DaVita 3rd Quarter 2007 Results
PRNewswire-FirstCall
EL SEGUNDO, Calif.
DaVita Inc.
(Logo: http://www.newscom.com/cgi-bin/prnh/20020729/DAVITALOGO)
Income from continuing operations for the three months ended September 30, 2007 excluding after-tax gains from insurance settlements and after-tax gains on the sale of investment securities was $89.3 million, or $0.83 per share, as compared with $69.9 million, or $0.66 per share, for the same period of 2006.
Income from continuing operations for the nine months ended September 30, 2007 excluding after-tax gains from insurance settlements, the after-tax valuation gain on the Company's product supply agreement with Gambro Renal Products and after-tax gains on the sale of investment securities was $254.6 million, or $2.38 per share, as compared with $192.0 million or $1.82 per share for the same period of 2006.
Financial and operating highlights include:
* Cash Flow: For the rolling 12-months ended September 30, 2007
operating cash flow was $500 million and free cash flow was
$396 million. For the three months ended September 30, 2007, operating
cash flow was $96 million and free cash flow was $74 million.
* Operating Income: Operating income for the three months ended
September 30, 2007 was $212 million including pre-tax gains from
insurance settlements of $6.8 million, and was $206 million excluding
these items. Operating income for the nine months ended September 30,
2007 was $667 million including pre-tax gains from insurance
settlements of $6.8 million, and the pre-tax valuation gain on the
Company's product supply agreement with Gambro Renal Products of
$55 million, and was $605 million excluding these items.
* Volume: Total treatments for the third quarter of 2007 were 3,842,763
or 49,266 treatments per day, as compared to 3,668,999 or 46,443
treatments per day for the third quarter of 2006. Non-acquired
treatment growth in the quarter was 5.2% over the prior year's third
quarter.
* Center Activity: As of September 30, 2007, we operated or provided
administrative services at 1,344 outpatient dialysis centers serving
approximately 106,500 patients, of which 1,307 centers are consolidated
in our financial statements. Of the remaining 37 centers, we own
minority interests in 4 centers and provide administrative services to
33 centers, in which we have no ownership interest. These 37 centers
serve approximately 3,400 patients. In the fourth quarter of 2007, we
will discontinue providing administrative services to 20 of these
centers with approximately 2,300 patients. During the third quarter of
2007, we acquired 6 centers, opened 18 new centers, closed one center,
and provided administrative services to one additional 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
Operating income for the fourth quarter of 2007 is expected to be in the range of $190-200 million. We are narrowing our operating income for 2007 to a range of $800-810 million. Our operating income guidance for 2008, excluding the impact of any potential Medicare legislation, is still projected to be in the range of $790-850 million, however, we believe at this time that operating income is more likely to be in the lower end of the range for 2008. 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 third quarter ended September 30, 2007 on November 1, 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 June 30, 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 the structure of and payment rates under the Medicare ESRD
Program which may further reduce Medicare 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 DVA Renal Healthcare's compliance with its
corporate integrity agreement,
* the resolution of ongoing investigations by various federal and state
governmental agencies, 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 Nine months ended
September 30, September 30,
2007 2006 2007 2006
Net operating
revenues $1,318,381 $1,237,041 $3,909,282 $3,608,045
Operating expenses
and charges:
Patient care costs 890,243 857,049 2,662,841 2,517,795
General and
administrative 120,596 113,447 356,249 329,059
Depreciation and
amortization 49,230 44,478 142,078 128,086
Provision for
uncollectible
accounts 34,107 31,985 101,686 93,295
Minority interests
and equity income,
net 11,793 10,956 34,757 26,857
Valuation gain on
Alliance and Product
Supply Agreement - (37,968) (55,275) (37,968)
Total operating
expenses and
charges 1,105,969 1,019,947 3,242,336 3,057,124
Operating income 212,412 217,094 666,946 550,921
Debt expense (62,715) (67,904) (194,496) (206,799)
Other income 6,278 3,271 17,131 10,118
Income from continuing
operations before
income taxes 155,975 152,461 489,581 354,240
Income tax expense 61,520 59,370 193,520 139,040
