Improving Health, Health Care and Quality of Life

DaVita Inc. 2nd Quarter 2019 Results

DENVER, Aug. 1, 2019 /PRNewswire/ -- DaVita Inc. (NYSE: DVA) today announced results for the quarter ended June 30, 2019.

Second quarter 2019 financial highlights:

  • Completed the sale of our DMG division to Optum.
  • Consolidated revenues of $2,843 million.
  • Operating income of $462 million.
  • Cash flows from continuing operations of $574 million.

 


Three months ended June 30,


Six months ended June 30,


2019


2018


2019


2018

Net income attributable to DaVita Inc.:

(dollars in millions, except per share data)


Net income from continuing operations

$

194



$

200



$

314



$

391



Per share

$

1.16



$

1.15



$

1.89



$

2.19



Adjusted net income from continuing operations(1)

$

203



$

183



$

356



$

374



Per share adjusted(1)

$

1.22



$

1.05



$

2.13



$

2.10



Net income

$

274



$

267



$

423



$

446



Per share

$

1.64



$

1.53



$

2.54



$

2.51











Three months ended June 30,


Six months ended June 30,


2019


2018


2019


2018

Operating income:

(dollars in millions)


Operating income

$

462



$

438



$

802



$

849



Adjusted operating income(1)

$

462



$

419



$

843



$

829










(1) 

For the definitions of non-GAAP financial measures see the note titled "Note on Non-GAAP Financial Measures" and related reconciliations beginning at page 14.

DaVita Medical Group sale: As previously disclosed, on June 19, 2019, we completed the sale of our DaVita Medical Group (DMG) division to Collaborative Care Holdings, LLC (Optum), a subsidiary of UnitedHealth Group Inc., for an aggregate purchase price of $4.34 billion, prior to certain adjustments specified in the related purchase agreement, as amended. We recorded a preliminary pre-tax net loss of approximately $23 million related to this divestiture.

Upon the completion of the DMG sale we were required to make mandatory prepayments on debt outstanding under our senior secured credit facility, and we subsequently used the full $4.47 billion in preliminary net proceeds received at closing to prepay term debt outstanding. As a result of these prepayments we recognized a charge of $12 million to write off debt discount and deferred financing costs.

Financial and operating metrics:


Three months ended June 30,


Six months ended June 30,


2019


2018


2019


2018

Cash flow:

(dollars in millions)


Operating cash flow

$

610



$

562



$

751



$

925



Operating cash flow from continuing operations

$

574



$

606



$

647



$

812



Free cash flow from continuing operations(1)

$

461



$

470



$

410



$

532










(1) 

For the definitions of non-GAAP financial measures see the note titled "Note on Non-GAAP Financial Measures" and related reconciliations beginning at page 14.

Volume:  Total U.S. dialysis treatments for the second quarter of 2019 were 7,520,587, or an average of 96,418 treatments per day, representing a per day increase of 2.6% over the second quarter of 2018. Normalized non-acquired treatment growth in the second quarter of 2019 as compared to the second quarter of 2018 was 2.1%.

Effective income tax rate:  Our effective income tax rate on income from continuing operations was 23.5% and 24.6% for the three and six months ended June 30, 2019, respectively. This effective income tax rate is impacted by the amount of third party owners' income attributable to non-tax paying entities. The effective income tax rate on income from continuing operations attributable to DaVita Inc. was 28.0% and 29.6% for the three and six months ended June 30, 2019, respectively.

Our effective income tax rate on income from continuing operations attributable to DaVita Inc. for the three and six months ended June 30, 2019 was further impacted by the write-off of deferred financing costs and other debt costs and the six months ended June 30, 2019 was also impacted by the goodwill impairment charge recognized in the first quarter of 2019. Excluding these items from the three and six months ended June 30, 2019, our effective income tax rate on adjusted income from continuing operations attributable to DaVita Inc. would have been 27.9% and 28.9% for the three and six months ended June 30, 2019, respectively.

Center activity:  As of June 30, 2019, we provided dialysis services to a total of approximately 231,700 patients at 2,971 outpatient dialysis centers, of which 2,723 centers were located in the United States and 248 centers were located in nine countries outside of the United States. During the second quarter of 2019, we opened a total of 33 new dialysis centers, acquired three dialysis centers and closed two dialysis centers in the United States. In addition, we acquired five dialysis centers outside of the United States during the second quarter of 2019.

