DaVita Inc. 4th Quarter 2019 Results

DENVER, Feb. 10, 2020 /PRNewswire/ -- DaVita Inc. (NYSE: DVA) today announced results for the quarter and year ended December 31, 2019.

Fourth quarter 2019 highlights:

  • Consolidated revenues of $2.899 billion.
  • Operating income of $463 million or 16.0% operating margin.
  • Diluted earnings per share from continuing operations of $1.86.
  • Operating cash flow from continuing operations of $678 million and free cash flow from continuing operations of $415 million.
  • Repurchased 8,368,506 shares of our common stock at an average cost of $64.80 per share.

 


Three months ended
December 31,


Year ended
December 31,


2019


2018


2019


2018

Net income attributable to DaVita Inc.:

(dollars in millions, except per share data)


Net income from continuing operations

$

242



$

160



$

707



$

624



Per share

$

1.86



$

0.96



$

4.60



$

3.62



Adjusted net income from continuing operations(1)

$

242



$

149



$

830



$

616



Per share adjusted(1)

$

1.86



$

0.90



$

5.40



$

3.57



Net income (loss)

$

245



$

(150)



$

811



$

159



Per share

$

1.88



$

(0.90)



$

5.27



$

0.92


 


Three months ended

December 31,


Year ended
December 31,


2019


2018


2019


2018

Operating income:

(dollars in millions)


Operating income

$

463



$

388



$

1,643



$

1,526



Adjusted operating income(1)

$

463



$

370



$

1,768



$

1,513







(1)

For the definitions of non-GAAP financial measures see the note titled "Note on Non-GAAP Financial Measures" and related reconciliations beginning on page 15.

U.S. dialysis metrics:

Volume:  Total U.S. dialysis treatments for the fourth quarter of 2019 were 7,681,462, or an average of 96,744 treatments per day, representing a per day increase of 1.7% over the fourth quarter of 2018. Normalized non-acquired treatment growth in the fourth quarter of 2019 as compared to the fourth quarter of 2018 was 2.1%.


Three months ended




Year ended




December 31,
2019


September 30,
2019


Quarter
change


December 31,
2019


December 31,
2018


Annual

change

Per treatment metrics:












Revenue

$

348.31



$

349.41



$

(1.10)



$

349.02



$

350.47



$

(1.45)


Patient care costs

$

237.44



$

236.32



$

1.12



$

239.27



$

247.32



$

(8.05)


General and administrative

$

27.27



$

30.63



$

(3.36)



$

28.41



$

28.40



$

0.01


Primary drivers of the changes in the table above are as follows:

Revenue: The quarter change was primarily due to lower calcimimetics revenue. The annual change was primarily due to lower calcimimetics revenue and was also negatively impacted by additional Medicare bad debt revenue recognized in 2018, partially offset by an increase in Medicare rates.

Patient care costs: The quarter change was primarily due to higher direct center operating expenses and medical supply costs, partially offset by lower pharmaceutical costs. The annual change was primarily due to lower pharmaceutical costs, partially offset by higher benefit costs and direct center operating expenses.

General and administrative: The quarter change was primarily due to lower compensation expense. The annual change was primarily due to higher compensation expenses, partially offset by lower advocacy costs.

Certain items impacting the quarter and year:

Share repurchases: The following table summarizes repurchases of our common stock during the quarter and year ended December 31, 2019:


Three months ended December 31, 2019


Year ended December 31, 2019


Shares
repurchased


Amount paid
(in millions)


Paid per
share


Shares
repurchased


Amount paid
(in millions)


Paid per
share

Tender offer(1)

—



$

—



$

—



21,801,975



$

1,234



$

56.60


Open market repurchases

8,368,506



542



64.80



19,218,257



1,168



60.79



8,368,506



$

542



$

64.80



41,020,232



$

2,402



$

58.57







(1)

The amount paid for shares repurchased associated with our modified "Dutch auction" tender offer during the year ended December 31, 2019 includes the clearing price of $56.50 per share plus related fees and expenses of approximately $2 million.

Subsequent to December 31, 2019 through February 7, 2020, we have repurchased 290,904 shares of our common stock for $22 million at an average cost of $74.92 per share. As of February 7, 2020, we have a total of $1.682 billion available for additional share repurchases under our current repurchase authorization. Although this share repurchase authorization does not have an expiration date, we remain subject to share repurchase limitations, including under the terms of our senior secured credit facilities and the indentures governing our senior notes.

Financial and operating metrics:


Three months ended
December 31,


Year ended
December 31,


2019


2018


2019


2018

Cash flow:

(dollars in millions)


Operating cash flow

$

681



$

389



$

2,072



$

1,772



Operating cash flow from continuing operations

$

678



$

307



$

1,973



$

1,481



Free cash flow from continuing operations (new definition)(1)

$

415



$

11



$

1,127



$

480







(1)

For the definitions of non-GAAP financial measures see the note titled "Note on Non-GAAP Financial Measures" and related reconciliations beginning on page 15.

 


Three months ended
December 31, 2019


Year ended
December 31, 2019

Effective income tax rate on:



Income from continuing operations

21.4

%


23.4

%


Income from continuing operations attributable to DaVita Inc.

25.2

%


28.3

%


Adjusted income from continuing operations attributable to
  DaVita Inc.(1)

25.2

%


27.5

%






(1)

For the definitions of non-GAAP financial measures see the note titled "Note on Non-GAAP Financial Measures" and related reconciliations beginning on page 15.

Our effective tax rate for the fourth quarter and year ended December 31, 2019 benefited from a decrease in our estimated state tax rate.

