SEC Filing | DaVita Inc.

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2020



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

Commission File Number: 1-14106

https://cdn.kscope.io/4a9fe59396230e54c018ab83e77b382a-logoa31.jpg

DAVITA INC.



Delaware		51-0354549
(State of incorporation)		(I.R.S. Employer Identification No.)



2000 16th Street
Denver,	CO	80202

Telephone number (720) 631-2100

Securities registered pursuant to Section 12(b) of the Act:



Title of each class:	Trading symbol(s):	Name of each exchange on which registered:
Common Stock, $0.001 par value	DVA	NYSE

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ☒

As of July 29, 2020, the number of shares of the Registrant’s common stock outstanding was approximately 122.0 million shares.

DAVITA INC.

INDEX



		Page No.
	PART I. FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements:
	Consolidated Statements of Income for the three and six months ended June 30, 2020 and June 30, 2019	1
	Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2020 and June 30, 2019	2
	Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019	3
	Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and June 30, 2019	4
	Consolidated Statements of Equity for the three and six months ended June 30, 2020 and June 30, 2019	5
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	52
Item 4.	Controls and Procedures	52

	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	53
Item 1A.	Risk Factors	53
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	57
Item 6.	Exhibits	58
	Signature	59

Note: Items 3, 4 and 5 of Part II are omitted because they are not applicable.

DAVITA INC.

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

(dollars in thousands, except per share data)



	Three months ended June 30,						Six months ended June 30,
	2020			2019			2020			2019
Dialysis patient service revenues	$	2,758,197		$	2,723,816		$	5,471,478		$	5,353,505
Other revenues	121,782			118,889			249,738			232,312
Total revenues	2,879,979			2,842,705			5,721,216			5,585,817
Operating expenses and charges:
Patient care costs	1,984,564			1,957,753			3,960,013			3,922,688
General and administrative	316,209			275,338			579,785			526,151
Depreciation and amortization	157,376			152,242			312,055			300,770
Equity investment income	(4,342		)	(4,514		)	(22,185		)	(7,222		)
Loss on changes in ownership interest, net	16,252			—			16,252			—
Goodwill impairment charges	—			—			—			41,037
Total operating expenses and charges	2,470,059			2,380,819			4,845,920			4,783,424
Operating income	409,920			461,886			875,296			802,393
Debt expense	(81,381		)	(131,666		)	(169,984		)	(263,185		)
Debt prepayment and refinancing charges	—			(12,160		)	(2,948		)	(12,160		)
Other income, net	9,545			5,643			5,195			12,583
Income from continuing operations before income taxes	338,084			323,703			707,559			539,631
Income tax expense	83,212			75,938			174,772			132,684
Net income from continuing operations	254,872			247,765			532,787			406,947
Net income from discontinued operations, net of tax	—			79,392			9,980			109,697
Net income	254,872			327,157			542,767			516,644
Less: Net income attributable to noncontrolling interests	(53,270		)	(53,606		)	(101,572		)	(93,804		)
Net income attributable to DaVita Inc.	$	201,602		$	273,551		$	441,195		$	422,840

Earnings per share attributable to DaVita Inc.:
Basic net income from continuing operations per share	$	1.65		$	1.17		$	3.49		$	1.89
Basic net income per share	$	1.65		$	1.64		$	3.57		$	2.54
Diluted net income from continuing operations per share	$	1.62		$	1.16		$	3.44		$	1.89
Diluted net income per share	$	1.62		$	1.64		$	3.52		$	2.54

Weighted average shares for earnings per share:
Basic	122,074,452			166,346,041			123,485,412			166,366,886
Diluted	124,068,278			166,799,525			125,478,913			166,789,978

Amounts attributable to DaVita Inc.:
Net income from continuing operations	$	201,602		$	194,223		$	431,215		$	314,477
Net income from discontinued operations	—			79,328			9,980			108,363
Net income attributable to DaVita Inc.	$	201,602		$	273,551		$	441,195		$	422,840

See notes to condensed consolidated financial statements.

DAVITA INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

(dollars in thousands)



	Three months ended June 30,						Six months ended June 30,
	2020			2019			2020			2019
Net income	$	254,872		$	327,157		$	542,767		$	516,644
Other comprehensive income, net of tax:
Unrealized losses on interest rate cap agreements:
Unrealized losses	(1,824		)	(31		)	(14,842		)	(611		)
Reclassifications of net realized losses into net income	1,623			1,606			3,246			3,212
Unrealized gains (losses) on foreign currency translation:
Foreign currency translation adjustments	5,619			12,365			(76,013		)	(1,288		)
Other comprehensive income (loss)	5,418			13,940			(87,609		)	1,313
Total comprehensive income	260,290			341,097			455,158			517,957
Less: Comprehensive income attributable to noncontrolling interests	(53,270		)	(53,606		)	(101,572		)	(93,804		)
Comprehensive income attributable to DaVita Inc.	$	207,020		$	287,491		$	353,586		$	424,153

See notes to condensed consolidated financial statements.

