EX-99.1 2 dex991.htm PRESS RELEASE Press Release

EXHIBIT 99.1

LOGO

 

Contact:

    LeAnne Zumwalt
   Investor Relations
   DaVita Inc.
   (650) 696-8910

DAVITA 2nd QUARTER 2007 RESULTS

El Segundo, California, August 2, 2007 – DaVita Inc. (NYSE: DVA), today announced results for the quarter ended June 30, 2007. Income from continuing operations for the three and six months ended June 30, 2007 excluding the valuation gain on the Company’s Product Supply Agreement with Gambro Renal Products, and excluding after-tax gains on the sale of investment securities was $88.7 million and $165.2 million, or $0.83 and $1.55 per share, respectively, as compared with $64.3 million and $122.1 million, or $0.61 and $1.16 per share, respectively, for the same periods of 2006.

Income from continuing operations for the three and six months ended June 30, 2007 including the valuation gain on the Product Supply Agreement and the gains on the sale of investment securities was $125.0 million and $201.6 million, or $1.17 and $1.89 per share, respectively.

Financial and operating highlights include:

 

•  

Cash Flow: For the rolling 12-months ended June 30, 2007 operating cash flow was $501 million and free cash flow was $389 million. For the three months ended June 30, 2007, operating cash flow was $126 million and free cash flow was $102 million.

 

•  

Operating Income: Operating income for the three and six months ended June 30, 2007 excluding the pre-tax valuation gain on the Product Supply Agreement of $55 million, was $206 million and $399 million, respectively.

 

•  

Volume: Total treatments for the second quarter of 2007 were 3,792,419 or 48,621 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 4.6% over the prior year’s second quarter.

 

•  

Center Activity: As of June 30, 2007, we operated or provided administrative services at 1,321 outpatient dialysis centers serving approximately 106,000 patients, which includes 32 third-party owned centers serving approximately 3,000 patients. During the second quarter of 2007, we acquired 4 centers, opened 10 new centers, and divested one center.

 

•  

Effective Tax Rate: We still expect the annual effective tax rate for 2007 to be in the range of 39.0%—40.0%.

Outlook

We are revising our 2007 operating income guidance: operating income is now expected to be in the $790-$820 million range. Our previous guidance was for operating income to be in the range of $740-$780 million. Our operating income guidance for 2008, excluding the impact of any potential Medicare legislation, is projected to be in the range of $790-$850 million. We are entering into a period of unusual earnings uncertainty. Therefore the guidance range for 2008 does not capture as high a percentage of the potential outcomes as usual. 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, 2007 on August 2, 2007 at 5PM 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 2007 and 2008 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 March 31, 2007. 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 or anemia management 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 resolution of various investigations by the U.S. Attorney’s Office for the Eastern District of New York, the U.S. Attorney’s Office for the Eastern District of Missouri, the Office of the Inspector General’s Office in Houston, Texas, and DVA Renal Healthcare’s compliance with its corporate integrity agreement,

 

  •  

our ability to complete and integrate acquisitions of businesses, and

 

  •  

the successful integration of DVA Renal Healthcare’s 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

June 30,

    

Six months ended

June 30,

  
     2007     2006     2007     2006  

Net operating revenues

    $ 1,312,735     $ 1,207,816     $ 2,590,901     $ 2,371,004  

Operating expenses and charges:

         

Patient care costs

      891,013       842,973       1,772,598       1,660,746  

General and administrative

      122,432       111,444       235,653       215,612  

Depreciation and amortization

      47,058       41,717       92,848       83,608  

Provision for uncollectible accounts

      33,944       31,230       67,579       61,310  

Minority interests and equity income, net

      12,346       8,700       22,964       15,901  

Valuation gain on Alliance and Product Supply Agreement

      (55,275 )     —         (55,275 )     —    
                                

Total operating expenses and charges

      1,051,518       1,036,064       2,136,367       2,037,177  
                                

Operating income

      261,217       171,752       454,534       333,827  

Debt expense

      (62,911 )     (68,436 )     (131,781 )     (138,895 )

