DaVita Inc.
(Logo: http://www.newscom.com/cgi-bin/prnh/20020729/DAVITALOGO)
Income from continuing operations for the three and six months ended June 30, 2007 including the valuation gain on the Product Supply Agreement and the gains on the sale of investment securities was $125.0 million and $201.6 million, or $1.17 and $1.89 per share, respectively.
Financial and operating highlights include:
* Cash Flow: For the rolling 12-months ended June 30, 2007 operating
cash flow was $501 million and free cash flow was $389 million. For
the three months ended June 30, 2007, operating cash flow was
$126 million and free cash flow was $102 million.
* Operating Income: Operating income for the three and six months ended
June 30, 2007 excluding the pre-tax valuation gain on the Product
Supply Agreement of $55 million, was $206 million and $399 million,
respectively.
* Volume: Total treatments for the second quarter of 2007 were 3,792,419
or 48,621 treatments per day, as compared to 3,602,567 or 46,187
treatments per day for the second quarter of 2006. Non-acquired
treatment growth in the quarter was 4.6% over the prior year's second
quarter.
* Center Activity: As of June 30, 2007, we operated or provided
administrative services at 1,321 outpatient dialysis centers serving
approximately 106,000 patients, which includes 32 third-party owned
centers serving approximately 3,000 patients. During the second
quarter of 2007, we acquired 4 centers, opened 10 new centers, and
divested one center.
* Effective Tax Rate: We still expect the annual effective tax rate for
2007 to be in the range of 39.0% - 40.0%.
Outlook
We are revising our 2007 operating income guidance: operating income is now expected to be in the $790-$820 million range. Our previous guidance was for operating income to be in the range of $740-$780 million. Our operating income guidance for 2008, excluding the impact of any potential Medicare legislation, is projected to be in the range of $790-$850 million. We are entering into a period of unusual earnings uncertainty. Therefore the guidance range for 2008 does not capture as high a percentage of the potential outcomes as usual. 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 second quarter ended June 30, 2007 on August 2, 2007 at 5PM 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 2007 and 2008 operating results. Factors which could impact future results include the uncertainties associated with governmental regulations, general economic and other market conditions, accounting estimates and the risk factors set forth in the Company's SEC filings, including its Form 10-Q for the quarter ended March 31, 2007. 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 commercial payor plans,
* possible reductions in private and government payment rates,
* changes in pharmaceutical or anemia management 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 resolution of various investigations by
the U.S. Attorney's Office for the Eastern District of New York, the
U.S. Attorney's Office for the Eastern District of Missouri, the Office
of the Inspector General's Office in Houston, Texas, and DVA Renal
Healthcare's compliance with its corporate integrity agreement,
* our ability to complete and integrate acquisitions of businesses, and
* the successful integration of DVA Renal Healthcare's 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 Six months ended
June 30, June 30,
2007 2006 2007 2006
Net operating
revenues $1,312,735 $1,207,816 $2,590,901 $2,371,004
Operating expenses
and charges:
Patient care costs 891,013 842,973 1,772,598 1,660,746
General and
administrative 122,432 111,444 235,653 215,612
Depreciation and
amortization 47,058 41,717 92,848 83,608
Provision for
uncollectible
accounts 33,944 31,230 67,579 61,310
Minority interests
and equity income,
net 12,346 8,700 22,964 15,901
Valuation gain on
Alliance and Product
Supply Agreement (55,275) -- (55,275) --
Total operating
expenses and
charges 1,051,518 1,036,064 2,136,367 2,037,177
Operating income 261,217 171,752 454,534 333,827
Debt expense (62,911) (68,436) (131,781) (138,895)
Other income 7,658 2,973 10,853 6,847
Income from continuing
operations before
income taxes 205,964 106,289 333,606 201,779
Income tax expense 80,940 41,960 132,000 79,670
Income from
continuing
operations 125,024 64,329 201,606 122,109
Discontinued operations
Loss on disposal of
discontinued
operations, net
of tax -- (1,092) -- (1,403)
Net income $125,024 $63,237 $201,606 $120,706
