On October 29, 2020 DaVita Inc. (NYSE: DVA) reported financial and operating results for the third quarter ended September 30, 2020 (Press release, DaVita, OCT 29, 2020, View Source [SID1234569429]). During the quarter, notwithstanding the challenges of responding to COVID-19, the Company delivered strong financial and operating results, and continued its focus on patient care and the safety of its patients, caregivers, teammates, and physician partners.
Schedule your 30 min Free 1stOncology Demo!
Discover why more than 1,500 members use 1stOncology™ to excel in:
Early/Late Stage Pipeline Development - Target Scouting - Clinical Biomarkers - Indication Selection & Expansion - BD&L Contacts - Conference Reports - Combinatorial Drug Settings - Companion Diagnostics - Drug Repositioning - First-in-class Analysis - Competitive Analysis - Deals & Licensing
Schedule Your 30 min Free Demo!
"I am proud of the hard work and dedication of our 65,000 teammates in delivering essential, life-preserving care to our patients," said Javier Rodriguez, CEO of DaVita Inc. "Due to their efforts, we have been able to sustain continuity of care despite the disruption caused by the pandemic, while maintaining our strategic focus on leading the transformation of kidney care."
Financial results for the quarter ended September 30, 2020:
Consolidated revenues of $2.924 billion.
Operating income of $438 million or 15.0% operating margin.
Diluted earnings per share from continuing operations of $1.28 and adjusted diluted earnings per share from continuing operations of $1.80.
Operating cash flow from continuing operations of $483 million and free cash flow from continuing operations of $287 million.
Refinanced $1.5 billion of 5% senior notes with $1.5 billion of new 3.75% senior notes in August.
Deployed proceeds from issuance of $1.75 billion of 4.625% senior notes in June to redeem $1.75 billion of 5.125% senior notes in July.
Repurchased 8,231,679 shares of our common stock at an average cost of $88.13 per share, including 7,981,679 shares purchased in a "modified" Dutch auction tender offer in September.
U.S. dialysis metrics:
Volume: Total U.S. dialysis treatments for the third quarter of 2020 were 7,656,173, or an average of 96,914 treatments per day, representing a per day decrease of 0.2% compared to the third quarter of 2019. Normalized non-acquired treatment growth in the third quarter of 2020 compared to the third quarter of 2019 was 0.6%.
Primary drivers of the changes in the table above were as follows:
Revenue: The quarter change was primarily due to a decrease in commercial revenue per treatment, unfavorable changes in government payor mix and a decline in calcimimetics revenue per treatment, partially offset by increases in inpatient dialysis service revenue and Medicare rates due to the temporary suspension of Medicare sequestration. The year to date change was primarily due to favorable changes in government and commercial revenue per treatment, including an increase in Medicare rates due to the base rate increase in 2020 and the temporary suspension of Medicare sequestration, and an increase in inpatient dialysis services revenue, partially offset by a decline in calcimimetics revenue per treatment.
Patient care costs: The quarter change was primarily due to decreases in COVID-19-related costs, including compensation expense, and pharmaceutical intensity, partially offset by increases in health benefit expenses and other direct dialysis center operating expenses. The year to date change was primarily due to decreases in pharmaceutical unit costs, other direct dialysis center operating expenses, and health benefit expenses, partially offset by an increase in labor costs and COVID-19-related costs, including compensation expense.
General and administrative: The quarter change was primarily due to increases in advocacy costs, as described below, contributions to our charitable foundation and compensation expense. The year to date change was primarily due to increases in advocacy costs, as described below, contributions to our charitable foundation and compensation expense including costs related to COVID-19. These increases were partially offset by decreases in travel expenses, long-term incentive compensation expense and health benefit expenses.
Certain items impacting the quarter:
Share repurchases: The following table summarizes our common stock repurchases during the three months ended September 30, 2020.
Subsequent to September 30, 2020 through October 28, 2020, we repurchased 1,827,836 shares of our common stock for $161 million at an average cost of $87.96 per share.
Debt transactions: In August 2020, we issued $1.5 billion in aggregate principal amount of 3.75% senior notes due 2031 and used the net proceeds from these 3.75% senior notes, together with cash on hand, to redeem in full all $1.5 billion in aggregate principal amount of our outstanding 5% senior notes due 2025, including payment of accrued interest and a redemption premium. We also redeemed in full our $1.75 billion in aggregate principal amount of our outstanding 5.125% senior notes due 2024, including payment of accrued interest and a redemption premium, in July 2020 with the proceeds from our $1.75 billion in aggregate principal amount of 4.625% senior notes due 2030 issued in June 2020, together with cash on hand.
Advocacy costs: During the three months ended September 30, 2020, we incurred advocacy costs of approximately $66 million to counter union policy efforts, including a California ballot initiative. These costs are included in the U.S. dialysis segment’s general and administrative expenses.
Center activity: As of September 30, 2020, we provided dialysis services to a total of approximately 238,200 patients at 3,100 outpatient dialysis centers, of which 2,809 centers were located in the United States and 291 centers were located in nine countries outside of the United States. During the third quarter of 2020, we opened a total of 17 new dialysis centers, acquired five dialysis centers and closed eight dialysis centers in the United States. We also acquired eleven dialysis centers, opened one new dialysis center and sold or closed eight dialysis centers outside of the United States during the third quarter of 2020.
Outlook:
The following forward-looking measures and the underlying assumptions involve significant known and unknown risks and uncertainties, including those described below, and actual results may vary materially from these forward-looking measures. In particular, the widespread impact of the COVID-19 pandemic continues to generate significant risk and uncertainty, and as a result, our future results could vary materially from the guidance provided below. We do not provide guidance for diluted net income from continuing operations per share attributable to DaVita Inc., effective income tax rate on income from continuing operations or free cash flow from continuing operations on a basis consistent with United States generally accepted accounting principles (GAAP) 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 loss on changes in ownership interests, accruals for legal matters, refinancing charges and foreign currency fluctuations, which may be significant. The guidance for our 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.
We will be holding a conference call to discuss our results for the third quarter ended September 30, 2020, on October 29, 2020, 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.