Improving Health, Health Care and Quality of Life

DaVita HealthCare Partners Inc. 4th Quarter 2014 Results
PR Newswire
DENVER

DENVER, Feb. 12, 2015 /PRNewswire/ -- DaVita HealthCare Partners Inc. (NYSE: DVA) today announced results for the quarter and year ended December 31, 2014. Income from continuing operations attributable to DaVita HealthCare Partners Inc. for the quarter and year ended December 31, 2014 was $208 million and $723 million, or $0.96 and $3.33 per share, respectively. Adjusted income from continuing operations attributable to DaVita HealthCare Partners Inc. for the year ended December 31, 2014, excluding a loss contingency reserve and debt refinancing charges, was $792 million, or $3.64 per share.

Income from continuing operations attributable to DaVita HealthCare Partners Inc. for the quarter and year ended December 31, 2013 was $212 million and $620 million, or $0.99 and $2.89 per share, respectively. Adjusted income from continuing operations attributable to DaVita HealthCare Partners Inc. for the year ended December 31, 2013, excluding a loss contingency reserve and a contingent earn-out obligation adjustment, was $818 million, or $3.81 per share.

Financial and operating highlights include:

  • Cash Flow: For the year ended December 31, 2014, operating cash flow was $1.459 billion and free cash flow was $1.045 billion. For the three months ended December 31, 2014, operating cash flow was $(70) million and free cash flow was $(197) million. Operating cash flow and free cash flow for the quarter and year ended December 31, 2014 was negatively impacted by approximately $269 million of after-tax payments made in connection with the settlement of the 2010 and 2011 U.S. Attorney Physician Relationship Investigations.
     
  • Operating Income / Adjusted: Operating income for the quarter and year ended December 31, 2014 was $452 million and $1.815 billion, respectively. Adjusted operating income for the year ended December 31, 2014, excluding a loss contingency reserve, was $1.832 billion. The quarter and year ended December 31, 2014 benefited from a $29 million net favorable impact resulting from the revenue recognition of certain California Medicaid payments received in prior periods, as discussed below.

    Operating income for the quarter and year ended December 31, 2013 was $484 million and $1.550 billion, respectively. Adjusted operating income for the year ended December 31, 2013, excluding a loss contingency reserve, an adjustment to reduce a tax asset associated with the HCP acquisition escrow provisions and a contingent earn-out obligation adjustment, was $1.898 billion.
     
  • Adjusted Diluted Income from Continuing Operations Per Share: Adjusted income from continuing operations attributable to DaVita HealthCare Partners Inc. for the quarter and year ended December 31, 2014, excluding the amortization of intangible assets associated with acquisitions, net of tax impacts, was $236 million and $896 million, respectively, and adjusted diluted income from continuing operations per share was $1.09 and $4.13, respectively. In addition, adjusted income from continuing operations and adjusted diluted income from continuing operations per share for the year ended December 31, 2014 excluded a loss contingency reserve and debt refinancing charges.

    Adjusted income from continuing operations attributable to DaVita HealthCare Partners Inc. for the quarter and year ended December 31, 2013, excluding the amortization of intangible assets associated with acquisitions, net of tax impacts, was $237 million and $915 million, respectively, and adjusted diluted income from continuing operations per share was $1.10 and $4.26, respectively. In addition, adjusted income from continuing operations and adjusted diluted income from continuing operations per share for the year ended December 31, 2013 excluded a loss contingency reserve and a contingent earn-out obligation adjustment.
     
  • California Medicaid Revenue: The quarter and year ended December 31, 2014 benefited from revenue recognition of $35 million related to the resolution of dialysis payments received in prior periods from the California Medicaid program. The increase in revenue was reduced by certain related expenses resulting in a net increase in operating income of approximately $29 million and resulted in a non-recurring increase in net income attributable to DaVita HealthCare Partners Inc. of approximately $14 million.
     
  • Volume: Total U.S. dialysis treatments for the fourth quarter of 2014 were 6,465,826, or 81,434 treatments per day, representing a per day increase of 6.2% over the fourth quarter of 2013. Non-acquired treatment growth in the fourth quarter of 2014 increased 5.2% over the fourth quarter of 2013 and normalized non-acquired treatment growth in the fourth quarter of 2014 increased by 4.6% over the fourth quarter of 2013.

    The number of member months for which HCP provided capitated care during the fourth quarter of 2014 was approximately 2.5 million representing an increase of 9.4% as compared to the fourth quarter of 2013, inclusive of growth contributed from acquisitions.
     
  • Effective Tax Rate: Our effective tax rate was 29.3% and 34.1% for the quarter and year ended December 31, 2014, 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 HealthCare Partners Inc. was 33.3% and 38.1% for the quarter and year ended December 31, 2014, respectively. Our effective tax rate for the quarter and year ended December 31, 2014 decreased due to the reinstatement of federal and state credits and a reduction in our tax reserves.

    We currently expect our 2015 effective tax rate attributable to DaVita HealthCare Partners Inc. to be approximately 39.5% to 40.5%.
     
  • Center Activity: As of December 31, 2014, we provided dialysis services to a total of approximately 180,000 patients at 2,270 outpatient dialysis centers, of which 2,179 centers are located in the United States and 91 centers are located in ten countries outside of the United States. During the fourth quarter of 2014, we opened a total of 30 new dialysis centers, acquired two dialysis centers, and closed five dialysis centers in the United States. We also acquired three dialysis centers and opened one new dialysis centers outside of the United States.