Share repurchases:  During the quarter ended June 30, 2019, we repurchased a total of 2,059,976 shares of our common stock for approximately $112 million at an average price of $54.46 per share. We have also repurchased 4,214,205 shares of our common stock for $238 million at an average price of $56.43 per share from July 1, 2019 through July 17, 2019. On July 17, 2019, our Board of Directors terminated all remaining prior share repurchase authorizations available to the Company and approved a new share repurchase authorization in the amount of $2.0 billion.

On July 22, 2019, we commenced a modified "Dutch auction" tender offer for up to $1.2 billion of our common stock at a price per share not less than $53.50 and not more than $61.50. The tender offer will expire at 12:00 midnight Eastern time at the end of the day on August 16, 2019, unless extended or terminated. The tender offer is contingent on successful execution of the bank financing described below on terms reasonably acceptable to the Company.

Debt Transactions:   As previously announced, we plan to enter into a new bank financing consisting of a $1.0 billion secured revolving loan facility, a $1.75 billion secured term loan A facility with a delayed draw feature and a $2.5 billion secured term loan B facility. We expect to use the proceeds from the bank financing to pay off the remaining balances outstanding under our Term Loan B and revolving line of credit under our existing senior secured credit facility, to call the Company's outstanding 5.75% Senior Notes due 2022 (Senior Notes), to fund the tender offer described above, and to add cash to the balance sheet for potential future share repurchases, acquisitions, and other general corporate purposes. This press release does not constitute a call notice. The Company expects the call notice for the Senior Notes to be issued following completion of the bank financing.

As of July 31, 2019, $502 million and $650 million remained outstanding on our Term Loan B and revolving line of credit, respectively, under our existing senior secured credit facility.

Outlook:

As previously announced on July 22, 2019, the Company updated its adjusted operating income (a non-GAAP financial measure) guidance for fiscal year 2019 to a range of $1.64 billion to $1.70 billion. The Company's prior guidance at the time for adjusted operating income for fiscal year 2019 was $1.54 billion to $1.64 billion.

The Company is now providing further fiscal year 2019 guidance as follows:


Current 2019 guidance


Prior 2019 guidance


Low


High


Low


High


(dollars in millions)

Operating cash flow from continuing operations

$

1,450



$

1,625



$

1,375



$

1,575


Capital expenditures from continuing operations

$

800



$

840



$

800



$

840


Effective income tax rate on adjusted income from continuing operations attributable to DaVita Inc.

28.5

%


29.5

%


28.5

%


29.5

%

These forward-looking measures and their 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 or effective tax rate on income from continuing operations on a GAAP basis nor a reconciliation of 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 goodwill impairment charges and foreign currency fluctuations, any of which may be significant. The guidance for effective income tax rate on adjusted income from continuing operations attributable to DaVita Inc. also excludes the amount of third party owners' income and related taxes attributable to non-tax paying entities.

We will be holding a conference call to discuss our results for the second quarter ended June 30, 2019, on August 1, 2019, at 5:00 p.m. Eastern Time. To join the conference call, please dial (877) 918-6630 from the U.S. or (517) 308-9042 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.

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," "intend," "will," "plan," "anticipate," "believe," "we are confident that," "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 solely on information available to us on the date of this release. 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 2019 adjusted consolidated operating income, our 2019 operating cash flow from continuing operations, our 2019 effective income tax rate on adjusted income from continuing operations attributable to DaVita Inc., our 2019 capital expenditures from continuing operations, our expectations regarding the tender offer, the proposed bank financing and the use of proceeds therefrom, and the proposed redemption of our Senior Notes.

Our actual results and other events 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:

