DaVita Inc.
(Logo: http://www.newscom.com/cgi-bin/prnh/20020729/DAVITALOGO ) Financial and operating highlights include: -- Cash Flow: For the rolling 12 months ended June 30, 2004 operating cash flow was $351 million and free cash flow was $305 million. Excluding the tax benefit from stock option exercises and the after-tax benefit of prior period Medicare lab recoveries, rolling 12-month operating cash flow was $300 million and free cash flow was $254 million. -- Operating Income: Operating income for the three and six months was $96.5 million and $193.3 million, respectively. -- Volume: Total treatments for the second quarter were 1,704,882 or 21,857 treatments per day, an increase of 7.9% per day compared to the second quarter of last year. Non-acquired treatment growth was 4.5%. -- Center Activity: As of June 30, 2004, we operated or provided administrative services at 592 outpatient centers serving approximately 50,000 patients. During the second quarter we acquired 7 centers, opened 13 de novo centers and provided administrative services to one additional center. Recent Transactions
On July 22, 2004, we announced that we had entered into a definitive agreement to acquire Physicians Dialysis, Inc. ("PDI"), for approximately $150 million in cash. The transaction is expected to close by the end of the third quarter. As previously disclosed, we anticipate this acquisition to be EPS neutral in 2005. Operating synergies and growth opportunities over the subsequent 24 months as several centers mature are expected to deliver incremental earnings over the longer-term.
On July 30, 2004, we amended our existing credit facilities in order to modify certain covenants and borrowed an additional $250 million under a new Term Loan C to fund the PDI transaction as well as other potential acquisitions or share repurchases. We are also in the process of extending the maturity of the Term Loan B until June 30, 2010. We intend to enter into interest rate swap transactions that will effectively fix the interest rate on approximately 40% of our long-term debt.
In May 2004, our Board of Directors approved a three-for-two stock split payable on June 15, 2004, to stockholders of record on June 1, 2004. All share and per share data have been restated to reflect the effects of the stock split.
Outlook
We are increasing our 2004 operating income target to $385 to $400 million. Regarding 2005, Centers for Medicare and Medicaid Services (CMS) recently released proposed policy changes with respect to EPO utilization and the 2003 Medicare Modernization Act (MMA) implementation that have the potential to have a material negative impact on our operating income going forward. Our current assessment, which captures a majority of the likely outcomes, is that operating income could be reduced by $15 to $30 million annually. Taking this uncertainty into account, we currently expect 2005 operating income to be flat to 6% higher than the 2004 level.
DaVita will be holding a conference call to discuss its second quarter 2004 results on August 3, 2004, at 12:00 PM Eastern Time. The dial in number is 800 399-4406. A replay of the conference call will be available on DaVita's official web page, www.davita.com, for the following 30 days.
This press release includes non-GAAP financial measures, which we believe provide useful information to investors by excluding 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 March 31, 2004. 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 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 the ongoing review by the U.S.
Attorney's Office and HHS Office of the 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 STATEMENTS OF INCOME
(unaudited)
(dollars in thousands, except per share data)
Three months ended Six months ended
June 30, June 30,
2004 2003 2004 2003
Net operating revenues $551,630 $489,883 $1,087,061 $949,690
Operating expenses and
charges:
Patient care costs 375,139 335,986 738,568 652,696
General and
administrative 45,727 42,583 88,331 79,370
Depreciation and
amortization 20,927 17,921 41,197 35,366
Provision for
uncollectible accounts 9,867 8,780 19,444 17,017
Minority interests and
equity income, net 3,503 1,813 6,221 3,107
Total operating
expenses and
charges 455,163 407,083 893,761 787,556
Operating income 96,467 82,800 193,300 162,134
Debt expense 11,258 19,495 22,894 38,951
Other income 667 890 2,110 1,675
Income before income taxes 85,876 64,195 172,516 124,858
Income tax expense 33,475 25,675 67,250 49,925
Net income $52,401 $38,520 $105,266 $74,933
Earnings per share:
Basic $0.53 $0.42 $1.06 $0.82
Diluted $0.50 $0.37 $1.02 $0.72
Weighted average shares
for earnings per share:
Basic 99,686,182 91,958,932 98,873,220 91,646,761
Diluted 104,010,356 118,783,081 103,416,270 118,446,739
DAVITA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(dollars in thousands)
