DaVita 1st Quarter 2006 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, 2006 included after-tax stock-based compensation expense of $2.8 million or $0.025 per share as a result of implementing SFAS No. 123®.
Financial and operating highlights include:
-- Cash Flow: For the rolling 12-months ended March 31, 2006 operating
cash flow was $412 million and free cash flow was $336 million, in
each case excluding the tax benefit from stock option exercises and
an $85 million income tax payment associated with the divestiture of
centers in conjunction with the Gambro Healthcare acquisition.
Operating cash flow for the three months ended March 31, 2006 was
$61 million and free cash flow was $41 million, in each case
excluding the tax benefit from stock option exercises and the $85
million income tax payment.
-- Operating Income: Operating income for the three months ended
March 31, 2006, was $162 million, as compared to $159 million for the
fourth quarter of 2005.
-- Volume: Total treatments for the three months ended March 31, 2006
were 3,501,032 or 45,468 treatments per day, as compared to 3,498,231
or 44,281 treatments per day for the fourth quarter of 2005.
Non-acquired treatment growth in the quarter was 4.6%.
-- Center Activity: As of March 31, 2006, we operated or provided
administrative services at 1,241 outpatient centers serving
approximately 98,000 patients. During the first quarter of 2006 we
acquired 6 centers, opened 6 new centers, and provided administrative
services to 2 additional centers. We also completed the divestiture
of 3 centers related to the Gambro Healthcare acquisition and closed
3 centers.
Outlook
Our operating income guidance for 2006 is projected to be in the $600-680 million range after the impact of FASB No. 123R related to stock option expensing. These projections and the underlying assumptions involve significant risks and uncertainties, including those described below and actual results may vary significantly from these current projections.
DaVita will be holding a conference call to discuss its results for the first quarter ended March 31, 2006 on May 3, 2006 at 10:00 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, including statements related to our 2006 operating results. 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, 2005. 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 preferred provider
organizations and private indemnity patients,
-- possible reductions in private and government payment rates,
-- changes in pharmaceutical practice patterns, payment policies, or
pharmaceutical pricing,
-- our 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, the subpoenas from the U.S. Attorney's Office
for the Eastern District of Missouri and DVA Renal Healthcare's
(formerly known as Gambro Healthcare, Inc.) compliance with its
corporate integrity agreement,
-- our ability to complete and integrate acquisitions of businesses, and
-- the successful integration of DVA Renal Healthcare, including its
billing and collection operations.
We undertake no obligation to update or revise any forward-looking statements, whether as a result of changes in underlying factors, 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,
2006 2005
Net operating revenues $1,163,188 $578,626
Operating expenses and charges:
Patient care costs 817,773 387,515
General and administrative 104,168 54,263
Depreciation and amortization 41,891 23,845
Provision for uncollectible accounts 30,080 10,325
Minority interests and equity income, net 7,201 3,818
Total operating expenses and charges 1,001,113 479,766
Operating income 162,075 98,860
Debt expense (70,459) (17,531)
Swap valuation gain 8,392
Refinancing charges (6,872)
Other income, net 3,874 1,617
Income from continuing operations
before income taxes 95,490 84,466
Income tax expense 37,710 32,496
Income from continuing operations 57,780 51,970
Discontinued operations
Income from operations of
discontinued operations, net of tax 4,364
Loss on disposal of discontinued
operations, net of tax (311)
Net income $57,469 $56,334
Earnings per share:
Basic earnings per share from
continuing operations $0.56 $0.52
Basic earnings per share $0.56 $0.57
Diluted earnings per share from
continuing operations $0.55 $0.50
Diluted earnings per share $0.55 $0.55
Weighted average shares for
earnings per share:
Basic 102,581,455 99,399,612
Diluted 105,388,419 103,150,299
DAVITA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(dollars in thousands)
Three months ended
March 31,
2006 2005
Cash flows from operating activities:
Net income $57,469 $56,334
Adjustments to reconcile net income to cash
(used in) provided by operating activities:
Depreciation and amortization 41,891 24,848
Stock-based compensation expense 5,692 841
Tax benefits from stock option exercises 983 15,093
Deferred income taxes (2,425) (5,814)
Minority interests in
