DaVita 4th Quarter 2007 Results
PRNewswire-FirstCall
EL SEGUNDO, Calif.
DaVita Inc.
(Logo: http://www.newscom.com/cgi-bin/prnh/20020729/DAVITALOGO)
Net income for the year ended December 31, 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 $340.3 million, or $3.17 per share, as compared with $266.5 million or $2.52 per share for the same period of 2006.
Financial and operating highlights include:
-- Cash Flow: For the year ended December 31, 2007 operating cash flow
was $533 million and free cash flow was $421 million. For the three
months ended December 31, 2007 operating cash flow was $223 million and
free cash flow was $185 million.
-- Operating Income: Operating income for the three months ended December
31, 2007 was $195 million, as compared to $189 million for 2006.
Operating income for the year ended December 31, 2007 was $862 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 $800 million
excluding these items, as compared to $701 million for 2006.
-- Volume: Total treatments for the fourth quarter of 2007 were 3,983,542
or 50,045 treatments per day, as compared to 3,723,198 or 47,369
treatments per day for the fourth quarter of 2006. Non-acquired
treatment growth in the quarter was 4.6% over the prior year's fourth
quarter.
-- Effective Tax Rate: The annual effective tax rate for the year ended
December 31, 2007 was 39.2% and was 37.9 % for the three months ended
December 31, 2007. We currently project our annual effective tax rate
for 2008 to be in the range of 39.0% to 40.0%.
-- Center Activity: As of December 31, 2007, we operated or provided
administrative services at 1,359 outpatient dialysis centers serving
approximately 107,000 patients, of which 1,336 centers are consolidated
in our financial statements. During the fourth quarter of 2007, we
acquired 6 centers, opened 25 new centers, closed 3 centers and
discontinued providing administrative services to 20 centers. We also
acquired a 50% non-controlling ownership interest in 6 centers.
Outlook
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 continue to believe 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 fourth quarter ended December 31, 2007 on February 13, 2008 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, http://www.davita.com/, for the following 30 days.
This release contains forward-looking statements, including statements related to our 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 September 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,
-- continued downward pressure on average realized payment rates from
commercial payors and possible reductions in 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 compliance with the corporate integrity
agreement applicable to the dialysis centers acquired from Gambro
Healthcare and assumed in connection with such acquisition, and
-- the resolution of ongoing investigations by various federal and state
governmental agencies.
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 Year ended
December 31, December 31,
2007 2006 2007 2006
Net operating revenues $1,354,869 $1,272,617 $5,264,151 $ 4,880,662
Operating expenses
and charges:
Patient care costs 927,503 872,556 3,590,344 3,390,351
General and
administrative 134,987 124,457 491,236 453,516
Depreciation and
amortization 51,392 45,209 193,470 173,295
Provision for
uncollectible accounts 34,996 32,908 136,682 126,203
Minority interests
and equity income, net 10,728 8,976 45,485 35,833
Valuation gain on
Alliance and Product
Supply Agreement - - (55,275) (37,968)
Total operating
expenses and charges 1,159,606 1,084,106 4,401,942 4,141,230
Operating income 195,263 188,511 862,209 739,432
Debt expense (62,651) (69,907) (257,147) (276,706)
Other income 5,329 2,915 22,460 13,033
Income from continuing
operations before
income taxes 137,941 121,519 627,522 475,759
Income tax expense 52,224 47,390 245,744 186,430
Income from
continuing
operations 85,717 74,129 381,778 289,329
Discontinued operations
Gain on disposal of
discontinued
operations, net
of tax - - - 362
Net income $85,717 $74,129 $381,778 $289,691
Earnings per share:
Basic earnings
per share
from continuing
operations $0.80 $0.71 $3.61 $2.79
Basic earnings per share $0.80 $0.71 $3.61 $2.80
Diluted earnings per
share from continuing
operations $0.79 $0.70 $3.55 $2.73
Diluted earnings per share $0.79 $0.70 $3.55 $2.74
Weighted average
shares for earnings
per share:
Basic 106,885,553 104,193,829 105,893,052 103,520,254
