DaVita 3rd Quarter 2006 Results
PRNewswire-FirstCall
EL SEGUNDO, Calif.
DaVita Inc.
(Logo: http://www.newscom.com/cgi-bin/prnh/20020729/DAVITALOGO )
Income from continuing operations for the three and nine months ended September 30, 2006, including the valuation gain on the Product Supply Agreement was $93.1 million and $215.2 million, or $0.88 and $2.04 per share, respectively.
Net income for the three and nine months ended September 30, 2006 including discontinued operations and the valuation gain on the Product Supply Agreement was $94.9 million and $215.6 million, or $0.90 and $2.04 per share, respectively.
Financial and operating highlights include:
* Cash Flow: For the rolling 12-months ended September 30, 2006 operating
cash flow was $598 million and free cash flow was $488 million, in each
case excluding an $85 million income tax payment associated with the
divestiture of centers in conjunction with the Gambro Healthcare
acquisition. Including these items, operating cash flow for the rolling
12-months was $513 million and free cash flow was $403 million.
Operating cash flow for the three months ended September 30, 2006 was
$97 million and free cash flow was $67 million.
* Operating Income: Operating income for the three months and nine months
ended September 30, 2006, excluding the pre-tax valuation gain on the
Product Supply Agreement of $38 million, was $179 million and
$513 million, respectively.
* Volume: Total treatments for the third quarter were 3,668,999 or
46,443 treatments per day, as compared to 3,602,567 or 46,187 treatments
per day for the second quarter of 2006. Non-acquired treatment growth in
the quarter was 4.2% over the prior year's third quarter.
* Center Activity: As of September 30, 2006, we operated or provided
administrative services at 1,269 outpatient centers serving
approximately 101,000 patients. During the third quarter of 2006, we
acquired 5 centers, opened 13 new centers and closed 4 centers.
* Effective Tax Rate: The effective annual income tax rate for 2006 is
currently expected to be approximately 39.25%. We currently expect the
annual effective tax rate for 2007 to be approximately 40%.
Outlook
We are revising the lower end of our 2006 operating income projection, therefore our new guidance for operating income is $690-$700 million excluding the valuation gain on the Product Supply Agreement. Our 2007 operating income is currently projected to be in the range of $680-$750 million. These projections and the underlying assumptions involve significant risks and uncertainties, including those described below and actual results may vary significantly from these current projections.
DaVita will be holding a conference call to discuss its results for the third quarter ended September 30, 2006 on November 1, 2006 at 12PM noon Eastern Time. The dial in number is (800)-399-4406. A replay of the conference call will be available on DaVita's official web page, www.davita.com, for the following 30 days.
This release contains forward-looking statements, including statements related to our 2006 and 2007 operating results. Factors which could impact future results include the uncertainties associated with governmental regulations, general economic and other market conditions, accounting estimates and the risk factors set forth in the Company's SEC filings, including its Form 10-Q for the quarter ended June 30, 2006. The forward- looking statements should be considered in light of these risks and uncertainties.
These risks and uncertainties include those relating to:
* the concentration of profits generated from commercial payor plans,
* possible reductions in private and government payment rates,
* changes in pharmaceutical 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 the ongoing review by the U.S. Attorney's
Office for the Eastern District of Pennsylvania and the OIG, the
subpoena from the U.S. Attorney's Office for the Eastern District of New
York, the subpoenas from the U.S. Attorney's Office for the Eastern
District of Missouri and DVA Renal Healthcare's (formerly known as
Gambro Healthcare, Inc.) compliance with its corporate integrity
agreement,
* our ability to complete and integrate acquisitions of businesses, and
* the successful integration of DVA Renal Healthcare, including its
billing and collection operations.
We undertake no obligation to update or revise any forward-looking statements, whether as a result of changes in underlying factors, new information, future events or otherwise.
This release contains non-GAAP financial measures. For reconciliations of these non-GAAP financial measures to their most comparable measure calculated and presented in accordance with GAAP, see the attached reconciliation schedules.