income of consolidated subsidiaries 8,104 4,410
Distributions to minority interests (5,180) (3,518)
Equity investment income (903) (394)
Loss (gain) on other divestitures 298 (193)
Gain on disposal of discontinued operations (961) --
Non-cash debt and other expenses 5,321 625
Refinancing charges -- 6,872
Swap valuation gain -- (8,392)
Changes in operating assets and liabilities,
net of effect of acquisitions and divestitures:
Accounts receivable (5,558) (10,188)
Inventories (18,911) (2,820)
Other receivables and other current assets (17,850) (989)
Other long term assets (1,210) 385
Accounts payable (32,723) (4,865)
Accrued compensation and benefits 5,223 5,421
Other current liabilities (1,350) 9,088
Income taxes (63,828) 28,500
Other long-term liabilities 2,354 (3,838)
Net cash (used in) provided by
operating activities (23,564) 111,406
Cash flows from investing activities:
Additions of property and equipment, net (47,991) (25,625)
Acquisitions (22,845) (4,798)
Proceeds from divestitures 17,734 2,297
Investments in and advances to affiliates, net 2,635 2,677
Intangible assets (5,015) (395)
Net cash used in investing activities (55,482) (25,844)
Cash flows from financing activities:
Borrowings 785,231 1,741,183
Payments on long-term debt (898,443) (1,748,663)
Deferred financing costs (2) (29,213)
Excess tax benefits from stock-based
compensation 18,532 --
Stock option exercises and other share
issuances, net 21,063 17,031
Net cash used in financing activities (73,619) (19,662)
Net (decrease) increase in cash and
cash equivalents (152,665) 65,900
Cash and cash equivalents at beginning
of period 431,811 251,979
Cash and cash equivalents at end of period $279,146 $317,879
DAVITA INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(dollars in thousands, except per share data)
March 31, December 31,
2006 2005
ASSETS
Cash and cash equivalents $279,146 $431,811
Accounts receivable, less
allowance of $144,968 and $138,598 859,138 853,560
Inventories 88,255 69,130
Other receivables 135,974 116,620
Other current assets 22,622 38,463
Deferred income taxes 152,304 144,824
Total current assets 1,537,439 1,654,408
Property and equipment, net 759,853 750,078
Amortizable intangibles, net 230,981 235,944
Investments in third-party dialysis
businesses 3,028 3,181
Other long-term assets 52,752 41,768
Goodwill 3,605,401 3,594,383
$6,189,454 $6,279,762
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $178,298 $212,049
Other liabilities 381,193 381,964
Accrued compensation and benefits 236,266 231,994
Current portion of long-term debt 5,237 71,767
Income taxes payable 28,131 91,959
Total current liabilities 829,125 989,733
Long-term debt 4,039,333 4,085,435
Other long-term liabilities 26,367 26,416
Alliance and product supply agreement
and other intangibles, net 153,995 163,431
Deferred income taxes 84,500 75,499
Minority interests 93,602 88,639
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 594,285 569,751
Retained earnings 897,399 839,930
Treasury stock, at cost
(31,566,292 and 32,927,026 shares) (550,291) (574,013)
Accumulated comprehensive income
valuations 21,004 14,806
Total shareholders' equity 962,532 850,609
$6,189,454 $6,279,762
DAVITA INC.
SUPPLEMENTAL FINANCIAL DATA
(unaudited)
(dollars in millions, except for per share and per treatment data)
Three months ended
March 31, December 31, March 31,
2006 2005 2005
Financial Results:
Net income $57.5 $64.1 $56.3
Income from continuing
operations $57.8 $56.4 $52.0
Diluted earnings per share $0.55 $0.61 $0.55
Diluted earnings per share
from continuing operations $0.55 $0.54 $0.50
Operating income $162.1 $158.8 $98.9
Operating income margin 13.9% 14.0% 17.1%
Other comprehensive income
Unrealized gain on
securities, net of tax
expense of $3.9, $2.4,
and $6.9
$6.2 $3.8 $10.9
Business Metrics:
Volume
Treatments 3,501,032 3,498,231 1,761,530
Number of treatment
days 77.0 79.0 77.0
Treatments per day 45,468 44,281 22,877
Per day year over
year increase 98.7% 95.8% 13.6%
Non-acquired growth 4.6% 2.8% 5.6%
Revenue
Total operating revenue $1,163 $1,133 $579
Dialysis revenue per
treatment $316.70 $310.62 $312.14
Per treatment increase
(decrease) from previous
quarter 2.0% (2.0%) --
Per treatment increase
(decrease) from previous
year 1.5% (0.6%) 0.2%
Expenses
A. Patient care costs
Percent of revenue 70.3% 70.5% 67.0%
Per treatment $233.58 $228.48 $219.99
Per treatment increase
(decrease) from previous
quarter 2.2% 1.3% (0.9%)
Per treatment increase from
previous year 6.2% 2.9% 0.1%
B. General & administrative
expenses
Percent of revenue 9.0% 8.6% 9.4%
Per treatment $29.75 $27.88 $30.80
Per treatment increase
(decrease) from previous
quarter 6.7% (11.6%) 3.5%
Per treatment (decrease)
increase from previous year (3.4%) (6.3%) 12.8%
C. Bad debt expense as a percent
of current-period revenue 2.6% 2.6% 1.8%
D. Consolidated effective tax
rate from continuing
operations 39.5% 35.7% 38.5%
DAVITA INC.