Diluted 108,250,536 106,219,281 107,418,240 105,793,246
DAVITA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(dollars in thousands)
Year ended
December 31,
2007 2006
Cash flows from operating activities:
Net income $381,778 $289,691
Adjustments to reconcile net income
to cash provided by operating activities:
Depreciation and amortization 193,470 173,295
Valuation gain on Alliance and
Product Supply Agreement (55,275) (37,968)
Stock-based compensation expense 34,149 26,389
Tax benefits from stock award exercises 32,788 40,375
Excess tax benefits from stock award exercises (25,541) (37,251)
Deferred income taxes 18,601 2,342
Minority interests in income of
consolidated subsidiaries 46,702 38,141
Distributions to minority interests (48,029) (32,271)
Equity investment income (1,217) (2,308)
(Gain) loss on disposal of discontinued
operations and other dispositions (2,825) 239
Non-cash debt and non-cash rent charges 12,713 27,736
Changes in operating assets and liabilities,
net of effect of acquisitions and divestitures:
Accounts receivable 15,911 (74,737)
Inventories 11,271 (18,587)
Other receivables and other current assets (61,049) (34,044)
Other long term assets (14,528) (9,791)
Accounts payable (9,216) 40,712
Accrued compensation and benefits 9,691 101,555
Other current liabilities 657 88,841
Income taxes (12,779) (67,329)
Other long-term liabilities 5,764 4,541
Net cash provided by operating activities 533,036 519,571
Cash flows from investing activities:
Additions of property and equipment, net (272,212) (262,708)
Acquisitions and purchases of other
ownership interests (127,094) (86,504)
Proceeds from divestitures and asset sales 12,289 22,179
Purchase of investments available-for-sale (52,085) (3,726)
Purchase of investments held-to-maturity (23,061) -
Proceeds from sale of investments
available-for-sale 32,274 3,030
Maturities of investments 4,795 -
Purchase of a non-controlling ownership
interest in an unconsolidated joint venture (17,550) -
Contributions from minority owners 18,463 21,263
Purchase of intangible assets (2,291) (5,597)
Net cash used in investing activities (426,472) (312,063)
Cash flows from financing activities:
Borrowings 13,113,640 6,354,784
Payments on long-term debt (13,160,942)(6,761,743)
Deferred financing costs (4,511) (2)
Purchase of treasury stock (6,350) -
Excess tax benefits from stock award exercises 25,541 37,251
Stock award exercises and other share issuances, net 62,902 40,593
Net cash provided by (used in)
financing activities 30,280 (329,117)
Net increase (decrease) in cash and cash equivalents 136,844 (121,609)
Cash and cash equivalents at beginning of period 310,202 431,811
Cash and cash equivalents at end of period $447,046 $310,202
DAVITA INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(dollars in thousands, except per share data)
December 31, December 31,
2007 2006
ASSETS
Cash and cash equivalents $ 447,046 $310,202
Short-term investments 40,278 4,734
Accounts receivable, less allowance
of $195,953 and $171,757 927,949 932,385
Inventories 80,173 89,119
Other receivables 198,744 148,842
Other current assets 34,482 25,124
Deferred income taxes 247,578 199,090
Total current assets 1,976,250 1,709,496
Property and equipment, net 939,326 849,966
Amortizable intangibles, net 183,042 203,721
Investments in third-party dialysis businesses 19,446 1,813
Long-term investments 22,562 13,174
Other long-term assets 35,401 45,793
Goodwill 3,767,933 3,667,853
$6,943,960 $6,491,816
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 225,461 $251,686
Other liabilities 486,151 473,219
Accrued compensation and benefits 334,961 341,766
Current portion of long-term debt 23,431 20,871
Income taxes payable 16,492 24,630
Total current liabilities 1,086,496 1,112,172
Long-term debt 3,683,887 3,730,380
Other long-term liabilities 83,448 50,076
Alliance and product supply agreement, net 41,307 105,263
Deferred income taxes 166,055 125,642
Minority interests 150,517 122,359
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
and 195,000,000 shares authorized;
134,862,283 shares issued; 107,130,127
and 104,636,608 shares outstanding) 135 135
Additional paid-in capital 707,080 630,091
Retained earnings 1,515,290 1,129,621
Treasury stock, at cost
(27,732,156 and 30,225,675 shares) (487,744) (526,920)
Accumulated other comprehensive
(loss) income (2,511) 12,997
Total shareholders' equity 1,732,250 1,245,924
$6,943,960 $6,491,816
DAVITA INC.