  • 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 reform, or changes in or new legislation, regulations or guidance, enforcement thereof or related litigation, and the extent to which such developments result in a reduction in coverage or reimbursement rates for our services, a reduction in the number of patients enrolled in higher-paying commercial plans, or other material impacts to our business;
  • a reduction in government payment rates under the Medicare End Stage Renal Disease program or other government-based programs and the impact of the Medicare Advantage benchmark structure;
  • risks arising from potential and proposed federal and/or state legislation, regulation, ballot, executive action or other initiatives, including such initiatives related to healthcare and/or labor matters;
  • the impact of the changing political environment and related developments on the current healthcare 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 practice patterns, reimbursement and payment policies and processes, or pharmaceutical pricing, including with respect to calcimimetics;
  • legal and compliance risks, such as our continued compliance with complex government regulations and the provisions of our current corporate integrity agreement;
  • continued increased competition from dialysis providers and others, and other potential marketplace changes;
  • 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 in markets outside the United States, or to businesses outside of dialysis; and our ability to complete the tender offer, new bank financing and redemption of our Senior Notes as described above on the terms currently contemplated or at all;
  • noncompliance by us or our business associates with any privacy or security laws or any security breach by us or a third party involving the misappropriation, loss or other unauthorized use or disclosure of confidential information;
  • the variability of our cash flows; the risk that we may not be able to generate sufficient cash in the future to service our indebtedness or to fund our other liquidity needs; and the risk that we may not be able to refinance our indebtedness as it becomes due, on terms favorable to us or at all;
  • factors that may impact our ability to repurchase stock under our stock repurchase program (including the tender offer described above) and the timing of any such stock repurchases;
  • risks arising from the use of accounting estimates, judgments and interpretations in our financial statements;
  • impairment of our goodwill, investments or other assets;
  • uncertainties related to our use of the proceeds from the DMG sale transaction and other available funds, including external financing and cash flow from operations, which may be or have been used in ways that we cannot assure will improve our results of operations or enhance the value of our common stock; and
  • uncertainties associated with the other risk factors set forth in our most recent quarterly report on Form 10-Q, and the other risks and uncertainties discussed in any subsequent reports that we file or furnish to the SEC from time to time.

 

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,


2019


2018


2019


2018

Dialysis and related lab patient service revenues

$

2,734,065



$

2,718,403



$

5,369,217



$

5,309,477


Provision for uncollectible accounts

(10,249)



(49,406)



(15,712)



(23,861)


Net dialysis and related lab patient service revenues

2,723,816



2,668,997



5,353,505



5,285,616


Other revenues

118,889



217,956



232,312



450,781


Total revenues

2,842,705



2,886,953



5,585,817



5,736,397


Operating expenses and charges:








Patient care costs

1,957,753



2,069,089



3,922,688



4,104,674


General and administrative

275,338



264,094



526,151



530,623


Depreciation and amortization

152,242



147,079



300,770



289,878


Provision for uncollectible accounts



(2,100)





(8,100)


Equity investment income

(4,514)



(9,795)



(7,222)



(9,950)


Impairment of other assets



11,245





11,245


Goodwill impairment charges



3,106



41,037



3,106


Gain on changes in ownership interest, net



(33,957)





(33,957)


Total operating expenses and charges

2,380,819



2,448,761



4,783,424



4,887,519


Operating income

461,886



438,192



802,393



848,878


Debt expense

(131,666)



(119,692)



(263,185)



(233,208)


Debt prepayment charges

(12,160)





(12,160)




Other income, net

5,643



1,994



12,583



6,576


Income from continuing operations before income taxes

323,703



320,494



539,631



622,246


Income tax expense

75,938



83,868



132,684



154,605


Net income from continuing operations

247,765



236,626



406,947



467,641


Net income from discontinued operations, net of tax

79,392



69,696



109,697



63,910


Net income

327,157



306,322



516,644



531,551


Less: Net income attributable to noncontrolling interests

(53,606)



(39,046)



(93,804)



(85,589)


Net income attributable to DaVita Inc.

$

273,551



$

267,276



$

422,840



$

445,962


Earnings per share attributable to DaVita Inc.:








Basic net income from continuing operations per share

$

1.17



$

1.16



$

1.89



$

2.23


Basic net income per share

$

1.64



$

1.56



$

2.54



$

2.54


Diluted net income from continuing operations per share

$

1.16



$

1.15



$

1.89



$

2.19


Diluted net income per share

$

1.64



$

1.53



$

2.54



$

2.51


Weighted average shares for earnings per share:








Basic

166,346,041



171,617,238



166,366,886



175,267,270


Diluted

166,799,525



174,105,884



166,789,978



177,949,934


Amounts attributable to DaVita Inc.:








Net income from continuing operations

$

194,223



$

199,603



$

314,477



$

390,618


Net income from discontinued operations

79,328



67,673



108,363



55,344


Net income attributable to DaVita Inc.

$

273,551



$

267,276



$

422,840



$

445,962


 

DAVITA INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

 (dollars in thousands)



Three months ended June 30,


Six months ended June 30,


2019


2018


2019


2018

Net income

$

327,157



$

306,322



$

516,644



$

531,551


Other comprehensive income, net of tax:








Unrealized (losses) gains on interest rate cap agreements:








Unrealized (losses) gains

(31)



(268)



(611)



782


Reclassifications of net realized losses into net income

1,606



1,537



3,212



3,074


Unrealized gains (losses) on foreign currency translation:








Foreign currency translation adjustments

12,365



(50,529)



(1,288)



(30,648)


Other comprehensive income (loss)

13,940



(49,260)



1,313



(26,792)


Total comprehensive income

341,097



257,062



517,957



504,759


Less: Comprehensive income attributable to noncontrolling interests

(53,606)



(39,046)



(93,804)



(85,589)


Comprehensive income attributable to DaVita Inc.

