DaVita Inc. Reports 3rd Quarter 2003 Results
PRNewswire-FirstCall
EL SEGUNDO, Calif.
DaVita Inc.
(Logo: http://www.newscom.com/cgi-bin/prnh/20020729/DAVITALOGO )
Net earnings for the three and nine months ended September 30, 2003, including the refinancing charges were $38.1 million and $113 million, or $0.54 and $1.61 per share, respectively.
Financial and operating highlights include:
* Cash Flow: For the rolling 12 months ended September 30, 2003, before
considering recoveries of $42 million in 2002 related to prior period
lab billings, operating cash flow was $300 million and free cash flow
was $254 million.
* Operating Income: Operating income for the three and nine months was
$95 million and $257 million, respectively, reflecting both favorable
cost and revenue performance.
* Volume: Total treatments for the third quarter were 1,625,058, an
increase of 7.1% compared to the third quarter of last year.
Non-acquired treatment growth was 3.8%, with acquisitions contributing
the additional 3.3% to treatment growth.
* Revenue per Treatment: Third quarter dialysis revenue per treatment
increased to approximately $306.
* Facility Activity: As of September 30, 2003, we provided dialysis
services at 547 outpatient centers serving approximately 47,600
patients. Included in this patient and center count are approximately
3,300 patients in 29 centers under management arrangements. During the
third quarter we acquired 3 centers and opened 7 de novo centers. We
also closed two centers.
Recent transactions:
* On July 15, 2003, we completed a refinancing of our senior credit
facilities resulting in lower interest rates and modification of
certain covenants. Additionally, new borrowings of $200 million were
used to redeem a portion of our outstanding 7% convertible notes on
August 15, 2003.
* On July 15, 2003, we also completed the call of our 5 5/8% convertible
notes, which were converted into approximately 4.9 million shares.
* On October 14, 2003 we completed the redemption of the remaining $145
million of 7% convertible notes for cash except for $526,000 of the
Notes that were converted into approximately 16,000 shares of stock.
* During the quarter we repurchased 2.7 million shares at an average
price of $30.34 per share.
Outlook:
* We expect that fourth quarter operating income will be comparable to
the third quarter. For 2004, we are currently targeting operating
income to be between $360 and $385 million.
DaVita will be holding a conference call to discuss its third quarter 2003 results on November 3, 2003, at 1:00 PM Eastern Standard Time. The dial in number is (800) 399-4406. A replay of the conference call will be available on DaVita's official web page, www.davita.com, for the following 30 days.
This press release includes non-GAAP financial measures, which we believe provide useful information to investors by excluding certain nonrecurring expenses and prior period recoveries and by allowing consistency and comparability in our financial reporting to prior periods for which these non- GAAP measures were previously reported. These measures should be considered in addition to results prepared in accordance with GAAP, but are not a substitute for or superior to GAAP results. Included in this press release is a reconciliation of these non-GAAP measures to the most comparable GAAP financial measures.
This release also contains forward-looking statements. Factors which could impact future results include the uncertainties associated with governmental regulation, general economic and other market conditions, and the risk factors set forth in the Company's SEC filings, including its Form 10-Q for the quarter ended June 30, 2003. The forward-looking statements should be considered in light of these risks and uncertainties. These risks include those relating to:
* the concentration of profits generated from PPO and private indemnity
patients and from ancillary services including the administration of
pharmaceuticals,
* possible reductions in private and government reimbursement rates,
* changes in pharmaceutical practice patterns or reimbursement policies,
* the Company's ability to maintain contracts with physician medical
directors, and
* legal compliance risks, such as those associated with the ongoing
review of the Company's Florida laboratory subsidiary by its Medicare
carrier and the Department of Justice, and the ongoing review by the US
Attorney's Office and HHS Office of Inspector General in Philadelphia.
The Company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.
