DaVita Inc.
(Logo: http://www.newscom.com/cgi-bin/prnh/20020729/DAVITALOGO )
Net income for the quarter ended June 30, 2005 included pre-tax Medicare lab recoveries related to prior years' services of $2.6 million and a swap valuation loss of $2.1 million.
Financial and operating highlights include:
-- Cash Flow: Operating cash flow for the quarter ended June 30, 2005
was $106 million and free cash flow was $92 million. For the rolling
12-month period ended June 30, 2005 operating cash flow was $369
million and free cash flow was $321 million, excluding the tax
benefit from stock option exercises and the after-tax benefit of
Medicare lab recoveries related to prior years' services. Including
those items, the rolling 12-month period operating cash flow was
$421 million and free cash flow was $373 million.
-- Operating Income: Operating income for the three months and six
months ended June 30, 2005, was $107.7 million and $213.7 million,
respectively, excluding $2.6 million of Medicare lab recoveries
related to prior years' services.
-- Operating Income Margins: Operating income margins declined to
16.7%. The primary drivers were higher G&A in the quarter and
increased minority interests associated with growth of existing
partnerships as well as the number of new partnerships.
-- Volume: Total treatments for the second quarter were 1,964,098 or
25,181 treatments per day, an increase of 15.2% per day as compared
to the second quarter of last year. Non-acquired treatment growth
was 5.5% for the second quarter.
-- Center Activity: As of June 30, 2005, we operated or provided
administrative services at 706 outpatient centers serving
approximately 57,200 patients. During the second quarter we
acquired 30 centers, including two centers that were previously
minority owned and two centers where we previously provided
administrative services. We opened 15 de novo centers.
Additionally, we merged the operations of one center into one other
existing center and entered into one new management services
relationship.
Gambro Healthcare Acquisition:
We have reached a preliminary agreement with the Federal Trade Commission (FTC) staff to divest approximately 70 DaVita and Gambro Healthcare centers, which represents approximately 6% of the combined number of centers and revenues. We are nearing completion with the FTC on the contents of a consent order. We expect to execute a definitive agreement to sell the divested centers in the near future that would allow us to complete a sale of the centers contemporaneously with our closing of the Gambro acquisition. We currently expect to complete the Gambro acquisition during the next thirty to sixty days. Any consent order, including the terms of the divestitures and approval of any buyer of the divested assets, remains subject to formal approval by the Commissioners of the FTC.
Outlook
We are revising our 2005 operating income guidance; operating income is now expected to be up 4% to 6% over 2004. Our previous guidance was for operating income to be up 2% to 6% over 2004. This guidance is exclusive of the effects of the proposed Gambro Healthcare acquisition and related debt financings. We continue to expect the Gambro Healthcare acquisition together with the related debt financings to be dilutive to EPS in the first year, neutral in the second year and accretive thereafter. On a stand alone basis without regard to the acquisition, we would expect our 2006 operating income to be up 0% to 3% over the 2005 level.
DaVita will be holding a conference call to discuss its second quarter results for 2005 on July 28, 2005, at 11:30 AM 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. Factors which could impact future results include the uncertainties associated with governmental regulations, general economic and other market conditions, acquisitions and the risk factors set forth in the Company's SEC filings, including its Form 10-Q for the quarter ended March 31, 2005. 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 preferred provider
organizations (PPO) and private indemnity patients,
-- possible reductions in private and government reimbursement rates,
-- changes in pharmaceutical practice patterns or reimbursement
policies,
-- 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 and the subpoena from the U.S. Attorney's
Office, Eastern District of Missouri, and
-- our ability to complete acquisitions of businesses, including the
consummation of the Gambro Healthcare acquisition, the number of
centers we expect we will be required to divest and the terms of
such divestitures, terms of the related financing, and subsequent
integration of the business.
