Improving Health, Health Care and Quality of Life

DaVita Inc. 4th Quarter 2017 Results

DENVER, Feb. 13, 2018 /PRNewswire/ -- DaVita Inc. (NYSE: DVA) today announced results for the quarter and year ended December 31, 2017.

  • Net income from continuing operations attributable to DaVita Inc. for the quarter and year ended December 31, 2017 was $156 million, or $0.85 per share, and $901 million, or $4.71 per share, respectively. Net income from continuing operations attributable to DaVita Inc. for the quarter and year ended December 31, 2016 was $143 million, or $0.73 per share, and $1.032 billion, or $5.04 per share, respectively.
  • Adjusted net income from continuing operations attributable to DaVita Inc. for the quarter and year ended December 31, 2017 was $170 million, or $0.92 per share, and $635 million, or $3.32 per share, respectively. Adjusted net income from continuing operations attributable to DaVita Inc. for the quarter and year ended December 31, 2016 was $177 million, or $0.90 per share, and $692 million, or $3.38 per share, respectively.

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

Financial and operating highlights include:

On December 5, 2017, we entered into an agreement to sell our DMG division to Optum, a subsidiary of UnitedHealth Group Inc. This transaction is subject to regulatory approvals and other customary closing conditions. As a result, the DMG business has been reclassified as held for sale and the results of operations are reported as discontinued operations. In addition, prior periods have been revised to conform to the current period presentation.

Cash flow:  For the year ended December 31, 2017, consolidated operating cash flow was $1.907 billion, of which $1.556 billion was from continuing operations. For the three months ended December 31, 2017, consolidated operating cash flow was $343 million, of which $287 million was from continuing operations. Free cash flow from continuing operations was $150 million and $1.042 billion for the quarter and year ended December 31, 2017, respectively.

Operating income and adjusted operating income:  Operating income for the quarter ended December 31, 2017 was $150 million, and adjusted operating income for the same period was $430 million. Operating income for the year ended December 31, 2017 was $1.813 billion, and adjusted operating income for the same period was $1.616 billion.

Operating income for the quarter ended December 31, 2016 was $363 million, and adjusted operating income for the same period was $423 million. Operating income for the year ended December 31, 2016 was $2.030 billion, and adjusted operating income for the same period was $1.715 billion.

Volume:  Total U.S. dialysis treatments for the fourth quarter of 2017 were 7,244,555, or 92,287 treatments per day, representing a per day increase of 5.8% over the fourth quarter of 2016. Normalized non-acquired treatment growth in the fourth quarter of 2017 as compared to the fourth quarter of 2016 was 3.5%.

Impairment charges:  During the quarter ended December 31, 2017, we recognized a non-cash other-than-temporary impairment charge of $280 million on our investment in our Asia Pacific joint venture (APAC JV). This charge resulted from changes in expectations for the joint venture based on the APAC JV's continuing market research and assessments concerning the available market opportunities.

Effective income tax rate:  Our effective income tax rate attributable to continuing operations was (320.9)% and 23.1% for the quarter and year ended December 31, 2017, respectively. The effective income tax rate attributable to DaVita Inc. was (2,590.5)% and 26.4% for the quarter and year ended December 31, 2017, respectively.

As a result of the recent U.S. tax reform legislation, we recorded a reduction in tax expense of $252 million for the quarter and year ended December 31, 2017 related to the remeasurement of our net deferred tax liabilities to the new federal tax rate. Our effective income tax rate for the quarter and year ended December 31, 2017 was also impacted by the non-deductible portion of impairment charges on our investment in our APAC JV and the amount of third-party owners' income attributable to non-tax paying entities.

The adjusted effective income tax rate attributable to DaVita Inc. for the quarter and year ended December 31, 2017 excluding these items was 40.4% and 39.1%, respectively.

Center activity:  As of December 31, 2017, we provided dialysis services to a total of approximately 220,600 patients at 2,747 outpatient dialysis centers, of which 2,510 centers were located in the United States and 237 centers were located in 11 countries outside of the United States. During the fourth quarter of 2017, we acquired nine dialysis centers, opened a total of 36 new dialysis centers, and closed four centers in the United States. We also acquired six dialysis centers, opened two dialysis centers and closed one dialysis center outside of the United States.

Share repurchases:  We repurchased a total of 12,966,672 shares of our common stock during the year ended December 31, 2017 for a total of $811 million at an average price of $62.54 per share. During the quarter ended December 31, 2017, we repurchased a total of 7,409,849 shares of our common stock for approximately $462 million at an average price of $62.37 per share. We have also repurchased 857,234 shares of our common stock for $65 million at an average price of $75.58 per share from January 1, 2018 through February 12, 2018.