$

287,491



$

218,016



$

424,153



$

419,170


 

DAVITA INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(dollars in thousands)



Six months ended June 30,


2019


2018

Cash flows from operating activities:




Net income

$

516,644



$

531,551


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




Depreciation and amortization

300,770



289,878


Impairment charges

41,037



14,351


Stock-based compensation expense

29,045



19,861


Deferred income taxes

60,706



56,882


Equity investment income (loss), net

2,631



(434)


Loss (gain) on sales of business interests, net

23,022



(59,053)


Other non-cash charges, net

25,857



44,337


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




Accounts receivable

(288,437)



(101,746)


Inventories

11,542



71,632


Other receivables and other current assets

(5,142)



(91,685)


Other long-term assets

(410)



3,454


Accounts payable

(68,887)



35,228


Accrued compensation and benefits

(88,473)



23,818


Other current liabilities

151,780



58,321


Income taxes

57,551



24,356


Other long-term liabilities

(18,121)



3,824


Net cash provided by operating activities

751,115



924,575


Cash flows from investing activities:




Additions of property and equipment

(373,918)



(473,977)


Acquisitions

(65,970)



(89,465)


Proceeds from asset and business sales

3,851,381



116,241


Purchase of other debt and equity investments

(4,812)



(4,195)


Purchase of investments held-to-maturity

(3,322)



(3,726)


Proceeds from sale of other debt and equity investments

5,893



5,662


Proceeds from investments held-to-maturity



32,628


Purchase of equity investments

(6,715)



(10,241)


Distributions received on equity investments

155



3,009


Net cash provided by (used in) investing activities

3,402,692



(424,064)


Cash flows from financing activities:




Borrowings

32,367,300



28,128,131


Payments on long-term debt and other financing costs

(33,531,409)



(27,556,348)


Purchase of treasury stock

(73,078)



(805,179)


Distributions to noncontrolling interests

(95,714)



(94,006)


Stock award exercises and other share issuances, net

2,107



3,132


Contributions from noncontrolling interests

31,281



31,569


Proceeds from sales of additional noncontrolling interest



15


Purchases of noncontrolling interests

(11,040)



(13,223)


Net cash used in financing activities

(1,310,553)



(305,909)


Effect of exchange rate changes on cash, cash equivalents and restricted cash

(77)



(3,473)


Net increase in cash, cash equivalents and restricted cash

2,843,177



191,129


Less: Net (decrease) increase in cash, cash equivalents and restricted cash from discontinued  operations

(423,813)



229,901


Net increase (decrease) in cash, cash equivalents and restricted cash from continuing operations

3,266,990



(38,772)


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

415,420



518,920


Cash, cash equivalents and restricted cash of continuing operations at end of the period

$

3,682,410



$

480,148



 

DAVITA INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

(dollars in thousands, except share data)



June 30, 2019


December 31, 2018

ASSETS




Cash and cash equivalents

$

3,575,638



$

323,038


Restricted cash and equivalents

106,772



92,382


Short-term investments

5,213



2,935


Accounts receivable, net

2,010,801



1,858,608


Inventories

96,819



107,381


Other receivables

525,004



469,796


Income tax receivable

15,783



68,614


Prepaid and other current assets

54,599



111,840


Current assets held for sale, net



5,389,565


Total current assets

6,390,629



8,424,159


Property and equipment, net of accumulated depreciation of $3,649,978 and $3,524,098

3,405,315



3,393,669


Operating lease right-of-use assets

2,790,885




Intangible assets, net of accumulated amortization of $75,283 and $80,566

120,574



118,846


Equity method and other investments

225,677



224,611


Long-term investments

35,051



35,424


Other long-term assets

97,443



71,583


Goodwill

6,865,386



6,841,960



$

19,930,960



$

19,110,252


LIABILITIES AND EQUITY




Accounts payable

$

388,955



$

463,270


Other liabilities

726,011



595,850


Accrued compensation and benefits

628,022



658,913


Current portion of operating lease liabilities

372,625




Current portion of long-term debt

3,591,331



1,929,369


Current liabilities held for sale



1,243,759


Total current liabilities

5,706,944



4,891,161


Long-term operating lease liabilities

2,689,249




Long-term debt

5,377,798



8,172,847


Other long-term liabilities

134,605



450,669


Deferred income taxes

593,562



562,536


Total liabilities

14,502,158



14,077,213


Commitments and contingencies




Noncontrolling interests subject to put provisions

1,185,733



1,124,641


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; 166,532,889 and 166,387,307 shares issued and 164,472,913 and 166,387,307 shares outstanding, respectively)