Outlook

  • We still expect our consolidated operating income for 2015 to be in the range of $1.750 billion to $1.900 billion.
     
  • We still expect our operating income for Kidney Care for 2015 to be in the range of $1.525 billion to $1.625 billion.
     
  • We still expect our operating income for HCP for 2015 to be in the range of $225 million to $275 million.
     
  • We still expect our consolidated operating cash flow for 2015 to be in the range of $1.500 billion to $1.700 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.

We will be holding a conference call to discuss our results for the fourth quarter ended December 31, 2014 on February 12, 2015 at 5:00 p.m. Eastern Time.  The dial in number for the U.S. is (888) 950-9401 and for international is (517) 308-9354. A replay of the conference call will be available on DaVita's official web page, www.davitahealthcarepartners.com, for the following 30 days.

This release contains forward-looking statements within the meaning of the federal securities laws, including statements related to our guidance and expectations for our 2015 consolidated operating income, our 2015 Kidney Care operating income, HCP's 2015 operating income, our 2015 consolidated operating cash flows and our 2015 effective tax rate attributable to DaVita HealthCare Partners Inc. Factors that could impact future results include the uncertainties associated with the risk factors set forth in our SEC filings, including our annual report on Form 10-K for the year ended December 31, 2013, our subsequent quarterly and annual reports and our current reports on Form 8-K. The forward-looking statements should be considered in light of these risks and uncertainties.

These risks and uncertainties include, but are not limited to, and are qualified in their entirety by reference to the full text of those risk factors in our SEC filings relating to:

  • the concentration of profits generated by higher-paying commercial payor plans for which there is continued downward pressure on average realized payment rates, and a reduction in the number of patients under such plans, which may result in the loss of revenues or patients,
  • a reduction in government payment rates under the Medicare End Stage Renal Disease program or other government-based programs,
  • the impact of the Center for Medicare and Medicaid Services (CMS) 2015 Medicare Advantage benchmark structure,
  • risks arising from potential federal and/or state legislation that could have an adverse effect on our operations and profitability,
  • changes in pharmaceutical or anemia management practice patterns, payment policies, or pharmaceutical pricing,
  • legal compliance risks, including our continued compliance with complex government regulations and current or potential investigations by various government entities and related government or private-party proceedings and in compliance with the Corporate Integrity Agreement and the related restrictions on our business and operations required by the Corporate Integrity Agreement and other settlement terms, and the financial impact thereof,
  • 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,
  • our ability to complete acquisitions, mergers or dispositions that we might be considering or announce, or to integrate and successfully operate any business we may acquire or have acquired, including HCP, or to expand our operations and services to markets outside the United States,
  • 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,
  • the risk that the cost of providing services under HCP's agreements may exceed our compensation,
  • the risk that reductions in reimbursement rates, including Medicare Advantage rates, and future regulations may negatively impact HCP's business, revenue and profitability,
  • the risk that HCP 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 HCP's healthcare provider networks could have an adverse effect on HCP's business operations and profitability,
  • the risk that reductions in the quality ratings of health maintenance organization plan customers of HCP could have an adverse effect on HCP's business, or
  • the risk that health plans that acquire health maintenance organizations may not be willing to contract with HCP or may be willing to contract only on less favorable terms.

We base our forward-looking statements on information currently available to us at the time of this release, and 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. For the reasons stated in the reconciliation schedules, we believe our presentation of non-GAAP financial measures provides useful supplemental information for investors.

 

DAVITA HEALTHCARE PARTNERS INC.

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

(dollars in thousands, except per share data)

 
 

Three months ended
December 31,  

Year ended
December 31,

 

2014

2013

2014

2013

Patient service revenues

$     2,324,458

$     2,151,972

$     8,868,338

$     8,307,195

Less: Provision for uncollectible accounts

(96,664 )

(76,821 )

(366,884 )

(293,546 )

Net patient service revenues

2,227,794

2,075,151

8,501,454

8,013,649

Capitated revenues

825,808

767,362

3,261,288

2,987,315

Other revenues

274,415

220,696

1,032,364

763,086

Total net revenues

3,328,017

3,063,209

12,795,106

11,764,050

Operating expenses and charges:

       

Patient care costs and other costs

2,366,461

2,127,832

9,119,305

8,198,377

General and administrative

355,987

318,827

1,261,506

1,176,485

Depreciation and amortization

153,253

139,474

590,935

528,737

Provision for uncollectible accounts

4,773

1,216

14,453

4,852

Equity investment income

(4,542 )

(8,319 )

(23,234 )

(34,558 )

Loss contingency accrual

17,000

397,000

Contingent earn-out obligation adjustment

(56,977 )

Total operating expenses and charges

2,875,932

2,579,030

10,979,965

10,213,916

Operating income

452,085

484,179

1,815,141

1,550,134

Debt expense

(97,949 )

(107,609 )

(410,294 )

(429,943 )

Debt refinancing charges

(97,548 )

Other income, net

229

3,450

2,374

4,787

Income from continuing operations before income taxes

354,365

380,020

1,309,673

1,124,978

Income tax expense

103,977

135,747

446,343

381,013

Income from continuing operations

250,388

244,273

863,330

743,965

Discontinued operations:

       

Loss from operations of discontinued operations, net of tax

(139 )

Gain on disposal of discontinued operations, net of tax

13,375

Net income

250,388

244,273

863,330

757,201

Less: Net income attributable to noncontrolling interests

(42,368 )

(31,995 )

(140,216 )

(123,755 )

Net income attributable to DaVita HealthCare Partners Inc

$        208,020

$        212,278

$        723,114

$        633,446

Earnings per share:

       

Basic income from continuing operations per share attributable to DaVita HealthCare Partners Inc

 

$              0.98

 

$              1.01

 

$              3.41

 

$              2.95

Basic net income per share attributable to DaVita HealthCare Partners Inc

$              0.98

$              1.01

$              3.41

$              3.02

Diluted income from continuing operations per share attributable to DaVita HealthCare Partners Inc

$              0.96

$              0.99

$              3.33

$              2.89

Diluted net income per share attributable to DaVita HealthCare Partners Inc

$              0.96

$              0.99

$              3.33

$              2.95

Weighted average shares for earnings per share:

       

Basic

212,941,850

210,574,383

212,301,827

209,939,364

Diluted

217,620,369

215,154,029

216,927,681

214,763,887

Amounts attributable to DaVita HealthCare Partners Inc.:

       

Income from continuing operations

$        208,020

$        212,278

$        723,114

$        620,197

Discontinued operations

13,249

Net income

$        208,020

$        212,278

$        723,114

$        633,446

 

 

DAVITA HEALTHCARE PARTNERS INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

(dollars in thousands)

 
 

Three months ended

December 31,

Year ended
December 31,

 

2014

2013

2014

2013

Net income

$   250,388

$   244,273

$      863,330

$      757,201

Other comprehensive (loss) income, net of tax:

       

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

       

        Unrealized (loss) gain on interest rate swap and cap agreements

(2,882)

(1,414)

(10,059)

169

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

849

3,457

10,608

12,889

Unrealized (loss) gains on investments:

       

           Unrealized (loss) gain on investments

(279)

933

238

2,300

           Reclassification of net investment realized gains into net income

(396)

(207)

(490)

Foreign currency translation adjustments

(11,081)

(1,010)

(22,952)

(2,216)

Other comprehensive (loss) income

(13,393)

1,570

(22,372)

12,652

Total comprehensive income

236,995

245,843

840,958

769,853

Less: Comprehensive income attributable to noncontrolling interests

(42,368)

(31,995)

(140,216)

(123,755)

Comprehensive income attributable to DaVita HealthCare Partners Inc

$   194,627

$ 213,848

$      700,742

$      646,098

 

 

DAVITA HEALTHCARE PARTNERS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(dollars in thousands)

 
 

Year ended
December 31,

 

 

2014

2013

Cash flows from operating activities:

   

Net income

$           863,330

$           757,201

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

   

Loss contingency accrual

17,000

397,000

Depreciation and amortization

590,935

528,119

Debt refinancing charges

97,548

Stock-based compensation expense

54,969

59,998

Tax benefits from stock award exercises

59,119

46,898

Excess tax benefits from stock award exercises

(45,271 )

(36,197 )

Deferred income taxes

210,955

(25,380 )

Equity investment income, net

10,125

2,872

Other non-cash charges (income) and loss on disposal of assets

39,274

(31,351 )

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

   

Accounts receivable

(40,676 )

(59,640 )

Inventories

(46,398 )

(8,971 )

Other receivables and other current assets

(61,674 )

(108,434 )

Other long-term assets

2,916

17,731

Accounts payable

(2,956 )

16,666

Accrued compensation and benefits

98,624

38,368

Other current liabilities

83,590

78,817

Loss contingency reserve

(410,356 )

Income taxes

(60,475 )

33,499

Other long-term liabilities

(1,172 )

66,145

Net cash provided by operating activities

1,459,407

1,773,341

Cash flows from investing activities:

   

Additions of property and equipment, net

(641,330 )

(617,597 )

Acquisitions

(272,094 )

(310,394 )

Proceeds from asset and business sales

8,791

62,258

Purchase of investments available for sale

(8,440 )

(12,445 )

Purchase of investments held-to-maturity

(472,628 )

(1,039 )

Proceeds from sale of investments available for sale

2,475

4,158

Proceeds from investments held-to-maturity

141,072

1,376

Purchase of intangible assets

(1,018 )

(2,391 )

Purchase of equity investments

(35,382 )

(1,305 )

Distributions received on equity investments

825

497

Net cash used in investing activities

(1,277,729 )

(876,882 )

Cash flows from financing activities:

   

Borrowings

60,038,508

66,286,097

Payments on long-term debt and other financing costs

(60,046,487 )

(66,723,385 )

Deferred financing costs and debt redemption costs

(122,988 )

(719 )

Distributions to noncontrolling interests

(149,339 )

(139,326 )

Stock award exercises and other share issuances, net

19,500

16,423

Excess tax benefits from stock award exercises

45,271

36,197

Contributions from noncontrolling interests

64,655

36,996

Proceeds from sales of additional noncontrolling interests

3,777

8,295

Purchases from noncontrolling interests

(17,876 )

(3,569 )

Net cash used in financing activities

(164,979 )

(482,991 )