On October 10, 2017, our Board of Directors approved an additional share repurchase authorization in the amount of approximately $1.253 billion. This recently approved authorization was in addition to the amounts remaining at that time under our Board of Directors' prior share repurchase authorization announced in July 2016. As of February 12, 2018, we have a total of approximately $1.054 billion in outstanding Board repurchase authorizations remaining under our stock repurchase program. These share repurchase authorizations have no expiration dates.

Outlook

The following forward-looking measures and the underlying assumptions involve significant risks and uncertainties, including those described herein, and actual results may vary significantly from these current forward-looking measures. The guidance below does not include the impact of currency fluctuations.

  • We still expect our Kidney Care consolidated operating income for 2018 to be in the range of $1.5 billion to $1.6 billion.
  • We expect our operating cash flow from continuing operations for 2018 to be in the range of $1.4 billion to $1.6 billion.
  • We are updating our 2018 effective tax rate attributable to DaVita Inc. to be approximately 26.5% to 27.5%.
    Our previous guidance for 2018 effective tax rate attributable to DaVita Inc. was approximately 26.0% to 27.5%.

We will be holding a conference call to discuss our results for the fourth quarter ended December 31, 2017 on February 13, 2018 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., and provide the operator the password 'Earnings'. A replay of the conference call will be available on our website at investors.davita.com, for the following 30 days.

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, restructuring charges, accruals for legal matters, recent federal tax reform legislation, and gains and charges associated with settlements; and (ii) the term "adjusted effective income tax rate attributable to DaVita Inc." represents the Company's effective tax rate excluding applicable 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 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 from continuing operations attributable to DaVita Inc., adjusted diluted net income from continuing operations attributable to DaVita Inc. per share, adjusted operating income, effective income tax rate attributable to DaVita Inc., adjusted effective income tax rate attributable to DaVita Inc., and free cash flow from continuing operations discussed in this press release are reconciled to their most comparable GAAP measures at Notes 2, 3, 4, and 5 at the end of this press release.

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 2018 Kidney Care consolidated operating income, our 2018 operating cash flows from continuing operations and our 2018 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 September 30, 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, including as a result of restrictions or prohibitions on the use and/or availability of charitable premium assistance, which may result in the loss of revenues or patients, or our making incorrect assumptions about how our patients will respond to any change in financial assistance from charitable organizations;
  • 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 changing political environment and related developments 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;
  • uncertainties related to the impact of federal tax reform legislation;
  • changes in pharmaceutical or anemia management practice patterns, payment policies, or pharmaceutical pricing;
  • legal compliance risks, including, without limitation, 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, including our ability to achieve anticipated savings from our recent restructurings;
  • 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 announce or be considering, on terms favorable to us or at all, or to integrate and successfully operate any business we may acquire or have acquired, or to successfully expand our operations and services to markets outside the United States, or to businesses outside of dialysis;
  • 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;
  • factors that may impact our ability to repurchase stock under our stock repurchase program and the timing of any such stock repurchases, including market conditions, the price of our common stock, our cash flow position and leverage ratios, and legal, regulatory and contractual requirements;
  • 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 assets;
  • the risks and uncertainties associated with the timing, conditions and receipt of regulatory approvals and satisfaction of other closing conditions of the DMG sale transaction, potential disruption in connection with the DMG sale transaction making it more difficult to maintain business and operational relationships, and uncertainties related to our use of proceeds from the DMG sale transaction, including our ability to repurchase stock;
  • 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
December 31,


Year ended
 December 31,


2017


2016


2017


2016

Dialysis and related lab patient service revenues

$

2,614,732



$

2,471,495



$

10,093,670



$

9,727,360


Less: Provision for uncollectible accounts

(149,373)



(109,604)



(485,398)



(431,308)


Net dialysis and related lab patient service revenues

2,465,359



2,361,891



9,608,272



9,296,052


Other revenues

315,554



337,528



1,268,362



1,411,415


Total net revenues

2,780,913



2,699,419



10,876,634



10,707,467


Operating expenses and charges:








Patient care costs and other costs

1,941,687



1,882,778



7,640,005



7,431,582


General and administrative

265,424



285,100



1,064,026



1,072,841


Depreciation and amortization

144,367



131,090



559,911



509,497


Provision for uncollectible accounts

(5,652)



1,821



(7,033)



11,677


Equity investment loss (income)

3,184



(8,223)



8,640



(16,874)


Investment and other asset impairments

280,066





295,234



14,993


Goodwill impairment charges

1,500



43,408



36,196



28,415


Gain on changes in ownership interests, net





(6,273)



(374,374)


Gain on settlement, net





(526,827)




Total operating expenses and charges

2,630,576



2,335,974



9,063,879



8,677,757


Operating income

150,337



363,445



1,812,755



2,029,710


Debt expense

(108,997)



(103,932)



(430,634)



(414,116)


Other income, net

5,485



156



17,665



7,511


Income from continuing operations before income taxes

46,825



259,669



1,399,786



1,623,105


Income tax (benefit) expense

(150,267)



83,171



323,859



431,761


Net income from continuing operations

197,092



176,498



1,075,927



1,191,344


Net income (loss) from discontinued operations, net of tax

143,587



11,772



(245,372)



(158,262)


Net income

340,679



188,270



830,555



1,033,082


Less: Net income attributable to noncontrolling interests

(37,283)



(30,544)



(166,937)



(153,208)


Net income attributable to DaVita Inc.