167



166


Additional paid-in capital

989,021



995,006


Retained earnings

3,205,910



2,743,194


Treasury stock (2,059,976 and zero shares, respectively)

(112,189)




Accumulated other comprehensive loss

(33,611)



(34,924)


Total DaVita Inc. shareholders' equity

4,049,298



3,703,442


Noncontrolling interests not subject to put provisions

193,771



204,956


Total equity

4,243,069



3,908,398



$

19,930,960



$

19,110,252



 

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, 2019


June 30,
2019


March 31,
2019


June 30,
2018


1. Consolidated business metrics:








Operating income margin

16.2

%


12.4

%


15.2

%


14.4

%

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

16.2

%


13.9

%


14.5

%


15.1

%

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

9.7

%


9.1

%


9.1

%


9.4

%

Effective income tax rate on income from continuing operations

23.5

%


26.3

%


26.2

%


24.6

%

Effective income tax rate on income from continuing operations attributable to DaVita Inc.(1)

28.0

%


32.0

%


29.5

%


29.6

%

Effective income tax rate on adjusted income from continuing operations attributable to DaVita Inc.(1)

27.9

%


30.1

%


30.7

%


28.9

%









2. Summary of division financial results:








Revenues








U.S. net dialysis and related lab patient services and other

$

2,637



$

2,547



$

2,588



$

5,185


Other—Ancillary services and strategic initiatives








U.S. other

114



109



221



224


International net dialysis patient service and other

125



120



107



245



239



230



328



469


Eliminations

(34)



(34)



(29)



(68)


Total consolidated revenues

$

2,843



$

2,743



$

2,887



$

5,586


Operating income (loss)








U.S. dialysis and related lab services

$

499



$

417



$

449



$

916


Other—Ancillary services and strategic initiatives








U.S.

(16)



(15)



4



(31)


International

1



(43)



(1)



(42)



(15)



(58)



3



(73)


Corporate administrative support expenses

(22)



(19)



(14)



(41)


Total consolidated operating income

$

462



$

341



$

438



$

802


 

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, 2019


June 30,
2019


March 31,
2019


June 30,
2018


3. Summary of reportable segment financial results:








U.S. Dialysis and Related Lab Services








Revenue:








Net dialysis and related lab patient service revenues

$

2,632



$

2,542



$

2,583



$

5,174


Other revenues

6



5



5



10


Total operating revenues

2,637



2,547



2,588



5,185


Operating expenses:








Patient care costs

1,785



1,797



1,810



3,582


General and administrative

216



197



196



413


Depreciation and amortization

145



141



138



285


Equity investment income

(7)



(5)



(6)



(12)


Total operating expenses

2,139



2,130



2,139



4,269


Segment operating income

$

499



$

417



$

449



$

916










4. U.S. Dialysis and Related Lab Services Business metrics:








Volume








Treatments

7,520,587



7,297,460



7,331,590



14,818,046


Number of treatment days

78.0



76.6



78.0



154.6


Average treatments per day

96,418



95,267



93,995



95,848


Per day year over year increase

2.6

%


2.9

%


4.2

%


2.7

%

Normalized non-acquired treatment growth year over year

2.1

%


2.4

%


3.4

%



Operating net revenues








Dialysis and related lab services net revenue per treatment

$

349.97



$

348.37



$

352.37



$

349.18


Expenses








Patient care costs per treatment

$

237.34



$

246.29



$

246.90



$

241.75


General and administrative expenses per treatment

$

28.68



$

27.00



$

26.80



$

27.85


Accounts receivable








Net receivables

$

1,816



$

1,794



$

1,646




DSO

63



64



59












5. Discontinued operations:








Operating results








Net revenues

$

1,331



$

1,382



$

1,252



$

2,713


Expenses

1,202



1,338



1,193



2,540


Income from operations of discontinued operations before taxes

129



44



60



173


Loss on sale of discontinued operations, before taxes

(23)







(23)


Income tax expense (benefit)