Effect of exchange rate changes on cash and cash equivalents

2,293

(967 )

Net increase in cash and cash equivalents

18,992

412,501

Cash and cash equivalents at beginning of the year

946,249

533,748

Cash and cash equivalents at end of the year

$           965,241

$           946,249

 

 

DAVITA HEALTHCARE PARTNERS INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

(dollars in thousands, except per share data)

 
 

December 31,

December 31,

 

2014

2013

ASSETS

   

Cash and cash equivalents

$            965,241

$        946,249

Short-term investments

337,399

6,801

Accounts receivable, less allowance of $242,674 and $237,143

1,525,849

1,485,163

Inventories

136,085

88,805

Other receivables

400,916

349,090

Other current assets

186,842

176,414

Income tax receivable

83,839

10,315

Deferred income taxes

240,626

409,441

Total current assets

3,876,797

3,472,278

Property and equipment, net

2,469,099

2,189,411

Intangibles, net

1,949,498

2,024,373

Equity investments

65,637

40,686

Long-term investments

89,389

79,557

Other long-term assets

77,000

79,598

Goodwill

9,415,295

9,212,974

 

$       17,942,715

$   17,098,877

LIABILITIES AND EQUITY

   

Accounts payable

$            445,453

$        435,465

Other liabilities

506,579

464,422

Accrued compensation and benefits

698,475

603,013

Medical payables

314,347

287,452

Loss contingency reserve

3,644

397,000

Current portion of long-term debt

120,154

274,697

Total current liabilities

2,088,652

2,462,049

Long-term debt

8,383,280

8,141,231

Other long-term liabilities

389,806

380,337

Deferred income taxes

890,701

812,419

Total liabilities

11,752,439

11,796,036

Commitments and contingencies

   

Noncontrolling interests subject to put provisions

829,965

697,300

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; 215,640,968 and 213,163,248 shares issued and outstanding at December 31, 2014 and at December 31, 2013, respectively)

216

213

Additional paid-in capital

1,108,211

1,070,922

Retained earnings

4,087,103

3,363,989

Accumulated other comprehensive loss

(25,017)

(2,645)

Total DaVita HealthCare Partners Inc. shareholders' equity

5,170,513

4,432,479

Noncontrolling interests not subject to put provisions

189,798

173,062

Total equity

5,360,311

4,605,541

 

$       17,942,715

$   17,098,877

 

 

DAVITA HEALTHCARE PARTNERS INC.

SUPPLEMENTAL FINANCIAL DATA

(unaudited)

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

 
 

Three months ended

Year

ended

December 31, 2014

 

December 31,

2014

September 30,

2014

December 31,

2013

1. Consolidated Financial Results:

       

Consolidated net revenues

$      3,328

$      3,252

$      3,063

$      12,795

Operating income

$         452

$         438

$      484

$        1,815

Operating income margin

13.6%

13.5%

15.8%

14.2%

Operating income excluding a loss contingency reserve(1)

$         452

$         455

$      484

$        1,832

Operating income margin excluding a loss contingency reserve(1)

13.6%

14.0%

15.8%

14.3%

Income from continuing operations attributable to DaVita HealthCare Partners Inc

$         208

$         184

$        212

$           723

Income from continuing operations attributable to DaVita HealthCare Partners Inc. excluding a loss contingency reserve and debt refinancing charges, which are all net of related tax(1)

$         208

$         195

$      212

$          792

Diluted income from continuing operations per share attributable to DaVita HealthCare Partners Inc

$        0.96

$        0.85

$        0.99

$         3.33

Diluted income from continuing operations per share attributable to DaVita HealthCare Partners Inc. excluding a loss contingency reserve and debt refinancing charges, which are all net of related tax(1)

$        0.96

$        0.90

$        0.99

$        3.64

         

2. Consolidated Business Metrics:

       

Expenses

       

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

10.7%

9.9%

10.4%

9.9%

Consolidated effective tax rate

29.3%

34.7%

35.7%

34.1%

Consolidated effective tax rate attributable to DaVita HealthCare Partners Inc(1)

33.3%

38.7%

39.0%

38.1%

         

3. Summary of Division Financial Results:

       

Net revenues

       

Kidney Care:

       

Net dialysis and related lab services revenues

$      2,151

$      2,076

$     2,007

$     8,211

Net ancillary services and strategic initiatives revenues, including international dialysis operations

309

300

242

1,139

Elimination of intersegment revenues

(14)

(16)

(15)

(57)

Total Kidney Care net revenues

2,446

2,360

2,234

9,293

Net HCP revenues

882

892

829

3,502

Total net consolidated revenues

$      3,328

$      3,252

$      3,063

$      12,795

Operating income

       

Kidney Care:

       

Dialysis and related lab services operating income

$          443

$          400

$         408

$     1,638

Other – Ancillary services and strategic initiatives, including international dialysis operations operating losses

(19)

(6)

(9)

(25)

Corporate support and related long-term incentive compensation

(5)

(3)

(13)

(13)

Total Kidney Care operating income

419

391

386

1,600

HCP operating income

33

47

98

215

Total consolidated operating income

$           452

$           438

$         484

$      1,815

 

 

DAVITA HEALTHCARE PARTNERS INC.