Other income

      7,658       2,973       10,853       6,847  
                                

Income from continuing operations before income taxes

      205,964       106,289       333,606       201,779  

Income tax expense

      80,940       41,960       132,000       79,670  
                                

Income from continuing operations

      125,024       64,329       201,606       122,109  

Discontinued operations

         

Loss on disposal of discontinued operations, net of tax

      —         (1,092 )     —         (1,403 )
                                

Net income

    $ 125,024     $ 63,237     $ 201,606     $ 120,706  
                                

Earnings per share:

         

Basic earnings per share from continuing operations

    $ 1.19     $ 0.62     $ 1.92     $ 1.18  
                                

Basic earnings per share

    $ 1.19     $ 0.61     $ 1.92     $ 1.17  
                                

Diluted earnings per share from continuing operations

    $ 1.17     $ 0.61     $ 1.89     $ 1.16  
                                

Diluted earnings per share

    $ 1.17     $ 0.60     $ 1.89     $ 1.14  
                                

Weighted average shares for earnings per share:

         

Basic

      105,451,306       103,479,062       105,246,995       103,046,461  
                                

Diluted

      107,011,248       105,645,208       106,879,727       105,486,027  
                                

 

3

DAVITA INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(dollars in thousands)

 

    

Six months ended

June 30,

  
     2007     2006  

Cash flows from operating activities:

     

Net income

    $ 201,606     $ 120,706  

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

     

Depreciation and amortization

      92,848       83,608  

Valuation gain on Alliance and Product Supply Agreement

      (55,275 )     —    

Stock-based compensation expense

      16,326       11,455  

Tax benefits from stock award exercises

      12,481       23,628  

Excess tax benefits from stock-based compensation

      (10,516 )     (22,054 )

Deferred income taxes

      27,458       (20,980 )

Minority interests in income of consolidated subsidiaries

      23,502       17,360  

Distributions to minority interests

      (25,230 )     (13,357 )

Equity investment income

      (538 )     (1,459 )

(Gain) loss on disposal of discontinued operations and other dispositions

      (1,866 )     427  

Non-cash debt and non-cash rent charges

      8,430       8,880  

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

     

Accounts receivable

      (27,427 )     (2,555 )

Inventories

      19,503       (23,282 )

Other receivables and other current assets

      (33,793 )     (15,522 )

Other long term assets

      (5,095 )     (1,040 )

Accounts payable

      (31,146 )     (20,997 )

Accrued compensation and benefits

      (701 )     60,829  

Other current liabilities

      13,891       70,714  

Income taxes

      (10,292 )     (46,755 )

Other long-term liabilities

      (234 )     2,920  
                

Net cash provided by operating activities

      213,932       232,526  
                

Cash flows from investing activities:

     

Purchase of investments

      (37,076 )     —    

Additions of property and equipment, net

      (104,999 )     (115,362 )

Acquisitions and purchases of other ownership interests

      (6,262 )     (69,578 )

Proceeds from divestitures and asset sales

      622       21,098  

Proceeds from sale of investments

      25,418       —    

Investments in and advances to affiliates, net

      13,476       9,981  

Purchase of intangible assets

      (556 )     (5,630 )
                

Net cash used in investing activities

      (109,377 )     (159,491 )
                

Cash flows from financing activities:

     

Borrowings

      8,227,417       2,925,838  

Payments on long-term debt

      (8,271,098 )     (3,139,358 )

Deferred financing costs

      (4,228 )     (2 )

Excess tax benefits from stock-based compensation

      10,516       22,054  

Stock option exercises and other share issuances, net

      19,538       25,941  
                

Net cash used in financing activities

      (17,855 )     (165,527 )
                

Net increase (decrease) in cash and cash equivalents

      86,700       (92,492 )

Cash and cash equivalents at beginning of period

      310,202       431,811  
                

Cash and cash equivalents at end of period

    $ 396,902     $ 339,319  
                

 

4

DAVITA INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

(dollars in thousands, except per share data)

 