We undertake no obligation to update any forward-looking statements, whether as a result of 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 Six months ended
June 30, June 30,
2005 2004 2005 2004
Net operating revenues $649,047 $551,630 $1,259,005 $1,087,061
Operating expenses
and charges:
Patient care costs 435,354 375,139 845,303 738,568
General and
administrative 59,856 45,727 114,119 88,331
Depreciation and
amortization 25,860 20,927 50,708 41,197
Provision for
uncollectible accounts 11,537 9,867 22,423 19,444
Minority interests and
equity income, net 6,125 3,503 10,141 6,221
Total operating
expenses and charges 538,732 455,163 1,042,694 893,761
Operating income 110,315 96,467 216,311 193,300
Debt expense (24,897) (11,258) (42,431) (22,894)
Swap valuation
(loss) gain (2,131) 6,261
Refinancing charges (6,872)
Other income 2,076 667 3,703 2,110
Income before
income taxes 85,363 85,876 176,972 172,516
Income tax expense 32,420 33,475 67,695 67,250
Net income $52,943 $52,401 $109,277 $105,266
Earnings per share:
Basic $0.53 $0.53 $1.09 $1.06
Diluted $0.51 $0.50 $1.06 $1.02
Weighted average
shares:
Basic 100,476,587 99,686,182 99,939,222 98,873,220
Diluted 103,845,030 104,010,356 103,512,444 103,416,270
DAVITA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(dollars in thousands)
Six months ended
June 30,
2005 2004
Cash flows from operating activities:
Net income $109,277 $105,266
Adjustments to reconcile net income
to cash provided by operating activities:
Depreciation and amortization 50,708 41,197
Stock options, principally tax benefits 27,708 25,048
Swap valuation gains (6,261)
Refinancing charges 6,872
Deferred income taxes (11,433) 4,828
Minority interests in income
of consolidated subsidiaries 10,652 7,366
Distributions to minority interests (7,970) (3,634)
Non-cash debt expense 1,505 951
Equity investment income (511) (1,145)
Gain on divestitures (400) (481)
Changes in operating assets and liabilities,
other than from acquisitions and divestitures:
Accounts receivable (27,046) (14,113)
Medicare lab recoveries 19,000
Inventories (2,528) 4,942
Other current assets (685) 3,043
Other long-term assets (94) 2,004
Accounts payable 5,054 (63)
Accrued compensation and benefits 18,314 13,653
Other current liabilities 41,028 18,095
Income taxes 1,221 (6,215)
Other long-term liabilities 2,190 (2,990)
Net cash provided by
operating activities 217,601 216,752
Cash flows from investing activities:
Additions of property and equipment, net (65,905) (55,139)
Acquisitions and divestitures, net (83,990) (31,752)
Investments in and advances
to affiliates, net 4,028 3,988
Intangible assets (780) (580)
Net cash used in investing activities (146,647) (83,483)
Cash flows from financing activities:
Borrowings 1,742,232 1,549,894
Payments on long-term debt (1,752,197) (1,573,338)
Deferred financing costs (29,979)
Stock option exercises 29,772 29,219
Net cash (used in) provided
by financing activities (10,172) 5,775
Net increase in cash and cash equivalents 60,782 139,044
Cash and cash equivalents
at beginning of period 251,979 61,657
Cash and cash equivalents at end of period $312,761 $200,701
DAVITA INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(dollars in thousands, except per share data)
June 30, December 31,
2005 2004
ASSETS
Cash and cash equivalents $312,761 $251,979
Accounts receivable, less allowance
of $65,886 and $58,166 489,970 462,095
Inventories 35,480 31,843
Other current assets 45,017 44,210
Deferred income taxes 95,980 78,593
Total current assets 979,208 868,720
Property and equipment, net 440,601 412,064
Amortizable intangibles, net 83,431 60,719
Investments in third-party dialysis businesses 2,054 3,332
Other long-term assets 12,239 10,898
Goodwill 1,233,960 1,156,226
$2,751,493 $2,511,959
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $101,381 $ 96,231
Other liabilities 198,415 157,214
Accrued compensation and benefits 152,347 133,919
Current portion of long-term debt 4,480 53,364
Income taxes payable 2,228 1,007
Total current liabilities 458,851 441,735
Long-term debt 1,361,387 1,322,468
Other long-term liabilities 22,807 22,570
Deferred income taxes 154,813 148,859
Minority interests 66,805 53,193
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 558,676 542,714
Retained earnings 720,564 611,287
Treasury stock, at cost (33,913,710
and 36,295,339 shares) (591,214) (632,732)
Accumulated comprehensive income valuations (1,331) 1,730
Total shareholders' equity 686,830 523,134
$2,751,493 $2,511,959
DAVITA INC.
