Improving Health, Health Care and Quality of Life

DaVita Inc. 2nd Quarter 2020 Results

DENVER, July 30, 2020 /PRNewswire/ -- During the second quarter of 2020, DaVita (NYSE: DVA) remained focused on its top priorities, the safety and care of its patients, caregivers, teammates and physician partners. In the face of the novel coronavirus (COVID-19) pandemic, we continue to work collaboratively with the U.S. Department of Health and Human Services, the Centers for Medicare and Medicaid Services, the Centers for Disease Control and Prevention (CDC), the American Society of Nephrology, and dialysis providers nationwide to help ensure the entire dialysis community is able to support our collective patients and each other.

DaVita has made significant investments in workplace safety initiatives, infection control procedures, patient and caregiver COVID-19 testing, and technology and telehealth options for physicians and patients in an effort to ensure that our patients have the ability to maintain continuity of care throughout this crisis, whether in the inpatient, in-center, or home setting.

"The continued efforts of our 65,000 teammates in the face of this crisis while caring for our patients and for each other is truly inspiring," said Javier Rodriguez, CEO of DaVita Inc.  "They are working tirelessly to embody the DaVita name 'to give life' to over 236,000 patients worldwide."

A summary of the company's COVID-19 response to date is included later in this release.

In addition, the Company announced financial and operating results for the quarter ended June 30, 2020.

Financial results for the quarter ended June 30, 2020

Highlights:

  • Consolidated revenues of $2.880 billion.
  • Operating income of $410 million or 14.2% operating margin and adjusted operating income of $461 million or 16.0% adjusted operating margin.
  • Diluted earnings per share from continuing operations of $1.62 and adjusted diluted earnings per share from continuing operations of $1.95.
  • Operating cash flow from continuing operations of $651 million and free cash flow from continuing operations of $507 million.
  • Issued an aggregate principal amount of $1.750 billion of 4.625% senior notes. The net proceeds from the offering, together with cash on hand, were used to redeem in full our $1.750 billion in aggregate principal amount of outstanding 5.125% senior notes in July.

 


Three months ended June 30,


Six months ended June 30,


2020


2019


2020


2019

Net income attributable to DaVita Inc.:

(dollars in millions, except per share data)


Net income from continuing operations

$

202



$

194



$

431



$

314



Diluted per share

$

1.62



$

1.16



$

3.44



$

1.89



Adjusted net income from continuing operations(1)

$

242



$

203



$

474



$

356



Diluted per share adjusted(1)

$

1.95



$

1.22



$

3.78



$

2.13



Net income

$

202



$

274



$

441



$

423



Diluted per share

$

1.62



$

1.64



$

3.52



$

2.54








(1)

For definitions of non-GAAP financial measures, see the note titled "Note on Non-GAAP Financial Measures" and related reconciliations beginning on page 16.

 


Three months ended June 30,


Six months ended June 30,


2020


2019


2020


2019


Amount


Margin


Amount


Margin


Amount


Margin


Amount


Margin

Operating income:

(dollars in millions)


Operating income

$

410



14.2

%


$

462



16.2

%


$

875



15.3

%


$

802



14.4

%


Adjusted operating income(1)(2)

$

461



16.0

%


$

462



16.2

%


$

927



16.2

%


$

843



15.1

%







(1)

For definitions of non-GAAP financial measures, see the note titled "Note on Non-GAAP Financial Measures" and related reconciliations beginning on page 16.

(2)

Adjusted operating income margin is adjusted operating income divided by consolidated revenues.

U.S. dialysis metrics:

Volume: Total U.S. dialysis treatments for the second quarter of 2020 were 7,570,908, or an average of 97,063 treatments per day, representing a per day increase of 0.7% over the second quarter of 2019. Normalized non-acquired treatment growth in the second quarter of 2020 as compared to the second quarter of 2019 was 1.6%.


Three months ended




Six months ended




June 30, 2020


March 31, 2020


Quarter
change


June 30, 2020


June 30, 2019



Year to date

change


Per treatment metrics:












Revenue

$

352.26



$

347.54



$

4.72



$

349.91



$

349.18



$

0.73


Patient care costs

$

238.02



$

237.35



$

0.67



$

237.69



$

241.75



$

(4.06)


General and administrative

$

27.78



$

27.14



$

0.64



$

27.46



$

27.85



$

(0.39)


Primary drivers of the changes in the table above were as follows:

Revenue: The quarter change was primarily due to normal seasonality driven by patients meeting their co-insurance and deductibles, favorable changes in government and commercial payor mix and an increase in Medicare rates due to the temporary suspension of Medicare sequestration, partially offset by a Medicare rate decline related to calcimimetics and a decrease in inpatient dialysis service revenue. The year to date change was primarily due to favorable changes in payor rates and an increase in Medicare rates due to the temporary suspension of Medicare sequestration, partially offset by a decline in Medicare rates related to calcimimetics.

Patient care costs: The quarter change was primarily due to an increase in COVID-19-related costs including compensation and other medical supplies, partially offset by decreases in health benefit expenses, other direct dialysis center operating expense and other pharmaceutical intensity. The year to date change was primarily due to decreases in calcimimetics unit costs, other pharmaceutical unit costs, other direct dialysis center operating expense and health benefit expenses, partially offset by an increase in COVID-19-related costs including compensation and other medical supplies.