27



14



(10)



41


Net income from discontinued operations, net of tax

$

79



$

30



$

70



$

110


 

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, 2019


June 30,
2019


March 31,
2019


June 30,
2018


6. Cash Flow:








Operating cash flow

$

610



$

141



$

562



$

751


Operating cash flow from continuing operations

$

574



$

73



$

606



$

647


Operating cash flow from continuing operations, last twelve months

$

1,316



$

1,348



$

1,454




Free cash flow from continuing operations(1)

$

461



$

(52)



$

470



$

410


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

$

748



$

756



$

902




Capital expenditures from continuing operations:








Routine maintenance/IT/other

$

61



$

80



$

87



$

142


Development and relocations

$

95



$

99



$

132



$

194


Acquisition expenditures

$

54



$

10



$

73



$

64


Proceeds from sale of self-developed properties

$

14



$

12



$

8



$

27










7. Debt and Capital Structure:








Total debt(3)(4)

$

9,004



$

10,512



$

10,002




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

$

5,428



$

10,053



$

9,613




Leverage ratio (see calculation on page 13)

2.47x


4.62x


3.99x



Weighted average effective interest rate:








During the quarter

5.17

%


5.16

%


4.91

%



At end of the quarter

5.30

%


5.14

%


4.99

%



On the senior secured credit facilities at end of the quarter

5.31

%


5.00

%


4.72

%



Debt with fixed and capped rates as a percentage of total debt:








Debt with rates fixed by its terms

54

%


46

%


49

%



Debt with rates fixed or capped by cap agreements

93

%


79

%


84

%



Share repurchases

$

112



$



$

512



$

112


Number of shares repurchased

2,059,976





7,797,712



2,059,976




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)

General and administrative expenses includes certain corporate support, long-term incentive compensation and advocacy costs.

(3)

The reported balance sheet amounts at June 30, 2019, March 31, 2019 and June 30, 2018, exclude $34.5 million, $48.5 million and $57.9 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 March 31, 2019 and June 30, 2018.

(4)

The reported total debt and net debt, net of cash and cash equivalents, excludes DMG cash and debt classified as held for sale assets and liabilities, respectively, as of March 31, 2019 and June 30, 2018.

(5)

Adjusted operating income margin is a calculation of adjusted operating income divided by consolidated 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). As allowed by the Credit Agreement, the Company has elected to calculate debt using the existing GAAP in place at the commencement of the Credit Agreement; therefore, the Company has not adjusted its debt balance to include the lease liabilities under ASC Topic 842. 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, 2019


March 31, 2019


June 30, 2018

Net income attributable to DaVita Inc.

$

548,180



$

129,997



$

534,882


Income taxes

236,479



350,689



(290,623)


Interest expense

476,507



462,877



416,933


Depreciation and amortization

601,927



596,764



677,119


Impairment charges

47,130



103,018



895,457


Noncontrolling interests and equity investment income, net

194,434



173,609



184,438


Stock-settled stock-based compensation

77,766



75,489



37,346


Debt prepayment charges

12,160






Gain on changes in ownership interest, net

(26,646)



(85,699)



(76,182)


Valuation adjustment on disposal group



316,840




Other

56,176



22,712



14,957


"Consolidated EBITDA"

$

2,224,113



$

2,146,296



$

2,394,327









June 30, 2019


March 31, 2019


June 30, 2018

Total debt, excluding debt discount and other deferred financing costs(1)

$

9,003,631



$

10,548,104



$

10,038,699


Letters of credit issued

72,763



79,099



36,917



9,076,394



10,627,203



10,075,616


Less: Cash and cash equivalents including short-term investments(2)

(3,578,751)



(710,603)



(526,819)


Consolidated net debt

$

5,497,643



$

9,916,600



$

9,548,797


Last twelve months "Consolidated EBITDA"

$

2,224,113



$

2,146,296



$

2,394,327


Leverage ratio

2.47x



4.62x



3.99x










(1)

The reported total debt amounts at June 30, 2019, March 31, 2019 and June 30, 2018, exclude $34.5 million, $48.5 million and $57.9 million, respectively, of a debt discount associated with our Term Loan B and other deferred financing costs.

(2)

Excluding DMG's physician owned entities cash for the twelve months ended March 31, 2019 and June 30, 2018 and amounts not readily convertible to cash related to the Company's non-qualified deferred compensation plans for all periods presented.

In accordance with the Credit Agreement, the Company's leverage ratio cannot exceed 4.50 to 1.00 as of June 30, 2019. At that date the Company's leverage ratio did not exceed 4.50 to 1.00.

