach involving the misappropriation, loss or other unauthorized use or disclosure of confidential information;
  • the variability of our cash flows;
  • the risk that we might invest material amounts of capital and incur significant costs in connection with the growth and development of our international operations, yet we might not be able to operate them profitably anytime soon, if at all;
  • risks arising from the use of accounting estimates, judgments and interpretations in our financial statements;
  • impairment of our goodwill or other intangible assets;
  • the risk that laws regulating the corporate practice of medicine could restrict the manner in which DMG conducts its business;
  • the risk that the cost of providing services under DMG's agreements may exceed our compensation;
  • the risk that reductions in reimbursement rates, including Medicare Advantage rates, and future regulations may negatively impact DMG's business, revenue and profitability;
  • the risk that DMG may not be able to successfully establish a presence in new geographic regions or successfully address competitive threats that could reduce its profitability;
  • the risk that a disruption in DMG's healthcare provider networks could have an adverse effect on DMG's business operations and profitability;
  • the risk that reductions in the quality ratings of health maintenance organization plan customers of DMG could have an adverse effect on DMG's business; and
  • the risk that health plans that acquire health maintenance organizations may not be willing to contract with DMG or may be willing to contract only on less favorable terms.

Contact:          

Jim Gustafson


Investor Relations                                                                              


DaVita Inc.


(310) 536-2585

 

DAVITA INC.

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

(dollars in thousands, except per share data.)



Three months ended
June 30,


Six months ended

 June 30,


2017


2016


2017


2016

Patient service revenues

$

2,682,467



$

2,583,514



$

5,283,845



$

5,065,448


Less: Provision for uncollectible accounts

(115,485)



(111,428)



(228,468)



(220,633)


     Net patient service revenues

2,566,982



2,472,086



5,055,377



4,844,815


Capitated revenues

1,022,078



899,985



1,940,114



1,787,993


Other revenues

288,417



345,580



579,269



665,979


Total net revenues

3,877,477



3,717,651



7,574,760



7,298,787


Operating expenses and charges:








     Patient care costs and other costs

2,859,911



2,671,025



5,582,731



5,253,358


     General and administrative

382,315



386,895



774,095



773,324


     Depreciation and amortization

200,038



180,381



390,244



349,736


     Provision for uncollectible accounts

(606)



3,566



1,304



6,083


     Equity investment (income) loss

(3,614)



505



(7,549)



(882)


     Goodwill and asset impairment charges

61,117



176,000



100,483



253,000


     Gain on changes in ownership interests, net



(29,791)



(6,273)



(29,791)


     Gain on settlement, net





(526,827)




          Total operating expenses and charges

3,499,161



3,388,581



6,308,208



6,604,828


Operating income

378,316



329,070



1,266,552



693,959


Debt expense

(107,962)



(102,894)



(212,391)



(205,778)


Other income, net

5,253



3,215



9,496



6,191


Income before income taxes

275,607



229,391



1,063,657



494,372


Income tax expense

113,982



134,888



401,747



261,710


Net income

161,625



94,503



661,910



232,662


     Less: Net income attributable to noncontrolling interests

(34,624)



(41,121)



(87,212)



(81,846)


Net income attributable to DaVita Inc.

$

127,001



$

53,382



$

574,698



$

150,816


Earnings per share:








     Basic net income per share attributable to DaVita Inc.

$

0.66



$

0.26



$

3.00



$

0.74


     Diluted net income per share attributable to DaVita Inc.

$

0.65



$

0.26



$

2.95



$

0.73


Weighted average shares for earnings per share:








     Basic

191,088,216



204,497,970



191,728,913



204,432,315


     Diluted

193,987,983



208,047,172



194,630,936



207,987,530


 


DAVITA INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

 (dollars in thousands)



Three months ended
June 30,


Six months ended
June 30,


2017


2016


2017


2016

Net income

161,625



94,503



661,910



232,662


Other comprehensive income (loss), net of tax:








Unrealized losses on interest rate cap and swap agreements:








Unrealized losses on interest rate cap and swap agreements

(1,815)



(2,616)



(5,002)



(8,085)


Reclassifications of net rate cap and swap agreements realized
 losses into net income

1,265



448



2,529



913


Unrealized gains on investments:








Unrealized gains on investments

1,057



638



2,614



867


Reclassification of net investment realized gains into net income

(71)





(211)



(93)


Unrealized gains on foreign currency translation:








Foreign currency translation adjustments

49,142



(4,844)



62,403



6,337


Other comprehensive income (loss)

49,578



(6,374)



62,333



(61)


Total comprehensive income

211,203



88,129



724,243



232,601


Less: Comprehensive income attributable to noncontrolling
 interests

(34,624)



(41,270)



(87,210)



(81,995)


Comprehensive income attributable to DaVita Inc.

$

176,579



$

46,859



$

637,033



$

150,606


















 


DAVITA INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(dollars in thousands)



Six months ended June 30,


2017


2016

Cash flows from operating activities:




Net income

$

661,910



$

232,662


Adjustments to reconcile net income to net cash provided by operating activities:




Depreciation and amortization

390,244



349,736


Goodwill and asset impairment charges

100,483



253,000


Stock-based compensation expense

17,504



23,717


Deferred income taxes

40,938



19,952


Equity investment income, net

9,367



14,275


Gain on sales of business interests, net

(6,273)



(29,791)


Other non-cash charges

28,615



23,120


Changes in operating assets and liabilities, other than from acquisitions and divestitures:




Accounts receivable

(113,208)



(104,005)


Inventories

(31,067)



(9,213)


Other receivables and other current assets

(112,469)



(107,610)


Other long-term assets

(12,124)



(431)


Accounts payable

(55,897)



22,809


Accrued compensation and benefits

(63,727)



