Improving Health, Health Care and Quality of Life

DaVita Inc. 3rd Quarter 2020 Results

DENVER, Oct. 29, 2020 /PRNewswire/ -- DaVita Inc. (NYSE: DVA) announced financial and operating results for the third quarter ended September 30, 2020. During the quarter, notwithstanding the challenges of responding to COVID-19, the Company delivered strong financial and operating results, and continued its focus on patient care and the safety of its patients, caregivers, teammates, and physician partners.

"I am proud of the hard work and dedication of our 65,000 teammates in delivering essential, life-preserving care to our patients," said Javier Rodriguez, CEO of DaVita Inc. "Due to their efforts, we have been able to sustain continuity of care despite the disruption caused by the pandemic, while maintaining our strategic focus on leading the transformation of kidney care."

Financial results for the quarter ended September 30, 2020:

  • Consolidated revenues of $2.924 billion.
  • Operating income of $438 million or 15.0% operating margin.
  • Diluted earnings per share from continuing operations of $1.28 and adjusted diluted earnings per share from continuing operations of $1.80.
  • Operating cash flow from continuing operations of $483 million and free cash flow from continuing operations of $287 million.
  • Refinanced $1.5 billion of 5% senior notes with $1.5 billion of new 3.75% senior notes in August.
  • Deployed proceeds from issuance of $1.75 billion of 4.625% senior notes in June to redeem $1.75 billion of 5.125% senior notes in July.
  • Repurchased 8,231,679 shares of our common stock at an average cost of $88.13 per share, including 7,981,679 shares purchased in a "modified" Dutch auction tender offer in September.

 


Three months ended September 30,


Nine months ended September 30,


2020


2019


2020


2019

Net income attributable to DaVita Inc.:

(dollars in millions, except per share data)


Net income from continuing operations

$

159



$

150



$

590



$

465



Diluted per share

$

1.28



$

0.99



$

4.72



$

2.87



Adjusted net income from continuing operations(1)

$

223



$

232



$

697



$

588



Diluted per share adjusted(1)

$

1.80



$

1.53



$

5.58



$

3.64



Net income

$

159



$

143



$

600



$

566



Diluted per share

$

1.28



$

0.95



$

4.80



$

3.50


________________________

(1)

For definitions of non-GAAP financial measures, see the note titled "Note on Non-GAAP Financial Measures" and related reconciliations beginning on page 15.

 


Three months ended September 30,


Nine months ended September 30,


2020


2019


2020


2019


Amount


Margin


Amount


Margin


Amount


Margin


Amount


Margin

Operating income:

(dollars in millions)


Operating income

$

438



15.0

%


$

378



13.0

%


$

1,313



15.2

%


$

1,181



13.9

%


Adjusted operating income(1)(2)

$

438



15.0

%


$

462



15.9

%


$

1,364



15.8

%


$

1,306



15.4

%

________________________

(1)

For definitions of non-GAAP financial measures, see the note titled "Note on Non-GAAP Financial Measures" and related reconciliations beginning on page 15.

(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 third quarter of 2020 were 7,656,173, or an average of 96,914 treatments per day, representing a per day decrease of 0.2% compared to the third quarter of 2019. Normalized non-acquired treatment growth in the third quarter of 2020 compared to the third quarter of 2019 was 0.6%.


Three months ended


Quarter

change


Nine months ended




September 30,

2020


June 30,

2020



September 30,

2020


September 30,

2019


Year to date

change

Per treatment metrics:












Revenue

$

349.63



$

352.26



$

(2.63)



$

349.82



$

349.26



$

0.56


Patient care costs

$

232.57



$

238.02



$

(5.45)



$

235.97



$

239.90



$

(3.93)


General and administrative

$

39.62



$

27.78



$

11.84



$

31.56



$

28.80



$

2.76


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

Revenue: The quarter change was primarily due to a decrease in commercial revenue per treatment, unfavorable changes in government payor mix and a decline in calcimimetics revenue per treatment, partially offset by increases in inpatient dialysis service revenue and Medicare rates due to the temporary suspension of Medicare sequestration. The year to date change was primarily due to favorable changes in government and commercial revenue per treatment, including an increase in Medicare rates due to the base rate increase in 2020 and the temporary suspension of Medicare sequestration, and an increase in inpatient dialysis services revenue, partially offset by a decline in calcimimetics revenue per treatment.