General and administrative: The quarter change was primarily due to an increase in compensation costs, including COVID-19-related compensation, as well as increases in legal and consulting costs, partially offset by decreases in travel and entertainment expense, health benefit expenses and long-term incentive compensation expense. The year to date change was primarily due to decreases in travel and entertainment expense, payroll taxes, health benefit expenses and long-term incentive compensation expense partially offset by an increase in compensation costs, including COVID-19-related compensation and an increase in consulting costs.

Certain items impacting the quarter:

Debt transactions: In June 2020, we issued $1.750 billion in aggregate principal amount of 4.625% senior notes due 2030. In July, we used the net proceeds from these 4.625% senior notes, together with cash on hand, to redeem in full all $1.750 billion in aggregate principal amount of our outstanding 5.125% senior notes due 2024, including payment of accrued interest and a redemption premium. Charges associated with this redemption will be recognized in the third quarter.

Non-GAAP adjustments to operating income:

Loss on changes in ownership interest, net: During the second quarter of 2020 we sold Lifeline, our vascular access business, and recognized a loss of $16 million.

Accruals for legal matters: During the second quarter of 2020 we recorded accruals for legal matters and recognized a net charge of $35 million which is included in general and administrative expenses.

Financial and operating metrics:


Three months ended
June 30,


Rolling twelve months ended
June 30,


2020


2019


2020


2019

Cash flow:

(dollars in millions)


Operating cash flow

$

651



$

610



$

2,333



$

1,598



Operating cash flow from continuing operations

$

651



$

574



$

2,337



$

1,316



Free cash flow from continuing operations (1)

$

507



$

393



$

1,543



$

400








(1)

For definitions of non-GAAP financial measures, see the note titled "Note on Non-GAAP Financial Measures" and related reconciliations beginning on page 16.

 


Three months ended
June 30, 2020


Six months ended
June 30, 2020

Effective income tax rate on:






Income from continuing operations

24.6

%


24.7

%


Income from continuing operations attributable to DaVita Inc.(1)

29.2

%


28.8

%


Adjusted income from continuing operations attributable to DaVita Inc.(1)

28.0

%


28.2

%







(1)

For definitions of non-GAAP financial measures, see the note titled "Note on Non-GAAP Financial Measures" and related reconciliations beginning on page 16.

Center activity: As of June 30, 2020, we provided dialysis services to a total of approximately 236,800 patients at 3,082 outpatient dialysis centers, of which 2,795 centers were located in the United States and 287 centers were located in ten countries outside of the United States. During the second quarter of 2020, we opened a total of 28 new dialysis centers, acquired one center and closed six dialysis centers in the United States. We also acquired three dialysis centers and opened two new dialysis centers outside of the United States during the second quarter of 2020.

Outlook:

The following forward-looking measures and the underlying assumptions involve significant risks and uncertainties, including those described below, and actual results may vary materially from these forward-looking measures. In particular, the widespread impact of the COVID-19 pandemic continues to generate significant risk and uncertainty, and as a result, our future results could vary materially from the guidance provided below. We do not provide guidance for diluted net income from continuing operations per share attributable to DaVita Inc., effective income tax rate on income from continuing operations or free cash flow from continuing operations on a basis consistent with United States generally accepted accounting principles (GAAP) 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 loss on changes in ownership interests, accruals for legal matters, refinancing charges and foreign currency fluctuations, which may be significant. The guidance for our 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.


Current 2020 guidance


Prior 2020 guidance


Low


High


Low


High


(dollars in millions, except per share data)

Revenue

$

11,500



$

11,700



$

11,500



$

11,700


Adjusted operating income margin

14.0

%


14.75

%


13.0

%


14.0

%

Effective income tax rate on adjusted income from

 continuing operations attributable to DaVita Inc.

28.0

%


29.5

%


28.0

%


29.5

%

Adjusted diluted net income from continuing

 operations per share attributable to DaVita Inc.

$

6.25



$

6.75



$

5.75



$

6.25


Capital expenditures from continuing operations

$

700



$

750



$

700



$

750


Free cash flow from continuing operations

$

800



$

1,000



$

600



$

800


We will be holding a conference call to discuss our results for the second quarter ended June 30, 2020, on July 30, 2020, 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 COVID-19 Response to Date

DaVita implemented a Prepare, Prevent and Respond protocol and is working in lockstep with the CDC on infection control and clinical best practices in response to COVID-19. Additionally, we have made many investments to support our patients and teammates and the broader community. Our COVID-19 response includes:

Caring for our patients

  • Collaborating with dialysis providers across the nation to develop a nationwide contingency plan with a goal of maintaining continuity of care for dialysis patients by creating isolation cohort capacity that can be accessed by other dialysis providers.
  • Requiring proactive screenings to evaluate everyone who enters our outpatient dialysis centers for COVID-19-like symptoms and exposure.
  • Early cohorting of patients who have or are suspected of having COVID-19 to help keep our other dialysis patients and frontline caregivers safe.
  • Restricting visitors who are not necessary for patient care.
  • Onsite testing of patients and teammates for COVID-19 at select facilities.
  • Implementing a mask policy for all individuals—patients, teammates, essential visitors—at all times in our centers early in the COVID-19 outbreak.
  • Providing all necessary personal protective equipment (e.g., masks, gowns, shields, hand sanitizer) for teammates' safety.
  • Updating our sick leave policy to align with CDC guidance for health care professionals.
  • Offering telehealth options to our physicians in all of our locations to help protect our patients, teammates, and physician partners from potential virus exposure while maintaining continuity of care.
  • Continuing to offer home dialysis to over 28,000 patients through over 1,750 DaVita locations across the United States with options for home remote monitoring and a dedicated HIPAA-compliant home dialysis telehealth platform.
  • Sending nearly 100 clinicians who volunteered to travel from their home center to other states to support clinics and acute care hospitals providing dialysis to patients in COVID-19 hotspots.

Caring for our teammates

  • Providing relief reimbursement to eligible teammates.
  • Implementing double overtime pay as extra compensation for eligible teammates who worked over 40 hours per work week, during a period of time in the quarter ended June 30, 2020.
  • Making paid time off (PTO) policy changes, including:
    • Giving PTO advances for teammates who get sick and need time off.
    • Allowing teammates to continue to accrue PTO without limitation through June 27.
  • Establishing a donation platform for teammates to give PTO and financial support to other teammates in need.
  • Sending care packages with helpful resources to frontline teammates.
  • Transitioning central business office teammates to work remotely without disruption in service levels.
  • Offering 10 days of free emergency backup child or elder care to our teammates through Bright Horizons.
  • Providing no-cost resources to help teammates and their families to cope with stress and to enhance mental and emotional well-being through our Employee Assistance Program.
  • Providing regular communications and updates to teammates on COVID-19-related issues.

Caring for our communities and physician partners

  • Continuing to provide outpatient dialysis to nearly 70% of patients with suspected and confirmed COVID-19, which helps maintain continuity of care and reduces the burden on hospitals.
  • Returning approximately $250 million of CARES Act provider relief funding to the federal government so it could be allocated to providers in greater need of emergency relief.
  • Committing millions in charitable donations for initiatives to enhance social justice.
  • Continuing the DaVita Way of Giving program which allows teammates to direct donations to local nonprofits across the U.S.

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 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. These forward-looking statements could include, among other things, DaVita's response to and the expected future impacts of COVID-19, including statements about our balance sheet and liquidity, our expenses, revenues and future results, potential need, ability or willingness to use any funds under the CARES Act or other government programs, availability of supplies, treatment volumes, number or percentage of patients and overall impact on our patients, as well as statements related to our guidance and expectations for future periods and the assumptions underlying any such projections. Without limiting the foregoing, statements including the words "expect," "intend," "will," "could," "plan," "anticipate," "believe," and similar expressions are intended to identify forward-looking statements. These forward-looking statements are based on DaVita's current expectations and are based solely on information available as of the date of this release. DaVita undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of changed circumstances, new information, future events or otherwise. Actual future events and results could differ materially from any forward-looking statements due to numerous factors that involve substantial known and unknown risks and uncertainties. These risks and uncertainties include, among other things:

  • the continuing impact of the dynamic and rapidly evolving COVID-19 pandemic, including, without limitation, on our patients, teammates, physician partners, suppliers, business, operations, reputation, financial condition and results of operations, the government's response to the COVID-19 pandemic, and the consequences of an extended economic downturn resulting from the impacts of COVID-19, any of which may also have the effect of heightening many of the other risks and uncertainties discussed below;
  • our need, ability and willingness to utilize any funds received under the CARES Act or subsequent legislation, and the consequences of our decisions with respect thereto;
  • 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 or percentage of our patients under such plans, including without limitation 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;
  • 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 extent to which the ongoing implementation of healthcare reform, or changes in or new legislation, regulations or guidance, enforcement thereof or related litigation 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 that are enrolled in or select Medicare Advantage plans, or other material impacts to our business; or our making incorrect assumptions about how our patients will respond to any such developments;
  • 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, such as Proposition 23 in California;
  • the impact of the upcoming election cycle, the 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 healthcare marketplace;
  • our ability to successfully implement our strategy with respect to home-based dialysis, including maintaining our existing business and further developing our capabilities in a complex and highly regulated environment;
  • 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;
  • 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;
  • uncertainties related to potential payments and/or adjustments under certain provisions of the equity purchase agreement for the sale of our DaVita Medical Group (DMG) business, such as post-closing adjustments and indemnification obligations;
  • the variability of our cash flows, including without limitation any extended billing or collections cycles; the risk that we may not be able to generate or access 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 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; and
  • uncertainties associated with the other risk factors set forth in DaVita Inc.'s Annual Report on Form 10-K for the year ended December 31, 2019 and Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, and the risks and uncertainties discussed in any subsequent reports that DaVita has filed or furnished with the SEC from time to time.

The financial information presented in this release is unaudited and is subject to change as a result of subsequent events or adjustments, if any, arising prior to the filing of the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2020.