41,098


Other current liabilities

13,991



112,825


Income taxes

123,637



135,026


Other long-term liabilities

19,520



(31,531)


Net cash provided by operating activities

1,011,444



945,639


Cash flows from investing activities:




     Additions of property and equipment

(398,940)



(358,627)


     Acquisitions

(619,839)



(473,314)


     Proceeds from asset and business sales

70,236



17,393


     Purchase of investments available for sale

(6,812)



(7,873)


     Purchase of investments held-to-maturity

(220,632)



(518,965)


     Proceeds from sale of investments available for sale

5,049



5,337


     Proceeds from investments held-to-maturity

320,484



545,685


     Purchase of equity investments

(1,194)



(8,785)


     Proceeds from sale of equity investments



40,920


Net cash used in investing activities

(851,648)



(758,229)


Cash flows from financing activities:




     Borrowings

25,529,555



26,134,952


     Payments on long-term debt and other financing costs

(25,593,587)



(26,196,373)


     Purchase of treasury stock

(231,674)



(274,926)


     Distributions to noncontrolling interests

(116,075)



(94,153)


     Stock award exercises and other share issuances, net

8,163



9,465


     Contributions from noncontrolling interests

39,872



13,117


     Purchase of noncontrolling interests

(1,432)



(6,240)


     Other



10,604


Net cash used in financing activities

(365,178)



(403,554)


Effect of exchange rate changes on cash and cash equivalents

4,192



444


Net decrease in cash and cash equivalents

(201,190)



(215,700)


Cash and cash equivalents at beginning of the year

913,187



1,499,116


Cash and cash equivalents at end of the period

$

711,997



$

1,283,416


 

DAVITA INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

(dollars in thousands, except per share data)



June 30,

2017


December 31,

2016

ASSETS




Cash and cash equivalents

$

711,997



$

913,187


Short-term investments

211,436



310,198


Accounts receivable, less allowance of $240,918 and $252,056

2,053,812



1,917,302


Inventories

199,304



164,858


Other receivables

644,755



453,483


Prepaid and other current assets

202,464



210,604


Income taxes receivable



10,596


Total current assets

4,023,768



3,980,228


Property and equipment, net of accumulated depreciation of $3,130,797 and $2,832,160

3,248,030



3,175,367


Intangible assets, net of accumulated amortization of $1,035,664 and $940,731

1,462,894



1,527,767


Equity method and other investments

542,468



502,389


Long-term investments

114,693



103,679


Other long-term assets

60,140



44,510


Goodwill

9,889,791



9,407,317



$

19,341,784



$

18,741,257


LIABILITIES AND EQUITY




Accounts payable

$

439,741



$

522,415


Other liabilities

885,274



856,847


Accrued compensation and benefits

760,284



815,761


Medical payables

390,387



336,381


Current portion of long-term debt

182,323



165,041


Income tax payable

115,316




Total current liabilities

2,773,325



2,696,445


Long-term debt

8,910,814



8,947,327


Other long-term liabilities

520,886



465,358


Deferred income taxes

855,159



809,128


Total liabilities

13,060,184



12,918,258


Commitments and contingencies:




Noncontrolling interests subject to put provisions

1,009,704



973,258


Equity:




Preferred stock ($0.001 par value, 5,000,000 shares authorized; none issued)




Common stock ($0.001 par value, 450,000,000 shares authorized; 194,774,810 and 194,554,491 shares issued and 191,200,237 and 194,554,491 shares outstanding, respectively)

195



195


Additional paid-in capital

1,058,090



1,027,182


Retained earnings

4,285,011



3,710,313


Treasury stock (3,574,573 shares at June 30, 2017)

(231,674)




Accumulated other comprehensive loss

(27,308)



(89,643)


Total DaVita Inc. shareholders' equity

5,084,314



4,648,047


Noncontrolling interests not subject to put provisions

187,582



201,694


Total equity

5,271,896



4,849,741



$

19,341,784



$

18,741,257


 

DAVITA INC.

SUPPLEMENTAL FINANCIAL DATA

(unaudited)

(dollars in millions, except for per share and per treatment data)



Three months ended


Six months
ended
June 30,
2017


June 30,

2017


March 31,

2017


June 30,

2016


1. Consolidated Financial Results:








Consolidated net revenues

$

3,877



$

3,697



$

3,718



$

7,575


Operating income

$

378



$

888



$

329



$

1,267


Adjusted operating income excluding certain items(1)

$

436



$

392



$

475



$

828


Operating income margin

9.7

%


24.0

%


8.8

%


16.7

%

Adjusted operating income margin excluding certain items(1) (5)

11.2

%


10.6

%


12.8

%


10.9

%

Net income attributable to DaVita Inc.

$

127



$

448



$

53



$

575


Adjusted net income attributable to DaVita Inc. excluding certain items(1)

$

179



$

154



$

210



$

332


Diluted net income per share attributable to DaVita Inc.

$

0.65



$

2.29



$

0.26



$

2.95


Adjusted diluted net income per share attributable to DaVita Inc. excluding certain items (1)

$

0.92



$

0.79



$

1.01



$

1.71










2. Consolidated Business Metrics:








Expenses








General and administrative expenses as a percent of consolidated net revenues(2)

9.9

%


10.6

%


10.4

%


10.2

%

Consolidated effective tax rate

41.4

%


36.5

%


58.8

%


37.8

%

Consolidated effective tax rate attributable to DaVita Inc.(1)

47.2

%


39.1

%


71.6

%


41.1

%

Adjusted consolidated effective tax rate attributable to DaVita Inc.(1)

39.5

%


40.0

%


37.2

%


39.7

%









3. Summary of Division Financial Results:








    Net revenues








Kidney Care:








U.S. dialysis and related lab services

$

2,325



$

2,271



$

2,264



$

4,596


Other—Ancillary services and strategic initiatives








U.S. ancillary services and strategic initiatives

314



315



372



630


International

79



63



51



142



394



378



423



772


Eliminations within Kidney Care

(19)