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

General and administrative: The quarter change was primarily due to increases in advocacy costs, as described below, contributions to our charitable foundation and compensation expense. The year to date change was primarily due to increases in advocacy costs, as described below, contributions to our charitable foundation and compensation expense including costs related to COVID-19. These increases were partially offset by decreases in travel expenses, long-term incentive compensation expense and health benefit expenses.

Certain items impacting the quarter:

Share repurchases: The following table summarizes our common stock repurchases during the three months ended September 30, 2020.


Three months ended September 30, 2020


Shares

repurchased


Amount paid

(in millions)


Average paid

per share

Tender offer(1)

7,981,679



$

704



$

88.22


Open market repurchases

250,000



21



85.04



8,231,679



$

725



$

88.13


________________________

(1)

The aggregate amount paid for shares repurchased pursuant to our tender offer during the three months ended September 30, 2020 includes the clearing price of $88.00 per share plus related fees and expenses of $1.8 million.

Subsequent to September 30, 2020 through October 28, 2020, we repurchased 1,827,836 shares of our common stock for $161 million at an average cost of $87.96 per share.

Debt transactions: In August 2020, we issued $1.5 billion in aggregate principal amount of 3.75% senior notes due 2031 and used the net proceeds from these 3.75% senior notes, together with cash on hand, to redeem in full all $1.5 billion in aggregate principal amount of our outstanding 5% senior notes due 2025, including payment of accrued interest and a redemption premium. We also redeemed in full our $1.75 billion in aggregate principal amount of our outstanding 5.125% senior notes due 2024, including payment of accrued interest and a redemption premium, in July 2020 with the proceeds from our $1.75 billion in aggregate principal amount of 4.625% senior notes due 2030 issued in June 2020, together with cash on hand.

Advocacy costs: During the three months ended September 30, 2020, we incurred advocacy costs of approximately $66 million to counter union policy efforts, including a California ballot initiative. These costs are included in the U.S. dialysis segment's general and administrative expenses.

Financial and operating metrics:


Three months ended

September 30,


Rolling twelve months ended

September 30,


2020


2019


2020


2019

Cash flow:

(dollars in millions)


Operating cash flow

$

483



$

641



$

2,175



$

1,781



Operating cash flow from continuing operations

$

483



$

648



$

2,172



$

1,602



Free cash flow from continuing operations (1)

$

287



$

437



$

1,393



$

722


________________________

(1)

For definitions of non-GAAP financial measures, see the note titled "Note on Non-GAAP Financial Measures" and related reconciliations beginning on page 15.

 


Three months ended

September 30, 2020


Nine months ended

September 30, 2020

Effective income tax rate on:



Income from continuing operations

23.2

%


24.3

%


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

29.2

%


28.9

%


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 15.

Center activity: As of September 30, 2020, we provided dialysis services to a total of approximately 238,200 patients at 3,100 outpatient dialysis centers, of which 2,809 centers were located in the United States and 291 centers were located in nine countries outside of the United States. During the third quarter of 2020, we opened a total of 17 new dialysis centers, acquired five dialysis centers and closed eight dialysis centers in the United States. We also acquired eleven dialysis centers, opened one new dialysis center and sold or closed eight dialysis centers outside of the United States during the third quarter of 2020.

Outlook:

The following forward-looking measures and the underlying assumptions involve significant known and unknown 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



$

11,600



$

11,500



$

11,700


Adjusted operating income margin

15.3

%


15.6

%


14.0

%


14.75

%

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.