$

303,396



$

157,726



$

663,618



$

879,874


Earnings per share:








Basic net income from continuing operations per share attributable to DaVita Inc.

$

0.86



$

0.74



$

4.78



$

5.12


Basic net income per share attributable to DaVita Inc.

$

1.66



$

0.81



$

3.52



$

4.36


Diluted net income from continuing operations per share attributable to DaVita Inc.

$

0.85



$

0.73



$

4.71



$

5.04


Diluted net income per share attributable to DaVita Inc.

$

1.64



$

0.80



$

3.47



$

4.29


Weighted average shares for earnings per share:








Basic

182,261,673



193,999,701



188,625,559



201,641,173


Diluted

184,825,329



196,743,187



191,348,533



204,904,656


Amounts attributable to DaVita Inc.:








Net income from continuing operations

$

156,210



$

142,696



$

901,277



$

1,032,373


Net income (loss) from discontinued operations

147,186



15,030



(237,659)



(152,499)


Net income attributable to DaVita Inc.

$

303,396



$

157,726



$

663,618



$

879,874


 

DAVITA INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

 (dollars in thousands)



Three months ended
December 31,


Year ended
December 31,


2017


2016


2017


2016

Net income

$

340,679



$

188,270



$

830,555



$

1,033,082


Other comprehensive income (loss):








Unrealized gains (losses) on interest rate cap and swap agreements:








Unrealized gains (losses) on interest rate cap and swap agreements

42



4,568



(5,437)



(3,670)


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

1,265



1,265



5,058



2,566


Unrealized gains (losses) on investments:








Unrealized gains (losses) on investments

228



(561)



3,705



1,427


Reclassification of net investment realized losses (gains) into net income

1



(279)



(220)



(423)


Foreign currency translation adjustments:








Foreign currency translation adjustments

8,222



(45,000)



99,770



(39,614)


Reclassification of foreign currency translation into net income



2,574





10,087


Other comprehensive income (loss)

9,758



(37,433)



102,876



(29,627)


Total comprehensive income

350,437



150,837



933,431



1,003,455


Less: Comprehensive income attributable to noncontrolling interests

(37,283)



(30,527)



(166,935)



(153,398)


Comprehensive income attributable to DaVita Inc.

$

313,154



$

120,310



$

766,496



$

850,057


 

DAVITA INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(dollars in thousands)



Year ended
December 31,


2017


2016

Cash flows from operating activities:




Net income

$

830,555



$

1,033,082


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




Depreciation and amortization

777,485



720,252


Impairment charges

981,589



296,408


Stock-based compensation expense

35,092



38,338


Deferred income taxes

(395,217)



52,010


Equity investment income, net

28,925



17,766


Gain on sales of business interests, net

(23,402)



(404,165)


Other non-cash charges, net

66,925



(7,338)


Changes in operating assets and liabilities, net of effect of acquisitions and divestitures:




Accounts receivable

(156,305)



(152,240)


Inventories

(18,625)



22,920


Other receivables and other current assets

(117,154)



(54,038)


Other long-term assets

(11,945)



35,893


Accounts payable

26,876



11,897


Accrued compensation and benefits

(78,239)



68,272


Other current liabilities

1,908



176,494


Income taxes

(52,176)



77,376


Other long-term liabilities

11,157



30,517


Net cash provided by operating activities

1,907,449



1,963,444






Cash flows from investing activities:




Additions of property and equipment

(905,250)



(829,095)


Acquisitions

(803,879)



(563,856)


Proceeds from asset and business sales

92,336



64,725


Purchase of investments available-for-sale

(13,117)



(13,539)


Purchase of investments held-to-maturity

(230,989)



(1,133,192)


Proceeds from sale of investments available-for-sale

6,408



18,963


Proceeds from investments held-to-maturity

492,470



1,240,502


Purchase of equity investments

(4,816)



(27,096)


Proceeds from sale of equity investments



40,920


Distributions received on equity investments

106




Net cash used in investing activities

(1,366,731)



(1,201,668)



Cash flows from financing activities:




Borrowings

50,991,960



51,991,490


Payments on long-term debt and other financing costs

(50,837,112)



(52,116,120)


Purchase of treasury stock

(802,949)