SUPPLEMENTAL FINANCIAL DATA—continued

(unaudited)

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

 
 

Three months ended

Year

ended

December 31, 2014

 

December 31,

2014

September 30,

2014

December 31,

2013

4. Summary of Reportable Segment Financial Results:

       

Dialysis and Related Lab Services

       

Revenue:

       

Patient services revenues

$     2,243

$       2,165

$      2,076

$      8,551

Provision for uncollectible accounts

(95)

(92)

(72)

(353)

Net patient service operating revenues

2,148

2,073

2,004

8,198

Other revenues

3

3

3

13

Total net operating revenues

$       2,151

$       2,076

$      2,007

$      8,211

Operating expenses:

       

Patient care costs

$       1,415

$       1,390

$      1,325

$      5,485

General and administrative

192

170

184

682

Depreciation and amortization

105

102

93

403

Equity investment income

(4)

(3)

(3)

(14)

Loss contingency reserve

17

17

Total operating expenses

1,708

1,676

1,599

6,573

Segment operating income

$          443

$          400

$           408

$      1,638

HCP

       

Revenue:

       

HCP capitated revenues

$          808

$          828

$         752

$       3,191

Patient services revenues

56

57

63

232

Provision for uncollectible accounts

(1)

(7)

(4)

(13)

Net patient service operating revenues

55

50

59

219

Other revenues

19

14

18

92

Total net operating revenues

$         882

$         892

$         829

$       3,502

Operating expenses:

       

Patient care costs

$         717

$         719

$         616

$       2,796

General and administrative

90

86

78

331

Depreciation and amortization

43

42

43

170

Equity investment income

(1)

(2)

(6)

(10)

Total operating expenses

849

845

731

3,287

Segment operating income

$           33

$           47

$           98

$         215

         

5. Dialysis and Related Lab Services Business Metrics:

       

Volume

       

Treatments

6,465,826

6,343,706

6,106,166

24,981,553

Number of treatment days

79.4

79.0

79.6

312.8

Treatments per day

81,434

80,300

76,711

79,864

Per day year over year increase

6.2%

5.1%

6.3%

5.8%

Non-acquired growth year over year

5.2%

4.4%

4.7%

5.1%

Normalized non-acquired growth year over year

4.6%

4.9%

5.2%

5.0%

Operating revenues before provision for uncollectible accounts

       

Dialysis and related lab services revenue per treatment

$    346.95

$    341.22

$    340.04

$    342.26

Per treatment increase from previous quarter

1.7%

0.4%

Per treatment increase from previous year

2.0%

0.4%

3.0%

0.7%

Percent of net consolidated revenues

64.4%

63.5%

65.2%

63.9%

 

 

DAVITA HEALTHCARE PARTNERS INC.

SUPPLEMENTAL FINANCIAL DATA—continued

(unaudited)

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

 
 

Three months ended

Year

ended

December 31, 2014

 

December 31,

2014

September 30,

2014

December 31,

2013

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

       

Expenses

       

Patient care costs

       

Percent of total segment operating revenues

65.8%

66.9%

66.0%

66.8%

Per treatment

$    218.81

$    219.07

$    216.89

$    219.56

Per treatment decrease from previous quarter

(0.1%)

(0.1%)

Per treatment increase from previous year

0.9%

0.9%

2.0%

1.4%

General and administrative expenses

       

Percent of total segment operating revenues

8.9%

8.2%

9.2%

8.3%

Per treatment

$      29.75

$      26.86

$      30.19

$      27.31

Per treatment increase (decrease) from previous quarter

10.8%

1.5%

(0.3%)

Per treatment (decrease) increase from previous year

(1.5%)

(11.3%)

5.3%

(8.5%)

Accounts receivable

       

Net receivables

$      1,157

$      1,117

$      1,173

$            ─

DSO

50

50

55

Provision for uncollectible accounts as a percentage of revenues

4.25%

4.25%

3.5%

4.1%

         

6. HCP Business Metrics:

       

Capitated membership

       

Total

837,000

828,000

764,000

Member months

2,502,800

2,481,100

2,288,300

9,766,200

Capitated revenues by sources

       

Commercial revenues

$         174

$         188

$          183

$          726

Senior revenues

573

605

550

2,319

Medicaid revenues

61

35

19

146

Total capitated revenues

$         808

$         828

$          752

$       3,191

Other

       

Total care dollars under management(1)

$      1,165

$      1,148

$       1,045

$       4,520

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

2.8%

4.0%

9.4%

4.8%

Full time clinicians

1,156

1,153

1,120

IPA primary care physicians

3,331

3,313

3,119

         

7. Cash Flow:

       

Operating cash flow

$      (70.0)

$      847.9

$       354.2

$    1,459.4

Operating cash flow, last twelve months

$   1,459.4

$   1,883.6

$    1,773.3

$             ─

Free cash flow(1)

$    (197.0)

$      740.3

$       205.2

$    1,045.1

Free cash flow, last twelve months(1)

$   1,045.1

$   1,447.3

$    1,365.5

$             ─

Capital expenditures:

       

Routine maintenance/IT/other

$        82.8

$        68.3

$       109.4

$      265.0

Development and relocations

$      115.0

$        96.6

$       108.7

$      376.3

Acquisition expenditures

$        54.0

$      119.7

$         75.6

$      272.1

 

 

DAVITA HEALTHCARE PARTNERS INC.