DAVITA INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(dollars in thousands, except per share data)
Three months ended Nine months ended
September 30, September 30,
2006 2005 2006 2005
Net operating revenues $1,237,041 $644,892 $3,608,045 $1,840,603
Operating expenses and
charges:
Patient care costs 857,049 435,212 2,517,795 1,235,952
General and
administrative 113,447 60,820 329,059 174,939
Depreciation and
amortization 44,478 25,410 128,086 74,188
Provision for
uncollectible accounts 31,985 11,462 93,295 32,751
Minority interests
and equity income, net 10,956 6,690 26,857 16,184
Valuation gain on
Product Supply
Agreement (37,968) -- (37,968) --
Total operating
expenses and
charges 1,019,947 539,594 3,057,124 1,534,014
Operating income 217,094 105,298 550,921 306,589
Debt expense (67,904) (24,284) (206,799) (66,700)
Swap valuation (loss) gain (1,718) 4,543
Refinancing charges (6,872)
Other income 3,271 2,059 10,118 5,741
Income from continuing
operations before income
taxes 152,461 81,355 354,240 243,301
Income tax expense 59,370 30,441 139,040 92,290
Income from continuing
operations 93,091 50,914 215,200 151,011
Discontinued operations
Income from operations
of discontinued operations,
net of tax 4,303 13,483
Gain on disposal of
discontinued operations,
net of tax 1,765 362
Net income $94,856 $55,217 $215,562 $164,494
Earnings per share:
Basic earnings per
share from
continuing
operations $0.90 $0.50 $2.08 $1.50
Basic earnings per share $0.91 $0.55 $2.09 $1.64
Diluted earnings per share
from continuing operations $0.88 $0.49 $2.04 $1.45
Diluted earnings per share $0.90 $0.53 $2.04 $1.58
Weighted average shares for earnings per share:
Basic 103,784,510 101,307,461 103,295,407 100,399,902
Diluted 105,923,976 104,371,789 105,643,406 103,803,975
DAVITA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(dollars in thousands)
Nine months ended
September 30,
2006 2005
Cash flows from operating activities:
Net income $215,562 $164,494
Adjustments to reconcile net income
to cash provided by operating
activities:
Depreciation and amortization 128,086 77,080
Valuation gain on Product
Supply Agreement (37,968) --
Stock-based compensation expense 18,896 2,601
Tax benefits from stock option
exercises 29,261 34,420
Excess tax benefits from
stock-based compensation (27,146) --
Deferred income taxes 1,249 (8,950)
Minority interests in income
of consolidated subsidiaries 28,812 18,225
Distributions to minority interests (25,552) (12,261)
Equity investment income (1,955) (822)
Loss (gain) on disposal of
discontinued operations
and other dispositions 508 (2,213)
Non-cash debt and other expenses 13,562 2,397
Refinancing charges -- 6,872
Swap valuation gain -- (4,543)
Changes in operating assets and
liabilities, net of effect of
acquisitions and divestitures:
Accounts receivable (46,135) (31,284)
Inventories (29,118) (2,670)
Other receivables and other
current assets (18,155) (12,699)
Other long term assets (5,329) (2,134)
Accounts payable 16,557 2,753
Accrued compensation and benefits 67,889 27,366
Other current liabilities 63,643 27,279
Income taxes (65,924) 19,670
Other long-term liabilities 2,720 (3,371)
Net cash provided by operating
activities 329,463 302,210
Cash flows from investing activities:
Additions of property
and equipment, net (181,425) (97,529)
Acquisitions and purchases
of other ownership interests (75,580) (132,440)
Proceeds from divestitures
and asset sales 21,348 2,327
Investments in and
advances to affiliates, net 14,605 14,294
Intangible assets (5,749) (779)
Net cash used in investing
activities (226,801) (214,127)
Cash flows from financing activities:
Borrowings 4,493,339 1,742,433
Payments on long-term debt (4,826,163) (1,753,351)
Deferred financing costs 296 (30,561)
Excess tax benefits from
stock-based compensation 27,146 --
Stock option exercises and
other share issuances, net 31,187 38,613
Net cash used in financing
activities (274,195) (2,866)
Net (decrease) increase in cash and