(1,097,822)


Distributions to noncontrolling interests

(211,467)



(192,401)


Stock award exercises and other share issuances, net

21,252



23,543


Excess tax benefits from stock award exercises



13,251


Contributions from noncontrolling interests

74,552



47,590


Proceeds from sales of additional noncontrolling interests

2,864




Purchases of noncontrolling interests

(5,357)



(21,512)


Net cash used in financing activities

(766,257)



(1,351,981)


Effect of exchange rate changes on cash and cash equivalents

254



4,276


Net decrease in cash and cash equivalents

(225,285)



(585,929)


Less: Net decrease in cash and cash equivalents from discontinued operations

(58,743)



(15,788)


Net decrease in cash and cash equivalents from continuing operations

(166,542)



(570,141)


Cash and cash equivalents of continuing operations at beginning of the year

674,776



1,244,917


Cash and cash equivalents of continuing operations at end of the year

$

508,234



$

674,776










 

 

DAVITA INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

(dollars in thousands, except per share data)



December 31,
2017


December 31,
2016

ASSETS




Cash and cash equivalents

$

508,234



$

674,776


Short-term investments

43,516



306,981


Accounts receivable, less allowance of $218,399 and $238,897

1,714,750



1,503,950


Inventories

181,799



160,419


Other receivables

372,919



288,156


Income tax receivable

49,440




Prepaid and other current assets

112,058



99,510


Current assets held for sale

5,761,642



960,956


Total current assets

8,744,358



3,994,748


Property and equipment, net

3,149,213



2,864,121


Intangible assets, net

113,827



73,504


Equity investments

245,534



492,039


Long-term investments

37,695



29,997


Other long-term assets

47,287



33,857


Goodwill

6,610,279



6,015,375


Long-term assets held for sale



5,252,135



$

18,948,193



$

18,755,776


LIABILITIES AND EQUITY




Accounts payable

$

509,116



$

456,619


Other liabilities

552,662



578,892


Accrued compensation and benefits

616,116



706,564


Current portion of long-term debt

178,213



160,262


Income tax payable



1,394


Current liabilities held for sale

1,185,070



807,233


Total current liabilities

3,041,177



2,710,964


Long-term debt

9,158,018



8,944,676


Other long-term liabilities

365,325



317,383


Deferred income taxes

486,247



530,869


Long-term liabilities held for sale



428,885


Total liabilities

13,050,767



12,932,777


Commitments and contingencies




Noncontrolling interests subject to put provisions

1,011,360



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; 182,462,278 and 194,554,491 shares issued and outstanding, respectively)

182



195


Additional paid-in capital

1,042,899



1,027,182


Retained earnings

3,633,713



3,710,313


Accumulated other comprehensive income (loss)

13,235



(89,643)


Total DaVita Inc. shareholders' equity

4,690,029



4,648,047


Noncontrolling interests not subject to put provisions

196,037



201,694


Total equity

4,886,066



4,849,741



$

18,948,193



$

18,755,776


 

DAVITA INC.

SUPPLEMENTAL FINANCIAL DATA

(unaudited)

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



Three months ended


Year ended
December 31,
 2017


December 31,
2017


September 30,
2017


December 31,
2016


1. Consolidated Financial Results:








Consolidated net revenues

$

2,781



$

2,765



$

2,699



$

10,877


Operating income

$

150



$

395



$

363



$

1,813


Adjusted operating income excluding certain items(1)

$

430



$

404



$

423



$

1,616


Operating income margin

5.4

%


14.3

%


13.5

%


16.7

%

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

15.5

%


14.6

%


15.7

%


14.9

%

Net income from continuing operations attributable to DaVita Inc.

$

156



$

153



$

143



$

901


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

$

170



$

162



$

177



$

635


Diluted net income from continuing operations per share attributable to DaVita Inc.

$

0.85



$

0.80



$

0.73



$

4.71


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

$

0.92



$

0.85



$

0.90



$

3.32










2. Consolidated Business Metrics:








Expenses








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

9.5

%


9.9

%


10.6

%


9.8

%

Consolidated effective tax rate

(320.9)

%


31.3

%


32.0

%


23.1

%

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

(2,590.5)

%


37.2

%


36.8

%


26.4

%

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

40.4

%


35.9

%


36.1

%


39.1

%









3. Summary of Division Financial Results:








Net revenues








Kidney Care:








U.S. dialysis and related lab services

$

2,393



$

2,370



$

2,323



$

9,360


Other—Ancillary services and strategic initiatives








U.S. ancillary services and strategic initiatives

316



323



338



1,268


International

95



91



58



328



410



414



396



1,596


Eliminations

(23)



(19)



(19)



(80)


Total net consolidated revenues

$

2,781



$

2,765



$

2,699



$

10,877


Operating income (loss)








Kidney Care:








U.S. dialysis and related lab services

$

459



$

443



$

436



$

2,297


Other—Ancillary services and strategic initiatives








U.S. ancillary services and strategic initiatives

(2)



(19)



(59)



(110)


International

(294)



(17)



(14)



(329)



(296)



(37)



(73)



(439)


Corporate administrative support

(12)



(11)





(45)


Total consolidated operating income

$

150



$

395



$

363



$

1,813



Prior periods have been revised to conform to current presentation of DMG as discontinued operations.