(18)



(12)



(38)


Total Kidney Care

2,699



2,631



2,675



5,331


DMG

1,196



1,087



1,060



2,283


Eliminations between Kidney Care and DMG

(18)



(21)



(17)



(39)


Total net consolidated revenues

$

3,877



$

3,697



$

3,718



$

7,575


Operating income (loss)








Kidney Care:








U.S. dialysis and related lab services

$

450



$

945



$

449



$

1,395


Other—Ancillary services and strategic initiatives








U.S. ancillary services and strategic initiatives

(36)



(53)





(89)


International

(13)



(5)



(13)



(18)



(48)



(58)



(13)



(106)


Corporate administrative support

(11)



(11)



(5)



(22)


Total Kidney Care

391



876



431



1,267


DMG

(13)



12



(102)



(1)


              Total consolidated operating income

$

378



$

888



$

329



$

1,267


 

DAVITA INC.

SUPPLEMENTAL FINANCIAL DATA-continued

(unaudited)

(dollars in millions, except for per share and per treatment data)



Three months ended


Six months
ended
June 30, 2017


June 30,

2017


March 31,

2017


June 30,

2016


4. Summary of Reportable Segment Financial Results:








U.S. Dialysis and Related Lab Services








Revenue:








Patient services revenues

$

2,430



$

2,373



$

2,367



$

4,802


Provision for uncollectible accounts

(109)



(107)



(107)



(216)


Net patient service operating revenues

2,320



2,266



2,260



4,586


Other revenues

5



5



4



10


Total net operating revenues

2,325



2,271



2,264



4,596


Operating expenses:








Patient care costs

1,561



1,548



1,515



3,109


General and administrative

189



188



185



377


Depreciation and amortization

130



125



119



255


Equity investment income

(5)



(8)



(4)



(13)


Gain on settlement, net



(527)





(527)


Total operating expenses

1,875



1,326



1,815



3,201


Segment operating income

$

450



$

945



$

449



$

1,395


Reconciliation for non-GAAP measure:








Gain on settlement, net



(527)





(527)


Equity investment income related to gain on settlement



(3)





(3)


Adjusted segment operating income(1)

$

450



$

415



$

449



$

865










DMG








Revenue:








DMG capitated revenues

$

987



$

890



$

874



$

1,877


Patient services revenues

195



185



174



380


Provision for uncollectible accounts

(6)



(6)



(4)



(12)


Net patient service operating revenues

190



179



169



369


Other revenues

19



18



17



37


Total net operating revenues

1,196



1,087



1,060



2,283


Operating expenses:








Patient care costs

983



892



840



1,875


General and administrative

120



129



118



248


Depreciation and amortization

60



57



54



117


Goodwill and asset impairment charges

51





176



51


Gain on sales of business interests, net





(30)




Equity investment (income) loss

(4)



(3)



4



(8)


Total operating expenses

1,209



1,075



1,162



2,284


Segment operating (loss) income

$

(13)



$

12



$

(102)



$

(1)


Reconciliation for non-GAAP measure:








Goodwill impairment charge

51





176



51


Accruals for legal matters

(4)







(4)


Gain on sale of Tandigm ownership interests





(40)




Loss on sale of DMG Arizona





10




Adjusted segment operating income(1)

$

34



$

12



$

44



$

46


 

DAVITA INC.

SUPPLEMENTAL FINANCIAL DATA-continued

(unaudited)

(dollars in millions, except for per share and per treatment data)



Three months ended


Six months
ended
June 30, 2017


June 30,

2017


March 31,

2017


June 30,

2016


5. U.S. Dialysis and Related Lab Services Business Metrics:








Volume








Treatments

7,035,894



6,804,384



6,745,610



13,840,278


Number of treatment days

78.0



77.0



78.0



155.0


Treatments per day

90,204



88,369



86,482



89,292


Per day year over year increase

4.3

%


3.7

%


4.4

%


4.0

%

Normalized non-acquired treatment growth year over year

3.6

%


3.8

%


4.3

%


3.7

%

Operating revenues before provision for uncollectible accounts








Dialysis and related lab services revenue per treatment

$

345.32



$

348.70



$

350.90



$

346.98


Per treatment (decrease) increase from previous quarter

(1.0)

%


(1.0)

%


0.1

%



Per treatment (decrease) increase from previous year

(1.6)

%


(0.5)

%


0.7

%


(1.1)

%

Percent of consolidated net revenues

59.3

%


60.8

%


60.5

%


60.0

%

Expenses








Patient care costs








Percent of total segment operating net revenues

67.1

%


68.1

%


66.9

%


67.6

%

Per treatment

$

221.82



$

227.47



$

224.75



$

224.60


Per treatment (decrease) increase from previous quarter

(2.5)

%


(0.1)

%


(0.2)

%



Per treatment (decrease) increase from previous year

(1.3)

%


1.0

%


1.2

%


(0.2)

%

General and administrative expenses








Percent of total segment operating net revenues

8.1

%


8.3

%


8.2

%


8.2

%

Per treatment

$

26.85



$

27.65



$

27.37



$

27.24


Per treatment (decrease) increase from previous quarter

(2.9)

%


(4.1)

%


1.5

%



Per treatment (decrease) increase from previous year

(1.9)

%


2.5

%


1.4

%


0.3

%

Accounts receivable








Net receivables

$

1,420



$

1,335



$

1,273




DSO

56



54



52




Provision for uncollectible accounts as a percentage of
 revenues

4.5

%


4.5

%


4.5

%


4.5

%









6. DMG Business Metrics:








Capitated membership








Total members

726,000



735,400



761,400




Total member months








Senior

918,200



920,200



957,400



1,838,500


Commercial

983,000



995,900



1,037,500



1,978,900


Medicaid

291,200



305,200



333,000



596,300


Total member months

2,192,400



2,221,300



2,327,900



4,413,700


Capitated revenues by sources








Senior revenues

$

753



$

660



$

638



$

1,413


Commercial revenues

194



188



189



381


Medicaid revenues

41



42



47



83


Total capitated revenues

$

987



$

890



$

874



$

1,877


 

DAVITA INC.