Center activity:  As of December 31, 2019, we provided dialysis services to a total of approximately 235,500 patients at 3,012 outpatient dialysis centers, of which 2,753 centers were located in the United States and 259 centers were located in ten countries outside of the United States. During the fourth quarter of 2019, we opened a total of 31 new dialysis centers and closed 14 dialysis centers in the United States. In addition, we opened three new dialysis centers and acquired seven dialysis centers outside of the United States during the fourth quarter of 2019.

Outlook:

The following forward-looking measures and the underlying assumptions involve significant risks and uncertainties, including those described below, and actual results may vary significantly from these current forward-looking measures. We do not provide guidance for diluted net income from continuing operations per share attributable to DaVita Inc., effective tax rate on income from continuing operations or free cash flow from continuing operations on a basis consistent with United States generally accepted accounting principles (GAAP) nor a reconciliation of forward-looking non-GAAP financial measures to the most directly comparable GAAP financial measures on a forward-looking basis because we are unable to predict certain items contained in the GAAP measures without unreasonable efforts. These non-GAAP financial measures do not include certain items, including foreign currency fluctuations, any of which may be significant. The guidance for effective income tax rate on adjusted income from continuing operations attributable to DaVita Inc. also excludes the amount of third party owners' income and related taxes attributable to non-tax paying entities.


Current 2020 guidance


Prior 2020 guidance


Low


High


Low


High


(dollars in millions, except per share data)

Revenue

$

11,500



$

11,700



—



—


Operating income margin

13.0

%


14.0

%


—



—


Effective income tax rate on adjusted income from

 continuing operations attributable to DaVita Inc.

28.0

%


29.5

%


—



—


Adjusted diluted net income from continuing

 operations per share attributable to DaVita Inc.

$

5.75



$

6.25



$

5.25



$

5.75


Capital expenditures from continuing operations

$

700



$

750



$

700



$

750


Free cash flow from continuing operations

$

600



$

800



—



—


We will be holding a conference call to discuss our results for the fourth quarter ended December 31, 2019, on February 10, 2020, at 5:00 p.m. Eastern Time. To join the conference call, please dial (877) 918-6630 from the U.S. or (517) 308-9042 from outside the U.S., and provide the operator the password 'Earnings'. A replay of the conference call will be available on our website at investors.davita.com for the following 30 days.


DaVita Inc. and its representatives may from time to time make written and oral forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 ("PSLRA"), including statements in this release, filings with the Securities and Exchange Commission ("SEC"), reports to stockholders and in meetings with investors and analysts. All such statements in this release, during the related presentation or other meetings, other than statements of historical fact, are forward-looking statements and as such are intended to be covered by the safe harbor for "forward-looking statements" provided by the PSLRA. Without limiting the foregoing, statements including the words "expect," "intend," "will," "plan," "anticipate," "believe," "we are confident that," "forecast," "guidance," "outlook," "goals," and similar expressions are intended to identify forward-looking statements.

The forward-looking statements should be considered in light of these risks and uncertainties. All forward-looking statements in this release are based solely on information available to us on the date of this release. We undertake no obligation to publicly update or revise any of our guidance, the assessment of the underlying assumptions or other forward-looking statements, whether as a result of changed circumstances, new information, future events or otherwise.

These forward-looking statements could include but are not limited to statements related to our guidance and expectations for future periods and the assumptions underlying any such projections.

Our actual results and other events could differ materially from any forward-looking statements due to numerous factors that involve substantial known and unknown risks and uncertainties. These risks and uncertainties include, among other things:

  • the concentration of profits generated by higher-paying commercial payor plans for which there is continued downward pressure on average realized payment rates, and a reduction in the number of patients under such plans, including as a result of restrictions or prohibitions on the use and/or availability of charitable premium assistance, which may result in the loss of revenues or patients, or our making incorrect assumptions about how our patients will respond to any change in financial assistance from charitable organizations;
  • the extent to which the ongoing implementation of healthcare reform, or changes in or new legislation, regulations or guidance, enforcement thereof or related litigation; the extent to which such developments result in a reduction in coverage or reimbursement rates for our services, a reduction in the number of patients enrolled in higher-paying commercial plans, or other material impacts to our business; or our making incorrect assumptions about how our patients will respond to any such developments;
  • a reduction in government payment rates under the Medicare End Stage Renal Disease program or other government-based programs and the impact of the Medicare Advantage benchmark structure;
  • risks arising from potential and proposed federal and/or state legislation, regulation and ballot, executive action or other initiatives, including such initiatives related to healthcare and/or labor matters;
  • the impact of the political environment and related developments on the current healthcare marketplace and on our business, including with respect to the future of the Affordable Care Act, the exchanges and many other core aspects of the current health care marketplace;
  • changes in pharmaceutical practice patterns, reimbursement and payment policies and processes, or pharmaceutical pricing, including with respect to calcimimetics;
  • legal and compliance risks, such as our continued compliance with complex government regulations;
  • continued increased competition from dialysis providers and others, and other potential marketplace changes;
  • our ability to maintain contracts with physician medical directors, changing affiliation models for physicians, and the emergence of new models of care introduced by the government or private sector that may erode our patient base and reimbursement rates, such as accountable care organizations, independent practice associations and integrated delivery systems;
  • our ability to complete acquisitions, mergers or dispositions that we might announce or be considering, on terms favorable to us or at all, or to integrate and successfully operate any business we may acquire or have acquired, or to successfully expand our operations and services in markets outside the United States, or to businesses outside of dialysis;
  • uncertainties related to potential payments and/or adjustments under certain provisions of the equity purchase agreement for the sale of our DaVita Medical Group business, such as post-closing adjustments and indemnification obligations;
  • noncompliance by us or our business associates with any privacy or security laws or any security breach by us or a third party involving the misappropriation, loss or other unauthorized use or disclosure of confidential information;
  • the variability of our cash flows; the risk that we may not be able to generate sufficient cash in the future to service our indebtedness or to fund our other liquidity needs; and the risk that we may not be able to refinance our indebtedness as it becomes due, on terms favorable to us or at all;
  • factors that may impact our ability to repurchase stock under our stock repurchase program and the timing of any such stock repurchases, as well as our use of a considerable amount of available funds to repurchase stock;
  • risks arising from the use of accounting estimates, judgments and interpretations in our financial statements;
  • impairment of our goodwill, investments or other assets;
  • uncertainties related to our use of the proceeds from the DaVita Medical Group sale transaction and other available funds, including external financing and cash flow from operations, which may be or have been used in ways that we cannot assure will improve our results of operations or enhance the value of our common stock; and
  • uncertainties associated with the other risk factors set forth in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 as updated by our Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, and the other risks and uncertainties discussed in any subsequent reports that we file or furnish with SEC from time to time.