SUPPLEMENTAL FINANCIAL DATA
(unaudited)
(dollars in millions, except for per share and per treatment data)
Three months ended Year ended
Dec. 31, Sept. 30, Dec. 31, Dec. 31,
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:
Net income (1) $85.7 $89.3 $74.1 $340.3
Diluted earnings per share $0.79 $0.83 $0.70 $3.17
Operating income (1) $195.3 $205.6 $188.5 $800.2
Operating income margin 14.4% 15.6% 14.8% 15.2%
Other comprehensive income
Unrealized loss on
securities, net of tax
benefits of $4.8,
$5.1, $0.7 and $9.9 $(7.5) $(8.0) $(1.1) $(15.5)
Business Metrics:
Volume
Treatments 3,983,542 3,842,763 3,723,198 15,318,995
Number of treatment days 79.6 78.0 78.6 313
Treatments per day 50,045 49,266 47,369 48,942
Per day year over
year increase 5.6% 6.1% 7.0% 5.5%
Non-acquired growth
year over year 4.6% 5.2% 5.5% 4.6%
Revenue
Total operating revenue $1,355 $1,318 $1,273 $5,264
Dialysis revenue per
treatment, including
the lab $328.11 $333.57 $334.45 $334.26
Per treatment (decrease)
increase from previous
quarter (1.6%) (1.3%) 0.9% -
Per treatment (decrease)
increase from previous year (1.9%) 0.6% 4.5% 1.2%
Expenses
A. Patient care costs
Percent of revenue 68.5% 67.5% 68.6% 68.2%
Per treatment $232.83 $231.67 $234.36 $234.37
Per treatment increase
(decrease) from previous
quarter 0.5% (1.4%) 0.3% -
Per treatment (decrease)
increase from previous year (0.7%) (0.8%) 2.6% 0.2%
Per treatment (excluding
gains from insurance
settlements of $1.76 and
$0.44 for the third quarter
and year ended December 31,
2007, respectively) - $233.43 - $ 234.81
B. General & administrative
expenses
Percent of revenue 10.0% 9.1% 9.8% 9.3%
Per treatment $ 33.89 $31.38 $33.43 $32.07
Per treatment increase
(decrease) from previous
quarter 8.0% (2.8%) 8.1% -
Per treatment increase
from previous year 1.4% 1.5% 19.9% 2.5%
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 37.9% 39.4% 39.0% 39.2%
Cash Flow
Operating cash flow $223.3 $95.8 $190.1 $533.0
Operating cash flow,
last twelve months $533.0 $499.8 $519.6 $-
Free cash flow (1) $184.6 $73.5 $158.9 $421.4
Free cash flow,
last twelve months (1) $421.4 $395.6 $410.4 $-
Capital expenditures:
Development and
relocations $60.4 $48.5 $44.5 $162.3
Routine maintenance/
IT/other $39.7 $22.6 $32.5 $113.9
Acquisition expenditures $45.3 $75.5 $10.9 $127.1
Accounts Receivable
Net receivables $928 $976 $932
DSO 66 70 70
Debt/Capital Structure
Total debt, excluding
debt premium of
$4.5 million $3,703 $3,701 $3,751
Net debt, net of cash,
excluding debt premium of
$4.5 million $3,256 $3,309 $3,441
Leverage ratio (see Note 1) 2.99x 3.10x 3.66x
Clinical (quarterly averages)
Dialysis adequacy - % of
patients with Kt/V > 1.2 94.4% 93.6% 92.9%
Patients with albumin
>/= 3.5 83.7% 82.9% 84.0%
Patients with HCT
>/= 33 82.4% 82.8% 84.7%
(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.