SUPPLEMENTAL FINANCIAL DATA-continued

(unaudited)

(dollars in millions, except for per share and per treatment data)



Three months ended


Six months
ended
June 30, 2017


June 30,

2017


March 31,

2017


June 30,

2016


6. DMG Business Metrics: (continued)








Other








Total care dollars under management(1)

$

1,355



$

1,354



$

1,348



$

2,709


Ratio of operating (loss) income to total care dollars under
 management(1)

(1.0)

%


0.9

%


(7.6)

%


%

Ratio of adjusted operating income to total care dollars under
 management(1)(6)

2.5

%


0.9

%


3.3

%


1.7

%









7. Cash Flow:








Operating cash flow

$

146.3



$

865.2



$

516.6



$

1,011.4


Operating cash flow, last twelve months

$

2,029.2



$

2,399.6



$

2,061.3




Free cash flow(1)

$

17.9



$

733.7



$

391.3



$

751.7


Free cash flow, last twelve months(1)

$

1,467.3



$

1,840.7



$

1,509.4




Capital expenditures:








Routine maintenance/IT/other

$

55.6



$

88.1



$

81.5



$

143.7


Development and relocations

$

128.8



$

126.4



$

103.9



$

255.3


Acquisition expenditures

$

542.6



$

77.2



$

68.2



$

619.8










8. Debt and Capital Structure:








Total debt(3)

$

9,165



$

9,165



$

9,189




Net debt, net of cash and cash equivalents(3)

$

8,453



$

7,693



$

7,906




Leverage ratio (see calculation on page 15)

3.38x



3.03x



2.93x




Overall weighted average effective interest rate during the
 quarter

4.69

%


4.55

%


4.42

%



Overall weighted average effective interest rate at end of the
 quarter

4.76

%


4.64

%


4.43

%



Weighted average effective interest rate on the senior secured
 credit facilities at end of the quarter

4.20

%


3.95

%


3.52

%



Fixed and economically fixed interest rates as a percentage of
 our total debt

53

%


53

%


60

%(4)



Fixed and economically fixed interest rates, including our
 interest rate cap agreements, as a percentage of our total debt

91

%


91

%


90

%(4)




Certain columns, rows or percentages may not sum or recalculate due to the use of rounded numbers.

 






(1)

These are non-GAAP financial measures. For a reconciliation of these non-GAAP financial measures to their most comparable measure calculated and presented in accordance with GAAP, and for a definition of adjusted amounts, see attached reconciliation schedules.

(2)

Consolidated percentages of revenues are comprised of the dialysis and related lab services business, DMG's business and other ancillary services and strategic initiatives. General and administrative expenses includes certain corporate support and long-term incentive compensation, as well as estimated accruals for certain legal matters for the three and six months ended June 30, 2017.

(3)

The reported balance sheet amounts at June 30, 2017, March 31, 2017, and June 30, 2016, exclude $71.9 million, $75.9 million and $87.9 million, respectively, of a debt discount associated with our Term Loan A, Term Loan B and senior notes, and other deferred financing costs.

(4)

The Term Loan B is subject to a LIBOR floor of 0.75%. At June 30, 2017 and March 31, 2017, the actual LIBOR-based variable component of our interest rate exceeded 0.75% on the Term Loan B, and was subject to LIBOR-based interest rate volatility on the LIBOR variable component of our interest rate on all of the Term Loan B. However, we are limited to a maximum rate of 3.50% on the outstanding principal debt on the Term Loan B as a result of interest rate cap agreements. Actual LIBOR, for the three months ended June 30, 2016 was lower than the embedded LIBOR floor during such period and the interest rate on the Term Loan B was set at its floor during such period. The Term Loan A bears interest at LIBOR plus an interest margin of 2.00%. We are limited to a maximum rate of 3.50% on $105.0 million of the Term Loan A as a result of interest rate cap agreements. In addition, the uncapped portion of the Term Loan A, which is subject to the variability of LIBOR, is $720.0 million.

(5)

Adjusted operating income margin is a calculation of adjusted operating income divided by consolidated net revenues.

(6)

Ratio of adjusted operating income to total care dollars under management is a calculation of adjusted operating income divided by total care dollars under management.

DAVITA INC.
SUPPLEMENTAL FINANCIAL DATA-continued
(unaudited)
(dollars in thousands)

Note 1: Calculation of the Leverage Ratio

Under the senior secured credit facilities (Credit Agreement), the leverage ratio is defined as all funded debt plus the face amount of all letters of credit issued, minus cash and cash equivalents, including short-term investments, divided by "Consolidated EBITDA". The leverage ratio determines the interest rate margin payable by the Company for its Term Loan A and revolving line of credit under the Credit Agreement by establishing the margin over the base interest rate (LIBOR) that is applicable. The following leverage ratio was calculated using "Consolidated EBITDA" as defined in the Credit Agreement. The calculation below is based on the last twelve months of "Consolidated EBITDA", pro forma for routine acquisitions that occurred during the period. The Company's management believes the presentation of "Consolidated EBITDA" is useful to users to enhance their understanding of the Company's leverage ratio under its Credit Agreement. The leverage ratio calculated by the Company is a non-GAAP measure and should not be considered a substitute for debt to net income attributable to DaVita Inc., net income attributable to DaVita Inc. or total debt as determined in accordance with United States generally accepted accounting principles (GAAP). The Company's calculation of its leverage ratio might not be calculated in the same manner as, and thus might not be comparable to, similarly titled measures by other companies.