$

7.35



$

7.60



$

6.25



$

6.75


Capital expenditures from continuing operations

$

650



$

690



$

700



$

750


Free cash flow from continuing operations

$

1,100



$

1,250



$

800



$

1,000


We will be holding a conference call to discuss our results for the third quarter ended September 30, 2020, on October 29, 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 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, billings and collections and future results, potential need, ability or willingness to use any funds under the CARES Act or other government programs, availability or cost of supplies, treatment volumes, mix expectation, such as the percentage or number of patients under commercial insurance, and overall impact on our patients, as well as other statements regarding our future operations, financial condition and prospects, government and commercial payment rates, our ongoing stock repurchase program, and 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, except as may be required by law. 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 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, such as a potential negative impact on our commercial mix, 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 other government programs, 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 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 AB290 and 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, as well as the composition of the U.S. Supreme Court;
  • 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, as well as our use of a considerable amount of available funds to repurchase stock;
  • 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 Reports on Form 10-Q for the quarters ended March 31, 2020 and June 30, 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 September 30, 2020.

Contact:

Jim Gustafson


Investor Relations


DaVita Inc.


(310) 536-2585

 

DAVITA INC.

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

(dollars in thousands, except per share data)



Three months ended September 30,


Nine months ended September 30,


2020


2019


2020


2019

Dialysis patient service revenues

$

2,781,650



$

2,777,192



$

8,253,128



$

8,130,697


Other revenues

142,416



126,886



392,154



359,198


Total revenues

2,924,066



2,904,078



8,645,282



8,489,895


Operating expenses and charges:








Patient care costs

1,971,719



1,991,172



5,931,732



5,913,860


General and administrative

363,280



298,736



943,065



824,887


Depreciation and amortization

156,894



155,915



468,949



456,685


Equity investment income

(5,496)



(3,936)



(27,681)



(11,158)


Loss on changes in ownership interest, net





16,252




Goodwill impairment charges



83,855





124,892


Total operating expenses and charges

2,486,397



2,525,742



7,332,317



7,309,166


Operating income

437,669



378,336



1,312,965



1,180,729


Debt expense

(73,658)



(88,589)



(243,642)



(351,774)


Debt prepayment, refinancing and redemption charges

(86,074)



(21,242)



(89,022)



(33,402)


Other income, net

5,395



5,280



10,590



17,863


Income from continuing operations before income taxes

283,332



273,785



990,891



813,416


Income tax expense

65,792



65,254



240,564



197,938


Net income from continuing operations

217,540



208,531



750,327



615,478


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



(6,843)



9,980



102,854


Net income

217,540



201,688



760,307



718,332


Less: Net income attributable to noncontrolling interests

(58,866)



(58,418)



(160,438)



(152,222)


Net income attributable to DaVita Inc.

$

158,674



$

143,270



$

599,869



$

566,110










Earnings per share attributable to DaVita Inc.:








Basic net income from continuing operations per share

$

1.31



$

1.00



$

4.81



$

2.88


Basic net income per share

$

1.31



$

0.95



$

4.89



$

3.51


Diluted net income from continuing operations per share

$

1.28



$

0.99



$

4.72



$

2.87


Diluted net income per share

$

1.28



$

0.95



$

4.80



$

3.50










Weighted average shares for earnings per share:








Basic

120,905,038



150,675,465



122,582,099



161,147,122


Diluted

123,953,879



151,295,950



124,927,380



161,636,011










Amounts attributable to DaVita Inc.:








Net income from continuing operations

$

158,674



$

150,113



$

589,889



$

464,590


Net (loss) income from discontinued operations



(6,843)



9,980



101,520


Net income attributable to DaVita Inc.

$

158,674



$

143,270



$

599,869



$

566,110


 

DAVITA INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

(dollars in thousands)



Three months ended

September 30,


Nine months ended

September 30,


2020


2019


2020


2019

Net income

$

217,540



$

201,688



$

760,307



$

718,332


Other comprehensive income (loss), net of tax:








Unrealized losses on interest rate cap agreements:








Unrealized losses

(1,628)



(1,060)



(16,470)



(1,672)


Reclassifications of net realized losses into net income

1,034



1,569



4,280



4,782


Unrealized gains (losses) on foreign currency translation:








Foreign currency translation adjustments

13,171



(44,502)



(62,842)



(45,790)


Other comprehensive income (loss)

12,577



(43,993)



(75,032)



(42,680)


Total comprehensive income

230,117



157,695



685,275



675,652


Less: Comprehensive income attributable to noncontrolling interests

(58,866)



(58,418)



(160,438)



(152,222)


Comprehensive income attributable to DaVita Inc.