Contact:

Jim Gustafson


Investor Relations


DaVita Inc.


(310) 536-2585


jim.gustafson@davita.com

 

DAVITA INC.

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

(dollars in thousands, except per share data)



Three months ended June 30,


Six months ended June 30,


2020


2019


2020


2019

Dialysis patient service revenues

$

2,758,197



$

2,723,816



$

5,471,478



$

5,353,505


Other revenues

121,782



118,889



249,738



232,312


Total revenues

2,879,979



2,842,705



5,721,216



5,585,817


Operating expenses and charges:








Patient care costs

1,984,564



1,957,753



3,960,013



3,922,688


General and administrative

316,209



275,338



579,785



526,151


Depreciation and amortization

157,376



152,242



312,055



300,770


Equity investment income

(4,342)



(4,514)



(22,185)



(7,222)


Loss on changes in ownership interest, net

16,252





16,252




Goodwill impairment charges







41,037


Total operating expenses and charges

2,470,059



2,380,819



4,845,920



4,783,424


Operating income

409,920



461,886



875,296



802,393


Debt expense

(81,381)



(131,666)



(169,984)



(263,185)


Debt prepayment and refinancing charges



(12,160)



(2,948)



(12,160)


Other income, net

9,545



5,643



5,195



12,583


Income from continuing operations before income taxes

338,084



323,703



707,559



539,631


Income tax expense

83,212



75,938



174,772



132,684


Net income from continuing operations

254,872



247,765



532,787



406,947


Net income from discontinued operations, net of tax



79,392



9,980



109,697


Net income

254,872



327,157



542,767



516,644


Less: Net income attributable to noncontrolling interests

(53,270)



(53,606)



(101,572)



(93,804)


Net income attributable to DaVita Inc.

$

201,602



$

273,551



$

441,195



$

422,840










Earnings per share attributable to DaVita Inc.:








Basic net income from continuing operations per share

$

1.65



$

1.17



$

3.49



$

1.89


Basic net income per share

$

1.65



$

1.64



$

3.57



$

2.54


Diluted net income from continuing operations per share

$

1.62



$

1.16



$

3.44



$

1.89


Diluted net income per share

$

1.62



$

1.64



$

3.52



$

2.54










Weighted average shares for earnings per share:








Basic

122,074,452



166,346,041



123,485,412



166,366,886


Diluted

124,068,278



166,799,525



125,478,913



166,789,978










Amounts attributable to DaVita Inc.:








Net income from continuing operations

$

201,602



$

194,223



$

431,215



$

314,477


Net income from discontinued operations



79,328



9,980



108,363


Net income attributable to DaVita Inc.

$

201,602



$

273,551



$

441,195



$

422,840


 

DAVITA INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

 (dollars in thousands)



Three months ended
June 30,


Six months ended
June 30,


2020


2019


2020


2019

Net income

$

254,872



$

327,157



$

542,767



$

516,644


Other comprehensive income, net of tax:








Unrealized losses on interest rate cap agreements:








Unrealized losses

(1,824)



(31)



(14,842)



(611)


Reclassifications of net realized losses into net income

1,623



1,606



3,246



3,212


Unrealized gains (losses) on foreign currency translation:








Foreign currency translation adjustments

5,619



12,365



(76,013)



(1,288)


Other comprehensive income (loss)

5,418



13,940



(87,609)



1,313


Total comprehensive income

260,290



341,097



455,158



517,957


Less: Comprehensive income attributable to noncontrolling  interests

(53,270)



(53,606)



(101,572)



(93,804)


Comprehensive income attributable to DaVita Inc.

$

207,020



$

287,491



$

353,586



$

424,153


 

DAVITA INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(dollars in thousands)



Six months ended June 30,


2020


2019

Cash flows from operating activities:




Net income

$

542,767



$

516,644


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




Depreciation and amortization

312,055



300,770


Debt refinancing charges

884




Impairment charges



41,037


Stock-based compensation expense

42,125



29,045


Deferred income taxes

132,101



60,706


Equity investment (loss) income, net

(6,494)



2,631


Loss on sales of business interests, net

16,252



23,022


Other non-cash charges, net

(5,885)



25,857


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




Accounts receivable

15,194



(288,437)


Inventories

(696)



11,542


Other receivables and other current assets

(131,988)



(5,142)


Other long-term assets

1,950



(410)


Accounts payable

(15,858)



(68,887)


Accrued compensation and benefits

(19,325)



(88,473)


Other current liabilities

146,490



151,780


Income taxes

(4,800)



57,551


Other long-term liabilities

(13,269)



(18,121)


Net cash provided by operating activities

1,011,503



751,115


Cash flows from investing activities:




Additions of property and equipment

(291,667)



(373,918)


Acquisitions

(44,267)



(65,970)


Proceeds from asset and business sales

70,615



3,851,381


Purchase of debt investments held-to-maturity

(142,483)



(3,322)


Purchase of other debt and equity investments

(3,034)



(4,812)


Proceeds from debt investments held-to-maturity

7,621




Proceeds from sale of other debt and equity investments

3,438



5,893


Purchase of equity method investments

(8,101)