Rolling twelve months
ended
June 30, 2017

Net income attributable to DaVita Inc.

$

1,303,758


Income taxes

595,850


Interest expense

386,841


Depreciation and amortization

760,760


Goodwill and other asset impairment charges

143,891


Noncontrolling interests and equity investment income, net

172,836


Stock-settled stock-based compensation

32,243


Gain on changes in ownership interest, net

(380,647)


Gain on settlement, net

(529,504)


Other

19,966


"Consolidated EBITDA"

$

2,505,994





June 30, 2017

Total debt, excluding debt discount and other deferred financing costs of $71.9 million

$

9,165,014


Letters of credit issued

95,909



$

9,260,923


Less: Cash and cash equivalents including short-term investments (excluding DMG's
 physician owned entities cash)

(801,611)


Consolidated net debt

$

8,459,312


Last twelve months "Consolidated EBITDA"

$

2,505,994


Leverage ratio

3.38x


In accordance with the Credit Agreement, the Company's leverage ratio cannot exceed 4.50 to 1.00 as of June 30, 2017. At that date the Company's leverage ratio did not exceed 4.50 to 1.00.

DAVITA INC.
RECONCILIATIONS FOR NON-GAAP MEASURES
(unaudited)
(dollars in thousands except for per share data)

Note 2:   Adjusted net income and adjusted diluted net income per share attributable to DaVita Inc.

We believe that adjusted net income and adjusted diluted net income per share attributable to DaVita Inc., excluding goodwill and other asset impairment charges, a net settlement gain, a gain on the APAC JV ownership changes, estimated accruals for certain legal matters, a gain on the partial sale of Tandigm, and a loss on the sale of DMG Arizona, enhances a user's understanding of our normal net income attributable to DaVita Inc. and diluted net income per share attributable to DaVita Inc. for these periods by providing a measure that is meaningful because it excludes certain items which we do not believe are indicative of our ordinary results, and accordingly, is comparable to prior periods and indicative of normal net income attributable to DaVita Inc. and diluted net income per share attributable to DaVita Inc. These measures are not measures of financial performance under GAAP and should not be considered as an alternative to net income attributable to DaVita Inc. and diluted net income per share attributable to DaVita Inc.


Three months ended


Six months ended


June 30,

2017


March 31,

2017


June 30,

2016


June 30,

2017


June 30,

2016

Net income attributable to DaVita Inc.

$

127,001



$

447,697



$

53,382



$

574,698



$

150,816


Goodwill impairment charges

61,117



24,198



176,000



85,315



253,000


Impairment of assets



15,168





15,168




Gain on settlement, net



(526,827)





(526,827)




Equity investment income related to gain on settlement



(2,677)





(2,677)




Gain on APAC JV ownership changes



(6,273)





(6,273)




Accruals for legal matters

(3,600)







(3,600)



16,000


Gain on sale of Tandigm ownership interests





(40,280)





(40,280)


Loss on sale of DMG Arizona





10,489





10,489


Noncontrolling interests associated with adjustments:










Goodwill impairment charges

(2,985)



(6,880)





(9,865)




Gain on settlement, net



24,029





24,029




Related income tax

(2,850)



185,162



10,414



182,312



10,414


Adjusted net income attributable to DaVita Inc.

$

178,683



$

153,597



$

210,005



$

332,280



$

400,439



Certain columns or rows may not sum or recalculate due to the use of rounded numbers.

 

DAVITA INC.

RECONCILIATIONS FOR NON-GAAP MEASURES - (continued)

(unaudited)

(dollars in thousands except for per share data)



Three months ended


Six months ended


June 30,

2017


March 31,

2017


June 30,

2016


June 30,

2017


June 30,

2016

Diluted net income per share attributable to DaVita Inc.

$

0.65



$

2.29



$

0.26



$

2.95



$

0.73


Goodwill impairment charges

0.32



0.12



0.84



0.44



1.21


Impairment of assets



0.08





0.08




Gain on settlement, net



(2.70)





(2.70)




Equity investment income related to gain on settlement



(0.01)





(0.01)




Gain on APAC JV ownership changes



(0.03)





(0.03)




Accruals for legal matters

(0.02)







(0.02)



0.08


Gain on sale of Tandigm ownership interests





(0.19)





(0.19)


Loss on sale of DMG Arizona





0.05





0.05


Noncontrolling interests associated with adjustments










Goodwill impairment charges

(0.02)



(0.03)





(0.05)




Gain on settlement, net



0.12





0.12




Related income tax

(0.01)



0.95



0.05



0.94



0.05


Adjusted diluted net income per share attributable to DaVita Inc.

$

0.92



$

0.79



$

1.01



$

1.71



$

1.93



Certain columns or rows may not sum or recalculate due to the use of rounded numbers.

DAVITA INC.
RECONCILIATIONS FOR NON-GAAP MEASURES - (continued)
(unaudited)
(dollars in thousands except for per share data)

In addition, we have excluded amortization of intangible assets associated with acquisitions from our adjusted net income attributable to DaVita Inc., net of tax, and from our adjusted diluted net income per share attributable to DaVita Inc. as we believe this presentation enhances a user's understanding of our operating results for these periods by providing a different reflection of the Company's operating performance since it excludes the amortization of intangible assets that relate to the fair value measurement of acquired intangible assets associated with our acquisitions, and accordingly is indicative of consistent adjusted net income excluding amortization of acquired intangibles, attributable to DaVita Inc. and diluted net income per share attributable to DaVita Inc. These measures are not measures of financial performance under GAAP and should not be considered as an alternative to net income attributable to DaVita Inc. and diluted net income per share attributable to DaVita Inc.


