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DaVita Inc. 3rd Quarter 2016 Results

Published: Nov 03, 2016

DENVER, Nov. 2, 2016 /PRNewswire/ -- DaVita Inc. (NYSE: DVA) today announced results for the quarter ended September 30, 2016. Net income attributable to DaVita Inc. for the three months ended September 30, 2016 was $571 million, or $2.76 per share, which included a gain on changes in ownership interest upon the formation of the Asia Pacific dialysis joint venture (APAC JV), as discussed below.

Adjusted net income attributable to DaVita Inc. for the three months ended September 30, 2016 excluding this item was $197 million, or $0.95 per share.

Net income attributable to DaVita Inc. for the nine months ended September 30, 2016 was $722 million, or $3.48 per share, which included goodwill impairment charges related to certain DaVita Medical Group (DMG, formerly known as HealthCare Partners or HCP) reporting units, a gain on the APAC JV ownership changes, a gain on the sale of a portion of our Tandigm ownership interest, a loss on the sale of our DMG Arizona business, and an estimated accrual for damages and liabilities associated with our DMG Nevada hospice business.

Adjusted net income attributable to DaVita Inc. for the nine months ended September 30, 2016 excluding these items was $597 million, or $2.88 per share.

Additionally, adjusted net income attributable to DaVita Inc. for the three and nine months ended September 30, 2016, excluding the items listed above from their respective periods and excluding the amortization of intangible assets associated with acquisitions, was $223 million, or $1.08 per share, and $675 million, or $3.25 per share, respectively.

Net income attributable to DaVita Inc. for the three months ended September 30, 2015 was $216 million, or $1.00 per share.

Net income attributable to DaVita Inc. for the nine months ended September 30, 2015 was $276 million, or $1.27 per share, which included debt redemption charges, goodwill impairment charges, a settlement charge related to a private civil suit and a related tax adjustment. Adjusted net income attributable to DaVita Inc. for the nine months ended September 30, 2015 excluding these items was $614 million, or $2.82 per share.

Additionally, adjusted net income attributable to DaVita Inc. for the three and nine months ended September 30, 2015, excluding the items listed above from their respective periods and excluding the amortization of intangible assets associated with acquisitions, was $241 million, or $1.11 per share, and $691 million, or $3.18 per share, respectively.

For reconciliations of these non-United States generally accepted accounting principles (GAAP) financial measures to their most comparable measure calculated and presented in accordance with GAAP, see the attached reconciliation schedules.

Financial and operating highlights include:

  • Cash Flow:  For the rolling twelve months ended September 30, 2016, operating cash flow was $1,918 million and free cash flow was $1,339 million. For the three months ended September 30, 2016, operating cash flow was $536 million and free cash flow was $386 million. For the definition of free cash flow, see Note 4 to the reconciliation of non-GAAP measures.

  • Operating Income and Adjusted Operating Income:  Operating income for the three months ended September 30, 2016 was $819 million, which included a gain on the APAC JV ownership changes and an adjustment to reduce a receivable associated with the DMG acquisition escrow provision relating to an income tax item, as discussed below. Adjusted operating income for the three months ended September 30, 2016 excluding these items was $472 million. Operating income for the nine months ended September 30, 2016 was $1,513 million including goodwill impairment charges, a gain on the APAC JV ownership changes, a gain on the sale of a portion of our Tandigm ownership interest, a loss on the sale of our DMG Arizona business, an adjustment to reduce a receivable associated with the DMG acquisition escrow provision relating to an income tax item, and the estimated DMG Nevada hospice accrual. Adjusted operating income for the nine months ended September 30, 2016 excluding these items was $1,405 million.

    In connection with the acquisition of DMG, we recorded a receivable against the acquisition escrow balance to offset specific potential tax liabilities. Certain of these potential tax liabilities expired, resulting in the reduction of this asset during the third quarter of 2016. This negatively impacted operating income by $27 million and is included in our general and administrative expenses. The reduction in operating income was directly offset by a reduction in income tax expense due to the expiration of the corresponding tax liability.

    Operating income for the three months ended September 30, 2015 was $509 million. Operating income for the nine months ended September 30, 2015 was $926 million, which included a goodwill impairment charge of $4 million and a settlement charge related to a private civil suit. Adjusted operating income for the nine months ended September 30, 2015, excluding these items was $1,425 million.