The financial information presented in this release is unaudited and is subject to change as a result of subsequent events or adjustments, if any, arising prior to the filing of the Company's Annual Report on Form 10-K for the year ended December 31, 2019.

DAVITA INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(dollars in thousands, except per share data)



Three months ended
December 31,


Year ended
December 31,


2019


2018


2019


2018

Dialysis patient service revenues

$

2,768,035



$

2,729,803



$

10,918,421



$

10,709,981


Provision for uncollectible accounts

(2,026)



(13,749)



(21,715)



(49,587)


Net dialysis patient service revenues

2,766,009



2,716,054



10,896,706



10,660,394


Other revenues

132,575



105,070



491,773



744,457


Total revenues

2,898,584



2,821,124



11,388,479



11,404,851


Operating expenses and charges:








Patient care costs

2,000,625



2,027,069



7,914,485



8,195,513


General and administrative

278,425



268,532



1,103,312



1,135,454


Depreciation and amortization

158,467



155,157



615,152



591,035


Provision for uncollectible accounts

—



—



—



(7,300)


Equity investment (income) loss

(1,521)



10,610



(12,679)



4,484


Investment and other asset impairments

—



—



—



17,338


Goodwill impairment charges

—



—



124,892



3,106


Gain on changes in ownership interest, net

—



(28,152)



—



(60,603)


Total operating expenses and charges

2,435,996



2,433,216



9,745,162



9,879,027


Operating income

462,588



387,908



1,643,317



1,525,824


Debt expense

(92,050)



(128,300)



(443,824)



(487,435)


Debt prepayment, refinancing and redemption charges

—



—



(33,402)



—


Other income (loss), net

11,485



(494)



29,348



10,089


Income from continuing operations before income taxes

382,023



259,114



1,195,439



1,048,478


Income tax expense

81,690



51,748



279,628



258,400


Net income from continuing operations

300,333



207,366



915,811



790,078


Net income (loss) from discontinued operations, net of tax

2,629



(309,209)



105,483



(457,038)


Net income (loss)

302,962



(101,843)



1,021,294



333,040


Less: Net income attributable to noncontrolling interests

(58,091)



(47,929)



(210,313)



(173,646)


Net income (loss) attributable to DaVita Inc.

$

244,871



$

(149,772)



$

810,981



$

159,394


Earnings per share attributable to DaVita Inc.:








Basic net income from continuing operations per share

$

1.87



$

0.97



$

4.61



$

3.66


Basic net income (loss) per share

$

1.89



$

(0.90)



$

5.29



$

0.93


Diluted net income from continuing operations per share

$

1.86



$

0.96



$

4.60



$

3.62


Diluted net income (loss) per share

$

1.88



$

(0.90)



$

5.27



$

0.92


Weighted average shares for earnings per share:








Basic

129,446,558



165,984,925



153,180,908



170,785,999


Diluted

130,504,514



166,477,914



153,812,064



172,364,581


Amounts attributable to DaVita Inc.:








Net income from continuing operations

$

242,242



$

160,332



$

706,832



$

624,321


Net income (loss) from discontinued operations

2,629



(310,104)



104,149



(464,927)


Net income (loss) attributable to DaVita Inc.

$

244,871



$

(149,772)



$

810,981



$

159,394



 

DAVITA INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

(dollars in thousands)



Three months ended
December 31,


Year ended
December 31,


2019


2018


2019


2018

Net income (loss)

$

302,962



$

(101,843)



$

1,021,294



$

333,040


Other comprehensive income (loss), net of tax:








Unrealized gains (losses) on interest rate cap agreements:








Unrealized gains (losses)

2,822



(953)



1,151



(133)


Reclassifications into net income (loss)

1,595



1,606



6,377



6,286


Unrealized gains (losses) on foreign currency translation:








Foreign currency translation adjustments

25,688



(6,469)



(20,102)



(45,944)


Other comprehensive income (loss)

30,105



(5,816)



(12,574)



(39,791)


Total comprehensive income (loss)

333,067



(107,659)



1,008,720



293,249


Less: Comprehensive income attributable to noncontrolling interests

(58,091)



(47,929)



(210,313)



(173,646)


Comprehensive income (loss) attributable to DaVita Inc.