SUPPLEMENTAL FINANCIAL DATA
(unaudited)
(dollars in millions, except for per share and per treatment data)
Six months
ended
June 30,
Q2 2005 Q1 2005 Q2 2004 2005
Financial Results:
Net income, including Medicare
lab prior years' recoveries $52.9 $56.3 $52.4 $109.3
Basic EPS $0.53 $0.57 $0.53 $1.09
Diluted EPS $0.51 $0.55 $0.50 $1.06
Operating income, excluding
Medicare lab prior years'
recoveries $107.7 $106.0 $96.5 $213.7
Operating income margin 16.7% 17.4% 17.5% 17.0%
Other comprehensive income
Unrealized (loss) gain on
securities, net of tax
benefit (expense) of $5.7,
$(6.9), $(3.6), and $(1.2) $(9.0) $10.9 $5.7 $1.9
Business Metrics:
Volume
Treatments 1,964,098 1,868,787 1,704,882 3,832,885
Number of treatment days 78.0 77.0 78.0 155.0
Treatments per day 25,181 24,270 21,857 24,728
Per day year over
year increase 15.2% 13.5% 7.9% 14.4%
Non-acquired growth 5.5% 5.6% 4.5% 5.6%
Revenue
Total operating revenue $649 $610 $552 $1,259
Medicare lab prior
years' recoveries $3 $3
Total operating revenue,
excluding Medicare lab
prior years' recoveries $646 $610 $552 $1,256
Dialysis revenue
per treatment $312.52 $310.92 $311.54 $311.74
Per treatment increase
(decrease) from previous
quarter 0.51% (0.1%) 0.2% --
Per treatment increase
from prior year 0.31% 0.0% 3.3% 0.15%
Expenses
A. Patient care costs
Percent of revenue 67.3% 67.2% 68.0% 67.3%
Per treatment $221.66 $219.37 $220.04 $220.54
Per treatment increase
(decrease) from
previous quarter 1.04% (0.9%) 0.3% --
Per treatment increase
from previous year 0.74% 0.0% 3.4% 0.39%
B. General & administrative expenses
Percent of revenue 9.3% 8.9% 8.3% 9.1%
Per treatment $30.48 $29.04 $26.82 $29.77
Per treatment increase
from previous quarter 5.0% 3.6% 4.3% --
Per treatment increase
(decrease) from
previous year 13.6% 13.0% (0.5%) 13.3%
C. Bad debt expense as a
percent of current-period
revenue 1.8% 1.8% 1.8% 1.8%
D. Consolidated effective
tax rate 38.0% 38.5% 39.0% 38.3%
DAVITA INC.
SUPPLEMENTAL FINANCIAL DATA-continued
(unaudited)
(dollars in millions, except for per share and per treatment data)
Six months
ended
June 30,
Q2 2005 Q1 2005 Q2 2004 2005
Cash Flow
Operating cash flow $106.2 $111.4 $90.6 $217.6
Operating cash flow, excluding
Medicare lab prior
years' recoveries $104.6 $111.4 $90.6 $216.0
Operating cash flow, excluding
Medicare lab prior
years' recoveries and tax
benefit from stock
option exercises $92.8 $95.5 $80.0 $188.3
Free cash flow, excluding
Medicare lab prior
years' recoveries $90.0 $103.8 $75.7 $193.7
Free cash flow, excluding
Medicare lab prior years'
recoveries and tax benefit
from stock option exercises $78.2 $87.8 $65.1 $166.0
Capital expenditures:
Development $22.2 $18.1 $15.8 $40.2
Routine maintenance/IT/other $18.6 $7.6 $14.9 $26.3
Acquisition expenditures, net $81.5 $2.5 $14.7 $84.0
Accounts Receivable
Net receivables $490 $473 $402
DSO 70 71 68
Debt/Capital Structure
Total debt $1,366 $1,368 $1,144
Net debt, net of cash $1,053 $1,050 $943
Leverage ratio -- (see Note 1) 1.9x 2.0x 2.0x
Clinical (quarterly averages)
Dialysis adequacy -- % of patients
with Kt/V > 1.2 94% 94% 94%
Patients with arteriovenous
fistula 45% 43% 40%
DAVITA INC.