  • Gain on Changes in Ownership Interests: Effective August 1, 2016, we consummated an agreement with Khazanah Nasional Berhad (Khazanah) and Mitsui and Co., Ltd (Mitsui) whereby Khazanah and Mitsui subscribed to invest a total of $300 million over three years in exchange for a 40% total equity interest in our Asia Pacific dialysis business. Khazanah and Mitsui each made related initial investments of $50 million in this business on August 1, 2016. As a result of this transaction, we deconsolidated our Asia Pacific dialysis business at that time and recognized a non-cash gain of $374 million on our retained interest in the APAC JV.

  • Trade Name: As of September 1, 2016, we committed to a plan to change the HCP trade name to DMG. As a result of this decision, we began to accelerate the amortization of the remaining carrying value of the HCP trade name which resulted in additional amortization of $2 million for the three months ended September 30, 2016. This additional non-cash amortization will continue at a rate of approximately $7 million per quarter through the first quarter of 2019.

  • Volume: Total U.S. dialysis treatments for the third quarter of 2016 were 6,887,992, or 87,190 treatments per day, representing a per day increase of 4.2% over the third quarter of 2015. Normalized non-acquired treatment growth in the third quarter of 2016 as compared to the third quarter of 2015 was 4.4%.

    The number of member months for which DMG provided care during the third quarter of 2016 was approximately 2.3 million, of which approximately 1.0 million, 1.0 million and 0.3 million related to Medicare, commercial and Medicaid members, respectively.

  • Effective Tax Rate: Our effective tax rate was 14.6% and 30.2% for the three and nine months ended September 30, 2016, respectively. The effective tax rate attributable to DaVita Inc. was 15.4% and 33.6% for the three and nine months ended September 30, 2016, respectively. Our effective tax rate for the three and nine months ended September 30, 2016 was impacted by the gain on the APAC JV ownership changes, an adjustment related to the reduction in a receivable associated with the DMG acquisition escrow provision relating to an income tax item, and the amount of third-party owners' income attributable to non-tax paying entities. Additionally, the effective tax rate for the nine months ended September 30, 2016 was impacted by the non-deductible goodwill impairment charges, the loss on the sale of our DMG Arizona business and the non-deductible estimated DMG Nevada hospice accrual. The adjusted effective tax rate attributable to DaVita Inc. for the three and nine months ended September 30, 2016, excluding these items from their respective periods was 40.0% and 39.0%, respectively.

    We currently estimate our 2016 adjusted effective tax rate attributable to DaVita Inc. to be approximately 39.0%, excluding the gain on the APAC JV ownership changes, goodwill impairment charges, the loss on the sale of our DMG Arizona business, the estimated DMG Nevada hospice accrual and the income tax adjustment related to the reduction in a receivable associated with the DMG acquisition escrow provision relating to an income tax item.

    We do not provide guidance for our estimated 2016 effective tax rate attributable to DaVita Inc. on a GAAP basis nor a reconciliation of that forward-looking non-GAAP financial measure to the most directly comparable GAAP financial measure on a forward-looking basis because we are unable to predict certain items contained in the GAAP measure without unreasonable efforts.

  • Center Activity: As of September 30, 2016, we provided dialysis services to a total of approximately 199,000 patients at 2,457 outpatient dialysis centers, of which 2,318 centers were located in the United States and 139 centers were located in 11 countries outside of the United States. During the third quarter of 2016, we opened a total of 28 new dialysis centers and closed three dialysis centers in the United States. We also acquired eight dialysis centers and opened four new dialysis center outside of the United States.

  • Share Repurchases: During the three months ended September 30, 2016, we repurchased a total of 6,240,694 shares of our common stock for $407 million, or an average price of $65.15 per share. During the nine months ended September 30, 2016, we repurchased 9,930,432 shares of our common stock for $656 million, or an average price of $66.07 per share. We also repurchased 3,367,024 shares of our common stock for $212 million, or an average price of $63.07 per share, subsequent to September 30, 2016. As a result of these transactions, as of October 31, 2016 we have a total of approximately $881 million in outstanding Board repurchase authorizations.

Outlook

The following forward-looking measures and the underlying assumptions involve significant risks and uncertainties, including those described below, and actual results may vary significantly from these current forward-looking measures. We do not provide guidance for consolidated operating income, Kidney Care operating income or DMG operating income on a GAAP basis nor a reconciliation of those forward-looking non-GAAP financial measures to the most directly comparable GAAP financial measures on a forward-looking basis because we are unable to predict certain items contained in the GAAP measures without unreasonable efforts. These non-GAAP financial measures do not include certain items, including goodwill impairment charges, the gain on the sale of a portion of our Tandigm ownership interest, the loss on the sale of our DMG Arizona business, the estimated accrual associated with the DMG Nevada hospice business, an adjustment related to the reduction in a receivable associated with the DMG acquisition escrow provision relating to an income tax item and a gain on the APAC JV ownership changes.