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.
Year ended
December 31, 2007
Net income $381,778
Income taxes 245,744
Debt expense including the write-off of
deferred financing costs,(excluding other cash
charges of $180) 256,967
Depreciation and amortization 193,470
Minority interests and equity income, net 45,485
Valuation gain on Product Supply Agreement (55,275)
Other (300)
Stock-based compensation expense 34,149
"Consolidated EBITDA" $1,102,018
December 31,
2007
Total debt, excluding debt premium of $4.5 million $3,702,839
Letters of credit issued 41,002
3,743,841
Less: cash and cash equivalents (447,046)
Consolidated net debt $3,296,795
Last twelve months "Consolidated EBITDA" $1,102,018
Leverage ratio 2.99x
In accordance with the Company's Credit Agreement, the Company's leverage
ratio cannot exceed 5.25 to 1.0 as of December 31, 2007. At that date,
the Company's leverage ratio did not exceed 5.25 to 1.0.
RECONCILIATIONS FOR NON-GAAP MEASURES
(unaudited)
(dollars in thousands)
1. Net income excluding gains from insurance settlements, the valuation
gain on the product supply agreement and gains on the sale of investment
securities
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 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 gains on the
product supply agreement with Gambro Renal Products reflect non-cash
items. In 2006, the valuation gain resulted from the modification of the
product supply agreement, that reduced our required purchase obligations,
and in 2007, the valuation gain resulted from an additional 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 amount of net 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. 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 net income.
Three months ended Year ended
Dec. 31, Sept. 30, Dec. 31, Dec. 31, Dec. 31,
2007 2007 2006 2007 2006
Net income $85,717 $ 94,455 $74,129 $381,778 $289,691
Less: Gains
on insurance
settlements - (6,779) - (6,779) -
Valuation gain - - - (55,275) (37,968)
Gain on the
sale of
investment
securities - (1,634) - (5,868) -
Add: Related
income tax - 3,273 - 26,422 14,770
$85,717 $ 89,315 $74,129 $340,278 $266,493
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 gains on the product supply agreement with Gambro Renal
Products reflect non-cash items. In 2006, the valuation gain resulted from
the modification of the product supply agreement, that reduced our
required purchase obligations, and in 2007, the valuation gain resulted
from an additional 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. This measure is not a measure of financial
performance under United States generally accepted accounting principles
and should not be considered as an alternative operating income.
Three months ended Year ended
Dec. 31, Sept. 30, Dec. 31, Dec. 31, Dec. 31,
2007 2007 2006 2007 2006
Operating
income $195,263 $212,412 $188,511 $862,209 $739,432
Less: Gains
from
insurance
settlements - (6,779) - (6,779) -
Valuation gain - - - (55,275) (37,968)
$195,263 $205,633 $188,511 $800,155 $701,464
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.
Three months ended
December 31, September 30, December 31,
2007 2007 2006
Cash provided by operating
activities $223,326 $95,778 $190,108
Less: Expenditures for
routine maintenance and
information technology (38,688) (22,229) (31,214)
Free cash flow $184,638 $73,549 $158,894
Rolling 12-Month Period
December 31, September 30, December 31,
2007 2007 2006
Cash provided by
operating activities $533,036 $499,818 $519,571
Less: Expenditures for
routine maintenance and
information technology (111,663) (104,189) (109,131)
Free cash flow $421,373 $395,629 $410,440
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/