 

DAVITA INC.

SUPPLEMENTAL FINANCIAL DATA - continued

(unaudited)

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



Three months ended


Year ended
December 31,
 2017


December 31,
2017


September 30,
2017


December 31,
2016


4. Summary of Reportable Segment Financial Results:








U.S. Dialysis and Related Lab Services








Revenue:








Dialysis and related lab patient services revenues

$

2,536



$

2,484



$

2,427



$

9,822


Provision for uncollectible accounts

(148)



(118)



(109)



(482)


Net dialysis and related lab patient service operating revenues

2,388



2,366



2,318



9,340


Other revenues

5



5



5



20


Total net operating revenues

2,393



2,370



2,323



9,360


Operating expenses:








Patient care costs

1,619



1,607



1,568



6,334


General and administrative

186



197



199



760


Depreciation and amortization

134



132



124



521


Equity investment income

(5)



(8)



(4)



(25)


Gain on settlement, net







(527)


Total operating expenses

1,934



1,928



1,887



7,063


Segment operating income

$

459



$

443



$

436



$

2,297


Reconciliation for non-GAAP measure:








Less:








Gain on settlement, net







(527)


Equity investment income related to gain on settlement







(3)


Adjusted segment operating income(1)

$

459



$

443



$

436



$

1,768










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








Volume








Treatments

7,244,555



7,186,280



6,889,069



28,271,113


Number of treatment days

78.5



79.0



79.0



312.5


Treatments per day

92,287



90,966



87,203



90,468


Per day year over year increase

5.8

%


4.3

%


3.7

%


4.5

%

Normalized non-acquired treatment growth year over year

3.5

%


3.3

%


4.0

%



Operating net revenues








Dialysis and related lab services revenue per treatment

$

350.10



$

345.61



$

352.38



$

347.43


Less: Provision for uncollectible accounts per treatment

(20.42)



(16.42)



(15.87)



(17.05)


Dialysis and related lab services net revenue per treatment

$

329.68



$

329.19



$

336.51



$

330.38


Net revenue per treatment changes from previous quarter

0.1

%


(0.2)

%


(0.1)

%



Net revenue per treatment changes from previous year

(2.0)

%


(2.2)

%


1.2

%


(1.6)

%

Percent of consolidated net revenues

85.5

%


85.2

%


85.6

%


85.5

%


Prior periods have been revised to conform to current presentation of DMG as discontinued operations.

 

DAVITA INC.

SUPPLEMENTAL FINANCIAL DATA - continued

(unaudited)

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



Three months ended


Year ended
December 31,
 2017


December 31,
2017


September 30,
2017


December 31,
2016


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








Expenses








Patient care costs








Percent of total segment operating net revenues

67.6

%


67.8

%


67.5

%


67.7

%

Per treatment

223.47



223.58



227.68



224.05


Per treatment changes from previous quarter

%


0.8

%


0.2

%



Per treatment changes from previous year

(1.8)

%


(1.6)

%


3.6

%


(1.0)

%

General and administrative expenses








Percent of total segment operating net revenues

7.8

%


8.3

%


8.5

%


8.1

%

Per treatment

25.67



27.36



28.82



26.87


Per treatment changes from previous quarter

(6.2)

%


1.9

%


5.3

%



Per treatment changes from previous year

(10.9)

%


%


5.9

%


(2.8)

%

Accounts receivable








Net receivables

1,524



1,532



1,358




DSO

60



60



55




Provision for uncollectible accounts as a percentage of revenues

5.83

%


4.75

%


4.50

%


4.91

%









6. Discontinued Operations








Operating results








Net revenues

$

1,215



$

1,178



$

1,037



$

4,676


Expenses

1,238



1,165



1,018



4,635


Goodwill impairment charges



601





652


(Loss) income from discontinued operations before taxes

(23)



(587)



18



(610)


Income tax benefit (expense)

167



216



(7)



365


Net income (loss) from discontinued operations, net of tax

$

144



$

(371)



$

12



$

(245)










7. Cash Flow:








Operating cash flow

$

342.9



$

553.1



$

482.2



$

1,907.4


Operating cash flow from continuing operations

$

286.7



$

355.3



$

431.9



$

1,555.9


Operating cash flow from continuing operations, last twelve months

$

1,555.9



$

1,701.1



$

1,676.4




Free cash flow from continuing operations(1)

$

149.9



$

220.6



$

289.7



$

1,042.3


Free cash flow from continuing operations, last twelve months(1)

$

1,042.3



$

1,182.0



$

1,190.2




Capital expenditures from continuing operations:








Routine maintenance/IT/other

91.4



85.4



94.9



302.7


Development and relocations

151.8



131.2



130.2



507.4


Acquisition expenditures

57.0



30.4



66.5



668.5



Prior periods have been revised to conform to current presentation of DMG as discontinued operations.