DAVITA INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(dollars in thousands, except per share data)
September December
30, 31,
2003 2002
ASSETS
Cash and cash equivalents $272,109 $96,475
Accounts receivable, less allowance
of $50,636 and $48,927 356,542 344,292
Inventories 25,743 34,929
Other current assets 33,117 28,667
Deferred income taxes 53,065 40,163
Total current assets 740,576 544,526
Property and equipment, net 321,368 298,475
Amortizable intangibles, net 52,978 63,159
Investments in third-party dialysis businesses 3,064 3,227
Other long-term assets 11,561 1,520
Goodwill 908,318 864,786
$2,037,865 $1,775,693
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $71,166 $77,890
Other liabilities 127,384 101,389
Accrued compensation and benefits 108,076 95,435
Current portion of long-term debt 50,224 7,978
Income taxes payable 23,221 9,909
Total current liabilities 380,071 292,601
Long-term debt 1,272,648 1,311,252
Other long-term liabilities 14,483 9,417
Deferred income taxes 91,103 65,930
Minority interests 28,872 26,229
Shareholders' equity:
Preferred stock ($0.001 par value,
5,000,000 shares authorized; none issued)
Common stock ($0.001 par value,
195,000,000 shares authorized;
89,871,303 and 88,874,896 shares issued) 90 89
Additional paid-in capital 544,719 519,369
Retained earnings 326,330 213,337
Treasury stock, at cost (25,628,140
and 28,216,177 shares) (620,451) (662,531)
Total shareholders' equity 250,688 70,264
$2,037,865 $1,775,693
DAVITA INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(unaudited)
(dollars in thousands, except per share data)
Three months ended Nine months ended
September 30, September 30,
2003 2002 2003 2002
Net operating revenues $513,282 $481,194 $1,462,972 $1,351,536
Operating expenses and charges:
Dialysis centers and labs 347,895 308,438 1,000,591 900,624
General and administrative 39,920 37,048 119,290 112,735
Depreciation and amortization 19,336 16,267 54,702 47,770
Provision for uncollectible
accounts 9,214 8,117 26,231 19,254
Minority interests and equity
income, net 1,706 1,405 4,813 5,704
Total operating expenses
and charges 418,071 371,275 1,205,627 1,086,087
Operating income 95,211 109,919 257,345 265,449
Debt expense 16,111 19,967 55,062 52,178
Refinancing charges 17,240 17,240 48,930
Other income 1,050 618 2,725 3,505
Income before income taxes 62,910 90,570 187,768 167,846
Income tax expense 24,850 36,400 74,775 69,328
Net earnings $38,060 $54,170 $112,993 $98,518
Comprehensive income $38,060 $54,170 $112,993 $98,518
Earnings per share:
Basic $0.58 $0.84 $1.81 $1.30
Diluted $0.54 $0.72 $1.61 $1.20
Weighted average shares
for earnings per share:
Basic 65,102,965 64,128,489 62,442,042 75,556,960
Diluted 76,499,362 82,422,930 78,154,106 94,301,824
DAVITA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(dollars in thousands)
Nine months ended
September 30,
2003 2002
Cash flows from operating activities:
Net earnings $112,993 $98,518
Adjustments to reconcile net earnings to cash
provided by operating activities:
Depreciation and amortization 54,702 47,770
Loss (gain) on divestitures 929 (2,610)
Deferred income taxes 12,271 22,574
Non-cash debt expense 2,636 2,375
Stock options, principally tax benefits 10,240 18,035
Equity investment income (1,331) (1,465)
Minority interests in income of consolidated
subsidiaries 6,144 7,171
Refinancing charges 17,240 48,930
Distributions to minority interests (5,560) (6,572)
Changes in operating assets and liabilities,
excluding acquisitions and divestitures:
Accounts receivable (9,978) (13,362)
Inventories 9,974 12,506
Other current assets (4,189) (7,726)
Other long-term assets 3,902 216
Accounts payable (7,950) 9,787
Accrued compensation and benefits 12,959 10,531
Other current liabilities 25,832 7,181
Income taxes 13,312 18,743
Other long-term liabilities 4,946 3,075
Net cash provided by operating activities 259,072 275,677
Cash flows from investing activities:
Additions of property and equipment, net (64,031) (66,999)
Acquisitions and divestitures, net (66,922) (11,979)
Investments in affiliates, net 3,516 3,488
Intangible assets (540) (142)
Net cash used in investing activities (127,977) (75,632)
Cash flows from financing activities:
Borrowings 3,423,511 1,928,326
Payments on long-term debt (3,299,064) (1,426,537)
Debt redemption premium (8,405) (40,910)
Deferred financing costs (3,445) (10,794)
Purchase of treasury stock (83,037) (597,171)
Proceeds from issuance of common stock 14,979 25,691
Net cash provided by financing activities 44,539 (121,395)
Net increase in cash 175,634 78,650
Cash and cash equivalents at beginning of period 96,475 36,711
Cash and cash equivalents at end of period $272,109 $115,361
DAVITA INC.
SUPPLEMENTAL FINANCIAL DATA
(dollars in millions, except for per share and per treatment data)
Q3 2003 Q2 2003 Q3 2002 YTD 2003
Financial Results:
Net earnings excluding refinancing
charges, prior period $48.5 $38.5 $37.7 $123.4
Medicare lab revenue
Basic EPS $0.74 $0.63 $0.59 $1.97
EPS assuming dilution $0.67 $0.55 $0.52 $1.74
Operating income, excluding
prior period Medicare lab revenue $95.2 $82.8 $82.7 $257.3
Operating income margin 18.5% 16.9% 18.2% 17.6%
Business Metrics:
Volume
Treatments 1,625,058 1,579,580 1,516,840 4,707,669
Number of treatment days 79 78 79 233.4
Treatments per day 20,570 20,251 19,201 20,170
Per day year over year increase 7.1% 6.2% 4.6% 6.1%
Non-acquired growth 3.8% 3.4% 3.8% 3.4%
Revenue, excluding prior period
Medicare lab revenue
Revenue $513 $490 $454 $1,463
Dialysis revenue per treatment $306.20 $301.52 $290.92 $301.47
Per treatment increase from
previous quarter 1.6% 1.8% 0.1% --
Per treatment increase from
prior year 5.3% 3.8% 3.8% 3.7%
Expenses
A. Dialysis centers and lab
operating expenses
Percent of revenue 67.8% 68.6% 67.9% 68.4%
Per treatment $214.08 $212.71 $203.34 $212.54
Per treatment increase
from previous quarter 0.6% 0.9% 1.4% --
B. General & administrative
expenses
Percent of revenue 7.8% 8.7% 8.2% 8.2%
Per treatment $24.57 $26.96 $24.42 $25.34
Per treatment increase (decrease)
from previous quarter (8.9%) 10.1% (11.5%) --
C. Bad debt expense as a percent
of current-period revenue 1.8% 1.8% 1.9% 1.8%
D. Consolidated effective tax rate 39.5% 40.0% 40.0% 39.8%
DAVITA INC.