Income from
continuing
operations 94,455 93,091 296,061 215,200
Discontinued operations
Gain on disposal
of discontinued
operations,
net of tax - 1,765 - 362
Net income $94,455 $94,856 $296,061 $215,562
Earnings per share:
Basic earnings per
share from
continuing
operations $0.89 $0.90 $2.80 $2.08
Basic earnings per
share $0.89 $0.91 $2.80 $2.09
Diluted earnings
per share from
continuing
operations $0.88 $0.88 $2.76 $2.04
Diluted earnings
per share $0.88 $0.90 $2.76 $2.04
Weighted average
shares for
earnings
per share:
Basic 106,171,473 103,784,510 105,558,536 103,295,407
Diluted 107,561,139 105,923,976 107,129,135 105,643,406
DAVITA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(dollars in thousands)
Nine months ended
September 30,
2007 2006
Cash flows from operating activities:
Net income $296,061 $215,562
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 142,078 128,086
Valuation gain on Alliance and
Product Supply Agreement (55,275) (37,968)
Stock-based compensation expense 25,260 18,896
Tax benefits from stock award exercises 27,000 29,261
Excess tax benefits from stock award
exercises (23,632) (27,146)
Deferred income taxes 25,645 1,249
Minority interests in income of
consolidated subsidiaries 35,703 28,812
Distributions to minority interests (35,216) (25,552)
Equity investment income (946) (1,955)
(Gain) loss on disposal of discontinued
operations and other dispositions (4,944) 508
Non-cash debt and non-cash rent charges 11,810 13,562
Changes in operating assets and liabilities,
net of effect of acquisitions and divestitures:
Accounts receivable (32,425) (46,135)
Inventories 15,144 (29,118)
Other receivables and other current assets (42,818) (18,155)
Other long term assets (11,921) (5,329)
Accounts payable (6,458) 16,557
Accrued compensation and benefits (17,347) 67,889
Other current liabilities (26,151) 63,643
Income taxes (13,072) (65,924)
Other long-term liabilities 1,214 2,720
Net cash provided by operating activities 309,710 329,463
Cash flows from investing activities:
Purchase of investments (42,202) -
Additions of property and equipment, net (176,078) (181,425)
Acquisitions and purchases of other
ownership interests (81,782) (75,580)
Proceeds from divestitures and asset sales 4,643 21,348
Proceeds from sale and maturities of
investments 36,918 -
Investments in and advances to affiliates,
net 16,204 14,605
Purchase of intangible assets (556) (5,749)
Net cash used in investing activities (242,853) (226,801)
Cash flows from financing activities:
Borrowings 10,405,556 4,493,339
Payments on long-term debt (10,451,891) (4,826,163)
Deferred financing costs (4,462) 296
Purchase of treasury stock (6,350) -
Excess tax benefits from stock award
exercises 23,632 27,146
Stock award exercises and other share
issuances, net 47,756 31,187
Net cash provided by (used in)
financing activities 14,241 (274,195)
Net increase (decrease) in cash and cash
equivalents 81,098 (171,533)
Cash and cash equivalents at beginning
of period 310,202 431,811
Cash and cash equivalents at end of period $391,300 $260,278
DAVITA INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(dollars in thousands, except per share data)
September 30, December 31,
2007 2006
ASSETS
Cash and cash equivalents $391,300 $310,202
Short-term investments 22,177 4,734
Accounts receivable, less allowance of
$193,644 and $171,757 976,285 932,385
Inventories 75,611 89,119
Other receivables 186,282 148,842
Other current assets 27,653 25,124
Deferred income taxes 241,212 199,090
Total current assets 1,920,520 1,709,496
Property and equipment, net 894,164 849,966
Amortizable intangibles, net 185,761 203,721
Investments in third-party dialysis businesses 2,227 1,813
Long-term investments 7,844 13,174
Other long-term assets 42,097 45,793
Goodwill 3,728,822 3,667,853
$6,781,435 $6,491,816
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $245,976 $251,686
Other liabilities 444,196 473,219
Accrued compensation and benefits 322,289 341,766
Current portion of long-term debt 9,711 20,871
Income taxes payable 19,408 24,630
Total current liabilities 1,041,580 1,112,172
Long-term debt 3,695,586 3,730,380
Other long-term liabilities 59,310 50,076
Alliance and product supply agreement 42,640 105,263
Deferred income taxes 167,035 125,642
Minority interests 148,018 122,359
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; 106,658,297 and 104,636,608 shares
outstanding) 135 135
Additional paid-in capital 688,590 630,091
Retained earnings 1,429,573 1,129,621
Treasury stock, at cost (28,203,986 and
30,225,675 shares) (496,042) (526,920)
Accumulated other comprehensive income 5,010 12,997
Total shareholders' equity 1,627,266 1,245,924
$6,781,435 $6,491,816
DAVITA INC.