 

DAVITA INC.

SUPPLEMENTAL FINANCIAL DATA - continued

(unaudited)

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



Three months ended


Year ended
December 31,
 2017


December 31,
2017


September 30,
2017


December 31,
2016


8. Debt and Capital Structure:








Total debt(3)

$

9,400



$

9,132



$

9,185




Net debt, net of cash and cash equivalents(3)(4)

$

8,892



$

8,603



$

8,510




Leverage ratio (see calculation on page 15)

3.63x



3.45x



3.16x




Overall weighted average effective interest rate during the quarter

4.80

%


4.77

%


4.49

%



Overall weighted average effective interest rate at end of the quarter

4.88

%


4.78

%


4.52

%



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

4.45

%


4.22

%


3.68

%



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

52

%


53

%


53

%



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

89

%


92

%


91

%




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

Prior periods have been revised to conform to current presentation of DMG as discontinued operations.













(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 and other ancillary services and strategic initiatives. General and administrative expenses includes certain corporate support and long-term incentive compensation, and for the three months ended September 30, 2017 and year ended December 31, 2017, includes restructuring charges.



(3)

The reported balance sheet amounts at December 31, 2017, September 30, 2017, and December 31, 2016, exclude $64.0 million, $67.9 million and $79.9 million, respectively, of a debt discount associated with our Term Loan B and other deferred financing costs. The reported balance sheet amounts exclude DMG debt which is classified as held for sale liabilities for all periods presented.



(4)

The reported net debt, net of cash and cash equivalents excludes DMG cash classified as held for sale assets for all periods presented.



(5)

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

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
December 31, 2017

Net income attributable to DaVita Inc.

$

663,618


Income taxes

(40,998)


Interest expense

395,215


Depreciation and amortization

777,485


Impairment charges

981,589


Noncontrolling interests and equity investment income, net

196,309


Stock-settled stock-based compensation

34,981


Gain on changes in ownership interest, net

(23,402)


Gain on settlement, net

(529,504)


Other

4,673


"Consolidated EBITDA"

$

2,459,966





December 31, 2017

Total debt, excluding debt discount and other deferred financing costs of $64.0 million

$

9,438,029


Letters of credit issued

104,679



9,542,708


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

(619,343)


Consolidated net debt

$

8,923,365


Last twelve months "Consolidated EBITDA"

$

2,459,966


Leverage ratio

3.63x


In accordance with the Credit Agreement, the Company's leverage ratio cannot exceed 4.50 to 1.00 as of December 31, 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 from continuing operations and adjusted diluted net income from continuing operations per share attributable to DaVita Inc.

We believe that adjusted net income from continuing operations and adjusted diluted net income from continuing operations per share attributable to DaVita Inc., excluding the impact of recent federal tax reform legislation, goodwill impairment charges, investment and other asset impairment charges, restructuring charges, a net settlement gain, gain on the APAC JV ownership changes, and estimated accruals for certain legal matters, enhances a user's understanding of our normal net income from continuing operations attributable to DaVita Inc. and diluted net income from continuing operations 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 from continuing operations attributable to DaVita Inc. and diluted net income from continuing operations 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 from continuing operations attributable to DaVita Inc. and diluted net income from continuing operations per share attributable to DaVita Inc.


Three months ended


Year ended


December 31,
2017


September 30,
2017


December 31,
2016


December 31,
2017


December 31,
2016

Net income from continuing operations attributable to DaVita Inc.

$

156,210



$

152,870



$

142,696



$

901,277



$

1,032,373


Tax reform

(251,510)







(251,510)




Goodwill impairment charges





28,415



34,696



28,415


Equity investment loss related to APAC JV goodwill impairment



6,293





6,293




Impairment of investments

280,066





14,993



280,066



14,993


Impairment of other assets







15,168




Restructuring charges



1,700





1,700




Equity investment loss related to restructuring charges



1,000





1,000




Gain on settlement, net







(526,827)




Equity investment income related to gain on settlement







(2,677)




Gain on APAC JV ownership changes







(6,273)



(374,374)


Accruals for legal matters





15,770





15,770


Noncontrolling interests associated with adjustments:










Goodwill impairment charges





(8,078)



(9,865)



(8,078)


Gain on settlement, net







24,029




Related income tax

(14,418)



(76)



(16,792)



167,818



(16,792)


Adjusted net income from continuing operations attributable to DaVita Inc.