$

171,251



$

99,277



$

524,837



$

523,430


 

DAVITA INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(dollars in thousands)



Nine months ended September 30,


2020


2019

Cash flows from operating activities:




Net income

$

760,307



$

718,332


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




Depreciation and amortization

468,949



456,685


Debt prepayment, refinancing and redemption charges

86,957



33,402


Impairment charges



124,892


Stock-based compensation expense

67,217



47,811


Deferred income taxes

191,783



72,590


Equity investment income, net

3,026



5,131


Loss on sales of business interests, net

16,252



23,022


Other non-cash charges, net

(7,980)



24,291


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




Accounts receivable

(12,405)



(182,684)


Inventories

(8,445)



9,519


Other receivables and other current assets

(62,025)



51,319


Other long-term assets

(1,853)



2,324


Accounts payable

445



(106,662)


Accrued compensation and benefits

(12,124)



(57,930)


Other current liabilities

123,833



140,046


Income taxes

(100,160)



57,279


Other long-term liabilities

(19,547)



(27,542)


Net cash provided by operating activities

1,494,230



1,391,825


Cash flows from investing activities:




Additions of property and equipment

(449,896)



(547,183)


Acquisitions

(112,597)



(77,348)


Proceeds from asset and business sales

83,339



3,863,619


Purchase of debt investments held-to-maturity

(147,829)



(98,322)


Purchase of other debt and equity investments

(3,388)



(5,160)


Proceeds from debt investments held-to-maturity

148,341




Proceeds from sale of other debt and equity investments

3,434



5,893


Purchase of equity method investments

(9,613)



(8,770)


Distributions from equity method investments

902



1,296


Net cash (used in) provided by investing activities

(487,307)



3,134,025


Cash flows from financing activities:




Borrowings

3,826,484



38,519,991


Payments on long-term debt

(3,927,411)



(40,485,415)


Deferred financing and debt redemption costs

(105,705)



(84,588)


Purchase of treasury stock

(1,025,878)



(1,837,022)


Distributions to noncontrolling interests

(179,098)



(157,170)


Stock award exercises and other share issuances, net

3,838



7,333


Contributions from noncontrolling interests

32,854



44,095


Purchases of noncontrolling interests

(6,782)



(10,988)


Net cash used in financing activities

(1,381,698)



(4,003,764)


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

(16,606)



(4,178)


Net increase in cash, cash equivalents and restricted cash

(391,381)



517,908


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



(423,813)


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

(391,381)



941,721


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 period

$

817,337



$

1,357,141


 

DAVITA INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

(dollars in thousands, except share data)



September 30,

2020


December 31,

2019

ASSETS




Cash and cash equivalents

$

710,514



$

1,102,372


Restricted cash and equivalents

106,823



106,346


Short-term investments

19,360



11,572


Accounts receivable

1,804,390



1,795,598


Inventories

106,254



97,949


Other receivables

548,381



489,695


Prepaid and other current assets

58,512



66,866


Income tax receivable

75,441



19,772


Total current assets

3,429,675



3,690,170


Property and equipment, net of accumulated depreciation of $4,368,659 and $3,969,566, respectively

3,417,919



3,473,384


Operating lease right-of-use assets

2,834,163



2,830,047


Intangible assets, net of accumulated amortization of $75,727 and $81,922, respectively