SUPPLEMENTAL FINANCIAL DATA
(unaudited)
(dollars in millions, except for per share and per treatment data)
Nine months
Three months ended ended
Sept. 30, June 30, Sept. 30, Sept. 30,
2007 2007 2006 2007
Financial Results excluding
gains from insurance
settlements, the valuation
gain on the product supply
agreement and gains on sale
of investment securities:
Income from continuing
operations (1) $89.3 $88.7 $69.9 $254.6
Net income (1) $89.3 $88.7 $71.7 $254.6
Diluted earnings per
share from continuing
operations $0.83 $0.83 $0.66 $2.38
Diluted earnings per
share $0.83 $0.83 $0.68 $2.38
Operating income (1) $205.6 $205.9 $179.1 $604.9
Operating income
margin 15.6% 15.7% 14.5% 15.5%
Other comprehensive income
Unrealized loss on
securities, net of tax
benefit of $5.1, $0.5,
$6.6 and $5.1 $(8.0) $(0.8) $(10.3) $(8.0)
Business Metrics:
Volume
Treatments 3,842,763 3,792,419 3,668,999 11,335,453
Number of treatment
days 78.0 78.0 79.0 233.4
Treatments per day 49,266 48,621 46,443 48,567
Per day year over year
increase 6.1% 5.3% 90.2% 5.5%
Non-acquired growth
year over year 5.2% 4.6% 4.2% 4.8%
Revenue
Total operating revenue $1,318 $1,313 $1,237 $3,909
Dialysis revenue per
treatment, including
the lab $333.57 $337.94 $331.48 $336.42
Per treatment (decrease)
increase from previous
quarter (1.3%) 0.03% 0.7% -
Per treatment increase
from previous year 0.6% 2.7% 1.4% 2.2%
Expenses
A. Patient care costs
Percent of revenue 67.5% 67.9% 69.3% 68.1%
Per treatment $231.67 $234.95 $233.59 $234.91
Per treatment decrease
from previous quarter (1.4%) (1.4%) (0.2%) -
Per treatment (decrease)
increase from previous
year (0.8%) 0.4% 3.5% 0.5%
Per treatment (excluding
gains from insurance
settlements of $1.76
and $0.60 for the
third quarter and nine
months ended
September 30, 2007,
respectively) $233.43 - - $235.51
B. General & administrative
expenses
Percent of revenue 9.1% 9.3% 9.2% 9.1%
Per treatment $31.38 $32.28 $30.92 $31.43
Per treatment (decrease)
increase from previous
quarter (2.8%) 5.5% (0.03%) -
Per treatment increase
(decrease) from
previous year 1.5% 4.4% (1.9%) 2.9%
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 39.4% 39.3% 38.9% 39.5%
(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)
Nine months
Three months ended ended
Sept. 30, June 30, Sept. 30, Sept. 30,
2007 2007 2006 2007
Cash Flow
Operating cash flow $95.8 $125.9 $96.9 $309.7
Operating cash flow,
last twelve months $499.8 $501.0 $512.8 $-
Free cash flow (1) $73.5 $101.7 $67.4 $236.7
Free cash flow, last
twelve months (1) $395.6 $389.5 $403.2 $-
Capital expenditures:
Development and
relocations $48.5 $30.8 $35.1 $101.9
Routine maintenance/
IT/other $22.6 $24.7 $31.5 $74.2
Acquisition expenditures $75.5 $6.1 $6.0 $81.8
Accounts Receivable
Net receivables $976 $960 $903
DSO 70 69 70
Debt/Capital Structure
Total debt, excluding debt
premium of $5 million $3,701 $3,703 $3,825
Net debt, net of cash,
excluding debt premium
of $5 million $3,309 $3,306 $3,564
Leverage ratio (see Note 1) 3.10x 3.23x 3.96x
Clinical (quarterly averages)
Dialysis adequacy -
% of patients with
Kt/V > 1.2 93.6% 93.4% 93.3%
Patients with albumin
greater than or equal
to 3.5 82.9% 83.8% 83.7%
Patients with HCT greater
than or equal to 33 82.8% 83.8% 84.3%
(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 September 30,
2007
Income from continuing operations $370,190
Income taxes 240,910
Debt expense including the write-off of deferred
financing costs 264,223
Depreciation and amortization 187,287
Minority interests and equity income, net 43,733
Valuation gain on Product Supply Agreement (55,275)
Other (147)
Stock-based compensation expense 32,753
"Consolidated EBITDA" $1,083,674
September 30,
2007
Total debt, excluding debt premium of $5 million $3,700,638
Letters of credit issued 50,131
3,750,769
Less: cash and cash equivalents (391,300)
Consolidated net debt $3,359,469
Last twelve months "Consolidated EBITDA" $1,083,674
Leverage ratio 3.10x
In accordance with the Company's Credit Agreement, the Company's leverage
ratio cannot exceed 5.50 to 1.0 as of September 30, 2007. At that date,
the Company's leverage ratio did not exceed 5.50 to 1.0.