Earnings per share:
Basic earnings per
share from
continuing
operations $1.19 $0.62 $1.92 $1.18
Basic earnings per
share $1.19 $0.61 $1.92 $1.17
Diluted earnings per
share from
continuing
operations $1.17 $0.61 $1.89 $1.16
Diluted earnings
per share $1.17 $0.60 $1.89 $1.14
Weighted average
shares for
earnings per
share:
Basic 105,451,306 103,479,062 105,246,995 103,046,461
Diluted 107,011,248 105,645,208 106,879,727 105,486,027
DAVITA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(dollars in thousands)
Six months ended
June 30,
2007 2006
Cash flows from operating activities:
Net income $201,606 $120,706
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 92,848 83,608
Valuation gain on Alliance and Product
Supply Agreement (55,275) --
Stock-based compensation expense 16,326 11,455
Tax benefits from stock award exercises 12,481 23,628
Excess tax benefits from stock-based
compensation (10,516) (22,054)
Deferred income taxes 27,458 (20,980)
Minority interests in income of
consolidated subsidiaries 23,502 17,360
Distributions to minority interests (25,230) (13,357)
Equity investment income (538) (1,459)
(Gain) loss on disposal of
discontinued operations and other
dispositions (1,866) 427
Non-cash debt and non-cash rent charges 8,430 8,880
Changes in operating assets and liabilities,
net of effect of acquisitions and divestitures:
Accounts receivable (27,427) (2,555)
Inventories 19,503 (23,282)
Other receivables and other current assets (33,793) (15,522)
Other long term assets (5,095) (1,040)
Accounts payable (31,146) (20,997)
Accrued compensation and benefits (701) 60,829
Other current liabilities 13,891 70,714
Income taxes (10,292) (46,755)
Other long-term liabilities (234) 2,920
Net cash provided by operating activities 213,932 232,526
Cash flows from investing activities:
Purchase of investments (37,076) --
Additions of property and equipment, net (104,999) (115,362)
Acquisitions and purchases of other
ownership interests (6,262) (69,578)
Proceeds from divestitures and asset sales 622 21,098
Proceeds from sale of investments 25,418 --
Investments in and advances to affiliates, net 13,476 9,981
Purchase of intangible assets (556) (5,630)
Net cash used in investing activities (109,377) (159,491)
Cash flows from financing activities:
Borrowings 8,227,417 2,925,838
Payments on long-term debt (8,271,098) (3,139,358)
Deferred financing costs (4,228) (2)
Excess tax benefits from stock-based
compensation 10,516 22,054
Stock option exercises and other share
issuances, net 19,538 25,941
Net cash used in financing activities (17,855) (165,527)
Net increase (decrease) in cash and cash
equivalents 86,700 (92,492)
Cash and cash equivalents at beginning
of period 310,202 431,811
Cash and cash equivalents at end of period $396,902 $339,319
DAVITA INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(dollars in thousands, except per share data)
June 30, December 31,
2007 2006
ASSETS
Cash and cash equivalents $396,902 $310,202
Short-term investments 21,947 4,734
Accounts receivable, less allowance of
$184,538 and $171,757 959,812 932,385
Inventories 69,860 89,119
Other receivables 172,299 148,842
Other current assets 33,326 25,124
Deferred income taxes 233,334 199,090
Total current assets 1,887,480 1,709,496
Property and equipment, net 866,370 849,966
Amortizable intangibles, net 186,968 203,721
Investments in third-party dialysis businesses 1,984 1,813
Long-term investments 14,179 13,174
Other long-term assets 47,487 45,793
Goodwill 3,666,914 3,667,853
$6,671,382 $6,491,816
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $220,540 $251,686
Other liabilities 484,238 473,219
Accrued compensation and benefits 336,939 341,766
Current portion of long-term debt 9,564 20,871
Income taxes payable 22,188 24,630
Total current liabilities 1,073,469 1,112,172
Long-term debt 3,698,403 3,730,380
Other long-term liabilities 57,887 50,076
Alliance and product supply agreement 43,973 105,263
Deferred income taxes 163,293 125,642
Minority interests 133,701 122,359
Commitments and contingencies
Shareholders' 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; 134,862,283
shares issued; 105,646,605 and
104,636,608 shares outstanding) 135 135
Additional paid-in capital 661,703 630,091
Retained earnings 1,335,118 1,129,621
Treasury stock, at cost
(29,215,678 and 30,225,675 shares) (509,313) (526,920)
Accumulated other comprehensive income 13,013 12,997
Total shareholders' equity 1,500,656 1,245,924
$6,671,382 $6,491,816
DAVITA INC.
