Improving Health, Health Care and Quality of Life

DaVita 3rd Quarter 2009 Results

EL SEGUNDO, Calif.--(BUSINESS WIRE)--Nov. 3, 2009-- DaVita Inc. (NYSE: DVA) today announced results for the quarter ended September 30, 2009. Net income attributable to DaVita Inc. for the three and nine months ended September 30, 2009 was $110.9 million and $313.0 million, or $1.06 per share and $3.00 per share, respectively. This compares to net income attributable to DaVita Inc. for the three and nine months ended September 30, 2008 of $93.9 million and $275.8 million, or $0.89per share and $2.59 per share, respectively.

Financial and operating highlights include:

  • Cash Flow: For the rolling 12 months ended September 30, 2009 operating cash flow was $713 million and free cash flow was $533 million. For the three months ended September 30, 2009 operating cash flow was$167 million and free cash flow was $125 million.
  • Operating Income: Operating income for the three and nine months ended September 30, 2009 was $245 million and $702 million, respectively, as compared to $222 million and $646 million, respectively, for the same periods of 2008.
  • Volume: Total treatments for the third quarter of 2009 were 4,339,195, or 54,927 treatments per day, representing a per day increase of 6.1% over the third quarter of 2008. Non-acquired treatment growth in the quarter was 5.2% over the prior year’s third quarter.
  • Effective Tax Rate: Our effective tax rate was 37.0% and 37.2% for the three and nine months endedSeptember 30, 2009, respectively. This effective tax rate is impacted by the amount of third party owners’ income attributable to non-tax paying entities. The effective tax rate attributable to DaVita Inc. was 40.0% for the three and nine months ended September 30, 2009 which was in the range of our previously stated guidance. Our effective tax rate for 2009 is projected to be in the range of 36.5% to 37.5% and our 2009 effective tax rate attributable to DaVita Inc. is still projected to be in a range of 39.5% to 40.5%.
  • Share Repurchases: During the third quarter of 2009, we repurchased a total of 1,108,784 shares of our common stock for $62.4 million, or an average price of $56.25 per share. For the first nine months of 2009 we repurchased a total of 1,853,184 shares of our common stock for $94.4 million, or an average price of $50.93per share. In addition, we repurchased 1,049,435 shares of our common stock for $59.1 million, or an average price of $56.32 per share, from October 1, 2009 through October 7, 2009. All of these share repurchases were consummated pursuant to previously announced authorizations by our Board of Directors. On October 8, 2009, our Board of Directors authorized an additional $500 million for share repurchases. We have not repurchased any additional shares of our common stock under this authorization. Therefore, the total outstanding authorization for share repurchases is currently $500 million.
  • Center Activity: As of September 30, 2009, we operated or provided administrative services at 1,513 outpatient dialysis centers serving approximately 117,000 patients, of which 1,481 centers are consolidated in our financial statements. During the third quarter of 2009, we acquired four centers, opened 21 new centers, merged five centers, closed one center and provided administrative and management services to one additional third-party owned center.

Outlook

We are raising our operating income guidance range for 2009 from $900-$930 million to $930-$950 million. Also, we may modestly exceed the upper end of our previous operating cash flow guidance of$550-$600 million. Currently we expect our operating income for 2010 to be in the range of $950 million to $1.02 billion. These projections and the underlying assumptions involve significant risks and uncertainties, including those described below, and actual results may vary significantly from these current projections.

DaVita will be holding a conference call to discuss its results for the third quarter ended September 30, 2009 on November 3, 2009 at 5:00 p.m. Eastern Time. The dial in number is (800) 399-4406. A replay of the conference call will be available on DaVita’s official web page, www.davita.com, for the following 30 days.

This release contains forward-looking statements, including statements related to our 2009 and 2010 operating income, 2009 operating cash flow and 2009 expected effective tax rate and the expected effective tax rate attributable to DaVita Inc. Factors which could impact future results include the uncertainties associated with governmental regulations, general economic and other market conditions, competition, accounting estimates, the variability of our cash flows and the risk factors set forth in our SEC filings, including our Form 10-K for the year ended December 31, 2008 and subsequent quarterly reports on Form 10-Q. The forward-looking statements should be considered in light of these risks and uncertainties.

