DaVita Inc. 1st Quarter 2019 Results

May 7, 2019 |

12 min read

DaVita Inc. announced results for the quarter ended March 31, 2019.

DENVER, May 7, 2019 /PRNewswire/ -- DaVita Inc. (NYSE: DVA) today announced results for the quarter ended March 31, 2019.

First quarter 2019 financial highlights:

Consolidated revenues of $2,743 million.
Operating income of $341 million.

		Three months ended March 31,
		2019		2018
Net income attributable to DaVita Inc.:		(dollars in millions, except per share data)
	Net income from continuing operations	$	120	$	191
	Per share	$	0.72	$	1.05
	Adjusted net income from continuing operations⁽¹⁾	$	152	$	191
	Per share adjusted⁽¹⁾	$	0.91	$	1.05
	Net income	$	149	$	179
	Per share	$	0.90	$	0.98

		Three months ended March 31,
		2019		2018
Operating income:		(dollars in millions)
	Operating income	$	341	$	411
	Adjusted operating income⁽¹⁾	$	382	$	411


⁽¹⁾	For the definitions of non-GAAP financial measures such as adjusted net income from continuing operations attributable to DaVita Inc., see the note titled “Note on Non-GAAP Financial Measures” and related reconciliations below.

Certain items impacting the quarter:

Leases: We adopted Topic 842, Leases on January 1, 2019 through a modified retrospective approach for leases existing at the adoption date with a cumulative effect adjustment. As a result of the adoption of the new standard we recorded operating lease right-of-use assets and liabilities on our consolidated balance sheet. As of March 31, 2019, our operating lease right-of-use assets were $2.737 billion and our operating lease liabilities were $2.993 billion as stated on our consolidated balance sheet.

Non-GAAP adjustments to operating income:

Goodwill impairment charge: During the quarter ended March 31, 2019, we recognized a non-cash goodwill impairment charge of $41 million in our Germany kidney care business. This included a $9 million increase to the goodwill impairment charge due to the deferred tax assets that the impairment itself generated. The effect was a $41 million goodwill impairment charge to operating income, a $9 million credit to tax expense, and a net $32 million impact on net income.

Financial and operating metrics:

		Three months ended March 31,
		2019		2018
Cash flow:		(dollars in millions)
	Operating cash flow	$	141	$	363
	Operating cash flow from continuing operations	$	73	$	206
	Free cash flow from continuing operations⁽¹⁾	$	(52)	$	62


⁽¹⁾	For the definitions of non-GAAP financial measures such as adjusted net income from continuing operations attributable to DaVita Inc., see the note titled “Note on Non-GAAP Financial Measures” and related reconciliations below.

Volume: Total U.S. dialysis treatments for the first quarter of 2019 were 7,297,460, or 95,267 treatments per day, representing a per day increase of 2.9% over the first quarter of 2018. Normalized non-acquired treatment growth in the first quarter of 2019 as compared to the first quarter of 2018 was 2.4%.

Effective income tax rate: Our effective income tax rate on income from continuing operations was 26.3% for the three months ended March 31, 2019. This effective income tax rate is impacted by the amount of third party owners’ income attributable to non-tax paying entities. The effective income tax rate on income from continuing operations attributable to DaVita Inc. was 32.0% for the three months ended March 31, 2019.

Our effective income tax rate on income from continuing operations attributable to DaVita Inc. for the three months ended March 31, 2019 was also impacted by the goodwill impairment charge mentioned previously. Excluding this item from the three months ended March 31, 2019, our effective income tax rate on adjusted income from continuing operations attributable to DaVita Inc. would have been 30.1%.

Center activity: As of March 31, 2019, we provided dialysis services to a total of approximately 228,900 patients at 2,932 outpatient dialysis centers, of which 2,689 centers were located in the United States and 243 centers were located in nine countries outside of the United States. During the first quarter of 2019, we opened a total of 27 new dialysis centers, acquired two dialysis centers and closed three dialysis centers in the United States. In addition, our international dialysis operations acquired two dialysis centers outside of the United States during the first quarter of 2019.

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 or effective tax rate on income from continuing operations on a GAAP basis nor a reconciliation of 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 and foreign currency fluctuations, any of which may be significant. The guidance for effective income tax rate on adjusted income from continuing operations attributable to DaVita Inc. also excludes the amount of third party owners’ income and related taxes attributable to non-tax paying entities.

	2019 Guidance
	Low			High
	(dollars in millions)
Adjusted consolidated operating income	$	1,540		$	1,640
Operating cash flow from continuing operations	$	1,375		$	1,575
Capital expenditures from continuing operations	$	800		$	840
Effective income tax rate on adjusted income from continuing operations attributable to DaVita Inc.	28.5		%	29.5		%

We will be holding a conference call to discuss our results for the first quarter ended March 31, 2019, on May 7, 2019, at 5:00 p.m. Eastern Time. To join the conference call, please dial (877) 918-6630 from the U.S. or (517) 308-9042 from outside the U.S., and provide the operator the password ‘Earnings’. A replay of the conference call will be available on our website at investors.davita.com for the following 30 days.