(6,715)


Distributions from equity method investments

739



155


Net cash (used in) provided by investing activities

(407,139)



3,402,692


Cash flows from financing activities:




Borrowings

2,324,300



32,367,300


Payments on long-term debt

(635,695)



(33,527,788)


Deferred financing and debt redemption costs

(20,375)



(3,621)


Purchase of treasury stock

(321,798)



(73,078)


Distributions to noncontrolling interests

(118,553)



(95,714)


Stock award exercises and other share issuances, net

(2,106)



2,107


Contributions from noncontrolling interests

20,582



31,281


Purchases of noncontrolling interests

(6,782)



(11,040)


Net cash provided by (used in) financing activities

1,239,573



(1,310,553)


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

(16,936)



(77)


Net increase in cash, cash equivalents and restricted cash

1,827,001



2,843,177


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



(423,813)


Net increase in cash, cash equivalents and restricted cash from continuing operations

1,827,001



3,266,990


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

1,208,718



415,420


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

$

3,035,719



$

3,682,410


 

DAVITA INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

(dollars in thousands, except share data)



June 30,
2020


December 31,
2019

ASSETS




Cash and cash equivalents

$

2,928,910



$

1,102,372


Restricted cash and equivalents

106,809



106,346


Short-term investments

154,115



11,572


Accounts receivable

1,772,259



1,795,598


Inventories

97,902



97,949


Other receivables

614,606



489,695


Prepaid and other current assets

63,266



66,866


Income tax receivable

41,963



19,772


Total current assets

5,779,830



3,690,170


Property and equipment, net of accumulated depreciation of $4,229,363 and $3,969,566, respectively

3,417,918



3,473,384


Operating lease right-of-use assets

2,826,620



2,830,047


Intangible assets, net of accumulated amortization of $88,133 and $81,922, respectively

113,379



135,684


Equity method and other investments

255,489



241,983


Long-term investments

28,340



36,519


Other long-term assets

92,909



115,972


Goodwill

6,790,606



6,787,635



$

19,305,091



$

17,311,394


LIABILITIES AND EQUITY




Accounts payable

$

357,283



$

403,840


Other liabilities

902,019



756,174


Accrued compensation and benefits

686,700



695,052


Current portion of operating lease liabilities

360,405



343,912


Current portion of long-term debt

1,906,560



130,708


Income tax payable

61,596



42,412


Total current liabilities

4,274,563



2,372,098


Long-term operating lease liabilities

2,709,569



2,723,800


Long-term debt

7,894,674



7,977,526


Other long-term liabilities

144,121



160,809


Deferred income taxes

706,410



577,543


Total liabilities

15,729,337



13,811,776


Commitments and contingencies




Noncontrolling interests subject to put provisions

1,241,937



1,180,376


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; 126,036,632 and

 121,984,334 shares issued and outstanding at June 30, 2020, respectively and 125,842,853 

 shares issued and outstanding at December 31, 2019)

126



126


Additional paid-in capital

719,102



749,043


Retained earnings

1,872,933



1,431,738


Treasury stock (4,052,298 and zero shares, respectively)

(303,139)




Accumulated other comprehensive loss

(135,107)



(47,498)


Total DaVita Inc. shareholders' equity

2,153,915



2,133,409


Noncontrolling interests not subject to put provisions

179,902



185,833


Total equity

2,333,817



2,319,242



$

19,305,091



$

17,311,394


 

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, 2020


June 30,
2020


March 31,
2020


June 30,
2019


1. Consolidated business metrics:








Operating income margin

14.2

%


16.4

%


16.2

%


15.3

%

Adjusted operating income margin excluding certain items(1)(3)

16.0

%


16.4

%


16.2

%


16.2

%

General and administrative expenses as a percent of consolidated

 revenues(2)

11.0

%


9.3

%


9.7

%


10.1

%

Effective income tax rate on income from continuing operations

24.6

%


24.8

%


23.5

%


24.7

%

Effective income tax rate on income from continuing operations

 attributable to DaVita Inc.(1)

29.2

%


28.5

%


28.0

%


28.8

%

Effective income tax rate on adjusted income from continuing

 operations attributable to DaVita Inc.(1)

28.0

%


28.5

%


27.9

%


28.2

%









2. Summary of financial results:








Revenues:








U.S. net dialysis patient services and other

$

2,675



$

2,617



$

2,637



$

5,292


Other—Ancillary services








U.S. other

116



124



114



240


International net dialysis patient service and other

129



137



125



265



245



261



239



506


Eliminations

(40)



(36)



(34)



(76)


Total consolidated revenues

$

2,880



$

2,841



$

2,843



$

5,721


Operating income (loss):








U.S. dialysis

$

523



$

492



$

499



$

1,014


Other—Ancillary services








U.S.