  • We are updating our adjusted consolidated operating income guidance for 2016 to be in the range of $1.810 billion to $1.870 billion.

Our previous adjusted consolidated operating income guidance for 2016 was in the range of $1.785 billion to $1.875 billion.

  • We are updating our adjusted operating income guidance for Kidney Care for 2016 to be in the range of $1.695 billion to $1.725 billion.

Our previous operating income guidance for Kidney Care for 2016 was in the range of $1.675 billion to $1.725 billion.

  • We are updating our adjusted operating income guidance for DMG for 2016 to be in the range of $115 million to $145 million.

Our previous adjusted operating income guidance for DMG for 2016 was in the range of $110 million to $150 million.

  • We are updating our consolidated operating cash flow for 2016 to be in the range of $1.750 billion to $1.850 billion.

    Our previous consolidated operating cash flow for 2016 was in the range of $1.600 billion to $1.750 billion.

We will be holding a conference call to discuss our results for the third quarter ended September 30, 2016 on November 2, 2016 at 5:00 p.m. Eastern Time. To join the conference call, please dial (877) 918-6630 from the U.S. or (517) 308-9087 from outside the U.S. A replay of the conference call will be available on our website at investors.davita.com, for the following 30 days.

This release contains forward-looking statements within the meaning of the federal securities laws, including statements related to our guidance and expectations for our 2016 consolidated operating income, our 2016 Kidney Care operating income, DMG's 2016 operating income, our 2016 consolidated operating cash flows, our 2016 effective tax rate attributable to DaVita Inc. and our estimated charges and accruals. Factors that could impact future results include the uncertainties associated with the risk factors set forth in our SEC filings, including our annual report on Form 10-K for the year ended December 31, 2015, our subsequent quarterly and annual reports, and our current reports on Form 8-K. The forward-looking statements should be considered in light of these risks and uncertainties.

These risks and uncertainties include, but are not limited to, and are qualified in their entirety by reference to the full text ofthose risk factors in our SEC filings relating to:

  • the concentration of profits generated by higher-paying commercial payor plans for which there is continued downward pressure on average realized payment rates, and a reduction in the number of patients under such plans, which may result in the loss of revenues or patients, and the extent to which the ongoing implementation of healthcare exchanges or changes in regulations or enforcement of regulations regarding the exchanges results in a reduction in reimbursement rates for our services from and/or the number of patients enrolled in higher-paying commercial plans,
  • a reduction in government payment rates under the Medicare End Stage Renal Disease program or other government-based programs,
  • the impact of the Medicare Advantage benchmark structure,
  • risks arising from potential federal and/or state legislation that could have an adverse effect on our operations and profitability,
  • changes in pharmaceutical or anemia management practice patterns, payment policies, or pharmaceutical pricing,
  • legal compliance risks, including our continued compliance with complex government regulations and the provisions of our current corporate integrity agreement and current or potential investigations by various government entities and related government or private-party proceedings, and restrictions on our business and operations required by our corporate integrity agreement and other settlement terms, and the financial impact thereof,
  • continued increased competition from large- and medium-sized dialysis providers that compete directly with us,
  • our ability to maintain contracts with physician medical directors, changing affiliation models for physicians, and the emergence of new models of care introduced by the government or private sector, that may erode our patient base and reimbursement rates, such as accountable care organizations, independent practice associations and integrated delivery systems,
  • our ability to complete acquisitions, mergers or dispositions that we might be considering or announce, or to integrate and successfully operate any business we may acquire or have acquired, including DMG, or to expand our operations and services to markets outside the United States, or to businesses outside of dialysis and DMG's business,
  • the variability of our cash flows,
  • the risk that we might invest material amounts of capital and incur significant costs in connection with the growth and development of our international operations, yet we might not be able to operate them profitably anytime soon, if at all,
  • risks arising from the use of accounting estimates, judgments and interpretations in our financial statements,
  • the risk that laws regulating the corporate practice of medicine could restrict the manner in which DMG conducts its business,
  • the risk that the cost of providing services under DMG's agreements may exceed our compensation,
  • the risk that reductions in reimbursement rates, including Medicare Advantage rates, and future regulations may negatively impact DMG's business, revenue and profitability,
  • the risk that DMG may not be able to successfully establish a presence in new geographic regions or successfully address competitive threats that could reduce its profitability,


    • To read full press release, please click here.

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