118,078



135,684


Equity method and other investments

252,483



241,983


Long-term investments

29,867



36,519


Other long-term assets

96,110



115,972


Goodwill

6,868,377



6,787,635



$

17,046,672



$

17,311,394


LIABILITIES AND EQUITY




Accounts payable

$

388,504



$

403,840


Other liabilities

879,792



756,174


Accrued compensation and benefits

701,968



695,052


Current portion of operating lease liabilities

365,190



343,912


Current portion of long-term debt

163,787



130,708


Income tax payable



42,412


Total current liabilities

2,499,241



2,372,098


Long-term operating lease liabilities

2,710,550



2,723,800


Long-term debt

7,866,545



7,977,526


Other long-term liabilities

147,371



160,809


Deferred income taxes

765,691



577,543


Total liabilities

13,989,398



13,811,776


Commitments and contingencies




Noncontrolling interests subject to put provisions

1,303,934



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; 126,065,294 and 113,781,317 shares issued and outstanding at September 30, 2020, respectively, and 125,842,853 shares issued and outstanding at December 31, 2019)

126



126


Additional paid-in capital

694,132



749,043


Retained earnings

2,031,607



1,431,738


Treasury stock (12,283,977 and zero shares, respectively)

(1,028,578)




Accumulated other comprehensive loss

(122,530)



(47,498)


Total DaVita Inc. shareholders' equity

1,574,757



2,133,409


Noncontrolling interests not subject to put provisions

178,583



185,833


Total equity

1,753,340



2,319,242



$

17,046,672



$

17,311,394


 

DAVITA INC.

SUPPLEMENTAL FINANCIAL DATA

(unaudited)

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



Three months ended


Nine months

ended

September 30,

2020


September 30,

2020


June 30,

2020


September 30,

2019


1. Consolidated business metrics:








Operating income margin

15.0

%


14.2

%


13.0

%


15.2

%

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

15.0

%


16.0

%


15.9

%


15.8

%

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

12.4

%


11.0

%


10.3

%


10.9

%

Effective income tax rate on income from continuing operations

23.2

%


24.6

%


23.8

%


24.3

%

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

29.2

%


29.2

%


30.3

%


28.9

%

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

28.0

%


28.0

%


27.6

%


28.2

%









2. Summary of financial results:








Revenues:








U.S. dialysis patient services and other

$

2,694



$

2,675



$

2,691



$

7,986


Other—Ancillary services








U.S. other

125



116



118



365


International dialysis patient service and other

147



129



131



412



271



245



248



777


Eliminations

(41)



(40)



(36)



(117)


Total consolidated revenues

$

2,924



$

2,880



$

2,904



$

8,645


Operating income (loss):








U.S. dialysis

$

471



$

523



$

501



$

1,485


Other—Ancillary services








U.S.

(14)



(41)



(15)



(74)


International(4)

7



1



(83)



25



(7)



(40)



(98)



(49)


Corporate administrative support expenses

(26)



(73)



(25)



(123)


Total consolidated operating income

$

438



$

410



$

378



$

1,313


 

DAVITA INC.

SUPPLEMENTAL FINANCIAL DATA - continued

(unaudited)

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



Three months ended


Nine months

ended

September 30,

2020


September 30,

2020


June 30,

2020


September 30,

2019


3. Summary of reportable segment financial results:
















U.S. dialysis








Revenue:








Dialysis patient service revenues

$

2,677



$

2,667



$

2,681



$

7,955


Other revenues

17



8



10



31


Total operating revenues

2,694



2,675



2,691



7,986


Operating expenses:








Patient care costs

1,781



1,802



1,813



5,366


General and administrative

303



210



235



718


Depreciation and amortization

148



148



148



443


Equity investment income

(9)



(8)



(5)



(25)


Total operating expenses

2,224



2,152



2,191



6,501


Segment operating income

$

471



$

523



$

501



$

1,485










4. U.S. dialysis business metrics:








Volume:








Treatments

7,656,173



7,570,908



7,673,191



22,740,403


Number of treatment days

79.0



78.0



79.0



234.6


Average treatments per day

96,914



97,063



97,129



96,933


Per day year over year (decrease) increase

(0.2)

%


0.7

%


2.7

%


0.7

%

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

0.6

%


1.6

%


2.2

%



Operating net revenues:








Average patient service revenue per treatment

$

349.63



$

352.26



$

349.41



$

349.82


Expenses:








Patient care costs per treatment

$

232.57



$

238.02



$

236.32



$

235.97


General and administrative expenses per treatment

$

39.62



$

27.78



$

30.63



$

31.56


Accounts receivable:








Receivables

$

1,670



$

1,649



$

1,719




DSO

58



57



60




 

DAVITA INC.