These risks and uncertainties include those relating to:

  • the concentration of profits generated from commercial payor plans,
  • continued downward pressure on average realized payment rates from commercial payors, which may result in the loss of revenue or patients,
  • a reduction in the number of patients under higher-paying commercial plans,
  • a reduction in government payment rates or changes to the structure of payments under the Medicare ESRD program, including the implementation of a bundled payment rate system which result in lower reimbursement for services we provide to Medicare patients,
  • changes in pharmaceutical or anemia management practice patterns, payment policies, or pharmaceutical pricing,
  • our ability to maintain contracts with physician medical directors,
  • legal compliance risks, including our continued compliance with complex government regulations and compliance with the corporate integrity agreement applicable to the dialysis centers acquired from Gambro Healthcare and assumed in connection with such acquisition, and
  • the resolution of ongoing investigations by various federal and state governmental agencies.

We undertake no obligation to update or revise any forward-looking statements, whether as a result of changes in underlying factors, new information, future events or otherwise.

This release contains non-GAAP financial measures. For reconciliations of these non-GAAP financial measures to their most comparable measure calculated and presented in accordance with GAAP, see the attached reconciliation schedules.

                     

DAVITA INC.

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

(dollars in thousands, except per share data)

                     
           

Three months ended
September 30,

     

Nine months ended
September 30,

            2009     2008       2009     2008
Net operating revenues           $ 1,573,915       $ 1,447,135         $ 4,540,596       $ 4,199,163  
Operating expenses and charges:                                
Patient care costs             1,095,857         1,005,648           3,153,622         2,909,143  
General and administrative             134,931         128,617           394,370         374,581  
Depreciation and amortization             56,813         54,970           172,121         160,673  
Provision for uncollectible accounts             42,021         37,305           119,990         109,433  
Equity investment income             (708 )       (1,177 )         (1,066 )       (654 )
Total operating expenses and charges             1,328,914         1,225,363           3,839,037         3,553,176  
Operating income             245,001         221,772           701,559         645,987  
Debt expense             (45,535 )       (54,505 )         (140,924 )       (168,891 )
Other income             999         2,481           3,026         10,331  
Income before income taxes             200,465         169,748           563,661         487,427  
Income tax expense             74,195         62,010           209,485         175,853  
Net income             126,270         107,738           354,176         311,574  
Less: Net income attributable to noncontrolling interests             (15,340 )       (13,828 )         (41,216 )       (35,779 )
Net income attributable to DaVita Inc.           $ 110,930       $ 93,910         $ 312,960       $ 275,795  
Earnings per share:                                
Basic earnings per share attributable to DaVita Inc.           $ 1.07       $ 0.90         $ 3.01       $ 2.61  
Diluted earnings per share attributable to DaVita Inc.           $ 1.06       $ 0.89         $ 3.00       $ 2.59  
Weighted average shares for earnings per share:                                
Basic             104,127,334         104,556,770           103,904,768         105,569,971  
Diluted             104,607,318         105,577,823           104,315,019         106,421,184  
                                                 
                                                 
                       

DAVITA INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(dollars in thousands)

                       
                     