SUPPLEMENTAL FINANCIAL DATA
(unaudited)
(dollars in millions, except for per share and per treatment data)
Three months ended Six months ended
June 30, March 31, June 30, June 30,
2007 2007 2006 2007
Financial Results
excluding the valuation
gain on the Product
Supply Agreement and
gains on sale of
investment securities
for the quarter and
the six months ended
June 30, 2007:
Income from
continuing
operations (1) $88.7 $76.6 $64.3 $165.2
Net income (1) $88.7 $76.6 $63.2 $165.2
Diluted earnings per
share from
continuing operations $0.83 $0.72 $0.61 $1.55
Diluted earnings
per share $0.83 $0.72 $0.60 $1.55
Operating income (1) $205.9 $193.3 $171.8 $399.3
Operating income
margin 15.7% 15.1% 14.2% 15.4%
Other comprehensive
income
Unrealized (loss)
gain on securities,
net of tax benefit
(expense) of $0.5,
($0.5), ($2.2) $(0.8) $0.8 $3.4 $--
Business Metrics:
Volume
Treatments 3,792,419 3,700,271 3,602,567 7,492,690
Number of
treatment days 78.0 77.4 78.0 155.4
Treatments per day 48,621 47,807 46,187 48,216
Per day year over
year increase 5.3% 5.1% 94.0% 5.2%
Non-acquired growth
year over year 4.6% 4.0% 4.1% 4.3%
Revenue
Total operating
revenue $1,313 $1,278 $1,208 $2,591
Dialysis revenue
per treatment,
including the lab $337.94 $337.84 $329.02 $337.89
Per treatment
increase from
previous quarter 0.03% 1.0% 0.8% --
Per treatment increase
from previous year 2.7% 3.5% 1.5% 3.1%
Expenses
A. Patient care costs
Percent of revenue 67.9% 69.0% 69.8% 68.4%
Per treatment $234.95 $238.25 $233.99 $236.58
Per treatment
(decrease)
increase from
previous quarter (1.4%) 1.7% 0.2% --
Per treatment
increase from
previous year 0.4% 2.0% 5.1% 1.2%
B. General &
administrative
expenses
Percent of revenue 9.3% 8.9% 9.2% 9.1%
Per treatment $32.28 $30.60 $ 30.93 $ 31.45
Per treatment
increase (decrease)
from previous
quarter 5.5% (8.5%) 4.0% --
Per treatment
increase (decrease)
from previous year 4.4% 2.9% (4.1%) 3.6%
C. Bad debt expense as
a percent of
current-period
revenue 2.6% 2.6% 2.6% 2.6%
D. Consolidated
effective tax rate
from continuing
operations 39.3% 40.0% 39.5% 39.6%
(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, see attached
reconciliation schedules.
DAVITA INC.
SUPPLEMENTAL FINANCIAL DATA -- continued
(unaudited)
(dollars in millions, except for per share and per treatment data)
Three months ended Six months ended
June 30, March 31, June 30, June 30,
2007 2007 2006 2007
Cash Flow
Operating cash flow $125.9 $88.0 $256.1 $213.9
Operating cash flow,
last twelve months $501.0 $631.2 $500.5 $--
Operating cash flow
excluding the income tax
payment on divested centers
last twelve months (1) $501.0 $631.2 $585.8 $--
Free cash flow (1) $101.7 $61.4 $227.5 $163.2
Free cash flow, last
twelve months (1) $389.5 $515.2 $410.7 $--
Free cash flow excluding the
income tax payment on
divested centers last
twelve months (1) $389.5 $515.2 $496.1 $--
Capital expenditures:
Development and relocations $30.8 $22.5 $37.3 $53.4
Routine maintenance/IT/other $24.7 $26.9 $30.1 $51.6
Acquisition expenditures $6.1 -- $46.7 $6.3
Accounts Receivable
Net receivables $960 $907 $859
DSO 69 66 67
Debt/Capital Structure
Total debt, excluding debt
premium of $5 million $3,703 $3,750 $3,944
Net debt, net of cash,
excluding debt premium of
$5 million $3,306 $3,394 $3,605
Leverage ratio (see Note 1) 3.23x 3.48x 4.07x
Clinical (quarterly averages)
Dialysis adequacy - % of
patients with Kt/V > 1.2 93.4% 92.9% 93.1%
Patients with albumin
greater than or equal to 3.5 83.8% 83.1% 83.5%
Patients with HCT greater
than or equal to 33 83.8% 85.1% 85.1%
(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, see attached
reconciliation schedules.
DAVITA INC.
SUPPLEMENTAL FINANCIAL DATA -- continued
(unaudited)
(dollars in thousands)
Note 1: Calculation of the Leverage Ratio
Under the Company's current Senior Secured Credit Facilities (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 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 following leverage ratio was calculated using "Consolidated EBITDA" as defined in the Credit Agreement. The calculation below is based on the last twelve months of "Consolidated EBITDA", pro forma for the routine acquisitions that occurred during the period. 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 June 30, 2007
Income from continuing operations $368,826
Income taxes 238,760
Debt expense including the write-off of deferred
financing costs 269,412
Depreciation and amortization 182,535
Minority interests and equity income, net 42,896
Valuation gain on Product Supply Agreement (93,243)
Other (2,650)
Stock-based compensation expense 31,261
"Consolidated EBITDA" $1,037,797
June 30,
2007
Total debt, excluding debt premium of $5 million $3,703,127
Letters of credit issued 50,131
3,753,258
Less: cash and cash equivalents (396,902)
Consolidated net debt $3,356,356
Last twelve months "Consolidated EBITDA" $1,037,797
Leverage ratio 3.23x
In accordance with the Company's Credit Agreement, the Company's leverage
ratio cannot exceed 5.75 to 1.0 as of June 30, 2007. At that date, the
Company's leverage ratio did not exceed 5.75 to 1.0.