Six months ended
June 30,
2004 2003
Cash flows from operating activities:
Net income $105,266 $74,933
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 41,197 35,366
Stock option expense and tax benefits 25,048 5,699
Deferred income taxes 4,828 4,754
(Gain) loss on divestitures (481) 343
Non-cash debt expense 951 1,958
Equity investment income (1,145) (967)
Minority interests in income of consolidated
subsidiaries 7,366 4,074
Distributions to minority interests (3,634) (3,685)
Changes in operating assets and liabilities, net
of effect of acquisitions and divestitures:
Accounts receivable (14,113) (740)
Medicare lab recoveries 19,000
Inventories 4,942 5,327
Other current assets 3,043 2,495
Other long-term assets 2,004 (2,774)
Accounts payable (63) 5,852
Accrued compensation and benefits 13,653 (716)
Other current liabilities 18,095 13,554
Income taxes (6,215) 10,577
Other long-term liabilities (2,990) 3,377
Net cash provided by operating activities 216,752 159,427
Cash flows from investing activities:
Additions of property and equipment, net (55,139) (42,077)
Acquisitions and divestitures, net (31,752) (47,035)
Investments in and advances to
affiliates, net 3,988 2,663
Intangible assets (580) 754
Net cash used in investing activities (83,483) (85,695)
Cash flows from financing activities:
Borrowings 1,549,894 1,350,195
Payments on long-term debt (1,573,338) (1,212,574)
Stock option exercises 29,219 7,778
Net cash provided by financing activities 5,775 145,399
Net increase in cash and cash equivalents 139,044 219,131
Cash and cash equivalents at beginning of period 61,657 96,475
Cash and cash equivalents at end of period $200,701 $315,606
DAVITA INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(dollars in thousands, except per share data)
June 30, December 31,
2004 2003
ASSETS
Cash and cash equivalents $200,701 $ 61,657
Accounts receivable, less allowance
of $57,264 and $52,554 402,046 387,933
Medicare lab recoveries 19,000
Inventories 28,337 32,853
Other current assets 40,836 43,875
Deferred income taxes 76,513 59,740
Total current assets 748,433 605,058
Property and equipment, net 363,164 342,447
Amortizable intangibles, net 49,095 49,971
Investments in third-party dialysis businesses 3,791 3,095
Other long-term assets 12,352 10,771
Goodwill 959,539 934,188
$2,136,374 $1,945,530
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 71,805 $ 71,868
Other liabilities 129,235 112,654
Accrued compensation and benefits 112,854 100,909
Current portion of long-term debt 49,868 50,557
Income taxes payable 20,617 26,832
Total current liabilities 384,379 362,820
Long-term debt 1,094,247 1,117,002
Other long-term liabilities 18,308 19,310
Deferred income taxes 127,841 106,240
Minority interests 40,391 33,287
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; 134,862,283 and
134,806,204 shares issued) 135 135
Additional paid-in capital 541,121 539,575
Retained earnings 494,299 389,083
Treasury stock, at cost (34,714,719 and
38,052,028 shares) (566,534) (620,998)
Accumulated comprehensive income valuations 2,187 (924)
Total shareholders' equity 471,208 306,871
$2,136,374 $1,945,530
DAVITA INC.
SUPPLEMENTAL FINANCIAL DATA
(unaudited)
(dollars in millions, except for per share and per treatment data)
Q2 2004 Q1 2004 Q2 2003 YTD 2004
Financial Results:
Net earnings $52.4 $52.9 $38.5 $105.3
Basic EPS $0.53 $0.54 $0.42 $1.06
EPS assuming dilution $0.50 $0.51 $0.37 $1.02
Operating income $96.5 $96.8 $82.8 $193.3
Operating income margin 17.5% 18.1% 16.9% 17.8%
Other comprehensive income
Unrealized gain (loss) on
securities, net of tax
benefit (expense) of $(3.6),
$1.6 and $(2.0) $5.7 $(2.6) $3.1
Business Metrics:
Volume
Treatments 1,704,882 1,657,055 1,579,580 3,361,937
Number of treatment days 78.0 77.5 78.0 155.5
Treatments per day 21,857 21,381 20,251 21,620
Per day year over year
increase 7.9% 8.7% 6.2% 8.3%
Non-acquired growth 4.5% 4.1% 3.4% 4.3%
Revenue
Total operating revenue $552 $535 $490 $1,087
Dialysis revenue per
treatment $311.54 $311.02 $301.52 $311.28
Per treatment increase from
previous quarter 0.2% 1.5% 1.8% --
Per treatment increase from
prior year 3.3% 5.0% 3.8% 4.1%
Expenses
A. Patient care costs
Percent of revenue 68.0% 67.9% 68.6% 67.9%
Per treatment $220.04 $219.32 $212.71 $219.69
Per treatment increase from
previous quarter 0.3% 1.5% 0.9% --
Per treatment increase from
previous year 3.4% 4.1% 6.1% 3.8%
B. General & administrative
expenses
Percent of revenue 8.3% 8.0% 8.7% 8.1%
Per treatment $26.82 $25.71 $26.96 $26.27
Per treatment increase from
previous quarter 4.3% 6.2% 10.1% --
Per treatment increase
(decrease) from previous
year (0.5%) 5.0% (2.3%) 2.0%
C. Bad debt expense as a percent
of current-period revenue 1.8% 1.8% 1.8% 1.8%
D. Consolidated effective
tax rate 39.0% 39.0% 40.0% 39.0%
DAVITA INC.