SUPPLEMENTAL FINANCIAL DATA—continued

(unaudited)

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

 
 

Three months ended

 

December 31,

2014

September 30,

2014

December 31,

2013

8. Debt and Capital Structure:

     

Total debt(3)

$      8,520

$      8,519

$      8,434

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

$      7,555

$      6,992

$      7,488

Leverage ratio (see calculation on page 13)

     2.97x

     2.79x

     3.06x

Overall weighted average effective interest rate during the quarter

4.46%

4.52%

4.87%

Overall weighted average effective interest rate at end of the quarter

4.46%

4.46%

4.86%

Weighted average effective interest rate on the Senior Secured Credit Facilities at end of the quarter

3.43%

3.43%

4.18%

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

      58%(4)

      57%(4)

60%

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

      90%(4)

      90%(4)

93%

       

9. Clinical: (quarterly averages)

     

Dialysis adequacy -% of patients with Kt/V > 1.2 at the end of the quarter

98%

98%

98%

Dialysis patients with arteriovenous fistulas placed

73%

73%

72%

________________

(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)

Consolidated percentages of revenues are comprised of the dialysis and related lab services business, HCP's business and other ancillary services and strategic initiatives. General and administrative expenses includes certain corporate support and related long-term incentive compensation.

   

(3)

The reported balance sheet amounts at December 31, 2014 and September 30, 2014, excludes $16.2 million and $16.9 million, respectively, of debt discount associated with our New Term Loan B. In addition, the reported balance sheet amounts at December 31, 2013 exclude $17.7 million of debt discounts associated with our then existing Term Loan B and Term Loan B-2.

   

(4)

The New Term Loan B is subject to a LIBOR floor of 0.75%. Because actual LIBOR, for all periods presented above, was lower than this embedded LIBOR floor, the interest rate on the New Term Loan B is set at its respective floor. At such time as the actual LIBOR-based variable component of our interest rate exceeds 0.75% on the New Term Loan B, we will then be subject to LIBOR-based interest rate volatility on the LIBOR variable component of our interest rate on all of the New Term Loan B. However, we are limited to a maximum rate of 2.50% on $2.75 billion of outstanding principal debt on the New Term Loan B as a result of interest rate cap agreements. The remaining $748 million outstanding principal balance of the New Term Loan B is subject to LIBOR-based interest rate volatility above a floor of 0.75%.

 

 

DAVITA HEALTHCARE PARTNERS 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, 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 investors to enhance their understanding of the Company's leverage ratio under its Credit Agreement.

 

 

Year ended

December 31, 2014

Net income attributable to DaVita HealthCare Partners Inc

$            723,114

Income taxes

446,343

Interest expense

382,568

Depreciation and amortization

590,935

Loss contingency reserve

17,000

Noncontrolling interests and equity investment income, net

162,294

Stock-based compensation

56,744

Debt refinancing charges

97,548

Other

25,576

"Consolidated EBITDA"

$         2,502,122

   
 

December 31, 2014

Total debt, excluding debt discount of $16.2 million

$         8,519,642

Letters of credit issued

96,424

 

8,616,066

Less: Cash and cash equivalents (less HCP's physician owned entities cash)

(1,190,241)

Consolidated net debt

$         7,425,825

Last twelve months "Consolidated EBITDA"

$         2,502,122

Leverage ratio

                   2.97x

 

In accordance with the Credit Agreement, the Company's leverage ratio cannot exceed 5.00 to 1.00 as of December 31, 2014. At that date the Company's leverage ratio did not exceed 5.00 to 1.00.

 

 

DAVITA HEALTHCARE PARTNERS INC.

RECONCILIATIONS FOR NON-GAAP MEASURES

(unaudited)

(dollars in thousands except for per share data)

 

1.   Income from continuing operations and diluted income from continuing operations per share attributable to DaVita HealthCare Partners Inc. excluding a loss contingency reserve, debt refinancing charges and a contingent earn-out obligation adjustment, net of related tax.

 

We believe that income from continuing operations attributable to DaVita HealthCare Partners Inc. excluding a loss contingency reserve, debt refinancing charges and a contingent earn-out obligation adjustment, net of related tax, enhances a user's understanding of our normal income from continuing operations attributable to DaVita HealthCare Partners Inc. and diluted income from continuing operations per share attributable to DaVita HealthCare Partners Inc. for these periods by providing a measure that is meaningful because it excludes unusual amounts related to a loss contingency reserve related to the 2010 and 2011 U.S. Attorney Physician Relationship Investigations, the debt refinancing charges that resulted from the refinancing of our Senior Secured Credit Facilities, the redemption of the $775 million 6 ⅜% Senior Notes, as well as the termination of certain interest rate swap agreements and an adjustment to HCP's contingent earn-out obligation, and accordingly, is comparable to prior periods and indicative of consistent income from continuing operations attributable to DaVita HealthCare Partners Inc. and diluted income from continuing operations per share attributable to DaVita HealthCare Partners Inc. These measures are not measures of financial performance under United States generally accepted accounting principles (GAAP) and should not be considered as an alternative to income from continuing operations attributable to DaVita HealthCare Partners Inc. and diluted income from continuing operations per share attributable to DaVita HealthCare Partners Inc.