$

274,976



$

(155,588)



$

798,407



$

119,603



 

DAVITA INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(dollars in thousands)



Year ended December 31,


2019


2018

Cash flows from operating activities:




Net income

$

1,021,294



$

333,040


Adjustments to reconcile net income to net cash provided by operating activities:




Depreciation and amortization

615,152



591,035


Impairment charges

124,892



61,981


Valuation adjustment on disposal group

—



316,840


Debt prepayment, refinancing and redemption charges

33,402



—


Stock-based compensation expense

67,850



73,061


Deferred income taxes

41,723



273,660


Equity investment income, net

8,582



26,449


Gain (loss) on sales of business interests, net

23,022



(85,699)


Other non-cash charges, net

49,579



82,374


Changes in operating assets and liabilities, net of effect of acquisitions and divestitures:




Accounts receivable

(79,957)



(81,176)


Inventories

10,158



73,505


Other receivables and other current assets

2,790



236,995


Other long-term assets

6,965



3,497


Accounts payable

(84,539)



(35,959)


Accrued compensation and benefits

(14,697)



84,165


Other current liabilities

181,940



(157,462)


Income taxes

95,645



(23,635)


Other long-term liabilities

(31,446)



(1,031)


Net cash provided by operating activities

2,072,355



1,771,640


Cash flows from investing activities:




Additions of property and equipment

(766,546)



(987,138)


Acquisitions

(100,861)



(183,156)


Proceeds from asset and business sales

3,877,392



150,205


Purchase of other debt and equity investments

(5,458)



(8,448)


Purchase of investments held-to-maturity

(101,462)



(5,963)


Proceeds from sale of other debt and equity investments

3,676



9,526


Proceeds from investments held-to-maturity

95,376



34,862


Purchase of equity investments

(9,366)



(19,177)


Distributions received on equity investments

2,589



3,646


Net cash provided by (used in) investing activities

2,995,340



(1,005,643)


Cash flows from financing activities:




Borrowings

38,525,850



59,934,750


Payments on long-term debt and other financing costs

(40,606,041)



(59,239,973)


Purchase of treasury stock

(2,383,816)



(1,161,511)


Distributions to noncontrolling interests

(233,123)



(196,441)


Stock award exercises and other share issuances, net

11,382



13,577


Contributions from noncontrolling interests

57,317



52,311


Proceeds from sales of additional noncontrolling interest

—



15


Purchases of noncontrolling interests

(68,019)



(28,082)


Net cash used in financing activities

(4,696,450)



(625,354)


Effect of exchange rate changes on cash, cash equivalents and restricted cash

(1,760)



(3,350)


Net increase in cash, cash equivalents and restricted cash

369,485



137,293


Less: Net (decrease) increase in cash, cash equivalents and restricted cash from discontinued  operations

(423,813)



240,793


Net increase (decrease) in cash, cash equivalents and restricted cash from continuing operations

793,298



(103,500)


Cash, cash equivalents and restricted cash of continuing operations at beginning of the year

415,420



518,920


Cash, cash equivalents and restricted cash of continuing operations at end of the year

$

1,208,718



$

415,420



 

DAVITA INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

(dollars in thousands, except share data)



December 31, 2019


December 31, 2018

ASSETS




Cash and cash equivalents

$

1,102,372



$

323,038


Restricted cash and equivalents

106,346



92,382


Short-term investments

11,572



2,935


Accounts receivable, net

1,795,598



1,858,608


Inventories

97,949



107,381


Other receivables

489,695



469,796


Prepaid and other current assets

66,866



111,840


Income tax receivable

19,772



68,614


Current assets held for sale, net

—



5,389,565


Total current assets

3,690,170



8,424,159


Property and equipment, net

3,473,384



3,393,669


Operating lease right-of-use assets

2,830,047



—


Intangible assets, net

135,684



118,846


Equity method and other investments

241,983



224,611


Long-term investments

36,519



35,424


Other long-term assets

115,972



71,583


Goodwill

6,787,635



6,841,960



$

17,311,394



$

19,110,252


LIABILITIES AND EQUITY




Accounts payable

$

403,840



$

463,270


Other liabilities

756,174



595,850


Accrued compensation and benefits

695,052



658,913


Current portion of operating lease liabilities

343,912



—


Current portion of long-term debt

130,708



1,929,369


Income tax payable

42,412



—


Current liabilities held for sale

—



1,243,759


Total current liabilities

2,372,098



4,891,161


Long-term operating lease liabilities

2,723,800



—


Long-term debt

7,977,526



8,172,847


Other long-term liabilities

160,809



450,669


Deferred income taxes

577,543



562,536


Total liabilities

13,811,776



14,077,213


Commitments and contingencies




Noncontrolling interests subject to put provisions

1,180,376



1,124,641


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; 125,842,853 and  166,387,307 shares issued and outstanding, respectively)

126



166


Additional paid-in capital

749,043



995,006


Retained earnings

1,431,738



2,743,194


Accumulated other comprehensive loss

(47,498)



(34,924)


Total DaVita Inc. shareholders' equity

2,133,409



3,703,442


Noncontrolling interests not subject to put provisions

185,833



204,956


Total equity

2,319,242



3,908,398



$

17,311,394



$

19,110,252


 

DAVITA INC.

SUPPLEMENTAL FINANCIAL DATA

(unaudited)

(dollars in millions, except for per share and per treatment data)



Three months ended


Year ended


December 31,
2019


September 30,
2019


December 31,
2018


December 31,
2019

1. Consolidated business metrics:








Operating income margin

16.0

%


13.0

%


13.8

%


14.4

%

Adjusted operating income margin excluding certain items(1)(5)

16.0

%


15.9

%


13.1

%


15.5

%

General and administrative expenses as a percent of consolidated revenues(2)

9.6

%


10.3

%


9.5

%


9.7

%

Effective income tax rate on income from continuing operations

21.4

%


23.8

%


20.0

%


23.4

%

Effective income tax rate on income from continuing operations attributable to DaVita Inc.(1)

25.2

%


30.3

%


24.3

%


28.3

%

Effective income tax rate on adjusted income from continuing operations attributable to DaVita Inc.(1)

25.2

%


27.6

%


23.1

%


27.5

%









2. Summary of financial results:








Revenues:








U.S. net dialysis patient services and other

$

2,687



$

2,691



$

2,633



$

10,563


Other—Ancillary services


122




118




100




464


U.S. other












International net dialysis patient service and other

132



131



124



508



255



248



224



972


Eliminations

(43)



(36)



(35)



(146)


Total consolidated revenues

$

2,899



$

2,904



$

2,821



$

11,388


Operating income (loss):








U.S. dialysis

$

508



$

501



$

437



$

1,925


Other—Ancillary services


(21)




(15)




(19)




(66)


U.S.