(41)



(19)



(16)



(60)


International(4)

1



17



1



18



(40)



(3)



(15)



(42)


Corporate administrative support expenses

(73)



(24)



(22)



(97)


Total consolidated operating income

$

410



$

465



$

462



$

875


 

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, 2020


June 30,
2020


March 31,
2020


June 30,
2019


3. Summary of reportable segment financial results:
















U.S. dialysis








Revenue:








Dialysis patient service revenues

$

2,667



$

2,611



$

2,632



$

5,278


Other revenues

8



5



6



13


Total operating revenues

2,675



2,617



2,637



5,292


Operating expenses:








Patient care costs

1,802



1,783



1,785



3,585


General and administrative

210



204



216



414


Depreciation and amortization

148



146



145



295


Equity investment income

(8)



(9)



(7)



(17)


Total operating expenses

2,152



2,125



2,139



4,277


Segment operating income

$

523



$

492



$

499



$

1,014










4. U.S. dialysis business metrics:








Volume:








Treatments

7,570,908



7,513,321



7,520,587



15,084,229


Number of treatment days

78.0



77.6



78.0



155.6


Average treatments per day

97,063



96,821



96,418



96,942


Per day year over year increase

0.7

%


1.6

%


2.6

%


1.1

%

Normalized non-acquired treatment growth year over year(5)

1.6

%


2.3

%


2.1

%



Operating net revenues:








Average patient service revenue per treatment

$

352.26



$

347.54



$

349.97



$

349.91


Expenses:








Patient care costs per treatment

$

238.02



$

237.35



$

237.34



$

237.69


General and administrative expenses per treatment

$

27.78



$

27.14



$

28.68



$

27.46


Accounts receivable:








Net receivables

$

1,649



$

1,668



$

1,816




DSO

57



59



63




 

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, 2020


June 30,
2020


March 31,
2020


June 30,
2019


5. Cash flow:








Operating cash flow

$

651



$

360



$

610



$

1,012


Operating cash flow from continuing operations

$

651



$

360



$

574



$

1,012


Operating cash flow from continuing operations, last twelve

 months

$

2,337



$

2,260



$

1,316




Free cash flow from continuing operations(1)

$

507



$

184



$

393



$

691


Free cash flow from continuing operations, last twelve

 months(1)

$

1,543



$

1,429



$

400




Capital expenditures from continuing operations:








Routine maintenance/IT/other

$

74



$

82



$

61



$

156


Development and relocations

$

63



$

73



$

95



$

136


Acquisition expenditures

$

10



$

34



$

54



$

44


Proceeds from sale of self-developed properties

$

42



$

27



$

14



$

69










6. Debt and capital structure:








Total debt(6)

$

9,886



$

8,657



$

9,004




Net debt, net of cash and cash equivalents(6)

$

6,957



$

7,275



$

5,428




Leverage ratio (see calculation on page 15)

3.66x



3.17x



2.47x




Weighted average effective interest rate:








During the quarter

3.64

%


4.35

%


5.17

%



At end of the quarter

3.65

%


3.75

%


5.30

%



On the senior secured credit facilities at end of the quarter

2.10

%


2.78

%


5.31

%



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








Debt with rates fixed by its terms

54

%


42

%


54

%



Debt with rates fixed by its terms or capped by cap

 agreements

90

%


82

%


93

%



Amount spent on share repurchases

$



$

303



$

112



$

303


Number of shares repurchased



4,052,298



2,059,976



4,052,298



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, accruals for legal matters and advocacy costs.

(3)

Adjusted operating income margin is adjusted operating income divided by consolidated revenues.

(4)

The reported operating income (loss) for the three months ended June 30, 2020, March 31, 2020 and June 30, 2019, include approximately $(3.7), $9.7 and $(0.5), respectively, of foreign currency gain (loss).

(5)

Normalized non-acquired treatment growth reflects year over year growth in treatment volume, adjusted to exclude acquisitions and other similar transactions, further adjusted to normalize for the number and mix of treatment days in a given quarter versus the prior year quarter.

(6)

The reported balance sheet amounts at June 30, 2020, March 31, 2020 and June 30, 2019, exclude approximately $85.1, $68.8 and $34.5, respectively, of debt discount and other deferred financing costs related to our senior secured credit facilities and senior notes in effect or outstanding, respectively at that time.

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

Note 1: Calculation of the Leverage Ratio

Under our new senior secured credit facilities (the New Credit Agreement) dated August 12, 2019 and our prior senior secured credit facilities (the Prior 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, not to exceed certain limits under the New Credit Agreement, including short-term investments, divided by "Consolidated EBITDA". The leverage ratio determines the interest rate margin payable by the Company for its new Term Loan A and new revolving line of credit under the New Credit Agreement by establishing the margin over the base interest rate (LIBOR) that is applicable. The following leverage ratios were calculated using "Consolidated EBITDA" and "Consolidated net debt" as defined in the credit agreement that was in effect at the end of each period. The calculation below is based on the last twelve months of "Consolidated EBITDA", as of the end of the reported period and pro forma for acquisitions or divestitures 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 in effect at that time. The leverage ratio calculated by the Company is a non-GAAP measure and should not be considered a substitute for debt to net income attributable to DaVita Inc., net income attributable to DaVita Inc. or total debt as determined in accordance with United States generally accepted accounting principles (GAAP). The Company's calculation of its leverage ratio might not be calculated in the same manner as, and thus might not be comparable to, similarly titled measures by other companies.