 

Income from continuing operations attributable to DaVita HealthCare Partners Inc. excluding a loss contingency reserve, debt refinancing charges and a contingent earn-out obligation adjustment, net of related tax:

Three months ended

Year ended

 

December 31,

2014

September 30,

2014

December 31,

2013

December 31,

2014

December 31,

2013

Income from continuing operations attributable to DaVita HealthCare Partners Inc

$    208,020

$    184,122

$    212,278

$    723,114

$    620,197

Add (Less):

         

Loss contingency reserve

17,000

17,000

397,000

Debt refinancing charges

97,548

Contingent earn-out obligation adjustment

(56,977)

Less:  Related income tax

(6,588)

(46,095)

(142,650)

 

$    208,020

$    194,534

$    212,278

$    791,567

$    817,570

 

Diluted income from continuing operations per share attributable to DaVita HealthCare Partners Inc. excluding a loss contingency reserve, debt refinancing charges and a contingent earn-out obligation adjustment, net of related tax:

Three months ended

Year ended

 

December 31,

2014

September 30,

2014

December 31,

2013

December 31,

2014

December 31,

2013

Diluted income from continuing operations per share attributable to DaVita HealthCare Partners Inc

$          0.96

$          0.85

$       0.99

$       3.33

$       2.89

Add (Less):

         

Loss contingency reserve

0.05

0.05

1.18

Debt refinancing charges

0.26

Contingent earn-out obligation adjustment

(0.26)

 

$        0.96

$        0.90

$       0.99

$       3.64

$       3.81

 

 

DAVITA HEALTHCARE PARTNERS INC.

RECONCILIATIONS FOR NON-GAAP MEASURES – (continued)

(unaudited)

(dollars in thousands except for per share data)

 

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

 

Adjusted income from continuing operations and adjusted diluted income from continuing operations per share attributable to DaVita HealthCare Partners Inc., further adjusted to exclude the amortization of intangible assets associated with acquisitions:

Three months ended

Year ended

 

December 31,

2014

September 30,

2014

December 31,

2013

December 31,

2014

December 31,

2013

Adjusted income from continuing operations attributable to DaVita HealthCare Partners Inc

$  208,020

$  194,534

$  212,278

$  791,567

$  817,570

Add:

         

   Amortization of intangible assets associated with acquisitions for the dialysis and ancillary operations

6,468

6,673

6,802

26,721

27,280

   Amortization of intangible assets associated with acquisitions for the HCP operations

35,792

35,276

33,919

141,218

133,599

Less: Related income tax

(14,073)

(16,256)

(15,881)

(63,985)

(63,387)

 

$  236,207

$  220,227

$  237,118

$  895,521

$  915,062

           

Adjusted diluted income from continuing operations per share attributable to DaVita HealthCare Partners Inc

$        0.96

$        0.90

$       0.99

$       3.64

$       3.81

Add:

         

Amortization of intangible assets per share associated with acquisitions for the dialysis and ancillary operations, net of tax

0.02

0.02

0.02

0.08

0.08

Amortization of intangible assets per share associated with acquisitions for the HCP operations, net of tax

0.11

0.09

0.09

0.41

0.37

 

$         1.09

$         1.01

$       1.10

$       4.13

$       4.26

 

 

DAVITA HEALTHCARE PARTNERS INC.

RECONCILIATIONS FOR NON-GAAP MEASURES

(unaudited)

(dollars in thousands)

 

2.   Operating income excluding a pre-tax loss contingency reserve, an adjustment to reduce a tax asset associated with the HCP acquisition escrow provisions, and a pre-tax contingent earn-out obligation adjustment.

 

We believe that operating income excluding a pre-tax loss contingency reserve, an adjustment to reduce a tax asset associated with the HCP acquisition escrow provisions and a pre-tax contingent earn-out obligation adjustment enhances a user's understanding of our normal operating income for these periods by providing a measure that is meaningful because it excludes unusual amounts that includes a loss contingency reserve related to the 2010 and 2011 U.S. Attorney Physician Relationship Investigations, an adjustment to reduce a tax asset associated with the HCP acquisition escrow provisions that was established as a receivable to offset any potential tax liabilities and an adjustment for HCP's contingent earn-out obligation, and accordingly, is comparable to prior periods and indicative of consistent operating income. This measure is not a measure of financial performance under GAAP and should not be considered as an alternative to operating income.

 

Operating income excluding a pre-tax loss contingency reserve, an adjustment to reduce a tax asset associated with the HCP acquisition escrow provisions and a pre-tax contingent earn-out obligation adjustment:

Three months ended

Year ended

 

December 31,

2014

September 30,

2014

December 31,

2013

December 31,

2014

December 31,

2013

Operating income

$    452,085

$    437,536

$    484,179

$ 1,815,141

$ 1,550,134

Add (Less):

         

Loss contingency reserve

17,000

17,000

397,000

Adjustment to reduce a tax asset associated with the HCP acquisition escrow provisions

7,721

Contingent earn-out obligation adjustment

(56,977)

Adjusted operating income

$    452,085

$    454,536

$    484,179

$ 1,832,141

$ 1,897,878

 

 

DAVITA HEALTHCARE PARTNERS INC.