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

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 its most comparable GAAP measure as presented 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, (gain) loss on ownership changes, restructuring charges, debt prepayment charges and gains and charges associated with settlements; and (ii) the term "effective income tax rate on adjusted income from continuing operations attributable to DaVita Inc." represents the Company's effective tax rate excluding applicable non-GAAP items and noncontrolling owners' income, which 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. However, these non-GAAP measures should not be considered alternatives to the corresponding measures determined under GAAP.

Specifically, we use adjusted operating income, adjusted net income from continuing operations attributable to DaVita Inc. and adjusted diluted net income from continuing operations per share attributable to DaVita Inc. 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 these non-GAAP measures are useful to management, investors and analysts in evaluating our performance over time and relative to competitors, as well as in analyzing the underlying trends in our business. We also believe these presentations enhance a user's understanding of our normal consolidated operating income by excluding certain items which we do not believe are indicative of our ordinary results of operations. As a result, adjusting for these amounts allows for comparison to our normalized prior period results.

In addition, the effective income tax rate on income from continuing operations attributable to DaVita Inc. excludes noncontrolling owners' income, which primarily relates to non-tax paying entities, and the effective income tax rate on adjusted income from continuing operations attributable to DaVita Inc. excludes noncontrolling owners' income and certain non-deductible and other charges which we do not believe are indicative of our ordinary results. Accordingly, we believe these adjusted effective income tax rates are useful to management, investors and analysts in evaluating our performance and establishing expectations for income taxes incurred on our ordinary results attributable to DaVita Inc.

Finally, 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 this non-GAAP measure is useful to management, investors and analysts as an adjunct to cash flows from operating activities from continuing operations and other measures under GAAP, since free cash flow from continuing operations is meaningful for assessing our ability to fund acquisition and development activities and meet our debt service obligations.

It is important to bear in mind that these non-GAAP "adjusted" measures are not measures of financial performance or liquidity under GAAP and should not be considered in isolation from, nor as substitutes for, their most comparable GAAP measures.

The following Notes 2 through 5 provide reconciliations of the non-GAAP financial measures presented in this press release to their most comparable GAAP measures.

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


Three months ended


June 30, 2019


March 31, 2019


June 30, 2018


Dollars


Per share


Dollars


Per share


Dollars


Per share

Net income from continuing operations attributable to DaVita Inc.

$

194,223



$

1.16



$

120,254



$

0.72



$

199,603



$

1.15


Operating charges:












Goodwill impairment charges





41,037



0.25



3,106



0.02


Impairment of other assets









11,245



0.06


Gain on changes in ownership interests, net









(33,957)



(0.20)


Debt prepayment charges

12,160



0.07










Related income tax

(3,130)



(0.02)



(8,865)



(0.05)



2,652



0.02


Adjusted net income from continuing operations attributable to DaVita Inc.

$

203,253



$

1.22



$

152,426



$

0.91



$

182,649



$

1.05


 


Six months ended


June 30, 2019


June 30, 2018


Dollars


Per share


Dollars


Per share

Net income from continuing operations attributable to DaVita Inc.

$

314,477



$

1.89



$

390,618



$

2.19


Operating charges:








Goodwill impairment charges

41,037



0.25



3,106



0.02


Impairment of other assets





11,245



0.06


Gain on changes in ownership interests, net





(33,957)



(0.19)


Debt prepayment charges

12,160



0.07






Related income tax

(11,995)



(0.07)



2,652



0.01


Adjusted net income from continuing operations attributable to DaVita Inc.

$

355,679



$

2.13



$

373,664



$

2.10



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


Three months ended


Six months ended


June 30,
2019


March 31,
2019


June 30,
2018


June 30,
2019


June 30,
2018

Consolidated:










Operating income

$

461,886



$

340,507



$

438,192



$

802,393



$

848,878


Goodwill impairment charges



41,037



3,106



41,037



3,106


Impairment of other assets





11,245





11,245


Gain on changes in ownership interests, net





(33,957)





(33,957)


Adjusted operating income

$

461,886



$

381,544



$

418,586



$

843,430



$

829,272











Three months ended


Six months ended


June 30,
2019


March 31,
2019


June 30,
2018


June 30,
2019


June 30,
2018

Consolidated:










U.S. dialysis and related lab services:










Segment operating income

$

498,957



$

416,981



$

449,443



$

915,939



$

882,822


Other - Ancillary services and strategic initiatives:










U.S.