Nine months ended
September 30,

                      2009           2008
Cash flows from operating activities:                                  
Net income                     $ 354,176             $ 311,574  
Adjustments to reconcile net income to cash provided by operating activities:                                  
Depreciation and amortization                       172,121               160,673  
Stock-based compensation expense                       33,850               29,975  
Tax benefits from stock award exercises                       12,434               10,174  
Excess tax benefits from stock award exercises                       (8,115 )             (5,054 )
Deferred income taxes                       45,417               56,157  
Equity investment income                       (1,066 )             (654 )
Loss on disposal of assets                       7,826               9,688  
Non-cash debt and non-cash rent charges                       7,497               9,971  
Changes in operating assets and liabilities, other than from acquisitions and divestitures:                                  
Accounts receivable                       (68,235 )             (130,022 )
Inventories                       15,858               (1,248 )
Other receivables and other current assets                       (2,164 )             (28,684 )
Other long-term assets                       5,641               (12,761 )
Accounts payable                       (58,995 )             (12,800 )
Accrued compensation and benefits                       20,733               (11,752 )
Other current liabilities                       (68,383 )             29,838  
Income taxes                       55,226               (3,086 )
Other long-term liabilities                       (9,702 )             3,163  
Net cash provided by operating activities                       514,119               415,152  
Cash flows from investing activities:                                  
Additions of property and equipment                       (205,653 )             (223,851 )
Acquisitions                       (64,001 )             (77,157 )
Proceeds from asset sales                       6,256               451  
Purchase of investments available for sale                       (1,737 )             (1,695 )
Purchase of investments held-to-maturity                       (16,942 )             (19,005 )
Proceeds from sale of investments available for sale                       16,537               5,323  
Proceeds from maturities of investments held-to-maturity                       16,123               18,728  
Distributions received on equity investments                       929               802  
Purchase of intangible assets and other                       (260 )             (65 )
Net cash used in investing activities                       (248,748 )             (296,469 )
Cash flows from financing activities:                                  
Borrowings                       13,924,642               12,937,047  
Payments on long-term debt                       (13,961,667 )             (12,938,297 )
Deferred financing costs                       (42 )             (130 )
Purchase of treasury stock                       (61,223 )             (169,673 )
Excess tax benefits from stock award exercises                       8,115               5,054  
Stock award exercises and other share issuances, net                       30,309               33,670  
Distributions to noncontrolling interests                       (46,888 )             (43,391 )
Contributions from noncontrolling interests                       11,117               13,525  
Proceeds from sales of additional noncontrolling interests                       7,733               8,422  
Purchases from noncontrolling interests                       (6,668 )             (24,009 )
Net cash used in financing activities                       (94,572 )             (177,782 )
Net increase (decrease) in cash and cash equivalents                       170,799               (59,099 )
Cash and cash equivalents at beginning of period                       410,881               447,046  
Cash and cash equivalents at end of period                     $ 581,680             $ 387,947  
                                           
                                           
                         

DAVITA INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

(dollars in thousands, except per share data)

                         
ASSETS          

September 30,
2009

         

December 31,
2008

Cash and cash equivalents           $ 581,680             $ 410,881  
Short-term investments             20,680               35,532  
Accounts receivable, less allowance of $225,931 and $211,222             1,142,861               1,075,457  
Inventories             69,014               84,174  
Other receivables             235,785               239,165  
Other current assets             34,816               33,761  
Income tax receivable             -               32,130  
Deferred income taxes             223,697               217,196  
Total current assets             2,308,533               2,128,296  
Property and equipment, net             1,088,446               1,048,075  
Amortizable intangibles, net             141,925               160,521  
Investments in third-party dialysis businesses             24,011               19,274  
Long-term investments             7,567               5,656  
Other long-term assets             34,262               47,330  
Goodwill             3,932,964               3,876,931  
            $ 7,537,708             $ 7,286,083  
LIABILITIES AND EQUITY                        
Accounts payable           $ 256,707             $ 282,883  
Other liabilities             426,856               495,239  
Accrued compensation and benefits             314,677               312,216  
Current portion of long-term debt             100,677               72,725  
Income taxes payable             14,592               -  
Total current liabilities             1,113,509               1,163,063  
Long-term debt             3,555,853               3,622,421  
Other long-term liabilities             100,722               101,442  
Alliance and product supply agreement, net             31,980               35,977  
Deferred income taxes             304,675               244,884  
Total liabilities             5,106,739               5,167,787  
Commitments and contingencies                        
Noncontrolling interests subject to put provisions             292,636               291,397  
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; 134,862,283 shares issued; 103,232,774 and 103,753,673 shares outstanding)

            135               135  
Additional paid-in capital             638,253               584,358  
Retained earnings             2,202,410               1,889,450  
Treasury stock, at cost (31,629,509 and 31,108,610 shares)             (756,157 )             (691,857 )
Accumulated other comprehensive loss             (7,838 )             (14,339 )
Total DaVita Inc. shareholders’ equity             2,076,803               1,767,747  
Noncontrolling interests not subject to put provisions             61,530               59,152  
Total equity             2,138,333               1,826,899  
            $ 7,537,708             $ 7,286,083  
                         
                         
                   

DAVITA INC.