International

2



(83)



(10)



(123)



(19)



(98)



(29)



(189)


Corporate administrative support expenses

(27)



(25)



(20)



(92)


Total consolidated operating income

$

463



$

378



$

388



$

1,643


 

DAVITA INC.

SUPPLEMENTAL FINANCIAL DATA - continued

(unaudited)

(dollars in millions, except for per share and per treatment data)



Three months ended


Year ended


December 31,
2019


September 30,
2019


December 31,
2018


December 31,
2019

3. Summary of reportable segment financial results:
















U.S. dialysis








Revenue:








Net dialysis patient service revenues

$

2,676



$

2,681



$

2,628



$

10,531


Other revenues

11



10



5



32


Total operating revenues

2,687



2,691



2,633



10,563


Operating expenses:








Patient care costs

1,824



1,813



1,872



7,219


General and administrative

209



235



210



857


Depreciation and amortization

150



148



147



583


Equity investment income

(5)



(5)



(5)



(22)


Gain on changes in ownership interests, net

—



—



(28)



—


Total operating expenses

2,179



2,191



2,196



8,638


Segment operating income

$

508



$

501



$

437



$

1,925


Reconciliation for non-GAAP measure:








Gain on changes in ownership interests, net

—



—



(28)



—


Adjusted segment operating income(1)

$

508



$

501



$

409



$

1,925










4. U.S. dialysis business metrics:








Volume:








Treatments

7,681,462



7,673,191



7,552,412



30,172,699


Number of treatment days

79.4



79.0



79.4



313.0


Average treatments per day

96,744



97,129



95,119



96,398


Per day year over year increase

1.7

%


2.7

%


3.1

%


2.5

%

Normalized non-acquired treatment growth year over year

2.1

%


2.2

%


2.6

%



Operating net revenues:








U.S. dialysis services net revenue per treatment

$

348.31



$

349.41



$

347.97



$

349.02


Expenses:








Patient care costs per treatment

$

237.44



$

236.32



$

247.81



$

239.27


General and administrative expenses per treatment

$

27.27



$

30.63



$

27.86



$

28.41


Accounts receivable:








Net receivables

$

1,671



$

1,719



$

1,703




DSO

58



60



60












5. Discontinued operations








Operating results:








Net revenues

$

—



$

—



$

1,231



$

2,713


Expenses

2



2



1,282



2,544


Valuation adjustment

—



—



219



—


Goodwill impairment charges

—



—



42



—


(Loss) income from discontinued operations before taxes

(2)



(2)



(313)



169


Loss on sale of discontinued operations, before taxes

—



—



—



(23)


Income tax (benefit) expense

(5)



5



(3)



41


Net income (loss) from discontinued operations, net of tax

$

3



$

(7)



$

(309)



$

105


 

DAVITA INC.

SUPPLEMENTAL FINANCIAL DATA - continued

(unaudited)

(dollars in millions, except for per share and per treatment data)



Three months ended


Year ended


December 31,
2019


September 30,
2019


December 31,
2018


December 31,
2019

6. Cash flow:








Operating cash flow

$

681



$

641



$

389



$

2,072


Operating cash flow from continuing operations

$

678



$

648



$

307



$

1,973


Operating cash flow from continuing operations, last twelve months

$

1,973



$

1,602



$

1,481




Free cash flow from continuing operations (new definition)(1)

$

415



$

437



$

11



$

1,127


Free cash flow from continuing operations, last twelve months (new definition)(1)

$

1,127



$

722



$

480




Capital expenditures from continuing operations:








Routine maintenance/IT/other

$

130



$

84



$

139



$

355


Development and relocations

$

89



$

90



$

123



$

373


Acquisition expenditures

$

24



$

11



$

65



$

99


Proceeds from sale of self-developed properties

$

19



$

12



$

13



$

58










7. Debt and capital structure:








Total debt(3)(4)

$

8,181



$

8,212



$

10,154




Net debt, net of cash and cash equivalents(3)(4)

$

7,079



$

6,959



$

9,831




Leverage ratio (see calculation on page 14)

3.08x



3.21x



4.52x




Weighted average effective interest rate:








During the quarter

4.55

%


5.09

%


5.07

%



At end of the quarter

4.46

%


4.66

%


5.19

%



On the senior secured credit facilities at end of the quarter

3.93

%


4.30

%


5.11

%



Debt with fixed and capped rates as a percentage of total debt:








Debt with rates fixed by its terms

44

%


44

%


48

%



Debt with rates capped by cap agreements

87

%


86

%


82

%



Amount spent on share repurchases

$

542



$

1,748



$

—



$

2,402


Number of shares repurchased

8,368,506



30,591,750



—



41,020,232



Certain columns, rows or percentages may not sum or recalculate due to the use of rounded numbers.
















(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, and for a definition of adjusted amounts, see attached reconciliation schedules.

(2)

General and administrative expenses includes certain corporate support, long-term incentive compensation and advocacy costs.

(3)

The reported balance sheet amounts at December 31, 2019, September 30, 2019 and December 31, 2018, exclude approximately $72.8, $76.0 and $52.0, respectively, of debt discount associated with the Term Loan B and other deferred financing costs related to our senior secured credit facilities and senior notes in effect at that time. The reported balance sheet amounts exclude DMG debt which was classified as held for sale liabilities as of December 31, 2018.