     June 30,
2007		     December 31,
2006		  
ASSETS     

Cash and cash equivalents

    $ 396,902     $ 310,202  

Short-term investments

      21,947       4,734  

Accounts receivable, less allowance of $184,538 and $171,757

      959,812       932,385  

Inventories

      69,860       89,119  

Other receivables

      172,299       148,842  

Other current assets

      33,326       25,124  

Deferred income taxes

      233,334       199,090  
                

Total current assets

      1,887,480       1,709,496  

Property and equipment, net

      866,370       849,966  

Amortizable intangibles, net

      186,968       203,721  

Investments in third-party dialysis businesses

      1,984       1,813  

Long-term investments

      14,179       13,174  

Other long-term assets

      47,487       45,793  

Goodwill

      3,666,914       3,667,853  
                
   $ 6,671,382     $ 6,491,816  
                
LIABILITIES AND SHAREHOLDERS’ EQUITY     

Accounts payable

    $ 220,540     $ 251,686  

Other liabilities

      484,238       473,219  

Accrued compensation and benefits

      336,939       341,766  

Current portion of long-term debt

      9,564       20,871  

Income taxes payable

      22,188       24,630  
                

Total current liabilities

      1,073,469       1,112,172  

Long-term debt

      3,698,403       3,730,380  

Other long-term liabilities

      57,887       50,076  

Alliance and product supply agreement

      43,973       105,263  

Deferred income taxes

      163,293       125,642  

Minority interests

      133,701       122,359  

Commitments and contingencies

     

Shareholders’ 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; 134,862,283 shares issued; 105,646,605 and 104,636,608 shares outstanding)

      135       135  

Additional paid-in capital

      661,703       630,091  

Retained earnings

      1,335,118       1,129,621  

Treasury stock, at cost (29,215,678 and 30,225,675 shares)

      (509,313 )     (526,920 )

Accumulated other comprehensive income

      13,013       12,997  
                

Total shareholders’ equity

      1,500,656       1,245,924  
                
   $ 6,671,382     $ 6,491,816  
                

 

5

DAVITA INC.

SUPPLEMENTAL FINANCIAL DATA

(unaudited)

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

 

     Three months ended     Six months
ended
June 30, 2007		  
     June 30,
2007		     March 31,
2007		     June 30,
2006		    
Financial Results excluding the valuation gain on the Product Supply Agreement and gains on sale of investment securities for the quarter and the six months ended June 30, 2007:         

Income from continuing operations (1)

    $ 88.7     $ 76.6     $ 64.3     $ 165.2  

Net income (1)

    $ 88.7     $ 76.6     $ 63.2     $ 165.2  

Diluted earnings per share from continuing operations

    $ 0.83     $ 0.72     $ 0.61     $ 1.55  

Diluted earnings per share

    $ 0.83     $ 0.72     $ 0.60     $ 1.55  

Operating income (1)

    $ 205.9     $ 193.3     $ 171.8     $ 399.3  

Operating income margin

      15.7 %     15.1 %     14.2 %     15.4 %

Other comprehensive income

         

Unrealized (loss) gain on securities, net of tax benefit (expense) of $0.5, ($0.5), ($2.2)

    $ (0.8 )   $ 0.8     $ 3.4     $ —    
Business Metrics:         

Volume

         

Treatments

      3,792,419       3,700,271       3,602,567       7,492,690  

Number of treatment days

      78.0       77.4       78.0       155.4  

Treatments per day

      48,621       47,807       46,187       48,216  

Per day year over year increase

      5.3 %     5.1 %     94.0 %     5.2 %

Non-acquired growth year over year

      4.6 %     4.0 %     4.1 %     4.3 %

Revenue

         

Total operating revenue

    $ 1,313     $ 1,278     $ 1,208     $ 2,591  

Dialysis revenue per treatment, including the lab

    $ 337.94     $ 337.84     $ 329.02     $ 337.89  

Per treatment increase from previous quarter

      0.03 %     1.0 %     0.8 %     —    

Per treatment increase from previous year

      2.7 %     3.5 %     1.5 %     3.1 %

Expenses

         

A.      Patient care costs

         