cash equivalents (171,533) 85,217
Cash and cash equivalents at
beginning of period 431,811 251,979
Cash and cash equivalents at end
of period $260,278 $337,196
DAVITA INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(dollars in thousands, except per share data)
September 30, December 31,
2006 2005
ASSETS
Cash and cash equivalents $260,278 $431,811
Accounts receivable,
less allowance of $161,361 and $138,598 902,745 853,560
Inventories 99,336 69,130
Other receivables 129,795 116,620
Other current assets 22,232 38,463
Deferred income taxes 198,372 144,824
Total current assets 1,612,758 1,654,408
Property and equipment, net 813,055 750,078
Amortizable intangibles, net 214,494 235,944
Investments in third-party dialysis businesses 2,179 3,181
Other long-term assets 44,289 41,768
Goodwill 3,657,355 3,594,383
$6,344,130 $6,279,762
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $227,650 $212,049
Other liabilities 448,021 381,964
Accrued compensation and benefits 302,011 231,994
Current portion of long-term debt 6,640 71,767
Income taxes payable 26,035 91,959
Total current liabilities 1,010,357 989,733
Long-term debt 3,818,111 4,085,435
Other long-term liabilities 27,650 26,416
Alliance and product supply
agreement and other intangibles, net 108,270 163,431
Deferred income taxes 121,208 75,499
Minority interests 111,722 88,639
Commitments and contingencies
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;
134,862,283 shares issued) 135 135
Additional paid-in capital 615,939 569,751
Retained earnings 1,055,492 839,930
Treasury stock, at cost
(30,909,676 and 32,927,026 shares) (538,845) (574,013)
Accumulated other comprehensive income 14,091 14,806
Total shareholders' equity 1,146,812 850,609
$6,344,130 $6,279,762
DAVITA INC.
SUPPLEMENTAL FINANCIAL DATA
(unaudited)
(dollars in millions, except for per share and per treatment data)
Q3 2006 Q2 2006 Q3 2005 Nine months
ended
September 30,
2006
Financial Results
excluding the valuation
gain on the Product Supply
Agreement for the quarter
and the nine months ended
September 30, 2006:
Income from
continuing
operations (1) $69.9 $64.3 $50.9 $192.0
Net income (1) $71.7 $63.2 $55.2 $192.4
Diluted earnings per
share from continuing
operations $0.66 $0.61 $0.49 $1.82
Diluted earnings per
share $0.68 $0.60 $0.53 $1.82
Operating income (1) $179.1 $171.8 $105.3 $513.0
Operating income
margin 14.5% 14.2% 16.3% 14.2%
Other comprehensive
income
Unrealized (loss)
gain on securities,
net of tax (expense)
benefit of $6.6,
($2.2), ($7.9)
and $.5 ($10.3) $3.4 $12.3 ($.7)
Business Metrics:
Volume
Treatments 3,668,999 3,602,567 1,928,684 10,772,598
Number of
treatment days 79.0 78.0 79.0 234.0
Treatments per day 46,443 46,187 24,414 46,037
Per day year-over-year
increase 90.2% 94.0% 13.4% 94.2%
Non-acquired growth
year-over-year 4.2% 4.1% 5.2% 4.4%
Revenue
Total operating
revenue $1,237 $1,208 $645 $3,608
Dialysis revenue
per treatment $320.90 $318.80 $317.03 $318.83
Per treatment
increase from
previous quarter 0.66% 0.66% 1.1% --
Per treatment increase
from previous year 1.2% 1.7% 0.68% 1.4%
Expenses
A. Patient care costs
Percent of revenue 69.3% 69.8% 67.6% 69.8%
Per treatment $233.59 $233.99 $225.65 $233.72
Per treatment
(decrease)
increase from
previous quarter (0.17%) 0.18% 1.4% --
Per treatment
increase from
previous year 3.5% 5.1% 2.2% 4.9%
B. General &
administrative
expenses
Percent of revenue 9.2% 9.2% 9.4% 9.1%
Per treatment $30.92 $30.93 $31.53 $30.55
Per treatment
(decrease)
increase from
previous quarter (0.03%) 4.0% (2.2%) --
Per treatment
(decrease) increase
from previous year (1.9%) (4.1%) 5.9% (3.1%)
C. Bad debt expense
as a percent of
current-period
revenue 2.6% 2.6% 1.8% 2.6%
D. Consolidated
effective tax
rate from
continuing
operations 38.9% 39.5% 37.5% 39.3%
(1) These are non-GAAP financial measures. For a reconciliation of these
non-GAAP financial measures to their most comparable measure calculated
and presented in accordance with GAAP, see attached reconciliation
schedules.