RECONCILIATIONS FOR NON-GAAP MEASURES
(unaudited)
(dollars in thousands)
1. Income from continuing operations and net income excluding the valuation gain on the Product Supply Agreement and gains on the sale of investment securities:
We believe that income from continuing operations and net income excluding the valuation gain on the Product Supply Agreement and gains on the sale of investment securities enhances a user's understanding of our normal income from continuing operations and net income for these periods by providing a measure that is more meaningful because it excludes a non- recurring non-cash item that resulted from the termination of our purchase obligation for dialysis machines from Gambro Renal Products Inc. under the Amended Product Supply Agreement and non-recurring gains on the sale of investment securities and accordingly is more comparable to prior periods and indicative of consistent income from continuing operations and net income. 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 income from continuing operations and net income.
Three months ended Six months ended
June 30, March 31, June 30, June 30,
2007 2007 2006 2007
Income from continuing
operations $125,024 $76,582 $64,329 $201,606
Less: Valuation gain (55,275) -- -- (55,275)
Gain on the sale of
investment
securities (4,234) -- -- (4,234)
Add: Related income tax 23,149 -- -- $23,149
$88,664 $76,582 $64,329 $165,246
Net income $125,024 $76,582 $63,237 $201,606
Less: Valuation gain (55,275) -- -- (55,275)
Gain on the sale of
investment
securities (4,234) -- -- (4,234)
Add: Related income tax 23,149 -- -- 23,149
$88,664 $76,582 $63,237 $165,246
2. Operating income excluding the pre-tax valuation gain on the Product Supply Agreement:
We believe that operating income excluding the valuation gain on the Product Supply Agreement enhances a user's understanding of our normal operating income for these periods by providing a measure that is more meaningful because it excludes a non-recurring non-cash item that resulted from the termination of our purchase obligation for dialysis machines from Gambro Renal Products Inc. under the Amended Product Supply Agreement and accordingly is more comparable to prior periods and indicative of consistent operating income items. 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 operating income.
Three months ended Six months ended
June 30, March 31, June 30, June 30,
2007 2007 2006 2007
Operating income $261,217 $193,317 $171,752 $454,534
Less: Valuation gain (55,275) -- -- (55,275)
$205,942 $193,317 $171,752 $399,259
RECONCILIATIONS FOR NON-GAAP MEASURES
(unaudited)
(dollars in thousands)
3. Operating cash flow, excluding the income tax payment on divested centers:
We believe that operating cash flow excluding the 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 excludes non-recurring transactions that can cause unusual fluctuations in our operating cash flows and accordingly is more comparable to prior periods and indicative of consistent operating cash flow items. 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-Month Period
June 30, March 31, June 30,
2007 2007 2006
Cash provided by
operating activities $500,977 $631,166 $500,479
Income tax payment on
divested centers -- -- 85,328
$500,977 $631,166 $585,807
4. Free cash flow and free cash flow, excluding the income tax payment on divested centers:
Free cash flow represents net cash provided by operating activities less capital expenditures for routine maintenance and information technology. We believe free cash flow and free cash flow excluding the income tax payment on divested centers are useful adjuncts to cash flow from operating activities and other measurements under United States generally accepted accounting principles, since free cash flow is a meaningful measure of our ability to fund acquisition and development activities and meet our debt service requirements and because free cash flow excluding the income tax payment on divested centers excludes a non-recurring transaction that can cause unusual fluctuations in our free cash flows and accordingly is more comparable to prior periods and indicative of consistent free cash items. Free cash flow and free cash flow excluding the income tax payment on divested centers are not measures 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.
Three months ended Six months ended
June 30, March 31, June 30, June 30,
2007 2007 2006 2007
Cash provided by
operating
activities $125,901 $88,031 $256,090 $213,932
Less: Expenditures
for routine
maintenance and
information
technology (24,157) (26,589) (28,640) (50,746)
Free cash flow $101,744 $61,442 $227,450 $163,186
Rolling 12-Month Period
June 30, March 31, June 30,
2007 2007 2006
Cash provided by operating
activities $500,977 $631,166 $500,479
Less: Expenditures for
routine maintenance and
information technology (111,511) (115,994) (89,757)
Free cash flow $389,466 $515,172 $410,722
Income tax payment on
divested centers -- -- 85,328
$389,466 $515,172 $496,050
First Call Analyst:
FCMN Contact: LeAnne.Zumwalt@davita.com
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PRN Photo Desk,
SOURCE: DaVita Inc.
CONTACT: LeAnne Zumwalt, Investor Relations of DaVita Inc., +1-650-696-
8910
Web site: http://www.davita.com/