DaVita Inc. Reports 2nd Quarter 2003 Results
PRNewswire-FirstCall
TORRANCE, Calif.
DaVita Inc.
(Logo: http://www.newscom.com/cgi-bin/prnh/20020729/DAVITALOGO ) Financial and operating highlights include: -- For the rolling 12 months ended June 30, 2003, before considering recoveries of $59 million in 2002 related to prior years' lab billings, operating cash flow was $324 million and free cash flow was $277 million. -- Operating cash flow for the three and six months ended June 30, 2003 was $79 million and $159 million, respectively. Free cash flow for the same periods was $69 million and $139 million, respectively. -- Operating income for the three and six months was $83 million and $162 million, respectively. Operating income excluding depreciation, amortization and minority interests was $103 million and $201 million, respectively (previously described as EBITDA). -- Total treatments for the second quarter were 1,579,580, an increase of 6.2% compared to the second quarter of last year. Non-acquired treatment growth was 3.4%, with acquisitions contributing the additional 2.8% to treatment growth. -- Second quarter dialysis revenue per treatment was approximately $302, compared to $291 in the second quarter of last year, an increase of 3.8%. -- As of June 30, 2003, we provided dialysis services at 539 outpatient centers serving approximately 47,000 patients. During the second quarter we acquired 11 centers and opened eight de novo centers. We also closed two centers. Included in this patient and center count are approximately 3,300 patients in 29 centers under management arrangements. Capital structure: -- During the quarter we called our 5 5/8% convertible notes, resulting in their conversion into 4.9 million shares of common stock on July 15, 2003. -- On July 15, 2003 we completed a refinancing of our senior credit facilities resulting in lower interest rates, additional borrowing of $200 million and modification of certain covenants. -- The additional borrowings will be used to redeem a portion of our outstanding 7% convertible notes, as previously announced on July 16, 2003. Guidance: -- We are updating our 2003 operating income guidance. It was $300 to $320 million. It is now $315 to $330 million. -- Our current expectation for 2004 is that operating income will be relatively flat from 2003. -- We have changed our primary guidance metric from EBITDA to operating income to simplify compliance with the SEC's new Regulation G.
DaVita will be holding a conference call to discuss its second quarter 2003 results on August 1, 2003, at 1:30 PM Eastern Daylight 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 press release includes non-GAAP financial measures, which we believe provide useful information to investors by excluding certain nonrecurring expenses and prior period recoveries and by allowing consistency and comparability in our financial reporting to prior periods for which these non-GAAP measures were previously reported. These measures should be considered in addition to results prepared in accordance with GAAP, but are not a substitute for or superior to GAAP results. Included in this press release is a reconciliation of these non-GAAP measures to the most comparable GAAP financial measures.
This release also contains forward-looking statements. Factors which could impact future results include the uncertainties associated with governmental regulation, general economic and other market conditions, and the risk factors set forth in the Company's SEC filings, including its Form 10-Q for the year ended March 31, 2003. The forward-looking statements should be considered in light of these risks and uncertainties.
These risks include those relating to:
-- the concentration of profits generated from PPO and private indemnity
patients and from ancillary services including the administration of
pharmaceuticals,
-- possible reductions in private and government reimbursement rates,
-- changes in pharmaceutical practice patterns or reimbursement policies,
-- the Company's ability to maintain contracts with physician medical
directors, and
-- legal compliance risks, such as those associated with the ongoing
review of the Company's Florida laboratory subsidiary by its Medicare
carrier and the Department of Justice, and the ongoing review by the
US Attorney's Office and HHS Office of Inspector General in
Philadelphia.