(4)

The reported total debt and net debt, net of cash and cash equivalents, excludes DMG cash and debt classified as held for sale assets and liabilities, respectively, as of December 31, 2018.

(5)

Adjusted operating income margin is a calculation of adjusted operating income divided by consolidated revenues.

DAVITA INC.
SUPPLEMENTAL FINANCIAL DATA-continued
(unaudited)
(dollars in thousands)

Note 1: Calculation of the Leverage Ratio

Under our new senior secured credit facilities (the New Credit Agreement) dated August 12, 2019 and our prior senior secured credit facilities (the Prior 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, not to exceed certain limits under the New Credit Agreement, including short-term investments, divided by "Consolidated EBITDA". The leverage ratio determines the interest rate margin payable by the Company for its new Term Loan A and new revolving line of credit under the New Credit Agreement by establishing the margin over the base interest rate (LIBOR) that is applicable. The following leverage ratios were calculated using "Consolidated EBITDA" and "Consolidated net debt" as defined in the credit agreement that was in effect at the end of each period. The calculation below is based on the last twelve months of "Consolidated EBITDA", as of the end of the reported period and pro forma for routine acquisitions that occurred during the period. The Company's management believes the presentation of "Consolidated EBITDA" is useful to users to enhance their understanding of the Company's leverage ratio under its credit agreement in effect at that time. The leverage ratio calculated by the Company is a non-GAAP measure and should not be considered a substitute for debt to net income attributable to DaVita Inc., net income attributable to DaVita Inc. or total debt as determined in accordance with United States generally accepted accounting principles (GAAP). The Company's calculation of its leverage ratio might not be calculated in the same manner as, and thus might not be comparable to, similarly titled measures by other companies.


Rolling twelve months ended


December 31,
2019


September 30,
2019


December 31,
2018

Net income(1)

$

706,832



$

624,922



$

159,394


Income taxes

279,628



249,686



358,168


Interest expense

397,934



437,513



451,251


Depreciation and amortization

615,151



611,841



591,035


Impairment charges

124,892



124,892



61,981


Noncontrolling interests and equity investment income, net

223,175



210,641



183,855


Stock-settled stock-based compensation

63,404



56,784



73,081


Debt prepayment, refinancing and redemption charges

33,402



33,402



—


Gain on changes in ownership interest, net

—



(28,152)



(85,699)


Valuation adjustment

—



—



316,840


Other

(12,025)



24,088



41,084


"Consolidated EBITDA"

$

2,432,393



$

2,345,617



$

2,150,990









December 31,
2019


September 30,
2019


December 31,
2018

Total debt, excluding debt discount and other deferred financing costs(2)

$

8,181,074



$

8,211,895



$

10,190,763


Letters of credit issued

72,759



72,777



36,987



8,253,833



8,284,672



10,227,750


Less: Cash and cash equivalents including short-term investments(3)

(750,000)



(750,000)



(501,695)


Consolidated net debt

$

7,503,833



$

7,534,672



$

9,726,055


Last twelve months "Consolidated EBITDA"

$

2,432,393



$

2,345,617



$

2,150,990


Leverage ratio

3.08x



3.21x



4.52x


Maximum leverage ratio permitted under New and Prior Credit Agreement

5.00x



5.00x



5.00x







(1)

The reported net income for December 31, 2019 and September 30, 2019 is our reported net income from continuing operations attributable to DaVita Inc. as the New Credit Agreement requires divestitures to be reflected on a proforma basis, as such DMG is excluded from our leverage ratio calculation. The reported net income for December 31, 2018 is our reported net income attributable to DaVita Inc.

(2)

The reported total debt amounts at December 31, 2019, September 30, 2019 and December 31, 2018, exclude $72,840, $75,979 and $52,000, respectively, of debt discount associated with the Term Loan B and other deferred financing costs.

(3)

Excluding DMG's-physician owned entities' cash for the twelve months ended December 31, 2018 and amounts not readily convertible to cash related to the Company's non-qualified deferred compensation plans for all periods presented. The Company's New Credit Agreement limits the amount deducted for cash and cash equivalents to the lesser of all unrestricted cash and cash equivalents of the Company or $750,000.

DAVITA INC.
RECONCILIATIONS FOR NON-GAAP MEASURES
(unaudited)

Note on Non-GAAP Financial Measures

As used in this press release, the term "adjusted" refers to non-GAAP measures as follows, each as reconciled to its most comparable GAAP measure as presented in the non-GAAP reconciliations in the notes to this press release: (i) for income measures, the term "adjusted" refers to operating performance measures that exclude certain items such as impairment charges, (gain) loss on ownership changes, restructuring charges, debt prepayment charges and gains and charges associated with settlements; and (ii) the term "effective income tax rate on adjusted income from continuing operations attributable to DaVita Inc." represents the Company's effective tax rate excluding applicable non-GAAP items and noncontrolling owners' income, which primarily relates to non-tax paying entities.

These non-GAAP or "adjusted" measures are presented because management believes these measures are useful adjuncts to GAAP results. However, these non-GAAP measures should not be considered alternatives to the corresponding measures determined under GAAP.

Specifically, management uses adjusted operating income, adjusted net income from continuing operations attributable to DaVita Inc. and adjusted diluted net income from continuing operations per share attributable to DaVita Inc. to compare and evaluate our performance period over period and relative to competitors, to analyze the underlying trends in our business, to establish operational budgets and forecasts and for incentive compensation purposes. We believe these non-GAAP measures also are useful to investors and analysts in evaluating our performance over time and relative to competitors, as well as in analyzing the underlying trends in our business. Furthermore, we believe these presentations enhance a user's understanding of our normal consolidated operating income by excluding certain items which we do not believe are indicative of our ordinary results of operations. As a result, adjusting for these amounts allows for comparison to our normalized prior period results.