Rolling twelve months ended


June 30,
2020


March 31,
2020


June 30,
2019

Net income attributable to DaVita Inc. from continuing operations (1)

$

823,570



$

816,191



$

548,180


Income taxes

321,716



314,442



236,479


Interest expense

307,509



354,995



476,507


Depreciation and amortization

626,436



621,302



601,927


Impairment charges

83,855



83,855



47,130


Noncontrolling interests and equity investment income, net

221,002



222,118



194,434


Stock-settled stock-based compensation

80,228



72,918



77,766


Debt prepayment, refinancing and redemption charges

24,190



36,350



12,160


Loss (gain) on changes in ownership interest, net

16,252





(26,646)


Other

10,264



(10,216)



56,176


"Consolidated EBITDA"

$

2,515,022



$

2,511,955



$

2,224,113









June 30,
2020


March 31,
2020


June 30,
2019

Total debt, excluding debt discount and other deferred financing costs(2)

$

9,886,314



$

8,657,211



$

9,003,631


Letters of credit issued

57,452



57,705



72,763



9,943,766



8,714,916



9,076,394


Less: Cash and cash equivalents including short-term investments(3)

(750,000)



(750,000)



(3,578,751)


Consolidated net debt

$

9,193,766



$

7,964,916



$

5,497,643


Last twelve months "Consolidated EBITDA"

$

2,515,022



$

2,511,955



$

2,224,113


Leverage ratio

3.66x



3.17x



2.47x


Maximum leverage ratio permitted under New and Prior Credit Agreement

5.00x



5.00x



5.00x








(1)

The reported net income is our reported net income from continuing operations attributable to DaVita Inc. as the Credit Agreement requires divestitures to be reflected on a pro forma basis, as such net income from discontinued operations is excluded from our leverage ratio calculation.

(2)

The reported total debt amounts at June 30, 2020, March 31, 2020 and June 30, 2019, exclude $85,080, $68,757 and $34,502, respectively, of debt discount and other deferred financing costs related to our senior secured credit facilities and senior notes in effect at that time.

(3)

Excluding amounts not readily convertible to cash related to the Company's non-qualified deferred compensation plans for all periods presented. The Company's New Credit Agreement limits the amount deducted for cash and cash equivalents to the lesser of all unrestricted cash and cash equivalents of the Company or $750,000.

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 and refinancing 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, management uses 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 also are useful to investors and analysts in evaluating our performance over time and relative to competitors, as well as in analyzing the underlying trends in our business. Furthermore, we 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.

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, under our new definition, free cash flow from continuing operations represents net cash provided by operating activities from continuing operations less distributions to noncontrolling interests and all capital expenditures (including development capital expenditures, routine maintenance and information technology); plus contributions from noncontrolling interests and sale leaseback proceeds. Management uses this measure to assess our ability to fund acquisitions and meet our debt service obligations and we believe this measure is equally useful to investors and analysts as an adjunct to cash flows from operating activities from continuing operations and other measures under GAAP.

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, 2020


March 31, 2020


June 30, 2019


Dollars


Per share


Dollars


Per share


Dollars


Per share

Net income from continuing operations attributable to

 DaVita Inc.

$

201,602



$

1.62



$

229,613



$

1.81



$

194,223



$

1.16


Operating charges:












Goodwill impairment charges












Loss on changes in ownership interests, net

16,252



0.13










General and administrative:












Accruals for legal matters

35,000



0.28










Debt prepayment and refinancing charges





2,948



0.02



12,160



0.07


Related income tax

(10,988)



(0.09)



(736)



(0.01)



(3,130)



(0.02)


Adjusted net income from continuing operations attributable

 to DaVita Inc.

$

241,866



$

1.95



$

231,825



$

1.83



$

203,253



$

1.22







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

 


Six months ended


June 30, 2020


June 30, 2019


Dollars


Per share


Dollars


Per share

Net income from continuing operations attributable to DaVita Inc.

$

431,215



$

3.44



$

314,477



$

1.89


Operating charges:








Goodwill impairment charges





41,037



0.25


Loss on changes in ownership interests, net

16,252



0.13






General and administrative:








Accruals for legal matters

35,000



0.28






Debt prepayment and refinancing charges

2,948



0.02



12,160



0.07


Related income tax

(11,724)



(0.09)



(11,995)



(0.07)


Adjusted net income from continuing operations attributable to DaVita Inc.

$

473,691



$

3.78



$

355,679



$

2.13



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

 

DAVITA INC.

RECONCILIATIONS FOR NON-GAAP MEASURES - continued

(unaudited)

(dollars in thousands, except for per share data)


Note 3:   Adjusted operating income



Three months ended


Six months ended


June 30,
2020


March 31,
2020


June 30,
2019


June 30,
2020


June 30,
2019

Consolidated:










Operating income

$

409,920



$

465,376



$

461,886



$

875,296



$

802,393


Operating charges:










Goodwill impairment charges









41,037


Loss on changes in ownership interests, net

16,252







16,252




General and administrative:










Accruals for legal matters

35,000







35,000




Adjusted operating income

$

461,172



$

465,376



$

461,886



$

926,548



$

843,430





Three months ended


Six months ended


June 30,
2020


March 31,
2020


June 30,
2019


June 30,
2020


June 30,
2019

Consolidated:










U.S. dialysis:










Segment operating income

$

522,630



$

491,607



$

498,957



$

1,014,236



$

915,939


Other - Ancillary services:










U.S.