SUPPLEMENTAL FINANCIAL DATA-continued
(unaudited)
(dollars in millions, except for per share and per treatment data)
Three months ended
March 31, December 31, March 31,
2006 2005 2005
Cash Flow
Operating cash flow $(23.6) $183.3 $111.4
Operating cash flow, excluding
tax benefit from stock option
exercises and the income tax
payment on divested centers $60.8 $179.3 $96.3
Free cash flow $(43.3) $151.6 $103.8
Free cash flow, excluding tax
benefit from stock option
exercises and the income tax
payment on divested centers $41.1 $147.5 $88.7
Capital expenditures:
Development $26.3 $27.8 $18.1
Routine maintenance/IT/other $21.7 $32.3 $7.6
Acquisition expenditures $22.8 $3,072.3 $4.8
Accounts Receivable
Net receivables $859 $854 $464
DSO 69 71 71
Debt/Capital Structure
Total debt $4,045 $4,157 $1,368
Net debt, net of cash and
cash equivalents $3,765 $3,725 $1,050
Leverage ratio - (see Note 1) 4.29x 4.45x --
Clinical (quarterly averages)
Dialysis adequacy - % of
patients with Kt/V > 1.2 93% 94% 94%
Patients with arteriovenous fistulas 49% 45% 43%
DAVITA INC.
SUPPLEMENTAL FINANCIAL DATA-continued
(unaudited)
(dollars in thousands)
Note 1: Calculation of the Leverage Ratio
Under the Company's current credit agreement (Credit Agreement), the leverage ratio is defined as all funded debt plus the face amount of all letters of credit issued, minus cash and cash equivalents, divided by "Consolidated EBITDA". The leverage ratio determines the interest rate margin payable by the Company under the Credit Agreement by establishing the margin over the base interest rate (LIBOR) that is applicable. The following leverage ratio was calculated using "Consolidated EBITDA" as defined in the Credit Agreement, except that pro forma incremental "EBITDA" relating to routine acquisitions that occurred during the current quarter, which is included in the calculation of "EBITDA" under the Credit Agreement, is excluded from the calculation below. The calculation below is based on the last twelve-months of Consolidated "EBITDA", pro forma for the DVA Renal Healthcare acquisition and related divestitures. The Company's management believes that the presentation of "Consolidated EBITDA" is useful to investors to enhance their understanding of the Company's leverage ratio under its Credit Agreement.
Rolling 12-months ended
March 31, 2006
Income from continuing operations $242,118
Income taxes 154,341
Debt expense 278,671
Depreciation and amortization 171,781
Minority interests and equity income, net 28,030
Swap valuation losses 3,896
Refinancing charges 2,276
Other 1,298
Stock-based compensation expense 7,497
"Consolidated EBITDA" calculated
as described above $889,908
March 31,
2006
Total debt $4,044,570
Letters of credit issued 50,345
4,094,915
Less: cash and cash equivalents (279,146)
Consolidated net debt $3,815,769
Last twelve months "Consolidated EBITDA"
calculated as described above $889,908
Leverage ratio 4.29x
In accordance with the Company's Credit Agreement, the Company's leverage ratio can not exceed 6.25 to 1.0 as of March 31, 2006. At that date, the Company's leverage ratio did not exceed 6.25 to 1.0.
DAVITA INC.
RECONCILIATIONS FOR NON-GAAP MEASURES
(unaudited)
(dollars in thousands)
1. Operating cash flow, excluding tax benefit from stock option exercises
and income tax payment on divested centers:
We believe that operating cash flow excluding tax benefit from stock
option exercises and income tax payment on divested centers enhances a
user's understanding of our normal operating cash flows for these periods
by providing a measure that is more meaningful because it is comparable to
prior periods and indicative of consistent operating cash flow items, and
because it excludes non-recurring transactions that can cause unusual
fluctuations in our operating cash flows. This measure is not a measure of
financial performance under United States generally accepted accounting
principles 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-months
Three months ended ended
March 31, December 31, March 31, March 31,
2006 2005 2005 2006
Cash (used in) provided
by operating activities $(23,564) $183,344 $111,406 $350,584
Less: Tax benefit from
stock option exercises (983) (4,064) (15,093) (24,374)
Income tax payment on
divested centers 85,328 85,328
$60,781 $179,280 $96,313 $411,538
2. Free cash flow and free cash flow, excluding tax benefit from stock
option exercises and income tax on divested centers:
Free cash flow represents net cash provided by operating activities less
expenditures for routine maintenance and information technology. 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 United States generally accepted accounting principles 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-months
Three months ended ended
March 31, December 31, March 31, March 31,
2006 2005 2005 2006
Cash (used in) provided
by operating activities $(23,564) $183,344 $111,406 $350,584
Less: Expenditures for
routine maintenance
and information technology (19,726) (31,735) (7,634) (75,731)
Free cash flow (43,290) 151,609 103,772 274,853
Less: Tax benefit from
stock option exercises (983) (4,064) (15,093) (24,374)
Income tax payments on
divested centers 85,328 85,328
$41,055 $147,545 $88,679 $335,807
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SOURCE: DaVita Inc.
CONTACT: LeAnne Zumwalt, Investor Relations of DaVita Inc.,
+1-650-696-8910
Web site: http://www.davita.com/