Three months ended


Six months ended


June 30,

2017


March 31,

2017


June 30,

2016


June 30,

2017


June 30,

2016

Adjusted net income per share attributable to DaVita Inc.

$

178,683



$

153,597



$

210,005



$

332,280



$

400,439


Add: Amortization of intangible assets associated with acquisitions for:










Dialysis and ancillary operations

3,818



3,725



3,674



7,543



7,483


DMG operations

44,274



43,955



40,296



88,229



76,374


Less: Related income tax

(18,996)



(19,072)



(16,269)



(38,068)



(32,224)



$

207,779



$

182,205



$

237,706



$

389,984



$

452,072












Adjusted diluted net income per share attributable to DaVita Inc.

$

0.92



$

0.79



$

1.01



$

1.71



$

1.93


Add: Amortization of intangible assets per share associated with acquisitions for:










Dialysis and ancillary operations

0.02



0.02



0.02



0.04



0.04


DMG operations

0.23



0.22



0.19



0.45



0.36


Tax effect of adjustments

(0.10)



(0.10)



(0.08)



(0.20)



(0.16)


Adjusted net income per share attributable to DaVita Inc.

$

1.07



$

0.93



$

1.14



$

2.00



$

2.17



Certain columns or rows may not sum or recalculate due to the use of rounded numbers.

DAVITA INC.
RECONCILIATIONS FOR NON-GAAP MEASURES
(unaudited)
(dollars in thousands)

Note 3:   Adjusted operating income.

Adjusted operating income is defined as operating income before certain items we do not believe are indicative of ordinary results, including goodwill and other asset impairment charges, a net settlement gain, a gain on the APAC JV ownership changes, estimated accruals for certain legal matters, a gain on the partial sale of Tandigm, and a loss on the sale of DMG Arizona.

We use adjusted operating income as a measure to assess operating and financial performance. We believe that this measure enhances a user's understanding of the normal operating income and of our consolidated enterprise and of our individual reportable segments.

Adjusted operating income is not a measure of financial performance computed in accordance with GAAP and should not be considered in isolation nor 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 a measure of profitability or liquidity. In addition, the calculation of adjusted operating income is susceptible to varying interpretations and calculations, and the amounts presented may not be comparable to similarly titled measures of other companies. Adjusted operating income may not be indicative of historical operating results, and we do not intend these calculations to be predictive of future results of operations or cash flows.


Three months ended


Six months ended


June 30,

2017


March 31,

2017


June 30,

2016


June 30,

2017


June 30,

2016

Consolidated:










Operating income

$

378,316



$

888,236



$

329,070



$

1,266,552



$

693,959


Goodwill impairment charges

61,117



24,198



176,000



85,315



253,000


Impairment of assets



15,168





15,168




Gain on settlement, net



(526,827)





(526,827)




Equity investment income related to gain on settlement



(2,677)





(2,677)




Gain on APAC JV ownership changes



(6,273)





(6,273)




Accruals for legal matters

(3,600)







(3,600)



16,000


Gain on sale of Tandigm ownership interests





(40,280)





(40,280)


Loss on sale of DMG Arizona





10,489





10,489


Adjusted operating income

$

435,833



$

391,825



$

475,279



$

827,658



$

933,168



Certain columns or rows may not sum or recalculate due to the use of rounded numbers.

 

DAVITA INC.

RECONCILIATIONS FOR NON-GAAP MEASURES

(unaudited)

(dollars in thousands)



Three months ended


Six months ended


June 30,

2017


March 31,

2017


June 30,

2016


June 30,

2017


June 30,

2016

Kidney Care:










U.S. dialysis and related lab services:










Segment operating income

$

450,472



$

944,740



$

449,190



$

1,395,212



$

889,245


Gain on settlement, net



(526,827)





(526,827)




Equity investment income related to gain on settlement



(2,677)





(2,677)




Adjusted operating income

450,472



415,236



449,190



865,708



889,245


Other - Ancillary services and strategic initiatives:










 U.S. ancillary services and strategic initiatives










Segment operating (loss) income

(35,545)



(53,027)



265



(88,572)



(1,089)


Goodwill impairment charges

10,498



24,198





34,696




Impairment of assets



15,168





15,168




Adjusted operating (loss) income

(25,047)



(13,661)



265



(38,708)



(1,089)


International dialysis










Segment operating loss

(12,700)



(5,193)



(12,909)



(17,893)



(22,656)


Gain on APAC JV ownership changes



(6,273)





(6,273)




Adjusted operating loss

(12,700)



(11,466)



(12,909)



(24,166)



(22,656)


Adjusted operating loss

(37,747)



(25,127)



(12,644)



(62,874)



(23,745)


Corporate administrative support:










Segment operating loss

(11,031)



(10,592)



(5,417)



(21,623)



(12,337)


Kidney Care adjusted operating income

401,694



379,517



431,129



781,211



853,163


DMG:










Segment operating (loss) income

(12,880)



12,308



(102,059)



(572)



(159,204)


Goodwill impairment charge

50,619





176,000



50,619



253,000


Accruals for legal matters

(3,600)







(3,600)



16,000


Gain on sale of Tandigm ownership interests





(40,280)





(40,280)


Loss on sale of DMG Arizona





10,489





10,489


DMG adjusted operating income

34,139



12,308



44,150



46,447



80,005


Consolidated adjusted operating income

$

435,833



$

391,825



$

475,279



$

827,658



$

933,168



Certain columns or rows may not sum or recalculate due to the use of rounded numbers.

DAVITA INC.
RECONCILIATIONS FOR NON-GAAP MEASURES
(unaudited)
(dollars in thousands)

Note 4:   Effective income tax rates and adjusted effective income tax rates.