DAVITA INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

(dollars in thousands, except per share data)



	June 30, 2020			December 31, 2019
ASSETS
Cash and cash equivalents	$	2,928,910		$	1,102,372
Restricted cash and equivalents	106,809			106,346
Short-term investments	154,115			11,572
Accounts receivable	1,772,259			1,795,598
Inventories	97,902			97,949
Other receivables	614,606			489,695
Prepaid and other current assets	63,266			66,866
Income tax receivable	41,963			19,772
Total current assets	5,779,830			3,690,170
Property and equipment, net of accumulated depreciation of $4,229,363 and $3,969,566, respectively	3,417,918			3,473,384
Operating lease right-of-use assets	2,826,620			2,830,047
Intangible assets, net of accumulated amortization of $88,133 and $81,922, respectively	113,379			135,684
Equity method and other investments	255,489			241,983
Long-term investments	28,340			36,519
Other long-term assets	92,909			115,972
Goodwill	6,790,606			6,787,635
	$	19,305,091		$	17,311,394
LIABILITIES AND EQUITY
Accounts payable	$	357,283		$	403,840
Other liabilities	902,019			756,174
Accrued compensation and benefits	686,700			695,052
Current portion of operating lease liabilities	360,405			343,912
Current portion of long-term debt	1,906,560			130,708
Income tax payable	61,596			42,412
Total current liabilities	4,274,563			2,372,098
Long-term operating lease liabilities	2,709,569			2,723,800
Long-term debt	7,894,674			7,977,526
Other long-term liabilities	144,121			160,809
Deferred income taxes	706,410			577,543
Total liabilities	15,729,337			13,811,776
Commitments and contingencies
Noncontrolling interests subject to put provisions	1,241,937			1,180,376
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; 126,036,632 and 121,984,334 shares issued and outstanding at June 30, 2020, respectively and 125,842,853 shares issued and outstanding at December 31, 2019)	126			126
Additional paid-in capital	719,102			749,043
Retained earnings	1,872,933			1,431,738
Treasury stock (4,052,298 and zero shares, respectively)	(303,139		)	—
Accumulated other comprehensive loss	(135,107		)	(47,498		)
Total DaVita Inc. shareholders' equity	2,153,915			2,133,409
Noncontrolling interests not subject to put provisions	179,902			185,833
Total equity	2,333,817			2,319,242
	$	19,305,091		$	17,311,394

See notes to condensed consolidated financial statements.

DAVITA INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(dollars in thousands)



	Six months ended June 30,
	2020			2019
Cash flows from operating activities:
Net income	$	542,767		$	516,644
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	312,055			300,770
Debt refinancing charges	884			—
Impairment charges	—			41,037
Stock-based compensation expense	42,125			29,045
Deferred income taxes	132,101			60,706
Equity investment (loss) income, net	(6,494		)	2,631
Loss on sales of business interests, net	16,252			23,022
Other non-cash charges, net	(5,885		)	25,857
Changes in operating assets and liabilities, net of effect of acquisitions and divestitures:
Accounts receivable	15,194			(288,437		)
Inventories	(696		)	11,542
Other receivables and other current assets	(131,988		)	(5,142		)
Other long-term assets	1,950			(410		)
Accounts payable	(15,858		)	(68,887		)
Accrued compensation and benefits	(19,325		)	(88,473		)
Other current liabilities	146,490			151,780
Income taxes	(4,800		)	57,551
Other long-term liabilities	(13,269		)	(18,121		)
Net cash provided by operating activities	1,011,503			751,115
Cash flows from investing activities:
Additions of property and equipment	(291,667		)	(373,918		)
Acquisitions	(44,267		)	(65,970		)
Proceeds from asset and business sales	70,615			3,851,381
Purchase of debt investments held-to-maturity	(142,483		)	(3,322		)
Purchase of other debt and equity investments	(3,034		)	(4,812		)
Proceeds from debt investments held-to-maturity	7,621			—
Proceeds from sale of other debt and equity investments	3,438			5,893
Purchase of equity method investments	(8,101		)	(6,715		)
Distributions from equity method investments	739			155
Net cash (used in) provided by investing activities	(407,139		)	3,402,692
Cash flows from financing activities:
Borrowings	2,324,300			32,367,300
Payments on long-term debt	(635,695		)	(33,527,788		)
Deferred financing and debt redemption costs	(20,375		)	(3,621		)
Purchase of treasury stock	(321,798		)	(73,078		)
Distributions to noncontrolling interests	(118,553		)	(95,714		)
Stock award exercises and other share issuances, net	(2,106		)	2,107
Contributions from noncontrolling interests	20,582			31,281
Purchases of noncontrolling interests	(6,782		)	(11,040		)
Net cash provided by (used in) financing activities	1,239,573			(1,310,553		)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(16,936		)	(77		)
Net increase in cash, cash equivalents and restricted cash	1,827,001			2,843,177
Less: Net decrease in cash, cash equivalents and restricted cash from discontinued operations	—			(423,813		)
Net increase in cash, cash equivalents and restricted cash from continuing operations	1,827,001			3,266,990
Cash, cash equivalents and restricted cash of continuing operations at beginning of the year	1,208,718			415,420
Cash, cash equivalents and restricted cash of continuing operations at end of the year	$	3,035,719		$	3,682,410