Percent of revenue

      67.9 %     69.0 %     69.8 %     68.4 %

Per treatment

    $ 234.95     $ 238.25     $ 233.99     $ 236.58  

Per treatment (decrease) increase from previous quarter

      (1.4 )%     1.7 %     0.2 %     —    

Per treatment increase from previous year

      0.4 %     2.0 %     5.1 %     1.2 %

B.      General & administrative expenses

         

Percent of revenue

      9.3 %     8.9 %     9.2 %     9.1 %

Per treatment

    $ 32.28     $ 30.60     $ 30.93     $ 31.45  

Per treatment increase (decrease) from previous quarter

      5.5 %     (8.5 )%     4.0 %     —    

Per treatment increase (decrease) from previous year

      4.4 %     2.9 %     (4.1 )%     3.6 %

C.      Bad debt expense as a percent of current-period revenue

      2.6 %     2.6 %     2.6 %     2.6 %

D.      Consolidated effective tax rate from continuing operations

      39.3 %     40.0 %     39.5 %     39.6 %
(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.

 

6

DAVITA INC.

SUPPLEMENTAL FINANCIAL DATA—continued

(unaudited)

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

 

     Three months ended    

Six months

ended
June 30, 2007

     June 30,
2007		     March 31,
2007		     June 30,
2006		    

Cash Flow

         

Operating cash flow

    $ 125.9     $ 88.0     $ 256.1     $ 213.9

Operating cash flow, last twelve months

    $ 501.0     $ 631.2     $ 500.5     $ —  

Operating cash flow excluding the income tax payment on divested centers last twelve months (1)

    $ 501.0     $ 631.2     $ 585.8     $ —  

Free cash flow (1)

    $ 101.7     $ 61.4     $ 227.5     $ 163.2

Free cash flow, last twelve months (1)

    $ 389.5     $ 515.2     $ 410.7     $ —  

Free cash flow excluding the income tax payment on divested centers last twelve months (1)

    $ 389.5     $ 515.2     $ 496.1     $ —  

Capital expenditures:

         

Development and relocations

    $ 30.8     $ 22.5     $ 37.3     $ 53.4

Routine maintenance/IT/other

    $ 24.7     $ 26.9     $ 30.1     $ 51.6

Acquisition expenditures

    $ 6.1       —       $ 46.7     $ 6.3

Accounts Receivable

         

Net receivables

    $ 960     $ 907     $ 859    

DSO

      69       66       67    

Debt/Capital Structure

         

Total debt, excluding debt premium of $5 million

    $ 3,703     $ 3,750     $ 3,944    

Net debt, net of cash, excluding debt premium of $5 million

    $ 3,306     $ 3,394     $ 3,605    

Leverage ratio (see Note 1)

      3.23 x     3.48 x     4.07 x  

Clinical (quarterly averages)

         

Dialysis adequacy - % of patients with Kt/V > 1.2

      93.4 %     92.9 %     93.1 %  

Patients with albumin ³ 3.5

      83.8 %     83.1 %     83.5 %  

Patients with HCT ³ 33

      83.8 %     85.1 %     85.1 %  
(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.

 

7

DAVITA INC.

SUPPLEMENTAL FINANCIAL DATA—continued

(unaudited)

(dollars in thousands)

Note 1: Calculation of the Leverage Ratio

Under the Company’s current Senior Secured Credit Facilities (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 for its term loan A and revolving line of credit 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 June 30, 2007

  

Income from continuing operations

    $ 368,826  

Income taxes

      238,760  

Debt expense including the write-off of deferred financing costs

      269,412  

Depreciation and amortization

      182,535  

Minority interests and equity income, net

      42,896  

Valuation gain on Product Supply Agreement

      (93,243 )

Other

      (2,650 )

Stock-based compensation expense

      31,261  
        

“Consolidated EBITDA”

    $ 1,037,797  
        
     June 30, 2007  

Total debt, excluding debt premium of $5 million

    $ 3,703,127  

Letters of credit issued

      50,131  
        
     3,753,258  

Less: cash and cash equivalents

      (396,902 )
        

Consolidated net debt

    $ 3,356,356  
        

Last twelve months “Consolidated EBITDA”

    $ 1,037,797  
        

Leverage ratio

      3.23 x
        

In accordance with the Company’s Credit Agreement, the Company’s leverage ratio cannot exceed 5.75 to 1.0 as of June 30, 2007. At that date, the Company’s leverage ratio did not exceed 5.75 to 1.0.

