DaVita 2nd 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 six months ended June 30, 2006 included incremental after-tax stock-based compensation expense of $2.8 million and $5.6 million or $0.02 and $0.05 per share, respectively, related to SFAS No. 123®. Net income including discontinued operations for the three and six months ended June 30, 2006 was $63.2 million and $120.7 million or $0.60 and $1.14 per share, respectively.
Financial and operating highlights include:
-- Cash Flow: Operating cash flow for the three months ended
June 30, 2006 was $256 million and free cash flow was $227 million.
For the rolling 12-months ended June 30, 2006 operating cash flow was
$572 million and free cash flow was $482 million, in each case
excluding the tax benefit from stock option exercises and 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 $500 million and free cash flow was $411 million.
-- Operating Income: Operating income for the three months and six months
ended June 30, 2006, was $172 million and $334 million, respectively.
-- Volume: Total treatments for the second quarter were 3,602,567 or
46,187 treatments per day, as compared to 3,501,032 or 45,468
treatments per day for the first quarter of 2006. Non-acquired
treatment growth in the quarter was 4.1% over the prior year's quarter.
-- Center Activity: As of June 30, 2006, we operated or provided
administrative services at 1,255 outpatient centers serving
approximately 100,000 patients. During the second quarter of 2006 we
acquired 8 centers, including one center where we previously provided
management services, opened 10 new centers and closed 3 centers.
Outlook
We are revising our 2006 operating income guidance; operating income is now expected to be in the $670-700 million range. Our previous guidance was for operating income to be in the $600-680 million range. 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 second quarter ended June 30, 2006 on August 2, 2006 at 12 p.m. 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 operating results. 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, 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 preferred provider
organizations and private indemnity patients,
-- 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 Six months ended
June 30, June 30,
2006 2005 2006 2005
Net operating
revenues $1,207,816 $617,085 $2,371,004 $1,195,711
Operating expenses
and charges:
Patient care costs 842,973 413,225 1,660,746 800,740
General and
administrative 111,444 59,856 215,612 114,119
Depreciation and
amortization 41,717 24,933 83,608 48,778
Provision for
uncollectible
accounts 31,230 10,964 61,310 21,289
Minority interests
and equity income,
net 8,700 5,676 15,901 9,494
Total operating
expenses and
charges 1,036,064 514,654 2,037,177 994,420
Operating income 171,752 102,431 333,827 201,291
Debt expense (68,436) (24,885) (138,895) (42,416)
Swap valuation
(loss) gain (2,131) 6,261
Refinancing charges (6,872)
Other income 2,973 2,065 6,847 3,682
Income from continuing
operations before
income taxes 106,289 77,480 201,779 161,946
Income tax expense 41,960 29,353 79,670 61,849
Income from
continuing
operations 64,329 48,127 122,109 100,097
Discontinued operations
Income from
operations of
discontinued
operations, net
of tax 4,816 9,180
Loss on disposal
of discontinued
operations, net
of tax (1,092) (1,403)
Net income $63,237 $52,943 $120,706 $109,277
Earnings per share:
Basic earnings
per share from
continuing
operations $0.62 $0.48 $1.18 $1.00
Basic earnings
per share $0.61 $0.53 $1.17 $1.09
Diluted earnings
per share from
continuing
operations $0.61 $0.46 $1.16 $0.97
Diluted earnings
per share $0.60 $0.51 $1.14 $1.06
Weighted average
shares for earnings
per share:
Basic 103,479,062 100,476,587 103,046,461 99,939,222
Diluted 105,645,208 103,845,030 105,486,027 103,512,444
DAVITA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(dollars in thousands)
Six months ended
June 30,
2006 2005
Cash flows from operating activities:
Net income $120,706 $109,277
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 83,608 50,708
Stock-based compensation expense 11,455 1,862
Tax benefits from stock option exercises 1,574 25,846
Deferred income taxes (20,980) (11,433)
Minority interests in income of
consolidated subsidiaries 17,360 10,652
Distributions to minority interests (13,357) (7,970)
Equity investment income (1,459) (511)
Gain on other dispositions (360) (400)
Loss on disposal of discontinued operations 787 --
Non-cash debt and other expenses 8,880 1,505
Refinancing charges -- 6,872
Swap valuation gain -- (6,261)
Excess tax benefits from stock-based
compensation (22,054) --