$

170,348



$

161,787



$

177,004



$

634,895



$

692,307



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


Year ended


December 31,
2017


September 30,
2017


December 31,
2016


December 31,
2017


December 31,
2016

Diluted net income from continuing operations per share attributable to DaVita Inc.

$

0.85



$

0.80



$

0.73



$

4.71



$

5.04


Tax reform

(1.36)







(1.31)




Goodwill impairment charges





0.14



0.18



0.14


Equity investment loss related to APAC JV goodwill impairment



0.03





0.03




Impairment of investments

1.52





0.08



1.46



0.07


Impairment of other assets







0.08




Restructuring charges



0.01





0.01




Equity investment loss related to restructuring charges



0.01





0.01




Gain on settlement, net







(2.75)




Equity investment income related to gain on settlement







(0.01)




Gain on APAC JV ownership changes







(0.03)



(1.83)


Accruals for legal matters





0.08





0.08


Noncontrolling interests associated with adjustments:










Goodwill impairment charges





(0.04)



(0.05)



(0.04)


Gain on settlement, net







0.13




Related income tax

(0.08)





(0.09)



0.88



(0.08)


Adjusted diluted net income from continuing operations per share attributable to DaVita Inc.

$

0.92



$

0.85



$

0.90



$

3.32



$

3.38



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)

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 impairment charges, investment and other asset impairment charges, restructuring charges, a net settlement gain, gain on the APAC JV ownership changes, and estimated accruals for certain legal matters.

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


Year ended


December 31,
2017


September 30,
2017


December 31,
2016


December 31,
2017


December 31,
2016

Consolidated:










Operating income

$

150,337



$

395,294



$

363,445



$

1,812,755



$

2,029,710


Goodwill impairment charges





28,415



34,696



28,415


Equity investment loss related to APAC JV goodwill impairment



6,293





6,293




Impairment of investments

280,066





14,993



280,066



14,993


Impairment of other assets







15,168




Restructuring charges



1,700





1,700




Equity investment loss related to restructuring charges



1,000





1,000




Gain on settlement, net







(526,827)




Equity investment income related to gain on settlement







(2,677)




Gain on APAC JV ownership changes







(6,273)



(374,374)


Accruals for legal matters





15,770





15,770


Adjusted operating income

$

430,403



$

404,287



$

422,623



$

1,615,901



$

1,714,514



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)



Three months ended


Year ended


December 31,
2017


September 30,
2017


December 31,
2016


December 31,
2017


December 31,
2016

Kidney Care:










U.S. dialysis and related lab services:










Segment operating income

$

459,210



$

442,777



$

435,581



$

2,297,198



$

1,777,014


Gain on settlement, net







(526,827)




Equity investment income related to gain on settlement







(2,677)




Adjusted U.S. dialysis and related lab services operating income

459,210



442,777



435,581



1,767,694



1,777,014


Other - Ancillary services and strategic initiatives:










U.S. ancillary services and strategic initiatives










Segment operating loss

(2,452)



(19,245)



(58,562)



(110,269)



(65,586)


Goodwill impairment charges





28,415



34,696



28,415


Impairment of other assets







15,168




Accruals for legal matters





15,770





15,770


Adjusted operating loss

(2,452)



(19,245)



(14,377)



(60,405)



(21,401)


International dialysis










Segment operating (loss) income

(294,043)



(17,273)



(13,273)



(329,209)



331,910


Impairment of investments

280,066





14,993



280,066



14,993


Equity investment loss related to APAC JV goodwill impairment



6,293





6,293




Restructuring charges



1,700





1,700




Equity investment loss related to restructuring charges



1,000





1,000




Gain on APAC JV ownership changes







(6,273)



(374,374)


Adjusted operating (loss) income

(13,977)



(8,279)



1,720



(46,422)



(27,471)


Adjusted Other - Ancillary services and strategic initiatives operating loss

(16,428)



(27,524)



(12,657)



(106,827)



(48,872)


Corporate administrative support:










Segment operating loss

(12,378)



(10,965)



(301)



(44,966)



(13,628)


Adjusted Kidney Care operating income

$

430,403



$

404,287



$

422,623



$

1,615,901



$

1,714,514



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)

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 the impact of recent federal tax reform legislation, goodwill impairment charges, investment and other asset impairment charges, restructuring charges, a net settlement gain, gain on the APAC JV ownership changes, and estimated accruals for certain legal matters, 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


Year ended
December 31,
 2017


December 31,
2017


September 30,
2017


December 31,
2016


Income from continuing operations before income taxes

$

46,825



$

289,384



$

259,669



$

1,399,786


Income tax (benefit) expense

$

(150,267)



$

90,546



$

83,171



$

323,859


Effective income tax rate

(320.9)

%


31.3

%


32.0

%


23.1

%



Three months ended


Year ended
December 31,
 2017


December 31,

2017


September 30,

2017


December 31,

2016


Income from continuing operations before income taxes

$

46,825



$

289,384



$

259,669



$

1,399,786


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

(41,019)



(46,010)



(33,904)



(175,176)


Income before income taxes attributable to DaVita Inc.