DAVITA INC.
SUPPLEMENTAL FINANCIAL DATA-continued
(unaudited)
(dollars in millions, except for per share and per treatment data)
Q3 2006 Q2 2006 Q3 2005 Nine months
ended
September
30, 2006
Cash Flow
Operating cash flow $96.9 $256.1 $84.6 $329.5
Operating cash flow,
excluding the income
tax payment on divested
centers $96.9 $256.1 $84.6 $414.8
Operating cash flow
last twelve months $512.8 $500.5 $389.6 --
Operating cash flow,
excluding the income
tax payment on divested
centers last twelve
months $598.1 $585.8 $389.6 --
Free cash flow $67.4 $227.5 $75.0 $251.5
Free cash flow,
excluding the
income tax payment
on divested centers $67.4 $227.5 $75.0 $336.9
Free cash flow last
twelve months $403.2 $410.7 $342.8 --
Free cash flow,
excluding the income
tax payment on
divested centers last
twelve months $488.5 $496.1 $342.8 --
Capital expenditures:
Development and
relocations $35.1 $37.3 $24.9 $98.7
Routine maintenance/
IT/other $31.5 $30.1 $11.4 $83.3
Acquisition expenditures $6.0 $46.7 $48.5 $75.6
Accounts Receivable
Net receivables $903 $859 $493
DSO 70 67 70
Debt/Capital Structure
Total debt $3,825 $3,944 $1,365
Net debt, net
of cash $3,564 $3,605 $1,028
Leverage ratio
(see Note 1) 3.96x 4.07x --
Clinical (quarterly averages)
Dialysis
adequacy - % of patients
with Kt/V > 1.2 93% 93% 94%
Patients with
albumin > /= 3.5 - 84% 83.7% 83.5% 82.9%
DAVITA INC.
SUPPLEMENTAL FINANCIAL DATA-continued
(unaudited)
(dollars in thousands)
Note 1: Calculation of the Leverage Ratio
Under the Company's current credit agreement (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 under the Credit Agreement by establishing the margin over the base interest rate (LIBOR) that is applicable. The following leverage ratio was calculated using "Consolidated EBITDA" as defined in the Credit Agreement. The calculation below is based on the last twelve-months of Consolidated "EBITDA", pro forma for the routine acquisitions that occurred during the period. The Company's management believes that the presentation of "Consolidated EBITDA" is useful to investors to enhance their understanding of the Company's leverage ratio under its Credit Agreement.
Rolling 12-months ended
September 30, 2006
Income from continuing operations $271,611
Income taxes 170,425
Debt expense 279,685
Depreciation and amortization 170,734
Minority interests and equity income, net 32,762
Valuation gain on Product Supply Agreement (37,968)
Swap valuation gain (5)
Refinancing charges 1,298
Other 5,060
Stock-based compensation expense 18,896
"Consolidated EBITDA" $912,498
September 30,
2006
Total debt $3,824,751
Letters of credit issued 49,353
3,874,104
Less: cash and cash equivalents (260,278)
Consolidated net debt $3,613,826
Last twelve months "Consolidated EBITDA" $912,498
Leverage ratio 3.96x
In accordance with the Company's Credit Agreement, the Company's leverage ratio can not exceed 6.0 to 1.0 as of September 30, 2006. At that date, the Company's leverage ratio did not exceed 6.0 to 1.0.
DAVITA INC.
RECONCILIATIONS FOR NON-GAAP MEASURES
(unaudited)
(dollars in thousands)
1. Income from continuing operations and net income excluding the
valuation gain on the Product Supply Agreement:
We believe that income from continuing operations and net income excluding
the valuation gain on the Product Supply Agreement enhances a user's
understanding of our normal income from continuing operations and net
income for these periods by providing a measure that is more meaningful
because it excludes a non-recurring non-cash item that resulted from an
amendment of the Product Supply Agreement and accordingly is more
comparable to prior periods and indicative of consistent income from
continuing operations and net income. 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 income from
continuing operations and net income.