Changes in operating assets and liabilities,
net of effect of acquisitions and divestitures:
Accounts receivable (2,555) (15,546)
Inventories (23,282) (2,528)
Other receivables and other current assets (15,522) (12,185)
Other long term assets (1,040) (94)
Accounts payable (20,997) 5,054
Accrued compensation and benefits 60,829 18,314
Other current liabilities 70,714 41,028
Income taxes (24,701) 1,221
Other long-term liabilities 2,920 2,190
Net cash provided by operating activities 232,526 217,601
Cash flows from investing activities:
Additions of property and equipment, net (115,362) (65,905)
Acquisitions and purchases of other
ownership interests (69,578) (88,683)
Proceeds from divestitures and asset sales 21,098 --
Investments in and advances to affiliates,
net 9,981 8,721
Intangible assets (5,630) (780)
Net cash used in investing activities (159,491) (146,647)
Cash flows from financing activities:
Borrowings 2,925,838 1,742,232
Payments on long-term debt (3,139,358) (1,752,197)
Deferred financing costs (2) (29,979)
Excess tax benefits from stock-based
compensation 22,054 --
Stock option exercises and other share
issuances, net 25,941 29,772
Net cash used in financing activities (165,527) (10,172)
Net (decrease) increase in cash and cash
equivalents (92,492) 60,782
Cash and cash equivalents at beginning
of period 431,811 251,979
Cash and cash equivalents at end of period $339,319 $312,761
DAVITA INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(dollars in thousands, except per share data)
June 30, December 31,
2006 2005
ASSETS
Cash and cash equivalents $339,319 $431,811
Accounts receivable, less allowance
of $159,745 and $138,598 859,165 853,560
Inventories 93,362 69,130
Other receivables 135,731 116,620
Other current assets 24,620 38,463
Deferred income taxes 177,426 144,824
Total current assets 1,629,623 1,654,408
Property and equipment, net 787,378 750,078
Amortizable intangibles, net 224,769 235,944
Investments in third-party dialysis businesses 1,936 3,181
Other long-term assets 57,562 41,768
Goodwill 3,640,143 3,594,383
$6,341,411 $6,279,762
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $190,096 $212,049
Other liabilities 449,599 381,964
Accrued compensation and benefits 291,140 231,994
Current portion of long-term debt 5,008 71,767
Income taxes payable 45,204 91,959
Total current liabilities 981,047 989,733
Long-term debt 3,939,047 4,085,435
Other long-term liabilities 27,287 26,416
Alliance and product supply agreement
and other intangibles, net 149,943 163,431
Deferred income taxes 93,251 75,499
Minority interests 107,992 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 602,952 569,751
Retained earnings 960,636 839,930
Treasury stock, at cost (31,280,720
and 32,927,026 shares) (545,313) (574,013)
Accumulated comprehensive income valuations 24,434 14,806
Total shareholders' equity 1,042,844 850,609
$6,341,411 $6,279,762
DAVITA INC.
SUPPLEMENTAL FINANCIAL DATA
(unaudited)
(dollars in millions, except for per share and per treatment data)
Six months
ended
June 30,
Q2 2006 Q1 2006 Q2 2005 2006
Financial Results:
Income from continuing
operations $64.3 $57.8 $48.1 $122.1
Net income $63.2 $57.5 $52.9 $120.7
Diluted earnings per share
from continuing operations $0.61 $0.55 $0.46 $1.16
Diluted earnings per share $0.60 $0.55 $0.51 $1.14
Operating income $171.8 $162.1 $102.4 $333.8
Operating income margin 14.2% 13.9% 16.6% 14.1%
Other comprehensive income
Unrealized gain (loss) on
securities, net of tax
(expense) benefit of
($2.2), ($3.9), $5.7
and ($6.1) $3.4 $6.2 $(9.0) $9.6
Business Metrics:
Volume
Treatments 3,602,567 3,501,032 1,856,522 7,103,599
Number of treatment days 78.0 77.0 78.0 155.0
Treatments per day 46,187 45,468 23,802 45,830
Per day year over year
increase 94.0% 98.7% 15.5% 96.3%
Non-acquired growth
year over year 4.1% 4.6% 5.5% 4.3%
Revenue
Total operating revenue $1,208 $1,163 $617 $2,371
Dialysis revenue per
treatment $318.80 $316.70 $313.49 $317.77
Per treatment increase
from previous quarter 0.66% 2.0% 0.43% --
Per treatment increase
from previous year 1.7% 1.5% 0.35% 1.6%
Expenses
A. Patient care costs
Percent of revenue 69.8% 70.3% 67.3% 70.0%
Per treatment $233.99 $233.58 $222.58 $233.79
Per treatment increase
from previous quarter 0.18% 2.2% 1.2% --
Per treatment increase
from previous year 5.1% 6.2% 0.77% 5.6%
B. General & administrative
expenses
Percent of revenue 9.2% 9.0% 9.7% 9.1%
Per treatment $30.93 $29.75 $32.24 $30.35
Per treatment increase
from previous quarter 4.0% 6.7% 4.7% --
Per treatment (decrease)
increase from previous
year (4.1%) (3.4%) 13.3% (3.8%)
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 39.5% 39.5% 38.0% 39.5%
DAVITA INC.