DaVita Inc. and its representatives may from time to time make written and oral forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (“PSLRA”), including statements in this release, filings with the Securities and Exchange Commission (“SEC”), reports to stockholders and in meetings with investors and analysts. All such statements in this release, during the related presentation or other meetings, other than statements of historical fact, are forward-looking statements and as such are intended to be covered by the safe harbor for “forward-looking statements” provided by the PSLRA. Without limiting the foregoing, statements including the words “expect,” “intend,” “will,” “plan,” “anticipate,” “believe,” “we are confident that,” “forecast,” “guidance,” “outlook,” “goals,” and similar expressions are intended to identify forward-looking statements.

The forward-looking statements should be considered in light of these risks and uncertainties. All forward-looking statements in this release are based on information available to us on the date of this release. We undertake no obligation to publicly update or revise any of our guidance, the assessment of the underlying assumptions or other forward-looking statements, whether as a result of changed circumstances, new information, future events or otherwise.

These forward-looking statements could include but are not limited to statements related to our guidance and expectations for our 2019 adjusted consolidated operating income, our 2019 operating cash flows from continuing operations, our 2019 effective income tax rate attributable to DaVita Inc., our 2019 capital expenditures from continuing operations, our expected advocacy costs, our expectations regarding the pending DMG sale transaction and our expectations related to our stock repurchase program.

Our actual results could differ materially from any forward-looking statements due to numerous factors that involve substantial known and unknown risks and uncertainties. These risks and uncertainties include, among other things, and are qualified in their entirety by reference to the full text of those 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, including as a result of restrictions or prohibitions on the use and/or availability of charitable premium assistance, which may result in the loss of revenues or patients, or our making incorrect assumptions about how our patients will respond to any change in financial assistance from charitable organizations;
the extent to which the ongoing implementation of healthcare exchanges or changes in or new legislation, regulations or guidance, or enforcement thereof, including among other things those 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 and proposed federal and/or state legislation, regulation or ballot or other initiatives, including healthcare-related and labor-related legislation, regulation or ballot or other initiatives;
the impact of the changing political environment and related developments on the current healthcare marketplace and on our business, including with respect to the future of the Affordable Care Act, the exchanges and many other core aspects of the current health care marketplace;
changes in pharmaceutical practice patterns, reimbursement and payment policies and processes, or pharmaceutical pricing, including with respect to calcimimetics;
legal compliance risks, such as 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 current or potential settlement terms and the financial impact thereof and our ability to recover any losses related to such legal matters from third parties;
continued increased competition from dialysis providers and others, and other potential marketplace changes;
our ability to reduce administrative expenses while maintaining targeted levels of service and operating performance, including our ability to achieve anticipated savings from our recent restructurings;
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 announce or be considering, on terms favorable to us or at all, or to integrate and successfully operate any business we may acquire or have acquired, or to successfully expand our operations and services in markets outside the United States, or to businesses outside of dialysis;
noncompliance by us or our business associates with any privacy laws or any security breach by us or a third party involving the misappropriation, loss or other unauthorized use or disclosure of confidential information;
the variability of our cash flows;
the risk that we may not be able to generate sufficient cash in the future to service our indebtedness or to fund our other liquidity needs, and the risk that we may not be able to refinance our indebtedness as it becomes due, on terms favorable to us or at all;
factors that may impact our ability to repurchase stock under our stock repurchase program and the timing of any such stock repurchases, including market conditions, the price of our common stock, our cash flow position, borrowing capacity and leverage ratios, and legal, regulatory and contractual requirements;
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 consistently operate them profitably anytime soon, if at all;
risks arising from the use of accounting estimates, judgments and interpretations in our financial statements;
impairment of our goodwill, investments or other assets, including the risk that we may recognize additional valuation adjustments or goodwill impairment related to DMG;
the risks and uncertainties associated with the timing, conditions and receipt of regulatory approvals and satisfaction of other closing conditions of the DMG sale transaction and continued disruption in connection with the DMG sale transaction making it more difficult to maintain business and operational relationships;
risks and uncertainties related to our ability to complete the DMG sale transaction on the timetable expected, and on the terms set forth in the equity purchase agreement or at all;
uncertainties related to our liquidity following the close of the DMG sale transaction and our planned subsequent entry into new external financing arrangements, which may be less than we anticipate;
uncertainties related to our use of the proceeds from the DMG sale transaction and other available funds, including external financing and cash flow from operations, which may be used in ways that may not improve our results of operations or enhance the value of our common stock;
risks related to certain contractual restrictions on the conduct of DMG’s business while the DMG sale transaction is pending;
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 any 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;
the risk that a disruption in DMG’s healthcare provider networks could have an adverse effect on DMG’s business operations and profitability;
the risk that reductions in the quality ratings of health plans DMG serves or healthcare services that DMG provides could have an adverse effect on DMG’s business;
the risk that health plans that acquire health maintenance organizations may not be willing to contract with DMG or may be willing to contract only on less favorable terms; and
the risk factors set forth in our most recent quarterly report on Form 10-Q or annual report on Form 10-K, as applicable, and the other risks and uncertainties discussed in any subsequent reports that we file or furnish to the SEC from time to time.