 

8

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 and gains on the sale of investment securities:

We believe that income from continuing operations and net income excluding the valuation gain on the Product Supply Agreement and gains on the sale of investment securities 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 the termination of our purchase obligation for dialysis machines from Gambro Renal Products Inc. under the Amended Product Supply Agreement and non-recurring gains on the sale of investment securities 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.

 

     Three months ended    Six months
ended
June 30,
2007		  
     June 30,
2007		     March 31,
2007		   

June 30,

2006

   

Income from continuing operations

    $ 125,024     $ 76,582    $ 64,329    $ 201,606  

Less: Valuation gain

      (55,275 )     —        —        (55,275 )

Gain on the sale of investment securities

      (4,234 )     —        —        (4,234 )

Add: Related income tax

      23,149       —        —      $ 23,149  
                              
   $ 88,664     $ 76,582    $ 64,329    $ 165,246  
                              

Net income

    $ 125,024     $ 76,582    $ 63,237    $ 201,606  

Less: Valuation gain

      (55,275 )     —        —        (55,275 )

Gain on the sale of investment securities

      (4,234 )     —        —        (4,234 )

Add: Related income tax

      23,149       —        —        23,149  
                              
   $ 88,664     $ 76,582    $ 63,237    $ 165,246  
                              

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 the termination of our purchase obligation for dialysis machines from Gambro Renal Products Inc. under the Amended 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.

 

     Three months ended    Six months
ended
June 30,
2007		  
     June 30,
2007		     March 31,
2007		   

June 30,

2006

   

Operating income

    $ 261,217     $ 193,317    $ 171,752    $ 454,534  

Less: Valuation gain

      (55,275 )     —        —        (55,275 )
                              
   $ 205,942     $ 193,317    $ 171,752    $ 399,259  
                              

 

9

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.

 

     Rolling 12-Month Period
    

June 30,

2007

    March 31,
2007		   

June 30,

2006

Cash provided by operating activities

    $ 500,977    $ 631,166    $ 500,479

Income tax payment on divested centers

      —        —        85,328
                    
   $ 500,977    $ 631,166    $ 585,807
                    

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 capital expenditures for routine maintenance and information technology. We believe free cash flow and free cash flow excluding the income tax payment on divested centers are useful adjuncts to cash flow from operating activities and other measurements under United States generally accepted accounting principles, since free cash flow is a meaningful measure of our ability to fund acquisition and development activities and meet our debt service requirements and because free cash flow excluding the income tax payment on divested centers excludes a non-recurring transaction that can cause unusual fluctuations in our free cash flows and accordingly is more comparable to prior periods and indicative of consistent free cash items. Free cash flow and free cash flow excluding the income tax payment on divested centers are not measures 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.

 

     Three months ended     Six months
ended
June 30,
2007		  
     June 30,
2007		     March 31,
2007		    

June 30,

2006

    

Cash provided by operating activities

    $ 125,901     $ 88,031     $ 256,090     $ 213,932  

Less: Expenditures for routine maintenance and information technology

      (24,157 )     (26,589 )     (28,640 )     (50,746 )
                                

Free cash flow

    $ 101,744     $ 61,442     $ 227,450     $ 163,186  
                                

 

     Rolling 12-Month Period  
    

June 30,

2007

     March 31,
2007		    

June 30,

2006

  

Cash provided by operating activities

    $ 500,977     $ 631,166     $ 500,479  

Less: Expenditures for routine maintenance and information technology

      (111,511 )     (115,994 )     (89,757 )
                        

Free cash flow

    $ 389,466     $ 515,172     $ 410,722  

Income tax payment on divested centers

      —         —         85,328  
                        
   $ 389,466     $ 515,172     $ 496,050  
                        

 

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