SUPPLEMENTAL FINANCIAL DATA-continued
(unaudited)
(dollars in millions, except for per share and per treatment data)
Six months
ended
June 30,
Q2 2006 Q1 2006 Q2 2005 2006
Cash Flow
Operating cash flow $256.1 $(23.6) $106.2 $232.5
Operating cash flow,
excluding tax benefit
from stock option
exercises and the income
tax payment on divested
centers $255.5 $60.8 $95.4 $316.3
Free cash flow $227.5 $(43.3) $91.6 $184.2
Free cash flow, excluding
tax benefit from stock
option exercises and the
income tax payment on
divested centers $226.9 $41.1 $80.8 $267.9
Capital expenditures:
Development and
relocations $37.3 $26.3 $22.2 $63.6
Routine maintenance/IT/
other $30.1 $21.7 $18.6 $51.8
Acquisition expenditures $46.7 $22.8 $83.9 $69.6
Accounts Receivable
Net receivables $859 $859 $478
DSO 67 69 70
Debt/Capital Structure
Total debt $3,944 $4,045 $1,366
Net debt, net of cash $3,605 $3,765 $1,053
Leverage ratio (see Note 1) 4.07x 4.29x --
Clinical (quarterly averages)
Dialysis adequacy - % of
patients with Kt/V > 1.2 93% 93% 94%
Patients with arteriovenous
fistula 50% 49% 45%
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 DVA Renal
Healthcare acquisition and related divestitures as well as other routine
acquisitions. 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 June 30, 2006
Income from continuing operations $240,668
Income taxes 155,083
Debt expense 279,739
Depreciation and amortization 169,106
Minority interests and equity income, net 29,433
Swap valuation losses 1,713
Refinancing charges 1,298
Other 7,788
Stock-based compensation expense 13,259
"Consolidated EBITDA" $898,087
June 30,
2006
Total debt $3,944,055
Letters of credit issued 50,345
3,994,400
Less: cash and cash equivalents (339,319)
Consolidated net debt $3,655,081
Last twelve months "Consolidated EBITDA" $898,087
Leverage ratio 4.07x
In accordance with the Company's Credit Agreement, the Company's leverage
ratio can not exceed 6.0 to 1.0 as of June 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. Operating cash flow, excluding tax benefit from stock option exercises
and income tax payment on divested centers:
We believe that operating cash flow excluding tax benefit from stock
option exercises and 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 is comparable
to prior periods and indicative of consistent operating cash flow items,
and because it excludes certain non-recurring transactions that can cause
unusual fluctuations in our operating cash flows. 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.
Rolling
Six months 12-Month
ended Period
June 30, ended
Q2 2006 Q1 2006 2006 Q2 2005 Q2 2006
Cash
(used in)
provided by
operating
activities $256,090 $(23,564) $232,526 $106,195 $500,479
Less: Tax
benefit
from stock
option
exercises (591) (983) (1,574) (10,753) (14,212)
Income tax
payment on
divested
centers -- 85,328 85,328 -- 85,328
$255,499 $60,781 $316,280 $95,442 $571,595
2. Free cash flow and free cash flow, excluding tax benefit from stock
option exercises and 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.
Rolling
Six months 12-Month
ended Period
June 30, ended
Q2 2006 Q1 2006 2006 Q2 2005 Q2 2006
Cash
(used in)
provided by
operating
activities $256,090 $(23,564) $232,526 $106,195 $500,479
Less:
Expenditures
for routine
maintenance
and
information
technology (28,640) (19,726) (48,366) (14,614) (89,757)
Free cash
flow $227,450 $(43,290) $184,160 $91,581 $410,722
Less: Tax
benefit
from
stock
option
exercises (591) (983) (1,574) (10,753) (14,212)
Income tax
payments on
divested
centers -- 85,328 85,328 -- 85,328
$226,859 $41,055 $267,914 $80,828 $481,838
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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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