RECONCILIATIONS FOR NON-GAAP MEASURES

(unaudited)

(dollars in thousands)

 

3.   Effective Income Tax Rates

 

We believe that reporting the effective income tax rate attributable to DaVita HealthCare Partners Inc. excluding noncontrolling owners' income that primarily relates to non-tax paying entities is meaningful to an investor to fully understand the related income tax effects on DaVita HealthCare Partners Inc.'s operating results. This is not a measure 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 HealthCare Partners Inc. is as follows:

 

 

Three months ended

Year ended

December 31, 2014

 

December 31,

2014

September 30,

2014

December 31,

2013

Income from continuing operations before income taxes

$    354,365

$    336,412

$  380,020

$    1,309,673

Income tax expense

$    103,977

$    116,628

$  135,747

$       446,343

Effective income tax rate

29.3%

34.7%

35.7%

34.1%

     
 

Three months ended

Year ended

December 31, 2014

 

December 31,

2014

September 30,

2014

December 31,

2013

Income from continuing operations before income taxes

$    354,365

$    336,412

$  380,020

$    1,309,673

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

(42,495)

(35,810)

(32,020)

(140,949)

Income before income taxes attributable to DaVita HealthCare Partners Inc

$    311,870

$    300,602

$  348,000

$    1,168,724

         

Income tax expense

103,977

116,628

$  135,747

$      446,343

Less: Income tax attributable to noncontrolling interests

(127)

(148)

(25)

(733)

Income tax attributable to DaVita HealthCare Partners Inc

$    103,850

$    116,480

$  135,722

$      445,610

         

Effective income tax rate attributable to DaVita HealthCare Partners Inc

33.3%

38.7%

39.0%

38.1%

 

 

 

DAVITA HEALTHCARE PARTNERS INC.

RECONCILIATIONS FOR NON-GAAP MEASURES

(unaudited)

(dollars in thousands)

 

4.  Free cash flow and adjusted operating cash flow

 

Free cash flow represents net cash provided by operating activities less distributions to noncontrolling interests and capital expenditures for routine maintenance and information technology. We believe free cash flow is a useful adjunct to cash flow from operating activities and other measurements under GAAP, since free cash flow is a meaningful measure of our ability to fund acquisition and development activities and meet our debt service requirements. In addition, free cash flow excluding distributions to noncontrolling interests provides an investor with an understanding of free cash flows that are attributable to DaVita HealthCare Partners Inc. We have also presented adjusted operating cash flow excluding the payment made in the fourth quarter of 2014 related to the settlement of the 2010 and 2011 U.S. Attorney Physician Relationship Investigations. We believe this measure is meaningful to investors to understand our operating cash flows that were generated excluding this one-time unusual payment that was part of the Settlement Agreement. Free cash and adjusted operating cash flow are not measures of financial performance under GAAP and should not be considered as an alternative to cash flows from operating, investing or financing activities, as an indicator of cash flows or as a measure of liquidity.

 

 

 

 

Three months ended

Year ended

December 31, 2014

 

December 31,

2014

September 30,

2014

December 31,

2013

Cash (used in) provided by operating activities

$   (69,991)

$   847,900

$   354,187

$ 1,459,407

Less:  Distributions to noncontrolling interests

(44,196)

(39,325)

(39,590)

(149,339)

Cash (used in) provided by operating activities attributable to DaVita HealthCare Partners Inc

(114,187)

808,575

314,597

1,310,068

Less: Expenditures for routine maintenance and information technology

(82,811)

(68,263)

(109,402)

(264,972)

Free cash flow

$ (196,998)

$   740,312

$   205,195

$ 1,045,096

     
   

Rolling 12-Month Period

   

December 31,

2014

September 30,

2014

December 31,

2013

Cash provided by operating activities

 

$  1,459,407

$  1,883,585

$  1,773,341

Less:  Distributions to noncontrolling interests

 

(149,339)

(144,733)

(139,326)

Cash provided by operating activities attributable to DaVita HealthCare Partners Inc

 

1,310,068

1,738,852

1,634,015

Less: Expenditures for routine maintenance and information technology

 

(264,972)

(291,563)

(268,499)

Free cash flow

 

$  1,045,096

$  1,447,289

$    1,365,516

         
   

Three months ended December 31, 2014

Year ended December 31, 2014

 

Cash (used in) provided by operating activities

 

$       (69,991)

$     1,459,407

 

Payment in connection with the settlement of the 2010 and 2011 U.S. Attorney Physician Relationship Investigations

 

410,356

410,356

 

Related tax benefit

 

(141,487)

(141,487)

 

Adjusted operating cash flow

 

$      198,878

$     1,728,276

 

 

 

DAVITA HEALTHCARE PARTNERS INC.

RECONCILIATIONS FOR NON-GAAP MEASURES

(unaudited)

(dollars in thousands)

 

5.  Total care dollars under management

 

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

 

 

Three months ended

Year ended

December 31, 2014

 

December 31,

2014

September 30,

2014

December 31,

2013

Medical revenues

$    863,555

$    879,130

$    810,553

$  3,410,395

Less: Risk share revenue, net

(12,805)

(32,568)

(41,288)

(83,856)

Add: Institutional capitation amounts

314,100

301,079

275,380

1,193,811

Total care dollars under management

$ 1,164,850

$ 1,147,641

$ 1,044,645

$  4,520,350

 

 

Contact: 

Jim Gustafson

 

Investor Relations

 

DaVita HealthCare Partners Inc.

 

(310) 536-2585

 

SOURCE DaVita HealthCare Partners Inc.


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