RECONCILIATIONS FOR NON-GAAP MEASURES
(unaudited)
(dollars in thousands)
1. Income from continuing operations and net income excluding gains from
insurance settlements, the valuation gain on the product supply agreement
and gains on the sale of investment securities:
Income from continuing operations and net income excluding gains from
insurance settlements, the valuation gain on the product supply agreement
and gains on the sale of investment securities held by us, excludes
certain unusual or non-recurring items in order to present a measure of
income from continuing operations and net income that is more reflective
of the normal day-to-day operations of our business. Gains from insurance
settlements relates to insurance proceeds from Hurricane Katrina and from
a fire that destroyed one of our centers. The valuation gain on the
product supply agreement with Gambro Renal Products reflects a non-
recurring, non-cash item that resulted from the modification of the
product supply agreement, which resulted in the termination of our
obligation to purchase dialysis machines from Gambro Renal Products Inc.
under that agreement. Gains on the sale of investment securities related
to the sale of our common stock in NxStage. We believe that the exclusion
of each of these items enhances a user's understanding of our normal
operations and performance and that the adjusted amounts of income from
continuing operations and net income are more comparable to prior periods
and therefore more indicative of our performance for purposes of period
over period comparison. Our management eliminates these items when
evaluating our operating performance. These measures are not measures 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 Nine months ended
Sept. 30, June 30, Sept. 30, Sept. 30, Sept. 30,
2007 2007 2006 2007 2006
Income from
continuing
operations $94,455 $125,024 $93,091 $296,061 $215,200
Less: Gains on
insurance
settlements (6,779) - - (6,779) -
Valuation
gain - (55,275) (37,968) (55,275) (37,968)
Gain on the
sale of
investment
securities (1,634) (4,234) - (5,868) -
Add: Related
income tax 3,273 23,149 14,770 26,422 14,770
$89,315 $88,664 $69,893 $254,561 $192,002
Net income $94,455 $125,024 $94,856 $296,061 $215,562
Less: Gains on
insurance
settlements (6,779) - - (6,779) -
Valuation
gain - (55,275) (37,968) (55,275) (37,968)
Gain on the
sale of
investment
securities (1,634) (4,234) - (5,868) -
Add: Related
income tax 3,273 23,149 14,770 26,422 14,770
$89,315 $88,664 $71,658 $254,561 $192,364
RECONCILIATIONS FOR NON-GAAP MEASURES
(unaudited)
(dollars in thousands)
2. Operating income excluding pre-tax gains from insurance settlements,
and the pre-tax valuation gain on the product supply agreement:
Operating income excluding gains from insurance settlements, and the
valuation gain on the product supply agreement, excludes certain unusual
or non-recurring items in order to present a measure of operating income
that is more reflective of the normal day-to-day operations of our
business. Gains from insurance settlements relates to insurance proceeds
from Hurricane Katrina and from a fire that destroyed one of our centers.
The valuation gain on the product supply agreement with Gambro Renal
Products reflects a non-recurring non-cash item that resulted from the
modification of the product supply agreement, which resulted in the
termination of our obligation to purchase dialysis machines from Gambro
Renal Products Inc. under that agreement. We believe that the exclusion of
each of these items enhances a user's understanding of our normal
operations and performance and that the adjusted amount of operating
income is more comparable to prior periods and therefore more indicative
of our performance for purposes of period over period comparison. Our
management eliminates these items when evaluating our operating
performance. These measures are not measures 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.
Nine months
Three months ended ended
Sept. 30, June 30, Sept. 30, Sept. 30,
2007 2007 2006 2007
Operating income $212,412 $261,217 $217,094 $666,946
Less: Gains from
insurance
settlements (6,779) - - (6,779)
Valuation gain - (55,275) (37,968) (55,275)
$205,633 $205,942 $179,126 $604,892
3. Free cash flow
Free cash flow represents net cash provided by operating activities less
capital 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 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. 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.
Nine months
Three months ended ended
Sept. 30, June 30, Sept. 30, Sept. 30,
2007 2007 2006 2007
Cash provided by
operating activities $95,778 $125,901 $96,937 $309,710
Less: Expenditures for
routine maintenance
and information
technology (22,229) (24,157) (29,551) (72,975)
Free cash flow $73,549 $101,744 $67,386 $236,735
Rolling 12-Month Period
September 30, June 30, September 30,
2007 2006 2007
Cash provided by
operating activities $499,818 $500,977 $512,807
Less: Expenditures for
routine maintenance
and information technology (104,189) (111,511) (109,652)
Free cash flow $395,629 $389,466 $403,155
First Call Analyst:
FCMN Contact: LeAnne.Zumwalt@davita.com
AP Archive: http://photoarchive.ap.org/
PRN Photo Desk,
SOURCE: DaVita Inc.
CONTACT: LeAnne Zumwalt, Investor Relations, of DaVita Inc.,
+1-650-696-8910
Web site: http://www.davita.com/