See notes to condensed consolidated financial statements.

DAVITA INC.

CONSOLIDATED STATEMENTS OF EQUITY

(unaudited)

(dollars and shares in thousands)



	Three months ended June 30, 2020
	Non- controlling interests subject to put provisions			DaVita Inc. Shareholders’ Equity																			Non- controlling interests not subject to put provisions

				Common stock			Additional paid-in capital			Retained earnings		Treasury stock					Accumulated other comprehensive loss
				Shares	Amount							Shares		Amount						Total
Balance at March 31, 2020	$	1,228,036		125,857	$	126	$	720,053		$	1,671,331	(4,052	)	$	(303,139	)	$	(140,525	)	$	1,947,846		$	185,498
Comprehensive income:
Net income	34,707									201,602										201,602			18,563
Other comprehensive loss																	5,418			5,418
Stock unit shares issued				153			(7,076		)											(7,076		)
Stock appreciation rights shares issued				27			(815		)											(815		)
Stock-settled stock-based compensation expense							21,881													21,881
Changes in noncontrolling interest from:
Distributions	(39,569		)																				(20,853		)
Contributions	8,812																						2,383
Acquisitions and divestitures	(3,214		)																				(1,383		)
Partial purchases	(6,418		)				4,642													4,642			(4,306		)
Fair value remeasurements	19,583						(19,583		)											(19,583		)
Purchase of treasury stock
Balance at June 30, 2020	$	1,241,937		126,037	$	126	$	719,102		$	1,872,933	(4,052	)	$	(303,139	)	$	(135,107	)	$	2,153,915		$	179,902



	Six months ended June 30, 2020
	Non- controlling interests subject to put provisions			DaVita Inc. Shareholders’ Equity																			Non- controlling interests not subject to put provisions

				Common stock			Additional paid-in capital			Retained earnings		Treasury stock					Accumulated other comprehensive loss
				Shares	Amount							Shares		Amount						Total
Balance at December 31, 2019	$	1,180,376		125,843	$	126	$	749,043		$	1,431,738	—		$	—		$	(47,498	)	$	2,133,409		$	185,833
Comprehensive income:
Net income	66,883									441,195										441,195			34,689
Other comprehensive loss																	(87,609		)	(87,609		)
Stock unit shares issued				161			(7,151		)											(7,151		)
Stock appreciation rights shares issued				33			(1,060		)											(1,060		)
Stock-settled stock-based compensation expense							41,678													41,678
Changes in noncontrolling interest from:
Distributions	(77,135		)																				(41,418		)
Contributions	14,095																						6,487
Acquisitions and divestitures	(3,214		)																				(1,383		)
Partial purchases	(6,673		)				4,197													4,197			(4,306		)
Fair value remeasurements	67,605						(67,605		)											(67,605		)
Purchase of treasury stock												(4,052	)	(303,139		)				(303,139		)
Balance at June 30, 2020	$	1,241,937		126,037	$	126	$	719,102		$	1,872,933	(4,052	)	$	(303,139	)	$	(135,107	)	$	2,153,915		$	179,902



	Three months ended June 30, 2019
	Non- controlling interests subject to put provisions			DaVita Inc. Shareholders’ Equity																	Non- controlling interests not subject to put provisions

				Common stock			Additional paid-in capital			Retained earnings		Treasury stock			Accumulated other comprehensive loss
				Shares	Amount							Shares	Amount					Total
Balance at March 31, 2019	$	1,143,044		166,396	$	166	$	990,380		$	2,932,359	—	$	—	$	(47,551	)	$	3,875,354		$	211,319
Comprehensive income:
Net income	37,911									273,551								273,551			15,695
Other comprehensive loss															13,940			13,940
Stock unit shares issued				137	1		(3,142		)									(3,141		)
Stock-settled stock-based compensation expense							16,908											16,908
Changes in noncontrolling interest from:
Distributions	(32,670		)																		(18,814		)
Contributions	9,353																				2,981
Acquisitions and divestitures	111																	—			(1,991		)
Partial purchases	(281		)