SUPPLEMENTAL FINANCIAL DATA - continued
(unaudited)
(dollars in millions, except for per share and per treatment data)
Q2 2004 Q1 2004 Q2 2003 YTD 2004
Cash Flow
Operating cash flow, excluding
Medicare lab recoveries $90.6 $114.5 $78.8 $205.2
Operating cash flow, excluding
Medicare lab recoveries and tax
benefit from stock option
exercises $80.0 $100.1 $74.5 $180.1
Free cash flow, excluding Medicare
lab recoveries $75.7 $108.7 $69.3 $184.4
Free cash flow, excluding Medicare
lab recoveries and tax benefit
from stock option exercises $65.1 $94.3 $64.9 $159.4
Capital expenditures:
Development $15.8 $19.2 $10.4 $35.0
Routine maintenance/IT/other $14.9 $5.8 $9.5 $20.7
Acquisition expenditures, net $14.7 $17.1 $46.0 $31.8
Accounts Receivable
Net receivables $402 $400 $346
DSO 68 70 66
Debt/Capital Structure
Total debt $1,144 $1,155 $1,457
Net debt, net of cash $943 $1,002 $1,141
Leverage ratio - last quarter
annualized (see Note 1) 2.0x 2.1x 2.8x
Clinical (quarterly averages)
Dialysis adequacy - % of patients
with Kt/V > 1.2 94% 94% 93%
Anemia measure - % of patients
with HCT > 33 86% 85% 84%
Note 1. Leverage ratio is defined as net debt (total debt net of cash) to
operating income excluding depreciation, amortization, and minority
interests. The operating income reconciliation is provided below.
DAVITA INC.
RECONCILIATIONS FOR NON-GAAP MEASURES
(unaudited)
(dollars in thousands)
1. Operating cash flow, excluding Medicare lab recoveries related to
prior period services and tax benefit from stock option exercises:
Rolling
12-Month
Period
ended Q2
Q2 2004 Q1 2004 YTD 2004 Q2 2003 2004
Cash provided by
operating activities $90,636 $126,116 $216,752 $78,778 $350,973
Less: Medicare lab
recoveries related
to prior period services (19,000) (19,000) (19,000)
Related income tax
expense 7,410 7,410 7,410
Operating cash flow,
excluding Medicare
lab recoveries $90,636 $114,526 $205,162 $78,778 $339,383
Less: Tax benefit
from stock option
exercises (10,659) (14,389) (25,048) (4,321) (39,529)
$79,977 $100,137 $180,114 $74,457 $299,854
2. Free cash flow, excluding Medicare lab recoveries related to prior
period services and tax benefit from stock option exercises:
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
acquisition and 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 Q2
Q2 2004 Q1 2004 YTD 2004 Q2 2003 2004
Cash provided by
operating activities $90,636 $126,116 $216,752 $78,778 $350,973
Less: Expenditures for
routine maintenance and
information technology (14,899) (5,816) (20,715) (9,513) (45,610)
Free cash flow $75,737 $120,300 $196,037 $69,265 $305,363
Medicare lab
recoveries related
to prior period
services (19,000) (19,000) (19,000)
Related income
tax expense 7,410 7,410 7,410
Free cash flow, excluding
Medicare lab recoveries $75,737 $108,710 $184,447 $69,265 $293,773
Less: Tax benefit from
stock option exercises (10,659) (14,389) 25,048) (4,321) (39,529)
$65,078 $94,321 $159,399 $64,944 $254,244
3. Operating income excluding depreciation, amortization, and minority
interests ( used for debt leverage ratio calculation):
Q2 2004 Q1 2004 Q2 2003 YTD 2004
Operating income $96,467 $96,833 $82,800 $193,300
Add back: Depreciation and
amortization 20,927 20,270 17,921 41,197
Minority interests
and equity income, net 3,503 2,718 1,813 6,221
$120,897 $119,821 $102,534 $240,718
AP Archive: http://photoarchive.ap.org/
PRN Photo Desk, 888-776-6555 or 212-782-2840
SOURCE: DaVita Inc.
CONTACT: LeAnne Zumwalt, Investor Relations, of DaVita Inc.,
+1-310-536-2420
Web site: http://www.davita.com/