SUPPLEMENTAL FINANCIAL DATA-continued
(unaudited)
(dollars in thousands)
Note 1:
The leverage ratio under the Company's existing senior secured credit agreement is defined as all funded debt plus the face amount of all letters of credit issued, minus cash and cash equivalents, divided by "EBITDA". The leverage ratio determines the interest rate margin payable by the Company under the existing senior secured 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 indentures governing our recently issued Senior Notes. Such calculation is consistent with the definition of "EBITDA" contained in the existing senior secured credit agreement, except that EBITDA under our existing senior secured credit agreement is based on the last twelve-months and is not based on annualized EBITDA, and pro forma incremental "EBITDA" relating to acquisitions is included in the calculation of "EBITDA" under the existing senior secured credit agreement and is not included in the following calculations.
Q2 2005 Q1 2005 Q2 2004
Net income $52,943 $56,334 $52,401
Debt expense 24,897 17,534 11,258
Refinancing charges 6,872
Income taxes 32,420 35,275 33,475
Depreciation and amortization 25,860 24,848 20,927
Minority interests and
equity income, net 6,125 4,016 3,503
Swap valuation loss (gain) 2,131 (8,392)
Medicare lab prior
years' recoveries (2,641)
"Consolidated EBITDA" as
defined in the indentures $141,735 $136,487 $121,564
Annualized "Consolidated EBITDA"
as defined in the indentures $566,940 $545,948 $486,256
Q2 2005 Q1 2005 Q2 2004
Total debt $1,365,867 $1,368,352 $1,144,115
Letters of credit issued 22,959 22,959 22,984
1,388,826 1,391,311 1,167,099
Less: cash and cash equivalents (312,761) (317,879) (200,701)
$1,076,065 $1,073,432 $966,398
Annualized "Consolidated EBITDA"
as defined in the indentures $566,940 $545,948 $486,256
Leverage Ratio 1.9x 2.0x 2.0x
DAVITA INC.
RECONCILIATIONS FOR NON-GAAP MEASURES
(unaudited)
(dollars in thousands)
1. Operating income, excluding Medicare lab recoveries related to prior years' services:
Six months
ended
June 30,
Q2 2005 Q1 2005 2005 Q2 2004
Operating income $110,315 $105,996 $ 216,311 $96,467
Less: Medicare lab prior
years' recoveries (2,641) (2,641)
$107,674 $105,996 $ 213,670 $96,467
2. Operating cash flow, excluding Medicare lab recoveries related to prior ears' services, and tax benefit from stock option exercises:
Six months Rolling 12-
ended Month Period
June 30, ended
Q2 2005 Q1 2005 2005 Q2 2004 Q2 2005
Cash provided
by operating
activities $106,195 $111,406 $217,601 $90,636 $420,794
Less: Medicare
lab prior
years' recoveries (2,641) (2,641) (10,934)
Related income
tax expense 1,027 1,027 4,261
Operating cash
flow, excluding
Medicare lab
prior years'
recoveries $104,581 $111,406 $215,987 $90,636 $414,121
Less: Tax benefit
from stock
option exercises (11,774) (15,934) (27,708) (10,659) (45,430)
$92,807 $ 95,472 $188,279 $79,977 $368,691
3. Free cash flow and free cash flow, excluding Medicare lab recoveries elated to prior years' services, and tax benefit from stock option exercises:
Free cash flow represents net cash provided by operating activities less on-development capital expenditures. We believe free cash flow is a useful djunct to cash flow from operating activities and other measurements under enerally accepted accounting principles in the United States since it is a eaningful measure of our ability to fund acquisition and development ctivities and meet our debt service requirements. Free cash flow is not a easure of financial performance under generally accepted accounting rinciples in the United States and should not be considered as an alternative o cash flows from operating, investing or financing activities as an ndicator of cash flows or as a measure of liquidity.
Six months Rolling 12-
ended Month Period
June 30, ended
Q2 2005 Q1 2005 2005 Q2 2004 Q2 2005
Cash provided
by operating
activities $106,195 $111,406 $217,601 $90,636 $420,794
Less: Expenditures
for routine
maintenance and
information
technology (14,614) (7,634) (22,248) (14,899) (48,087)
Free cash flow $ 91,581 $103,772 $195,353 $75,737 $372,707
Less: Medicare
lab prior years'
recoveries (2,641) (2,641) (10,934)
Related income
tax expense 1,027 1,027 4,261
Free cash flow,
excluding Medicare
lab prior years'
recoveries $ 89,967 $103,772 $193,739 $75,737 $366,034
Less: Tax benefit
from stock
option exercises (11,774) (15,934) (27,708) (10,659) (45,430)
$78,193 $87,838 $166,031 $65,078 $320,604
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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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