Segment operating loss

(40,991)



(19,369)



(15,652)



(60,361)



(30,570)


Loss on changes in ownership interests, net

16,252







16,252




Adjusted operating loss

(24,739)



(19,369)



(15,652)



(44,109)



(30,570)


International










Segment operating income (loss)

1,370



16,723



602



18,093



(42,110)


Goodwill impairment charges









41,037


Adjusted operating income (loss)

1,370



16,723



602



18,093



(1,073)


Adjusted Other - Ancillary services operating loss

(23,370)



(2,646)



(15,050)



(26,016)



(31,643)


Corporate administrative support expenses










Segment expenses

(73,088)



(23,585)



(22,021)



(96,672)



(40,866)


Accruals for legal matters

35,000







35,000




Adjusted Corporate administrative support expenses

(38,088)



(23,585)



(22,021)



(61,672)



(40,866)


Adjusted operating income

$

461,172



$

465,376



$

461,886



$

926,548



$

843,430







                    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, 2020


June 30,
2020


March 31,
2020


June 30,
2019


Income from continuing operations before income taxes

$

338,084



$

369,475



$

323,703



$

707,559


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

 paying entities

(53,335)



(48,372)



(53,916)



(101,707)


Income from continuing operations before income taxes attributable to

 DaVita Inc.

$

284,749



$

321,103



$

269,787



$

605,852










Income tax expense for continuing operations

$

83,212



$

91,560



$

75,938



$

174,772


Less: Income tax attributable to noncontrolling interests

(65)



(70)



(374)



(135)


Income tax expense from continuing operations attributable to DaVita Inc.

$

83,147



$

91,490



$

75,564



$

174,637










Effective income tax rate on income from continuing operations

 attributable to DaVita Inc.

29.2

%


28.5

%


28.0

%


28.8

%

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, 2020

June 30,

2020


March 31,

2020


June 30,

2019


Income from continuing operations before income taxes

$

338,084



$

369,475



$

323,703



$

707,559


Operating charges:








Loss on changes in ownership interests, net

16,252







16,252


General and administrative:








Accruals for legal matters

35,000







35,000


Debt prepayment and refinancing charges



2,948



12,160



2,948


Noncontrolling owners' income primarily attributable to non-tax paying

 entities

(53,335)



(48,372)



(53,916)



(101,707)


Adjusted income from continuing operations before income taxes

 attributable to DaVita Inc.

$

336,001



$

324,051



$

281,947



$

660,052


Income tax expense

$

83,212



$

91,560



$

75,938



$

174,772


Add income tax related to:








Operating charges:








Loss on changes in ownership interests, net

2,255







2,255


General and administrative:








Accruals for legal matters

8,733







8,733


Debt prepayment and refinancing charges



736



3,130



736


Less income tax related to:








Noncontrolling interests

(65)



(70)



(374)



(135)


Income tax on adjusted income from continuing operations attributable to

 DaVita Inc.

$

94,135



$

92,226



$

78,694



$

186,361


Effective income tax rate on adjusted income from continuing operations

 attributable to DaVita Inc.

28.0

%


28.5

%


27.9

%


28.2

%






                   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, 2020


June 30,
2020


March 31,
2020


June 30,
2019


Net cash provided by continuing operating activities

$

651,122



$

360,381



$

574,203



$

1,011,503


Less: Distributions to noncontrolling interests

(60,422)



(58,131)



(51,484)



(118,553)


Plus: Contributions to noncontrolling interests

11,195



9,387



12,334



20,582


Cash provided by continuing operating activities attributable to DaVita Inc.

601,895



311,637



535,053



913,532


Less: Expenditures for routine maintenance and information technology

(74,196)



(81,614)



(61,298)



(155,810)


Less: Expenditures for development

(62,529)



(73,328)



(95,028)



(135,857)


Plus: Proceeds from sale of self-developed properties

41,574



27,203



14,392



68,777


Free cash flow from continuing operations

$

506,744



$

183,898



$

393,119



$

690,642




Rolling twelve months ended


June 30,
2020


March 31,
2020


June 30,
2019

Net cash provided by continuing operating activities

$

2,336,957



$

2,260,038



$

1,316,331


Less: Distributions to noncontrolling interests

(255,962)



(247,024)



(198,149)


Plus: Contributions to noncontrolling interests

46,618



47,757



52,023


Cash provided by continuing operating activities attributable to DaVita Inc.

2,127,613



2,060,771



1,170,205


Less: Expenditures for routine maintenance and information technology

(369,566)



(356,668)



(370,587)


Less: Expenditures for development

(314,729)



(347,228)



(446,150)


Plus: Proceeds from sale of self-developed properties

99,758



72,576



46,363


Free cash flow from continuing operations

$

1,543,076



$

1,429,451



$

399,831







                         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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