SUPPLEMENTAL FINANCIAL DATA

(unaudited)

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

                   
            Three months ended    

Nine months
ended
September 30,
2009

           

September 30,
2009

   

June 30,
2009

   

September 30,
2008

   
1. Consolidated Financial Results:                              
Revenues           $ 1,574       $ 1,519       $ 1,447       $ 4,541  
Operating income           $ 245.0       $ 236.0       $ 221.8       $ 701.6  
Operating income margin             15.6 %       15.5 %       15.3 %       15.5 %
Net income attributable to DaVita Inc.           $ 110.9       $ 105.8       $ 93.9       $ 313.0  
Diluted earnings per share attributable to DaVita Inc.           $ 1.06       $ 1.02       $ 0.89       $ 3.00  
                               
2. Consolidated Business Metrics:                              
Expenses                              

Patient care costs as a percent of consolidated revenue(3)

            69.6 %       69.2 %       69.5 %       69.5 %

General and administrative expenses as a percent of consolidated revenue(3)

            8.6 %       8.7 %       8.9 %       8.7 %
                               
Bad debt expense as a percent of consolidated revenue             2.7 %       2.7 %       2.6 %       2.6 %
                               

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

            40.0 %       40.0 %       39.7 %       40.0 %
                               
3. Segment Financial Results: (dollar amounts rounded to nearest million)                              
Dialysis and related lab services                              
Revenues           $ 1,491       $ 1,441       $ 1,378       $ 4,309  
Direct operating expenses             1,231         1,191         1,143         3,563  
Dialysis segment margin           $ 260       $ 250       $ 235       $ 746  
                               
Other – Ancillary services and strategic initiatives                              
Revenues           $ 83       $ 78       $ 69       $ 232  
Direct operating expenses             87         81         73         243  
Ancillary segment loss           $ (4 )     $ (3 )     $ (4 )     $ (12 )
                               
Total segment margin           $ 256       $ 247       $ 231       $ 734  
Reconciling items:                              
Stock-based compensation             (11 )       (11 )       (11 )       (34 )
Equity investment income             1         -         1         1  
Consolidated operating income           $ 245       $ 236       $ 222       $ 702  
                                               
                                               
                   

DAVITA INC.

SUPPLEMENTAL FINANCIAL DATA—continued

(unaudited)

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

                   
            Three months ended    

Nine months
ended
September 30,
2009

           

September 30,
2009

   

June 30,
2009

   

September 30,
2008

   
4. Segment Business Metrics:                              
Dialysis and related lab services:                              
Volume                              
Treatments             4,339,195         4,228,179         4,091,099         12,649,812  
Number of treatment days             79.0         78.0         79.0         233.5  
Treatments per day             54,927         54,207         51,786         54,175  
Per day year over year increase             6.1 %       5.2 %       5.1 %       5.4 %
Non-acquired growth year over year             5.2 %       4.5 %       3.8 %       4.5 %
                               
Revenue                              
Dialysis and related lab services revenue per treatment           $ 343.14       $ 340.35       $ 336.42       $ 340.14  
Per treatment increase from previous quarter             0.8 %       1.1 %       0.1 %       -  
Per treatment increase from previous year             2.0 %       1.3 %       0.9 %       1.9 %
Percent of consolidated revenue             94.7 %       94.9 %       95.2 %       94.9 %
                               
Expenses                              
Patient care costs                              
Percent of segment revenue             69.0 %       68.6 %       69.0 %       68.8 %
Per treatment           $ 237.21       $ 233.93       $ 232.50       $ 234.40  
Per treatment increase from previous quarter             1.4 %       0.9 %       0.7 %       -  
Per treatment increase from previous year             2.0 %       1.3 %       3.9 %       1.9 %
                               
