On November 5, 2019 DaVita Inc. (NYSE: DVA) reported results for the quarter ended September 30, 2019 (Press release, DaVita, NOV 5, 2019, View Source [SID1234550497]).
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Third quarter 2019 financial and operational highlights:
Consolidated revenues of $2.904 billion.
Operating income of $378 million and adjusted operating income of $462 million.
Cash flows from continuing operations of $648 million.
Entered into a new $5.5 billion senior secured credit agreement and redeemed our 5.75% senior notes.
Repurchased 30,591,750 shares of our common stock at an average cost of $57.14 per share.
For the definitions of non-GAAP financial measures see the note titled "Note on Non-GAAP Financial Measures" and related reconciliations beginning at page 14.
Certain items impacting the quarter:
Debt transactions: On August 12, 2019, we entered into a new $5.5 billion senior secured credit agreement consisting of a $1.75 billion senior secured Term Loan A facility with a delayed draw feature, a $2.75 billion senior secured Term Loan B facility and a $1.0 billion senior secured revolving line of credit. As of September 30, 2019, the new Term Loan A and Term Loan B were fully drawn and the new revolving line of credit remained undrawn. We used the proceeds from the new senior secured credit facilities to pay off the remaining balances outstanding on our previous senior secured credit facilities, redeem our 5.75% senior notes due 2022 and pay related redemption fees, and fund our modified "Dutch auction" tender offer (Tender Offer) to purchase shares of our common stock as further described below, as well as to repurchase additional shares of our common stock through open market transactions. The remaining debt borrowings added cash to our balance sheet for potential acquisitions, share repurchases and other general corporate purposes.
As a result of the debt transactions described above, we recorded debt refinancing and redemption charges of $21 million in the third quarter of 2019. These charges consist of write-offs of old debt discount and deferred financing costs, as well as the redemption premium associated with our 5.75% senior notes and professional fees.
Share repurchases: The following table summarizes repurchases of our common stock during the three and nine months ended September 30, 2019.
The amount paid for shares repurchased associated with the Company’s Tender Offer during the three and nine months ended September 30, 2019 includes the clearing price of $56.50 per share plus related fees and expenses of $2 million.
In addition to the share repurchases described above, we have also repurchased 4,283,376 shares of our common stock for $246 million at an average cost of $57.32 per share from October 1, 2019 through November 4, 2019. Effective November 4, 2019, our Board of Directors terminated all remaining prior share repurchase authorizations available to us and approved a new share repurchase authorization of $2 billion.
Non-GAAP adjustments to operating income:
Goodwill impairment charge: During the quarter ended September 30, 2019, we recognized a non-cash goodwill impairment charge of $79 million in our Germany kidney care business as a result of continuing developments in the business and our expected timing and ability to mitigate them. This charge included a $17 million increase to the goodwill impairment charge due to the deferred tax assets that the impairment itself generated. The result was a $79 million goodwill impairment charge to operating income, a $17 million credit to tax expense, and a net $62 million impact on net income. We also recognized a $5 million goodwill impairment charge in our other German health operations.
For the definitions of non-GAAP financial measures see the note titled "Note on Non-GAAP Financial Measures" and related reconciliations beginning at page 14.
Volume: Total U.S. dialysis treatments for the third quarter of 2019 were 7,673,191, or an average of 97,129 treatments per day, representing a per day increase of 2.7% over the third quarter of 2018. Normalized non-acquired treatment growth in the third quarter of 2019 as compared to the third quarter of 2018 was 2.2%.
Effective income tax rate: Our effective income tax rate on income from continuing operations was 23.8% and 24.3% for the three and nine months ended September 30, 2019, respectively. This effective income tax rate was 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 30.3% and 29.8% for the three and nine months ended September 30, 2019, respectively.
Our effective income tax rate on income from continuing operations attributable to DaVita Inc. for the three and nine months ended September 30, 2019 was further impacted by the write-off of deferred financing costs, other debt costs and goodwill impairment charges. Excluding these items from the three and nine months ended September 30, 2019, our effective income tax rate on adjusted income from continuing operations attributable to DaVita Inc. would have been 27.6% and 28.4% for the three and nine months ended September 30, 2019, respectively.
Center activity: As of September 30, 2019, we provided dialysis services to a total of approximately 233,300 patients at 2,985 outpatient dialysis centers, of which 2,736 centers were located in the United States and 249 centers were located in nine countries outside of the United States. During the third quarter of 2019, we opened a total of 24 new dialysis centers, acquired two dialysis centers and closed 13 dialysis centers in the United States. In addition, we opened one new dialysis center, acquired two dialysis centers and closed two dialysis centers outside of the United States during the third 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, diluted net income from continuing operations per share attributable to DaVita Inc. 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 write-off of deferred financing costs, other debt costs and the amount of third party owners’ income and related taxes attributable to non-tax paying entities.
We will be holding a conference call to discuss our results for the third quarter ended September 30, 2019, on November 5, 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.