DaVita Inc. Reports 1st Quarter 2005 Results
PRNewswire-FirstCall
EL SEGUNDO, Calif.
DaVita Inc.
(Logo: http://www.newscom.com/cgi-bin/prnh/20020729/DAVITALOGO )
Net income for the three months ended March 31, 2005 included refinancing charges of $6.9 million and $1 million of additional debt expense incurred as a result of the issuance of the new senior notes, offset by swap valuation gains of $8.4 million.
Financial and operating highlights include:
-- Cash Flow: Operating cash flow for the quarter ended March 31, 2005
was $111 million and free cash flow was $104 million. For the rolling
12-month ended March 31, 2005 operating cash flow was $356 million and
free cash flow was $307 million, excluding the tax benefit from stock
option exercises and the after-tax benefit of prior years' Medicare lab
recoveries. Including those items, the rolling 12-month operating cash
flow was $405 million and free cash flow was $357 million.
-- Operating Income: Operating income for the first quarter was $106
million.
-- Volume: Total treatments for the first quarter were 1,868,787 or
24,270 treatments per day, an increase of 13.5% per day compared to the
first quarter of last year. Non-acquired treatment growth was 5.6% for
the first quarter.
-- Center Activity: As of March 31, 2005, we operated or provided
administrative services at 665 outpatient centers serving approximately
54,900 patients. During the first quarter we acquired one center,
opened 10 de novo centers, and closed one center. In addition, the
operations of three centers were merged into three other existing
centers.
Gambro Healthcare Acquisition:
The Company continues to be involved in active discussions with the Federal Trade Commission (FTC) staff regarding its planned acquisition of Gambro Healthcare, Inc. Although no agreement with the FTC has yet been reached, based on our discussions to date we expect we will be required to divest approximately 5% of the combined number of Gambro Healthcare and DaVita centers, which represents the same percentage of the combined revenues. However, the final resolution with the FTC could be materially different.
Recent Transactions
On March 22, 2005, we issued $500 million of 6 5/8% senior notes due 2013 and $850 million of 7 1/4% senior subordinated notes due 2015. We used the net proceeds along with available cash to repay all outstanding amounts under the Term Loan portions of our existing credit facilities, including accrued interest.
Outlook
Our 2005 operating income guidance is for operating income to be up 2% to 6% over 2004, exclusive of the effects of the proposed Gambro acquisition and related debt financing. At this time, we expect the Gambro Healthcare acquisition together with the related debt financing to be dilutive to EPS in the first year, neutral in the second year and accretive thereafter.
DaVita will be holding a conference call to discuss its first quarter results for 2005 on April 28, 2005, at 11:30 AM 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 release contains forward-looking statements. Factors which could impact future results include the uncertainties associated with governmental regulations, general economic and other market conditions, acquisitions and the risk factors set forth in the Company's SEC filings, including its Form 10-K for the year ended December 31, 2004. The forward-looking statements should be considered in light of these risks and uncertainties.
These risks and uncertainties include those relating to:
-- the concentration of profits generated from PPO and private indemnity
patients,
-- 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,
-- legal compliance risks, including our continued compliance with complex
government regulations and the ongoing review by the U.S. Attorney's
Office for the Eastern District of Pennsylvania and the OIG, the
subpoena from the U.S. Attorney's Office for the Eastern District of
New York and the subpoena from the U.S. Attorney's Office, Eastern
District of Missouri, and
-- the Company's ability to complete acquisitions of businesses, including
the consummation of the Gambro Healthcare acquisition, and the
percentage of centers we expect we will be required to divest, terms of
the related financing, and subsequent integration of the business.
This Company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.
This release contains non-GAAP financial measures. For reconciliations of these non-GAAP financial measures to their most comparable measure calculated and presented in accordance with GAAP, see the attached reconciliation schedules.