DAVITA INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(dollars in thousands, except per share data)
June 30, December 31,
2003 2002
ASSETS
Cash and cash equivalents $315,606 $96,475
Accounts receivable, less allowance
of $49,361 and $48,927 346,209 344,292
Inventories 30,111 34,929
Other current assets 26,275 28,667
Deferred income taxes 47,666 40,163
Total current assets 765,867 544,526
Property and equipment, net 314,374 298,475
Amortizable intangibles, net 61,198 63,159
Investments in third-party dialysis
businesses 3,266 3,227
Other long-term assets 2,972 1,520
Goodwill 901,714 864,786
$2,049,391 $1,775,693
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $83,821 $77,890
Other liabilities 115,106 101,389
Accrued compensation and benefits 94,812 95,435
Current portion of long-term debt 47,314 7,978
Income taxes payable 20,486 9,909
Total current liabilities 361,539 292,601
Long-term debt 1,409,687 1,311,252
Other long-term liabilities 12,914 9,417
Deferred income taxes 78,187 65,930
Minority interests 28,390 26,229
Shareholders' equity:
Preferred stock ($0.001 par value,
5,000,000 shares authorized; none issued)
Common stock ($0.001 par value,
195,000,000 shares authorized;
89,790,206 and 88,874,896 shares issued) 90 89
Additional paid-in capital 532,133 519,369
Retained earnings 288,270 213,337
Treasury stock,
at cost (28,185,827 and 28,216,177 shares) (661,819) (662,531)
Total shareholders' equity 158,674 70,264
$2,049,391 $1,775,693
DAVITA INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(dollars in thousands, except per share data)
Three months ended Six months ended
June 30, June 30,
2003 2002 2003 2002
Net operating revenues $489,883 $442,677 $949,690 $870,342
Operating expenses
and charges:
Dialysis centers
and labs 335,986 300,552 652,696 592,186
General
and administrative 42,583 39,634 79,370 75,687
Depreciation
and amortization 17,921 15,698 35,366 31,503
Provision for
uncollectible accounts 8,780 5,882 17,017 11,137
Minority interests
and equity income, net 1,813 2,164 3,107 4,299
Total operating
expenses and charges 407,083 363,930 787,556 714,812
Operating income 82,800 78,747 162,134 155,530
Debt expense 19,495 17,139 38,951 32,211
Refinancing charges 48,930 48,930
Other income 890 2,620 1,675 2,887
Income before income taxes 64,195 15,298 124,858 77,276
Income tax expense 25,675 6,928 49,925 32,928
Net earnings $38,520 $8,370 $74,933 $44,348
Earnings per share:
Basic $0.63 $0.10 $1.23 $0.55
Diluted $0.55 $0.10* $1.07 $0.52*
Weighted average shares
for earnings per share:
Basic 61,305,955 79,784,841 61,097,841 81,366,393
Diluted 79,188,721 83,022,414 78,964,493 89,814,524
* The diluted earnings per share for the three and six months ended June 30, 2002 are restated to reflect the adoption of Statement of Financial Accounting Standards No. 145 Rescission of FASB Standard No. 4, 44, and 64, Amendment of FASB Statement No. 14, and Technical Corrections. Refinancing charges previously classified as an extraordinary item are now included as an ordinary pre-tax income item. As a result of this reclassification, certain convertible subordinated notes are not dilutive in the earnings per share calculations for these periods.
DAVITA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(dollars in thousands)
Six months ended
June 30,
2003 2002
Cash flows from operating activities:
Net income $74,933 $44,348
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 35,366 31,503
Impairments and valuation adjustments, net (2,390)
Loss (gain) on divestitures 343 (462)
Deferred income taxes 4,754 11,843
Non-cash debt expense 1,958 1,526
Stock options, principally tax benefits 5,699 16,304
Equity investment income (967) (960)
Minority interests in income
of consolidated subsidiaries 4,074 5,260
Refinancing charges 48,930
Distributions to minority interests (3,685) (4,138)
Changes in operating assets and liabilities,
excluding acquisitions and divestitures:
Accounts receivable (740) (20,471)
Inventories 5,327 2,436
Other current assets 2,495 (4,533)
Other long-term assets (2,774) 151
Accounts payable 5,852 9,315
Accrued compensation and benefits (716) 6,367
Other current liabilities 13,554 (536)
Income taxes 10,577 (3,694)
Other long-term liabilities 3,377 1,118
Net cash provided
by operating activities 159,427 141,917
Cash flows from investing activities:
Additions of property and equipment, net (42,077) (43,691)
Acquisitions and divestitures, net (47,035) (1,426)
Investments in affiliates, net 2,663 1,857
Intangible assets 754 (30)
Net cash used in investing activities (85,695) (43,290)
Cash flows from financing activities:
Borrowings 1,350,195 1,323,335
Payments on long-term debt (1,212,574) (819,107)
Debt redemption premium (40,910)
Deferred financing costs (10,781)
Purchase of treasury stock (474,438)
Proceeds from issuance of common stock 7,778 23,583
Net cash provided
by financing activities 145,399 1,682
Net increase in cash 219,131 100,309
Cash and cash equivalents
at beginning of period 96,475 36,711
Cash and cash equivalents
at end of period $315,606 $137,020
DAVITA INC.