General and administrative expenses                              
Percent of segment revenue             7.1 %       7.4 %       7.4 %       7.3 %
Per treatment           $ 24.39       $ 25.14       $ 24.88       $ 24.90  
Per treatment decrease from previous quarter             (3.0 %)       (0.2 %)       -         -  
Per treatment (decrease) increase from previous year             (2.0 %)       1.1 %       (1.5 %)       1.6 %
                               
5. Cash Flow                              
Operating cash flow           $ 167.5       $ 212.4       $ 160.2       $ 514.1  
Operating cash flow last twelve months           $ 712.7       $ 705.4       $ 651.3        
Free cash flow(1)           $ 125.5       $ 173.6       $ 119.0       $ 388.5  
Free cash flow, last twelve months(1)           $ 533.3       $ 526.8       $ 490.6        
Capital expenditures:                              
Development and relocations           $ 42.4       $ 42.5       $ 51.6       $ 127.0  
Routine maintenance/IT other           $ 25.0       $ 22.5       $ 27.2       $ 78.7  
Acquisition expenditures           $ 20.7       $ 3.5       $ 30.4       $ 64.0  
                               
6. Accounts Receivable                              
Net receivables           $ 1,143       $ 1,128       $ 1,057        
DSO             70         70         70        
                                           
                                           
                         

DAVITA INC.

SUPPLEMENTAL FINANCIAL DATA—continued

(unaudited)

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

                         
            Three months ended    

Nine months

ended
September 30,
2009

           

September 30,
2009

   

June 30,
2009

   

September 30,
2008

   
7. Debt and Capital Structure                                    
Total debt(2)           $ 3,654       $ 3,669       $ 3,704        
Net debt, net of cash(2)           $ 3,072       $ 3,124       $ 3,316        

Leverage ratio (see Note 1 below)

          2.57x       2.66x       2.98x        
Overall effective weighted average interest rate during the quarter             4.79 %       4.92 %       5.66 %      
Overall effective weighted average interest rate at end of the quarter             4.76 %       4.87 %       6.09 %      
Effective weighted average interest rate on the Senior Secured Credit Facilities at end of the quarter             2.81 %       3.02 %       5.39 %      
Economically fixed interest rates as a percentage of our total debt             61 %       64 %       70 %      
Share repurchases           $ 62.4       $ -       $ -       $ 94.4
                                     
8. Clinical (quarterly averages)                                    
Dialysis adequacy -% of patients with Kt/V > 1.2             95 %       95 %       94 %      

90 day patients with Hb >= 10 <= 13

            88 %       88 %       87 %      
Patients with arteriovenous fistulas placed             64 %       63 %       61 %      
_________________
(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, see attached reconciliation schedules.
(2)   This is a non-GAAP financial measure. It excludes $2.9 million, for the quarter ended September 30, 2009, the unamortized balance of a debt premium associated with our senior notes that is not actually outstanding debt principal.
(3)   Consolidated percentages of revenue and per treatment amounts are comprised of the dialysis and related lab services business, other ancillary services and strategic initiatives, as well as stock-based compensation expenses.
     
     

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

Note 1: Calculation of the Leverage Ratio

Under the Company’s current 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, 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 the routine acquisitions that occurred during the period. The Company’s management believes the presentation of “Consolidated EBITDA” is useful to investors to enhance their understanding of the Company’s leverage ratio under its Credit Agreement.

                               
                           

Rolling twelve
months ended
September 30, 2009

      Net income attributable to DaVita Inc.                     $ 411,325  
      Income taxes                       269,103  
      Debt expense                       196,749  
      Depreciation and amortization                       228,365  
      Noncontrolling interests and equity investment income, net                       51,389  
      Other                       13,797  
      Stock-based compensation expense                       45,108  
      “Consolidated EBITDA”                     $ 1,215,836  
                               
                            September 30, 2009
      Total debt, excluding debt premium of $2.9 million