SUPPLEMENTAL FINANCIAL DATA - continued

(unaudited)

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



Three months ended


Nine months

ended

September 30,

2020


September 30,

2020


June 30,

2020


September 30,

2019


5. Cash flow:








Operating cash flow

$

483



$

651



$

641



$

1,494


Operating cash flow from continuing operations

$

483



$

651



$

648



$

1,494


Operating cash flow from continuing operations, last twelve months

$

2,172



$

2,337



$

1,602




Free cash flow from continuing operations(1)

$

287



$

507



$

437



$

977


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

$

1,393



$

1,543



$

722




Capital expenditures from continuing operations:








Routine maintenance/IT/other

$

84



$

74



$

84



$

239


Development and relocations

$

75



$

63



$

90



$

211


Acquisition expenditures

$

68



$

10



$

11



$

113


Proceeds from sale of self-developed properties

$

11



$

42



$

12



$

79










6. Debt and capital structure:








Total debt(6)

$

8,111



$

9,886



$

8,212




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

$

7,401



$

6,957



$

6,959




Leverage ratio (see calculation on page 14)

2.96x



3.66x



3.21x




Weighted average effective interest rate:








During the quarter

3.31

%


3.64

%


5.09

%



At end of the quarter

3.11

%


3.65

%


4.66

%



On the senior secured credit facilities at end of the quarter

2.11

%


2.10

%


4.30

%



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








Debt with rates fixed by its terms

45

%


54

%


44

%



Debt with rates fixed by its terms or capped by cap agreements

88

%


90

%


86

%



Amount spent on share repurchases

$

725



$



$

1,748



$

1,029


Number of shares repurchased

8,231,679





30,591,750



12,283,977



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, advocacy costs and charitable contributions.

(3)

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

(4)

The reported operating income (loss) for the three months ended September 30, 2020, June 30, 2020 and September 30, 2019, include  foreign currency (losses) gains of approximately $(2.9), $(3.7) and $2.9, respectively, and approximately $3.1 for the nine months ended September 30, 2020.

(5)

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

(6)

The debt amounts as of September 30, 2020, June 30, 2020 and September 30, 2019 presented exclude approximately $80.9, $85.1 and $76.0, respectively, of debt discount and other deferred financing costs related to our senior secured credit facilities and senior notes in effect or outstanding at that time.

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

Note 1: Calculation of the Leverage Ratio

Under our senior secured credit facilities (the "Credit Agreement") dated August 12, 2019, the leverage ratio is defined as (a) all funded debt plus the face amount of all letters of credit issued, minus unrestricted cash and cash equivalents (including short-term investments) not to exceed $750,000 divided by (b) "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 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, and "Consolidated net debt" at the end of the reported period, each as defined in the Credit Agreement. 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. The leverage ratio calculated by the Company is a non-GAAP measure and should not be considered a substitute for the ratio of total debt to operating income, determined in accordance with 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 of other companies.


Rolling twelve months ended


September 30,

2020


June 30,

2020


September 30,

2019

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

$

832,131



$

823,570



$

624,922


Income taxes

322,254



321,716



249,686


Interest expense

297,145



307,509



437,513


Depreciation and amortization

627,416



626,436



611,841


Impairment charges



83,855



124,892


Noncontrolling interests and equity investment income, net

226,307



221,002



210,641


Stock-settled stock-based compensation

86,417



80,228



56,784


Debt prepayment, refinancing and redemption charges

89,022



24,190



33,402


Loss (gain) on changes in ownership interest, net

16,252



16,252



(28,152)


Other

18,421



10,264



24,088


"Consolidated EBITDA"