$

5,806



$

243,374



$

225,765



$

1,224,610










Income tax (benefit) expense

$

(150,267)



$

90,546



$

83,171



$

323,859


Less: Income tax attributable to noncontrolling interests

(137)



(42)



(102)



(526)


Income tax (benefit) expense attributable to DaVita Inc.

$

(150,404)



$

90,504



$

83,069



$

323,333










Effective income tax rate attributable to DaVita Inc.

(2,590.5)

%


37.2

%


36.8

%


26.4

%


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

DAVITA INC.
RECONCILIATIONS FOR NON-GAAP MEASURES - continued
(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


Year ended
December 31,
 2017

December 31,
2017


September 30,
2017


December 31,
2016


Income from continuing operations before income taxes

$

46,825



$

289,384



$

259,669



$

1,399,786


Goodwill impairment charges





28,415



34,696


Equity investment loss related to APAC JV goodwill impairment



6,293





6,293


Impairment of investments

280,066





14,993



280,066


Impairment of other assets







15,168


Restructuring charges



1,700





1,700


Equity investment loss related to restructuring charges



1,000





1,000


Gain on settlement, net







(526,827)


Equity investment income related to gain on settlement







(2,677)


Gain on APAC JV ownership changes







(6,273)


Accruals for legal matters





15,770




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

(41,019)



(46,010)



(33,904)



(175,176)


Noncontrolling interests associated with adjustments








Goodwill impairment charges





(8,078)



(9,865)


Gain on settlement, net







24,029


Adjusted income from continuing operations before income taxes attributable to DaVita Inc.

$

285,872



$

252,367



$

276,865



$

1,041,920


Income tax (benefit) expense

$

(150,267)



$

90,546



$

83,171



$

323,859


Add income tax related to:








Tax reform

251,510







251,510


Goodwill impairment charges





7,342



9,418


Impairment of investments

14,418





5,360



14,418


Impairment of other assets







5,752


Restructuring charges



76





76


Accruals for legal matters





4,090




Less income tax related to:








Gain on settlement, net







(197,482)


Noncontrolling interests

(137)



(42)



(102)



(526)


Adjusted income tax attributable to DaVita Inc.

$

115,524



$

90,580



$

99,861



$

407,025


Adjusted effective income tax rate attributable to DaVita Inc.

40.4

%


35.9

%


36.1

%


39.1

%


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

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

Note 5:   Free cash flow from continuing operations.

Free cash flow from continuing operations represents net cash provided by operating activities from continuing operations less distributions to noncontrolling interests and capital expenditures for routine maintenance and information technology from continuing operations. We believe free cash flow from continuing operations is a useful adjunct to cash flow from operating activities from continuing operations and other measurements under GAAP, since free cash flow from continuing operations is a meaningful measure of our ability to fund acquisitions and development activities and meet our debt service requirements. In addition, free cash flow from continuing operations excluding distributions to noncontrolling interests provides a user with an understanding of free cash flows from continuing operations that are attributable to DaVita Inc. Free cash flow from continuing operations 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 from continuing operations, as an indicator of cash flows or as a measure of liquidity.


Three months ended


December 31,
2017


September 30,
2017


December 31,
2016

Cash provided by continuing operating activities

$

286,716



$

355,334



$

431,927


Less: Distributions to noncontrolling interests

(45,429)



(49,388)



(47,329)


Cash provided by continuing operating activities attributable to DaVita Inc.

241,287



305,946



384,598


Less: Expenditures for routine maintenance and information technology

(91,355)



(85,389)



(94,942)


Free cash flow from continuing operations

$

149,932



$

220,557



$

289,656




Rolling 12-Month Period


December 31,
2017


September 30,
2017


December 31,
2016

Cash provided by continuing operating activities

$

1,555,892



$

1,701,103



$

1,676,395


Less: Distributions to noncontrolling interests

(210,892)



(212,792)



(192,133)


Cash provided by continuing operating activities attributable to DaVita Inc.

1,345,000



1,488,311



1,484,262


Less: Expenditures for routine maintenance and information technology

(302,697)



(306,284)



(294,032)


Free cash flow from continuing operations

$

1,042,303



$

1,182,027



$

1,190,230



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

 

DaVita logo. (PRNewsFoto/DaVita)

 

SOURCE DaVita Inc.


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