DAVITA INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(dollars in thousands, except per share data)
Three months ended
March 31,
2005 2004
Net operating revenues $609,958 $535,431
Operating expenses and charges:
Patient care costs 409,949 363,429
General and administrative 54,263 42,604
Depreciation and amortization 24,848 20,270
Provision for uncollectible accounts 10,886 9,577
Minority interests and equity income, net 4,016 2,718
Total operating expenses and charges 503,962 438,598
Operating income 105,996 96,833
Debt expense 17,534 11,636
Refinancing charges 6,872
Swap valuation gains 8,392
Other income 1,627 1,443
Income before income taxes 91,609 86,640
Income tax expense 35,275 33,775
Net income $56,334 $52,865
Earnings per share:
Basic $0.57 $0.54
Diluted $0.55 $0.51
Weighted average shares for earnings
per share:
Basic 99,399,612 98,099,476
Diluted 103,150,299 102,883,453
DAVITA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(dollars in thousands)
Three months ended
March 31,
2005 2004
Cash flows from operating activities:
Net income $56,334 $52,865
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 24,848 20,270
Stock options, principally tax benefits 15,934 14,389
Swap valuation gains (8,392)
Refinancing charges 6,872
Deferred income taxes (5,814) (1,016)
Minority interests in income of
consolidated subsidiaries 4,410 3,160
Distributions to minority interests (3,518) (2,082)
Non-cash debt expense 625 484
Equity investment income (394) (442)
Loss on divestitures (193) (628)
Changes in operating assets and liabilities,
other than from acquisitions and divestitures:
Accounts receivable (10,888) (12,511)
Medicare lab recoveries 19,000
Inventories (2,820) 6,818
Other current assets (289) 697
Other long-term assets 385 1,592
Accounts payable (4,865) 8,843
Accrued compensation and benefits 5,421 2,393
Other current liabilities 9,088 1,779
Income taxes 28,500 5,315
Other long-term liabilities (3,838) 5,190
Net cash provided by operating
activities 111,406 126,116
Cash flows from investing activities:
Additions of property and equipment, net (25,625) (24,681)
Acquisitions and divestitures, net (2,501) (17,088)
Investments in and advances to
affiliates, net 2,677 2,191
Intangible assets (395) (360)
Net cash used in investing activities (25,844) (39,938)
Cash flows from financing activities:
Borrowings 1,741,183 774,534
Payments on long-term debt (1,748,663) (786,791)
Deferred financing costs (29,213)
Stock option exercises 17,031 17,578
Net cash (used in) provided by
financing activities (19,662) 5,321
Net increase in cash and cash equivalents 65,900 91,499
Cash and cash equivalents at beginning
of period 251,979 61,657
Cash and cash equivalents at end of period $317,879 $153,156
DAVITA INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(dollars in thousands, except per share data)
March 31, December 31,
2005 2004
ASSETS
Cash and cash equivalents $317,879 $251,979
Accounts receivable, less allowance
of $60,279 and $58,166 472,983 462,095
Inventories 34,697 31,843
Other current assets 44,441 44,210
Deferred income taxes 91,917 78,593
Total current assets 961,917 868,720
Property and equipment, net 415,713 412,064
Amortizable intangibles, net 79,585 60,719
Investments in third-party dialysis
businesses 3,356 3,332
Other long-term assets 28,626 10,898
Goodwill 1,160,615 1,156,226
$2,649,812 $2,511,959
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 91,366 $ 96,231
Other liabilities 166,302 157,214
Accrued compensation and benefits 139,340 133,919
Current portion of long-term debt 6,346 53,364
Income taxes payable 29,507 1,007
Total current liabilities 432,861 441,735
Long-term debt 1,362,006 1,322,468
Other long-term liabilities 22,473 22,570
Deferred income taxes 156,369 148,859
Minority interests 57,690 53,193
Commitments and contingencies
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
shares issued) 135 135
Additional paid-in capital 550,987 542,714
Retained earnings 667,621 611,287
Treasury stock, at cost (34,878,913 and
36,295,339 shares) (608,040) (632,732)
Accumulated comprehensive
income valuations 7,710 1,730
Total shareholders' equity 618,413 523,134
$2,649,812 $2,511,959
DAVITA INC.
SUPPLEMENTAL FINANCIAL DATA
(unaudited)
(dollars in millions, except for per share and per treatment data)
Q1 2005 Q4 2004 Q1 2004
Financial Results:
Net income $56.3 $56.6 $52.9
Basic EPS $.57 $.58 $.54
EPS assuming dilution $.55 $.56* $.51
Operating income $106 $105.2 $96.8
Operating income margin 17.4% 17.1% 18.1%
Other comprehensive income
Unrealized gain (loss) on
securities, net of tax (expense)
benefit of $(3.7), $(1.3)
and $1.6 $6.0 $2.1 $(2.6)
Business Metrics:
Volume
Treatments 1,868,787 1,895,952 1,657,055
Number of treatment days 77.0 79.0 77.5
Treatments per day 24,270 23,999 21,381
Per day year over year increase 13.5% 14.5% 8.7%
Non-acquired growth 5.6% 6.0% 4.1%
Revenue
Total operating revenue $610 $616 $535
Dialysis revenue per treatment $310.92 $311.22 $311.02
Per treatment change from
previous quarter (0.1%) (0.8%) 1.5%
Per treatment change from
prior year 0.0% 1.6% 5.0%
Expenses
A. Patient care costs
Percent of revenue 67.2% 68.1% 67.9%
Per treatment $219.37 $221.31 $219.32
Per treatment change from
previous quarter (0.9%) 0.6% 1.5%
Per treatment change from
previous year 0.0% 2.4% 4.1%
B. General & administrative expenses
Percent of revenue 8.9% 8.6% 8.0%
Per treatment $29.04 $28.03 $25.71
Per treatment change from
previous quarter 3.6% 0.0% 6.2%
Per treatment change from
previous year 13.0% 15.8% 5.0%
C. Bad debt expense as a percent of
current-period revenue 1.8% 1.8% 1.8%
D. Consolidated effective tax rate 38.5% 37.4% 39.0%
* Earnings per share benefited from a year-to-date reduction in the
annualized tax rate that added $0.01 to the fourth quarter of 2004.