In addition, the effective income tax rate on income from continuing operations attributable to DaVita Inc. excludes noncontrolling owners' income, which primarily relates to non-tax paying entities.

The effective income tax rate on adjusted income from continuing operations attributable to DaVita Inc. excludes noncontrolling owners' income and certain non-deductible and other charges which we do not believe are indicative of our ordinary results. Accordingly, we believe these adjusted effective income tax rates are useful to management, investors and analysts in evaluating our performance and establishing expectations for income taxes incurred on our ordinary results attributable to DaVita Inc.

Finally, under our new definition, free cash flow from continuing operations represents net cash provided by operating activities from continuing operations less distributions to noncontrolling interests and all capital expenditures (including development capital expenditures, routine maintenance and information technology); plus contributions from noncontrolling interests and sale leaseback proceeds. Management uses this measure to assess our ability to fund acquisitions and meet our debt service obligations and we believe this measure is equally useful to investors and analysts as an adjunct to cash flows from operating activities from continuing operations and other measures under GAAP.

It is important to bear in mind that these non-GAAP "adjusted" measures are not measures of financial performance or liquidity under GAAP and should not be considered in isolation from, nor as substitutes for, their most comparable GAAP measures.

The following Notes 2 through 5 provide reconciliations of the non-GAAP financial measures presented in this press release to their most comparable GAAP measures.

DAVITA INC.
RECONCILIATIONS FOR NON-GAAP MEASURES - continued
(unaudited)
(dollars in thousands, except for per share data)

Note 2:   Adjusted net income from continuing operations and adjusted diluted net income from continuing operations per share attributable to DaVita Inc.


Three months ended


December 31, 2019


September 30, 2019


December 31, 2018


Dollars


Per share


Dollars


Per share


Dollars


Per share

Net income from continuing operations attributable to
 DaVita Inc.

$

242,242



$

1.86



$

150,113



$

0.99



$

160,332



$

0.96


Operating charges:












Goodwill impairment charges

—



—



83,855



0.55



—



—


Gain on changes in ownership interests, net

—



—



—



—



(28,152)



(0.17)


Equity investment:












Loss due to business sale in APAC JV

—



—



—



—



8,715



0.05


Loss due to impairments in the APAC JV

—



—



—



—



1,530



0.01


Debt prepayment, refinancing and redemption charges

—



—



21,242



0.14



—



—


Related income tax

—



—



(23,236)



(0.15)



6,719



0.04


Adjusted net income from continuing operations attributable to DaVita Inc.

$

242,242



$

1.86



$

231,974



$

1.53



$

149,144



$

0.90


 


Year ended


December 31, 2019


December 31, 2018


Dollars


Per share


Dollars


Per share

Net income from continuing operations attributable to DaVita Inc.

$

706,832



$

4.60



$

624,321



$

3.62


Operating charges:








Goodwill impairment charges

124,892



0.81



3,106



0.02


Impairment of other assets

—



—



17,338



0.10


Gain on changes in ownership interests, net

—



—



(60,603)



(0.35)


Equity investment:








Loss due to business sale in APAC JV

—



—



8,715



0.05


Loss due to impairments in the APAC JV

—



—



7,525



0.04


General and administrative:








Restructuring charges

—



—



11,366



0.07


Debt prepayment, refinancing and redemption charges

33,402



0.22



—



—


Related income tax

(35,231)



(0.23)



4,181



0.02


Adjusted net income from continuing operations attributable to DaVita Inc.

$

829,895



$

5.40



$

615,949



$

3.57



Certain columns or rows may not sum or recalculate due to the use of rounded numbers.

DAVITA INC.
RECONCILIATIONS FOR NON-GAAP MEASURES - continued
(unaudited)
(dollars in thousands)

Note 3:   Adjusted operating income


Three months ended


Year ended


December 31,
2019


September 30,
2019


December 31,
2018


December 31,
2019


December 31,
2018

Consolidated:










Operating income

$

462,588



$

378,336



$

387,908



$

1,643,317



$

1,525,824


Operating charges:










Goodwill impairment charges

—



83,855



—



124,892



3,106


Impairment of other assets

—



—



—



—



17,338


Gain on changes in ownership interests, net

—



—



(28,152)



—



(60,603)


Equity investment:










Loss due to business sale in APAC JV

—



—



8,715



—



8,715


Loss due to impairments in the APAC JV

—



—



1,530



—



7,525


General and administrative:










Restructuring charges

—



—



—



—



11,366


Adjusted operating income

$

462,588



$

462,191



$

370,001



$

1,768,209



$

1,513,271


 


Three months ended


Year ended


December 31,
2019


September 30,
2019


December 31,
2018


December 31,
2019


December 31,
2018

Consolidated:










U.S. dialysis:










Segment operating income

$

508,146



$

500,742



$

436,893



$

1,924,826



$

1,709,721


Gain on changes in ownership interests, net

—



—



(28,152)



—



(28,152)


Adjusted U.S. dialysis operating income

$

508,146



$

500,742



$

408,742



$

1,924,826



$

1,681,570


Other - Ancillary services:










U.S.