$

2,515,365



$

2,515,022



$

2,345,617









September 30,

2020


June 30,

2020


September 30,

2019

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

$

8,111,276



$

9,886,314



$

8,211,895


Letters of credit issued

64,634



57,452



72,777



8,175,910



9,943,766



8,284,672


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

(718,726)



(750,000)



(750,000)


Consolidated net debt

$

7,457,184



$

9,193,766



$

7,534,672


Last twelve months "Consolidated EBITDA"

$

2,515,365



$

2,515,022



$

2,345,617


Leverage ratio

2.96x



3.66x



3.21x


Maximum leverage ratio permitted under the Credit Agreement

5.00x



5.00x



5.00x


________________________

(1)

The net income measure presented is our net income from continuing operations attributable to DaVita Inc., since the Credit Agreement requires divestitures to be reflected on a pro forma basis for our leverage ratio calculation, and this measure of net income already excludes our discontinued operations divested.

(2)

The debt amounts as of September 30, 2020, June 30, 2020 and September 30, 2019 presented exclude approximately $80,945, $85,080 and $75,979, 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)

This excludes amounts not readily convertible to cash related to the Company's non-qualified deferred compensation plans for all periods presented. The Credit Agreement limits the amount deducted for cash and cash equivalents, including short-term investments, 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 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


September 30, 2020


June 30, 2020


September 30, 2019


Dollars


Per share


Dollars


Per share


Dollars


Per share

Net income from continuing operations attributable to DaVita Inc.

$

158,674



$

1.28



$

201,602



$

1.62



$

150,113



$

0.99


Operating charges:












Goodwill impairment charges









83,855



0.55


Loss on changes in ownership interests, net





16,252



0.13






General and administrative:












Accruals for legal matters





35,000



0.28






Debt prepayment, refinancing and redemption charges

86,074



0.69







21,242



0.14


Related income tax

(21,476)



(0.17)



(10,988)



(0.09)



(23,236)



(0.15)


Adjusted net income from continuing operations attributable to DaVita Inc.

$

223,272



$

1.80



$

241,866



$

1.95



$

231,974



$

1.53



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

 


Nine months ended


September 30, 2020


September 30, 2019


Dollars


Per share


Dollars


Per share

Net income from continuing operations attributable to DaVita Inc.

$

589,889



$

4.72



$

464,590



$

2.87


Operating charges:








Goodwill impairment charges





124,892



0.77


Loss on changes in ownership interests, net

16,252



0.13






General and administrative:








Accruals for legal matters

35,000



0.28






Debt prepayment, refinancing and redemption charges

89,022



0.71



33,402



0.21


Related income tax

(33,200)



(0.27)



(35,231)



(0.22)


Adjusted net income from continuing operations attributable to DaVita Inc.

$

696,963



$

5.58



$

587,653



$

3.64



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


Nine months ended


September 30,

2020


June 30,

2020


September 30,

2019


September 30,

2020


September 30,

2019

Consolidated:










Operating income

$

437,669



$

409,920



$

378,336



$

1,312,965



$

1,180,729


Operating charges:










Goodwill impairment charges





83,855





124,892


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

$

437,669



$

461,172



$

462,191



$

1,364,217



$

1,305,621





Three months ended


Nine months ended


September 30,

2020


June 30,

2020


September 30,

2019


September 30,

2020


September 30,

2019

Consolidated:










U.S. dialysis:










Segment operating income

$

470,596



$

522,630



$

500,742



$

1,484,833



$

1,416,680


Other - Ancillary services:










U.S.