Segment operating (loss) income

$

(15,652)



$

(14,918)



$

3,953



$

(30,570)



$

(1,233)


Impairment of other assets





11,245





11,245


Gain on changes in ownership interests





(35,205)





(35,205)


Adjusted operating loss

$

(15,652)



$

(14,918)



$

(20,007)



$

(30,570)



$

(25,193)


International










Segment operating income (loss)

$

602



$

(42,712)



$

(1,138)



$

(42,110)



$

(2,942)


Goodwill impairment charge



41,037



3,106



41,037



3,106


Loss on changes in ownership interests





1,248





1,248


Adjusted operating income (loss)

$

602



$

(1,675)



$

3,216



$

(1,073)



$

1,412


Adjusted Other - Ancillary services and strategic initiatives operating loss

$

(15,050)



$

(16,593)



$

(16,791)



$

(31,643)



$

(23,781)


Corporate administrative support expenses

$

(22,021)



$

(18,844)



$

(14,066)



$

(40,866)



$

(29,769)


Adjusted operating income

$

461,886



$

381,544



$

418,586



$

843,430



$

829,272



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 on income from continuing operations attributable to DaVita Inc.


Three months ended


Six months
ended
June 30, 2019


June 30,
2019


March 31,
2019


June 30,
2018


Income from continuing operations before income taxes

$

323,703



$

215,928



$

320,494



$

539,631


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

(53,916)



(39,008)



(37,374)



(92,924)


Income before income taxes attributable to DaVita Inc.

$

269,787



$

176,920



$

283,120



$

446,707










Income tax expense

$

75,938



$

56,746



$

83,868



$

132,684


Less: Income tax attributable to noncontrolling interests

(374)



(80)



(351)



(454)


Income tax expense attributable to DaVita Inc.

$

75,564



$

56,666



$

83,517



$

132,230










Effective income tax rate on income from continuing operations attributable to DaVita Inc.

28.0

%


32.0

%


29.5

%


29.6

%

The effective income tax rate on adjusted income from continuing operations attributable to DaVita Inc. is computed as follows:


Three months ended


Six months
ended
June 30, 2019

June 30,
2019


March 31,
2019


June 30,
2018


Income from continuing operations before income taxes

$

323,703



$

215,928



$

320,494



$

539,631


Operating charges:








Goodwill impairment charges



41,037



3,106



41,037


Impairment of other assets





11,245




Gain on changes in ownership interests, net





(33,957)




Debt prepayment charges

12,160







12,160


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

(53,916)



(39,008)



(37,374)



(92,924)


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

$

281,947



$

217,957



$

263,514



$

499,904


Income tax expense

$

75,938



$

56,746



$

83,868



$

132,684


Add income tax related to:








Goodwill impairment charges



8,865



598



8,865


Impairment of other assets





2,895




Gain on changes in ownership interests, net





(6,145)




Debt prepayment charges

3,130







3,130


Less income tax related to:








Noncontrolling interests

(374)



(80)



(351)



(454)


Income tax on adjusted income from continuing operations attributable to DaVita Inc.

$

78,694



$

65,531



$

80,865



$

144,225


Effective income tax rate on adjusted income from continuing operations attributable to DaVita Inc.

27.9

%


30.1

%


30.7

%


28.9

%


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


Three months ended


Six months
ended
June 30, 2019


June 30,
2019


March 31,
2019


June 30,
2018


Net cash provided by continuing operating activities

$

574,203



$

73,064



$

605,601



$

647,267


Less: Distributions to noncontrolling interests

(51,484)



(44,230)



(48,539)



(95,714)


Cash provided by continuing operating activities attributable to DaVita Inc.

522,719



28,834



557,062



551,553


Less: Expenditures for routine maintenance and information technology

(61,298)



(80,390)



(86,871)



(141,688)


Free cash flow from continuing operations

$

461,421



$

(51,556)



$

470,191



$

409,865


 


Rolling 12-Month Period


June 30,
2019


March 31,
2019


June 30,
2018

Net cash provided by continuing operating activities

$

1,316,331



$

1,347,729



$

1,453,942


Less: Distributions to noncontrolling interests

(198,149)



(195,204)



(188,823)


Cash provided by continuing operating activities attributable to DaVita Inc.

1,118,182



1,152,525



1,265,119


Less: Expenditures for routine maintenance and information technology

(370,587)



(396,160)



(362,883)


Free cash flow from continuing operations

$

747,595



$

756,365



$

902,236



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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