Segment operating loss

$

(20,878)



$

(14,928)



$

(18,993)



$

(66,377)



$

(70,396)


Impairment of other assets

—



—



—



—



17,338


Restructuring charges

—



—



—



—



11,366


Gain on changes in ownership interests

—



—



—



—



(33,699)


Adjusted operating loss

$

(20,878)



$

(14,928)



$

(18,993)



$

(66,377)



$

(75,390)


International










Segment operating income (loss)

$

2,109



$

(82,797)



$

(10,489)



$

(122,797)



$

(23,394)


Goodwill impairment charges

—



83,855



—



124,892



3,106


Loss on changes in ownership interests

—



—



—



—



1,248


Equity investment:










Loss due to business sale in the APAC JV

—



—



8,715



—



8,715


Loss due to impairments in the APAC JV

—



—



1,530



—



7,525


Adjusted operating income (loss)

$

2,109



$

1,058



$

(245)



$

2,095



$

(2,800)


Adjusted Other - Ancillary services operating loss

$

(18,770)



$

(13,870)



$

(19,238)



$

(64,282)



$

(78,190)


Corporate administrative support expenses

$

(26,788)



$

(24,681)



$

(19,502)



$

(92,335)



$

(90,108)


Adjusted operating income

$

462,588



$

462,191



$

370,001



$

1,768,209



$

1,513,271



Certain columns or rows may not sum or recalculate due to the use of rounded numbers.

DAVITA INC.
RECONCILIATIONS FOR NON-GAAP MEASURES - continued
(unaudited)
(dollars in thousands)

Note 4:   Effective income tax rates on income from continuing operations attributable to DaVita Inc.


Three months ended


Year ended


December 31,
2019


September 30,
2019


December 31,
2018


December 31,
2019

Income from continuing operations before income taxes

$

382,023



$

273,785



$

259,114



$

1,195,439


Less: Noncontrolling owners' income primarily attributable to non-tax paying entities

(58,118)



(58,502)



(47,203)



(209,544)


Income from continuing operations before income taxes attributable to DaVita Inc.

$

323,905



$

215,283



$

211,911



$

985,895










Income tax expense for continuing operations

$

81,690



$

65,254



$

51,748



$

279,628


Less: Income tax attributable to noncontrolling interests

(27)



(84)



(169)



(565)


Income tax expense from continuing operations attributable to DaVita Inc.

$

81,663



$

65,170



$

51,579



$

279,063










Effective income tax rate on income from continuing operations attributable to DaVita Inc.

25.2

%


30.3

%


24.3

%


28.3

%

The effective income tax rate on adjusted income from continuing operations attributable to DaVita Inc. is computed as follows:


Three months ended


Year ended

December 31,
2019


September 30,
2019


December 31,
2018


December 31,
2019

Income from continuing operations before income taxes

$

382,023



$

273,785



$

259,114



$

1,195,439


Operating charges:








Goodwill impairment charges

—



83,855



—



124,892


Gain on changes in ownership interests, net

—



—



(28,152)



—


Equity investment:








Loss due to business sale in APAC JV

—



—



8,715



—


Loss due to impairments in the APAC JV

—



—



1,530



—


Debt prepayment, refinancing and redemption charges

—



21,242



—



33,402


Noncontrolling owners' income primarily attributable to non-tax paying entities

(58,118)



(58,502)



(47,203)



(209,544)


Adjusted income from continuing operations before income taxes attributable to DaVita Inc.

$

323,905



$

320,380



$

194,004



$

1,144,189


Income tax expense

$

81,690



$

65,254



$

51,748



$

279,628


Add income tax related to:








Operating charges:








Goodwill impairment charges

—



17,768



—



26,633


Gain on changes in ownership interests, net

—



—



(7,247)



—


Equity investment:








Loss due to business sale in APAC JV

—



—



449



—


Loss due to impairments in the APAC JV

—



—



79



—


Debt prepayment, refinancing and redemption charges

—



5,468



—



8,598


Less income tax related to:








Noncontrolling interests

(27)



(84)



(169)



(565)


Income tax on adjusted income from continuing operations attributable to DaVita Inc.

$

81,663



$

88,406



$

44,860



$

314,294


Effective income tax rate on adjusted income from continuing operations attributable to DaVita Inc.

25.2

%


27.6

%


23.1

%


27.5

%


Certain columns, rows or percentages may not sum or recalculate due to the use of rounded numbers.

DAVITA INC.
RECONCILIATIONS FOR NON-GAAP MEASURES - continued
(unaudited)
(dollars in thousands)

Note 5:   Free cash flow from continuing operations (new definition)


Three months ended


December 31,
2019


September 30,
2019


December 31,
2018

Net cash provided by continuing operating activities

$

677,901



$

647,553



$

307,278


Less: Distributions to noncontrolling interests

(75,953)



(61,456)



(56,768)


Plus: Contributions to noncontrolling interests

13,222



12,814



9,132


Cash provided by continuing operating activities attributable to DaVita Inc.

615,170



598,911



259,642


Less: Expenditures for routine maintenance and information technology

(130,243)



(83,513)



(138,745)


Less: Expenditures for development

(89,120)



(89,752)



(122,793)


Plus: Proceeds from sale of self-developed properties

19,365



11,616



12,606


Free cash flow from continuing operations (new definition)

$

415,172



$

437,262



$

10,710


 


Rolling twelve months ended


December 31,
2019


September 30,
2019


December 31,
2018

Net cash provided by continuing operating activities

$

1,972,721



$

1,602,098



$

1,480,956


Less: Distributions to noncontrolling interests

(233,123)



(213,938)



(196,441)


Plus: Contributions to noncontrolling interests

57,317



53,227



52,311


Cash provided by continuing operating activities attributable to DaVita Inc.

1,796,915



1,441,387



1,336,826


Less: Expenditures for routine maintenance and information technology

(355,444)



(363,946)



(415,038)


Less: Expenditures for development

(372,636)



(406,309)



(486,877)


Plus: Proceeds from sale of self-developed properties

57,817



51,058



45,314


Free cash flow from continuing operations (new definition)

$

1,126,652



$

722,190



$

480,225



Certain columns or rows may not sum or recalculate due to the use of rounded numbers.

 

Contact: 

Jim Gustafson


Investor Relations


DaVita Inc.


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