SUPPLEMENTAL FINANCIAL DATA, CONTINUED
(dollars in millions, except for per share and per treatment data)
Q3 2003 Q2 2003 Q3 2002 YTD 2003
Cash Flow
Operating cash flow excluding
prior period Medicare lab revenue $99.6 $78.8 $117.3 $259.1
Free cash flow $90.1 $69.3 $106.8 $229.5
Capital expenditures:
Development $12.9 $10.4 $11.7 $35.2
Routine maintenance/IT/other $9.5 $9.5 $10.5 $29.5
Acquisition expenditures, net $21.1 $46.0 $10.6 $68.2
Accounts Receivable
Net receivables $357 $346 $340
DSO 65 66 70
Debt/Capital Structure
Total debt $1,323 $1,457 $1,322
Net debt, net of cash $1,051 $1,141 $1,207
Leverage ratio - last quarter 2.3x 2.8x 3.0x
annualized (see Note 1)
Shares repurchased (in millions) 2.7 -- 5.6 2.7
Average repurchase price $30.34 -- $21.83 $30.34
Clinical (quarterly averages)
Dialysis adequacy - % of patients
with Kt/V > 1.2 93% 92% 91%
Anemia measure - % of patients
with HCT > 33 83% 83% 82%
Note 1. Leverage ratio is defined as net debt (total debt net of cash) to operating income excluding depreciation, amortization, minority interests and prior period Medicare lab revenue. The operating income reconciliation is provided below.
DAVITA INC.
RECONCILIATIONS FOR NON-GAAP MEASURES
(dollars in thousands)
1. Net earnings excluding refinancing charges and prior period Medicare
lab revenue:
Q3 2003 Q2 2003 Q3 2002 YTD 2003
Net earnings $38,060 $38,520 $54,170 $112,993
Add back: Refinancing
charges 17,240 17,240
Less: Prior period
Medicare lab revenue (27,223)
Related income tax expense (6,818) 10,767 (6,818)
$48,482 $38,520 37,714 $123,415
2. Operating income excluding depreciation, amortization, minority
interests and prior period Medicare lab revenue:
Q3 2003 Q2 2003 Q3 2002 YTD 2003
Operating income $95,211 $82,800 $109,919 $257,345
Less: Prior period
Medicare lab revenue (27,223)
$95,211 $82,800 $82,696 $257,345
Add back: Depreciation
and amortization 19,336 17,921 16,267 54,702
Minority interests
and equity income, net 1,706 1,813 1,405 4,813
$116,253 $102,534 $100,368 $316,860
3. Operating cash flow before prior period Medicare lab revenue:
Rolling 12-
month period
ended Q3
Q3 2003 Q2 2003 Q3 2002 2003
Cash provided by
operating activities $99,645 $78,778 $133,760 $325,390
Less: Prior period
Medicare lab revenue (27,223) (41,555)
Related income tax expense 10,767 16,435
$99,645 $78,778 $117,304 $300,270
4. Free cash flow:
Free cash flow represents net cash provided by operating activities
less non-development capital expenditures. We believe free cash flow is
a useful adjunct to cash flow from operating activities and other
measurements under generally accepted accounting principles in the
United States since it is a meaningful measure of our ability to fund
development activities and meet our debt service requirements. Free
cash flow is not a measure of financial performance under generally
accepted accounting principles in the United States and should not be
considered as an alternative to cash flows from operating, investing or
financing activities as an indicator of cash flows or as a measure of
liquidity.
Rolling 12-
month period
ended Q3
Q3 2003 Q2 2003 Q3 2002 YTD 2003 2003
Cash provided by
operating activities $99,645 $78,778 $133,760 $259,072 $325,390
Less expenditures for
routine maintenance
and information
technology (9,533) (9,513) (10,489) (29,536) (46,241)
Free cash flow
(including prior
years' lab
recoveries) 90,112 69,265 123,271 229,536 279,149
Less: Prior period
Medicare lab revenue (27,223) (41,555)
Related income tax
expense 10,767 16,435
Free cash flow before
prior years' lab
revenue $90,112 $69,265 $106,815 $229,536 $254,029
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SOURCE: DaVita Inc.
CONTACT: LeAnne Zumwalt, Investor Relations of DaVita Inc.,
+1-310-536-2420
Web site: http://www.davita.com/