We believe that reporting the effective income tax rate attributable to DaVita Inc. as well as the adjusted effective income tax rate attributable to DaVita Inc., excluding goodwill and other asset impairment charges, a net settlement gain, a gain on the APAC JV ownership changes, estimated accruals for certain legal matters, a gain on the partial sale of Tandigm, and a loss on the sale of DMG Arizona, net of tax, enhances a user's understanding of DaVita Inc.'s effective income tax rate and DaVita Inc.'s adjusted effective income tax rate for the periods presented because it excludes noncontrolling owners' income that primarily relates to non-tax paying entities and certain non-deductible charges which we do not believe are indicative of our ordinary results, and, therefore, these adjusted measures are meaningful to a user to fully understand the related income tax effects on DaVita Inc.'s operating results. These are not measures under GAAP and should not be considered as an alternative to the effective income tax rate calculated in accordance with GAAP.

Effective income tax rate as compared to the effective income tax rate attributable to DaVita Inc. is as follows:


Three months ended


Six months
ended
June 30, 2017


June 30,

2017


March 31,

2017


June 30,

2016


Income before income taxes

$

275,607



$

788,050



$

229,391



$

1,063,657


Income tax expense

$

113,982



$

287,765



$

134,888



$

401,747


Effective income tax rate

41.4

%


36.5

%


58.8

%


37.8

%

 


Three months ended


Six months
ended
June 30, 2017


June 30,

2017


March 31,

2017


June 30,

2016


Income before income taxes

$

275,607



$

788,050



$

229,391



$

1,063,657


Less:   Noncontrolling owners' income primarily attributable to non-tax paying entities

(34,906)



(52,653)



(41,289)



(87,559)


Income before income taxes attributable to DaVita Inc.

$

240,701



$

735,397



$

188,102



$

976,098










Income tax expense

$

113,982



$

287,765



$

134,888



$

401,747


Less: Income tax attributable to noncontrolling interests

(282)



(65)



(168)



(347)


Income tax expense attributable to DaVita Inc.

$

113,700



$

287,700



$

134,720



$

401,400










Effective income tax rate attributable to DaVita Inc.

47.2

%


39.1

%


71.6

%


41.1

%


Certain columns, rows or percentages may not sum or recalculate due to the use of rounded numbers.

DAVITA INC.
RECONCILIATIONS FOR NON-GAAP MEASURES
(unaudited)
(dollars in thousands)

Adjusted effective income tax rate as compared to the adjusted effective income tax rate attributable to DaVita Inc. is as follows:


Three months ended


Six months
ended
June 30, 2017

June 30,

2017


March 31,

2017


June 30,

2016


Income before income taxes

$

275,607



$

788,050



$

229,391



$

1,063,657


Goodwill impairment charges

61,117



24,198



176,000



85,315


Impairment of assets



15,168





15,168


Gain on settlement, net



(526,827)





(526,827)


Equity investment income related to gain on settlement



(2,677)





(2,677)


Gain on APAC JV ownership changes



(6,273)





(6,273)


Accrual for legal matters

(3,600)







(3,600)


Gain on sale of Tandigm ownership interests





(40,280)




Loss on sale of DMG Arizona





10,489




Noncontrolling owners' income primarily attributable to non-tax
 paying entities

(34,906)



(52,653)



(41,289)



(87,559)


Noncontrolling interests associated with adjustments








Goodwill impairment charges

(2,985)



(6,880)





(9,865)


Gain on settlement, net



24,029





24,029


Adjusted income before income taxes attributable to DaVita Inc.

$

295,233



$

256,135



$

334,311



$

551,368


Income tax expense

$

113,982



$

287,765



$

134,888



$

401,747


Add income tax related to:








Goodwill impairment charges

2,850



6,568





9,418


Impairment of assets



5,752





5,752


Loss on sale of DMG Arizona





4,490




Less income tax related to:








Gain on settlement, net



(197,482)





(197,482)


Gain on sale of Tandigm ownership interests





(14,904)




Noncontrolling interests

(282)



(65)



(168)



(347)


Adjusted income tax attributable to DaVita Inc.

$

116,550



$

102,538



$

124,306



$

219,088


Adjusted effective income tax rate attributable to DaVita Inc.

39.5

%


40.0

%


37.2

%


39.7

%


Certain columns, rows or percentages may not sum or recalculate due to the use of rounded numbers.

DAVITA INC.
RECONCILIATIONS FOR NON-GAAP MEASURES
(unaudited)
(dollars in thousands)

Note 5:   Free cash flow.

Free cash flow represents net cash provided by operating activities less distributions to noncontrolling interests and capital expenditures for routine maintenance and information technology. We believe free cash flow is a useful adjunct to cash flow from operating activities and other measurements under GAAP, since free cash flow is a meaningful measure of our ability to fund acquisitions and development activities and meet our debt service requirements. In addition, free cash flow excluding distributions to noncontrolling interests provides a user with an understanding of free cash flows that are attributable to DaVita Inc. Free cash flow is not a measure of financial performance under GAAP and should not be considered as an alternative to cash flows from operating, investing or financing activities, as an indicator of cash flows or as a measure of liquidity.


Three months ended


Six months
ended
June 30, 2017


June 30,

2017


March 31,

2017


June 30,

2016


Cash provided by operating activities

$

146,270



$

865,174



$

516,637



$

1,011,444


Less:  Distributions to noncontrolling interests

(72,759)



(43,316)



(43,744)



(116,075)


Cash provided by operating activities attributable to DaVita Inc.

73,511



821,858



472,893



895,369


Less: Expenditures for routine maintenance and information
 technology

(55,577)



(88,112)



(81,546)



(143,689)


Free cash flow

$

17,934



$

733,746



$

391,347



$

751,680


 


Rolling 12-Month Period


June 30,

2017


March 31,

2017


June 30,

2016

Cash provided by operating activities

$

2,029,249



$

2,399,616



$

2,061,308


Less:  Distributions to noncontrolling interests

(214,323)



(185,308)



(189,748)


Cash provided by operating activities attributable to DaVita Inc.