Q3 2006 Q2 2006 Q3 2005 Nine months
ended
September
30, 2006
Income from
continuing operations $93,091 $64,329 $50,914 $ 215,200
Less: Valuation gain (37,968) -- -- (37,968)
Add: Related income tax 14,770 -- -- 14,770
$69,893 $64,329 $50,914 $ 192,002
Net income $94,856 $63,237 $55,217 $ 215,562
Less: Valuation gain (37,968) -- -- (37,968)
Add: Related income tax 14,770 -- -- 14,770
$71,658 $63,237 $55,217 $ 192,364
2. Operating income excluding the pre-tax valuation gain on the Product
Supply Agreement:
We believe that operating income excluding the valuation gain on the
Product Supply Agreement enhances a user's understanding of our normal
operating income for these periods by providing a measure that is more
meaningful because it excludes a non-recurring non-cash item that resulted
from an amendment of the Product Supply Agreement and accordingly is more
comparable to prior periods and indicative of consistent operating income
items. 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 operating income.
Q3 2006 Q2 2006 Q3 2005 Nine months
ended
September
30, 2006
Operating income $217,094 $171,752 $105,298 $550,921
Less: Valuation gain (37,968) -- -- (37,968)
$179,126 $171,752 $105,298 $512,953
RECONCILIATIONS FOR NON-GAAP MEASURES
(unaudited)
(dollars in thousands)
3. Operating cash flow, excluding the income tax payment on divested
centers:
We believe that operating cash flow excluding the income tax payment on
divested centers enhances a user's understanding of our normal operating
cash flows for these periods by providing a measure that is more
meaningful because it excludes non-recurring transactions that can cause
unusual fluctuations in our operating cash flows and accordingly is more
comparable to prior periods and indicative of consistent operating cash
flow items. 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 cash flows from operating, investing or
financing activities, as an indicator of cash flows or as a measure of
liquidity.
Nine months ended
September 30,
Q3 2006 Q2 2006 2006 Q3 2005
Cash provided by
operating
activities $96,937 $256,090 $329,463 $84,609
Income tax
payment on
divested centers -- -- 85,328 --
$96,937 $256,090 $414,791 $84,609
Rolling 12-Month Period
Q3 2006 Q2 2006 Q3 2005
Cash provided by operating
activities $512,807 $500,479 $389,551
Income tax payment
on divested centers 85,328 85,328 --
$598,135 $585,807 $ 389,551
RECONCILIATIONS FOR NON-GAAP MEASURES
(unaudited)
(dollars in thousands)
4. Free cash flow and free cash flow, excluding the income tax payment on
divested centers:
Free cash flow represents net cash provided by operating activities less
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 it is a meaningful measure of our ability to
fund acquisition and development activities and meet our debt service
requirements. Free cash flow is not a measure of financial performance
under United States generally accepted accounting principles and should
not be considered as an alternative to cash flows from operating,
investing or financing activities, as an indicator of cash flows or as a
measure of liquidity.
Nine months
ended
September 30,
Q3 2006 Q2 2006 2006 Q3 2005
Cash provided
by operating
activities $96,937 $256,090 $329,463 $84,609
Less: Expenditures
for routine
maintenance and
information
technology
(29,551) (28,640) (77,917) (9,656)
Free cash flow $67,386 $227,450 $251,546 $74,953
Income tax payment
on divested centers -- -- 85,328 --
$67,386 $227,450 $336,874 $ 74,953
Rolling 12-Month Period
Q3 2006 Q2 2006 Q3 2005
Cash provided by operating
activities $512,807 $500,479 $389,551
Less: Expenditures for routine
maintenance and
information technology (109,652) (89,757) (46,787)
Free cash flow $403,155 $410,722 $342,764
Income tax payment on
divested centers 85,328 85,328 --
$488,483 $496,050 $342,764
FCMN Contact: LeAnne.Zumwalt@davita.com
Photo: NewsCom: http://www.newscom.com/cgi-bin/prnh/20020729/DAVITALOGO
AP Archive: http://photoarchive.ap.org
PRN Photo Desk, photodesk@prnewswire.com
SOURCE: DaVita Inc.
CONTACT: LeAnne Zumwalt, Investor Relations of DaVita Inc.,
+1-650-696-8910
Web site: http://www.davita.com/
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