SUPPLEMENTAL FINANCIAL DATA
(dollars in millions, except for per share and per treatment data)
Q2 2003 Q1 2003 Q2 2002 YTD 2003
Financial Results:
Net earnings excluding
refinancing charges $38.5 $36.4 $37.7 $74.9
Basic EPS $0.63 $0.60 $0.47 $1.23
EPS assuming dilution $0.55 $0.52 $0.43 $1.07
Operating income
Consolidated $82.8 $79.3 $78.7 $162.1
Continental U.S. $82.8 $79.3 $77.8 $162.1
Continental operating
income margin 16.9% 17.3% 17.7% 17.1%
Business Metrics (Continental U.S.):
Volume
Treatments 1,579,580 1,503,031 1,486,816 3,082,611
Number of
treatment days 78 76.4 78 154.4
Treatments per day 20,251 19,673 19,062 19,965
Per day year
over year increase 6.2% 4.8% 5.5% 5.5%
Non-acquired growth 3.4% 3.3% 4.5% 3.5%
Revenue
Revenue $490 $460 $441 $950
Dialysis revenue
per treatment $301.52 $296.31 $290.52 $298.98
Per treatment
increase from
previous quarter 1.8% 1.8% 0% --
Per treatment
increase from
prior year 3.8% 2.0% 5.3% 2.9%
Expenses
A. Dialysis centers and
lab operating expenses
Percent of revenue 68.6% 68.9% 67.7% 68.7%
Per treatment $212.71 $210.71 $200.46 $211.74
Per treatment
increase (decrease)
from previous quarter 0.9% 2.2% (0.3%) --
B. General &
administrative expenses
Percent of revenue 8.7% 8.0% 9.3% 8.4%
Per treatment $26.96 $24.48 $27.59 $25.75
Per treatment
increase (decrease)
from previous quarter 10.1% (4.3%) 9.7% --
C. Bad debt expense
as a percent of
current-period revenue 1.8% 1.8% 1.4% 1.8%
D. Consolidated effective
tax rate 40.0% 40.0% 41.2% 40.0%
DAVITA INC.
SUPPLEMENTAL FINANCIAL DATA, CONTINUED
(dollars in millions, except for per share and per treatment data)
Q2 2003 Q1 2003 Q2 2002 YTD 2003
Cash Flow
Operating cash flow $78.8 $80.6 $58.4 $159.4
Free cash flow $69.3 $70.2 $38.8 $139.4
Capital expenditures:
Development $10.4 $11.9 $8.1 $22.3
Routine maintenance/IT/other $9.5 $10.5 $19.7 $20.0
Acquisition expenditures, net $46.0 $0.7 -- $47.0
Accounts Receivable
Net receivables $346 $346 $347
DSO 66 69 73
Debt/Capital Structure
(Consolidated)
Total debt $1,457 $1,464 $1,324
Net debt, net of cash $1,141 $1,159 $1,187
Leverage ratio - last quarter
annualized (see Note 1) 2.8x 3.0x 3.1x
Shares repurchased -- -- 16,900
Average repurchase price -- -- $24.08
Clinical
Dialysis adequacy
- % of patients with URR > 65 89% 89% 89%
Dialysis adequacy
- % of patients with Kt/V > 1.2 93% 92% 92%
Anemia measure
- % of patients with HCT > 33 84% 83% 80%
Note 1. Leverage ratio is defined as net debt (total debt net of cash) to operating income excluding depreciation, amortization and minority interests (previously referred to as EBITDA). The operating income reconciliation is provided below.
DAVITA INC.
RECONCILIATIONS FOR NON-GAAP MEASURES
(dollars in thousands)
Q2 2003 Q1 2003 Q2 2002 YTD 2003
1. Net earnings excluding
refinancing charges:
Net earnings $38,520 $36,413 $8,370 $74,933
Add back: Refinancing
charges 48,930
Related income
tax expense (19,572)
29,358
$38,520 $36,413 $37,728 $74,933
Q2 2003 Q1 2003 Q2 2002 YTD 2003
2. Operating income
excluding depreciation,
amortization and
minority interests
(previously described
as EBITDA):
Operating income $82,800 $79,334 $78,747 $162,134
Add back: Depreciation and
amortization 17,921 17,445 15,698 35,366
Minority interests
and equity income, net 1,813 1,294 2,164 3,107
$102,534 $98,073 $96,609 $200,607
Rolling
12-month
period ended
Q2 2003 Q1 2003 Q2 2003
3. Operating cash flow
before prior years'
lab recoveries
Cash provided by
operating activities $78,778 $80,649 $359,505
Less: Prior years'
lab recoveries (58,778)
Related income
tax expense 23,511
$78,778 $80,649 $324,238
4. Free cash flow
Free cash flow represents net cash provided by operating activities
less non-development capital expenditures.We believe free cash flow
is a useful adjunct to cash flow from operating activities and other
measurements under generally accepted accounting principles in the
United States since it is a meaningful measure of our ability to fund
development activities and meet our debt service requirements. Free
cash flow is not a measure of financial performance under generally
accepted accounting principlesin the United States and should not be
considered as an alternative to cash flows from operating, investing
or financing activities as an indicator of cash flows or as a measure
of liquidity.
Rolling
12-month
period
ended
Q2 2003 Q1 2003 Q2 2002 Q2 2003
Cash provided by
operating activities $78,778 $80,649 $58,433 $359,505
Less expenditures
for routine maintenance
and information technology (9,513) (10,490) (19,652) (47,198)
Free cash flow
(including prior years'
lab recoveries) 69,265 70,159 38,781 312,307
Less: Prior years'
lab recoveries (58,778)
Related income
tax expense 23,511
Free cash flow
before prior years'
lab recoveries $69,265 $70,159 $38,781 $277,040
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SOURCE: DaVita Inc.
CONTACT: LeAnne Zumwalt, Investor Relations of DaVita Inc.,
+1-310-750-2072
Web site: http://www.davita.com/
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