DAVITA INC.
SUPPLEMENTAL FINANCIAL DATA-continued
(unaudited)
(dollars in millions, except for per share and per treatment data)
Q1 2005 Q4 2004 Q1 2004
Cash Flow
Operating cash flow, excluding
Medicare lab recoveries $111.4 $82.3 $114.5
Operating cash flow, excluding
Medicare lab recoveries and
tax benefit from stock option
exercises $95.5 $70.0 $100.1
Free cash flow, excluding
Medicare lab recoveries $103.8 $67.4 $108.7
Free cash flow, excluding Medicare
lab recoveries and tax benefit
from stock option exercises $87.8 $55.1 $94.3
Capital expenditures:
Development $18.1 $25.0 $19.2
Routine maintenance/IT/other $7.6 $14.9 $5.8
Acquisition expenditures, net $2.5 $19.8 $17.1
Accounts Receivable
Net receivables $473 $462 $400
DSO 71 70 70
Debt/Capital Structure
Total debt $1,368 $1,376 $1,155
Net debt, (net of cash balance) $1,050 $1,124 $1,002
Leverage ratio (see Note 1) 2.0x 2.2x 2.1x
Share repurchases (in millions) .3
Average repurchase price $30.14
Clinical (quarterly averages)
Dialysis adequacy - % of patients
with Kt/V > 1.2 94% 94% 94%
Anemia measure - % of patients
with HCT > 33 86% 86% 85%
Patients with arteriovenous fistula 43%
DAVITA INC.
SUPPLEMENTAL FINANCIAL DATA-continued
(unaudited)
(dollars in thousands)
Note 1:
The leverage ratio under the Company's existing senior secured credit
agreement is defined as all funded debt plus the face amount of all
Letters of Credit issued, minus cash and cash equivalents, divided by
"EBITDA". The leverage ratio determines the interest rate payable by the
Company under the credit agreement by establishing the margin over the
base interest rate that is applicable. The following Leverage Ratio was
calculated using "Consolidated EBITDA" as defined in the indentures
governing our recently issued Senior Notes. Such calculation is
consistent with the definition of "EBITDA" contained in the existing
senior secured credit agreement, except that pro forma incremental
"EBITDA" relating to acquisitions is included in the calculation of
"EBITDA" under the existing senior secured credit agreement and is not
included in the following calculations.
Q1 2005 Q4 2004 Q1 2004
Net income $56,334 $56,602 $52,865
Debt expense 17,534 15,777 11,636
Refinancing charges 6,872
Income taxes 35,275 33,845 33,775
Depreciation and amortization 24,848 23,212 20,270
Minority interests and equity
income, net 4,016 3,880 2,718
Swap valuation gains (8,392)
"Consolidated EBITDA" as defined
in the indentures $136,487 $133,316 $121,264
Annualized "Consolidated EBITDA"
as defined in the indentures $545,948 $533,264 $485,056
Q1 2005 Q4 2004 Q1 2004
Total debt $1,368,352 $1,375,832 $1,155,302
Letters of credit issued 22,959 22,959 23,738
1,391,311 1,398,791 1,179,040
Less cash and cash equivalents (317,879) (251,979) (153,156)
$1,073,432 $1,146,812 $1,025,884
Annualized "Consolidated EBITDA"
as defined in the indentures $545,948 $533,264 $485,056
Leverage Ratio 2.0x 2.2x 2.1x
DAVITA INC.
RECONCILIATIONS FOR NON-GAAP MEASURES
(unaudited)
(dollars in thousands)
1. Operating cash flow, excluding Medicare lab recoveries related to
prior years' services, and tax benefit from stock option exercises:
Rolling 12-
month period
Q1 2005 Q4 2004 Q1 2004 ended Q1 2005
Cash provided by operating
activities $111,406 $87,341 $126,116 $405,235
Less: Medicare lab
recoveries for prior
years' services (8,293) (19,000) (8,293)
Related income tax expense 3,234 7,410 3,234
Operating cash flow,
excluding Medicare
lab recoveries 111,406 82,282 114,526 400,176
Less: Tax benefit from
stock option exercises (15,934) (12,305) (14,389) (44,315)
$95,472 $69,977 $100,137 $355,861
2. Free cash flow, excluding Medicare lab recoveries related to prior
years' 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
Q1 2005 Q4 2004 Q1 2004 ended Q1 2005
Cash provided by
operating activities $111,406 $87,341 $126,116 $405,235
Less: Expenditures for
routine maintenance and
information technology (7,634) (14,883) (5,816) (48,372)
Free cash flow 103,772 72,458 120,300 356,863
Medicare lab recoveries
related to prior
years' services (8,293) (19,000) (8,293)
Related income tax expense 3,234 7,410 3,234
Free cash flow, excluding
Medicare lab recoveries 103,772 67,399 108,710 351,804
Less: Tax benefit from
stock option exercises (15,934) (12,305) (14,389) (44,315)
$87,838 $55,094 $94,321 $307,489
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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/