Segment operating loss

(13,912)



(40,991)



(14,928)



(74,273)



(45,498)


Loss on changes in ownership interests, net



16,252





16,252




Adjusted operating loss

(13,912)



(24,739)



(14,928)



(58,021)



(45,498)


International










Segment operating income (loss)

6,826



1,370



(82,797)



24,919



(124,906)


Goodwill impairment charges





83,855





124,892


Adjusted operating income (loss)

6,826



1,370



1,058



24,919



(14)


Adjusted Other - Ancillary services operating loss

(7,086)



(23,370)



(13,870)



(33,102)



(45,513)


Corporate administrative support expenses:










Segment expenses

(25,841)



(73,088)



(24,681)



(122,514)



(65,546)


Accruals for legal matters



35,000





35,000




Adjusted Corporate administrative support expenses

(25,841)



(38,088)



(24,681)



(87,513)



(65,547)


Adjusted operating income

$

437,669



$

461,172



$

462,191



$

1,364,217



$

1,305,621



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


Nine months

ended

September 30,

2020


September 30,

2020


June 30,

2020


September 30,

2019


Income from continuing operations before income taxes

$

283,332



$

338,084



$

273,785



$

990,891


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

(59,216)



(53,335)



(58,502)



(160,923)


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

$

224,116



$

284,749



$

215,283



$

829,968










Income tax expense for continuing operations

$

65,792



$

83,212



$

65,254



$

240,564


Less: Income tax attributable to noncontrolling interests

(350)



(65)



(84)



(485)


Income tax expense from continuing operations attributable to DaVita Inc.

$

65,442



$

83,147



$

65,170



$

240,079










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

29.2

%


29.2

%


30.3

%


28.9

%

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


Three months ended


Nine months

September 30,

2020


June 30,

2020


September 30,

2019


ended

September 30,

2020

Income from continuing operations before income taxes

$

283,332



$

338,084



$

273,785



$

990,891


Operating charges:








Goodwill impairment charges





83,855




Loss on changes in ownership interests, net



16,252





16,252


General and administrative:








Accruals for legal matters



35,000





35,000


Debt prepayment, refinancing and redemption charges

86,074





21,242



89,022


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

(59,216)



(53,335)



(58,502)



(160,923)


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

$

310,190



$

336,001



$

320,380



$

970,242


Income tax expense

$

65,792



$

83,212



$

65,254



$

240,564


Add income tax related to:








Operating charges:








Goodwill impairment charges





17,768




Loss on changes in ownership interests, net



2,255





2,255


General and administrative:








Accruals for legal matters



8,733





8,733


Debt prepayment, refinancing and redemption charges

21,476





5,468



22,212


Less income tax related to:








Noncontrolling interests

(350)



(65)



(84)



(485)


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

$

86,918



$

94,135



$

88,406



$

273,279


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

28.0

%


28.0

%


27.6

%


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


Nine months

ended

September 30,

2020


September 30,

2020


June 30,

2020


September 30,

2019


Net cash provided by continuing operating activities

$

482,727



$

651,122



$

647,553



$

1,494,230


Less: Distributions to noncontrolling interests

(60,545)



(60,422)



(61,456)



(179,098)


Plus: Contributions from noncontrolling interests

12,272



11,195



12,814



32,854


Cash provided by continuing operating activities attributable to DaVita Inc.

434,454



601,895



598,911



1,347,986


Less: Expenditures for routine maintenance and information technology

(83,507)



(74,196)



(83,513)



(239,317)


Less: Expenditures for development

(74,722)



(62,529)



(89,752)



(210,579)


Plus: Proceeds from sale of self-developed properties

10,530



41,574



11,616



79,307


Free cash flow from continuing operations

$

286,755



$

506,744



$

437,262



$

977,397


 


Rolling twelve months ended


September 30,

2020


June 30,

2020


September 30,

2019

Net cash provided by continuing operating activities

$

2,172,131



$

2,336,957



$

1,602,098


Less: Distributions to noncontrolling interests

(255,051)



(255,962)



(213,938)


Plus: Contributions from noncontrolling interests

46,076



46,618



53,227


Cash provided by continuing operating activities attributable to DaVita Inc.

1,963,156



2,127,613



1,441,387


Less: Expenditures for routine maintenance and information technology

(369,560)



(369,566)



(363,946)


Less: Expenditures for development

(299,699)



(314,729)



(406,309)


Plus: Proceeds from sale of self-developed properties

98,672



99,758



51,058


Free cash flow from continuing operations

$

1,392,569



$

1,543,076



$

722,190



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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