1,814,926



2,214,308



1,871,560


Less: Expenditures for routine maintenance and information
 technology

(347,594)



(373,563)



(362,146)


Free cash flow

$

1,467,332



$

1,840,745



$

1,509,414



Certain columns or rows may not sum or recalculate due to the use of rounded numbers.

DAVITA INC.
RECONCILIATIONS FOR NON-GAAP MEASURES
(unaudited)
(dollars in thousands)

Note 6:   Total care dollars under management.

In California, as a result of our managed care administrative services agreements with hospitals and health plans, DMG does not assume the direct financial risk for institutional (hospital) services in most cases, but is responsible for managing the care dollars associated with both the professional (physician) and institutional services being provided for the Per Member Per Month (PMPM) fee attributable to both professional and institutional services. In cases where DMG does not assume the direct financial risk, DMG recognizes the surplus of institutional revenue less institutional expense as DMG net revenue recorded as capitated revenues. In addition to revenues recognized for financial reporting purposes, DMG measures its total care dollars under management, which includes the PMPM fee payable to third parties for institutional services where DMG manages the care provided to its members by the hospitals and other institutions, which are not included in GAAP revenues. DMG uses total care dollars under management as a supplement to GAAP revenues as it allows DMG to measure profit margins on a comparable basis across both the global capitation model (where DMG assumes the full financial risk for all services, including institutional services) and the risk sharing models (where DMG operates under managed care administrative services agreements where DMG does not assume the full risk). DMG believes that presenting amounts in this manner is useful because it presents its operations on a unified basis without the complication caused by models that DMG has adopted in its California market as a result of various regulations related to the assumption of institutional risk. Total care dollars under management is not a measure of financial performance computed in accordance with GAAP and should not be considered in isolation or as a substitute for revenues calculated in accordance with GAAP. Total care dollars under management includes PMPM payments received from third parties that are recorded net of expenses in our accounting records. The following table reconciles total care dollars under management to medical revenues for the periods indicated.


Three months ended


Six months
ended
June 30, 2017


June 30,

2017


March 31,

2017


June 30,

2016


Medical revenues

$

1,176,992



$

1,068,703



$

1,043,330



$

2,245,695


Less: Risk share revenue, net

(36,117)



(8,652)



(50,369)



(44,769)


Add: Institutional capitation amounts

213,887



293,835



355,459



507,722


Total care dollars under management

$

1,354,762



$

1,353,886



$

1,348,420



$

2,708,648



Certain columns or rows may not sum or recalculate due to the use of rounded numbers.

DAVITA INC.
RECONCILIATIONS FOR NON-GAAP MEASURES
(unaudited)
(dollars in thousands)

Note 7:   EBITDA and adjusted EBITDA.

EBITDA is defined as operating income before depreciation and amortization. Adjusted EBITDA is defined as operating income before certain charges, including goodwill and other asset impairment charges, a net settlement gain, a gain on the APAC JV ownership changes, and estimated accruals for certain legal matters, further adjusted to exclude depreciation and amortization.

We use EBITDA and adjusted EBITDA as measures to assess operating and financial performance. We believe that these measures enhance a user's understanding of normal operating income excluding certain charges, depreciation and amortization.

Neither EBITDA nor adjusted EBITDA is a measure of financial performance computed in accordance with GAAP and should not be considered in isolation nor 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 a measure of profitability or liquidity. In addition, the calculation of EBITDA and adjusted EBITDA is susceptible to varying interpretations and calculations, and the amounts presented may not be comparable to similarly titled measures of other companies. EBITDA and adjusted EBITDA may not be indicative of historical operating results, and we do not intend these measures to be predictive of future results of operations.

EBITDA:


Three months ended June 30, 2017


Six months ended June 30, 2017


Consolidated


 Kidney Care


 DMG


Consolidated


 Kidney Care


 DMG

Net income attributable to DaVita Inc.

$

127,001







$

574,698






Noncontrolling interests

34,624







87,212






Income taxes

113,982







401,747






Other income

(5,253)







(9,496)






Debt expense

107,962







212,391






Operating income (loss)

378,316



391,196



(12,880)



1,266,552



1,267,124



(572)


Depreciation and amortization

200,038



140,026



60,011



390,244



272,910



117,334


EBITDA

$

578,354



$

531,222



$

47,131



$

1,656,796



$

1,540,034



$

116,762



























Certain columns or rows may not sum or recalculate due to the use of rounded numbers.

Adjusted EBITDA:


Three months ended June 30, 2017


Six months ended June 30, 2017


Consolidated


 Kidney Care


 DMG


Consolidated


 Kidney Care


 DMG

Net income attributable to DaVita Inc.

$

127,001







$

574,698






Noncontrolling interests

34,624







87,212






Income taxes

113,982







401,747






Other income

(5,253)







(9,496)






Debt expense

107,962







212,391






Operating income (loss)

378,316



391,196



(12,880)



1,266,552



1,267,124



(572)


Goodwill impairment charges

61,117



10,498



50,619



85,315



34,696



50,619


Impairment of assets







15,168



15,168




Gain on settlement, net







(526,827)



(526,827)




Equity investment income related
 to gain on settlement







(2,677)



(2,677)




Gain on APAC JV ownership changes







(6,273)



(6,273)




Accruals for legal matters

(3,600)





(3,600)



(3,600)





(3,600)


Adjusted operating income

435,833



401,694



34,139



827,658



781,211



46,447


Depreciation and amortization

200,038



140,026



60,011



390,244



272,910



117,334


Adjusted EBITDA

$

635,871



$

541,720



$

94,150



$

1,217,902



$

1,054,121



$

163,781


























Certain columns or rows may not sum or recalculate due to the use of rounded numbers.

 

DaVita logo.

SOURCE DaVita Inc.


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