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DaVita HealthCare Partners Inc. 2nd Quarter 2013 Results

DaVita HealthCare Partners Inc. (NYSE: DVA) today announced results for the quarter ended June 30, 2013. Adjusted income from continuing operations attributable to DaVita HealthCare Partners Inc. for the three and six months ended June 30, 2013 was $197.4 million and $394.3 million, or $1.84 and $3.68 per share, respectively, excluding a contingent earn-out obligation adjustment. In addition, adjusted income from continuing operations attributable to DaVita HealthCare Partners Inc. for the six months ended June 30, 2013 excluded a loss contingency reserve. Income from continuing operations attributable to DaVita HealthCare Partners Inc. for the three and six months ended June 30, 2013 including these items was $254.4 million and $271.3 million, or $2.37 and $2.53 per share, respectively.

Adjusted income from continuing operations attributable to DaVita HealthCare Partners Inc. for the three and six months ended June 30, 2012 was $146.7 million and $290.5 million, or $1.53 and $3.03 per share, respectively, excluding transaction expenses associated with the acquisition of HCP and a legal settlement and related expenses. Income from continuing operations attributable to DaVita HealthCare Partners Inc. for the three and six months ended June 30, 2012 including these items was $95.0 million and $235.2 million, or $0.99 and $2.45 per share, respectively.

Financial and operating highlights include:

  • Cash Flow: For the rolling twelve months ended June 30, 2013, operating cash flow was $1,253 million and free cash flow was $871 million. For the three months ended June 30, 2013, operating cash flow was $307 million and free cash flow was $218 million. For a definition of free cash flow see Note 4 to the reconciliations of non-GAAP measures.
  • Operating Income: Adjusted operating income for the three and six months ended June 30, 2013 was $465 million and $932 million, respectively, excluding a contingent earn-out obligation adjustment. In addition, adjusted operating income for the six months ended June 30, 2013 excluded a pre-tax loss contingency reserve. Operating income for the three and six months ended June 30, 2013 including these items was $522 million and $689 million, respectively.Adjusted operating income for the three and six months ended June 30, 2012 was $336 million and $663 million, respectively, excluding transaction expenses associated with the acquisition of HCP and a legal settlement and related expenses. Operating income for the three and six months ended June 30, 2012 including these items was $247 million and $568 million, respectively.
  • Contingent Earn-out Obligation Adjustment: As of June 30, 2013, we remeasured the estimated fair value of HCP’s 2013 contingent earn-out obligation at approximately $69 million. This represents a decrease in the obligation’s carrying value of approximately $57 million, which was recorded as operating income in our consolidated statements of income during the second quarter of 2013. This adjustment was based upon HCP’s operating results for the second quarter of 2013 and expected operating performance for the remainder of the year.HCP’s operating income of $81 million in the second quarter of 2013 represented a decrease of approximately $27 million as compared to the first quarter of 2013. The decrease in HCP’s operating income was primarily due to both a seasonal decrease in HCP’s revenue as average premiums for its senior capitated members declined and due to sequestration, which went into effect on April 1, 2013.
  • Adjusted Diluted Income from Continuing Operations: Adjusted diluted income from continuing operations attributable to DaVita HealthCare Partners Inc. for the three and six months ended June 30, 2013, was $221.5 million and $442.6 million, or $2.06 and $4.13 per share, respectively, net of tax. These amounts excluded amortization of intangible assets associated with acquisitions and a contingent earn-out obligation adjustment. In addition, adjusted diluted income from continuing operations for the six months ended June 30, 2013, excluded a loss contingency reserve, net of tax.Adjusted diluted income from continuing operations per share attributable to DaVita HealthCare Partners Inc. for the three and six months ended June 30, 2012, excluding transaction expenses associated with the acquisition of HCP, a legal settlement and related expenses and the amortization of intangible assets associated with acquisitions, which net of related tax impacts totaled $150.6 million and $298.3 million, was $1.57 and $3.11 per share, respectively.
  • Volume: Total U.S. dialysis treatments for the second quarter of 2013 were 5,867,973, or 75,230 treatments per day, representing a per day increase of 7.6% over the second quarter of 2012. Non-acquired treatment growth, as well as normalized non-acquired treatment growth in the quarter were 5.0% over the prior year’s second quarter.The number of member months for which HCP provided capitated care during the second quarter of 2013 was approximately 2.2 million representing an increase of 18.6% as compared to the second quarter of 2012, inclusive of growth contributed from acquisitions. These calculations include data prior to our merger with HCP on November 1, 2012.
  • Effective Tax Rate: Our effective tax rate was 31.3% and 30.4% for the three and six months ended June 30, 2013, respectively. This effective tax rate is impacted by the amount of third party owners’ income attributable to non-tax paying entities. The effective tax rate attributable to DaVita HealthCare Partners Inc. was 33.6% and 34.7% for the three and six months ended June 30, 2013, respectively. The effective tax rate attributable to DaVita HealthCare Partners Inc. for the three and six months ended June 30, 2013, excluding the contingent earn-out obligation adjustment and the loss contingency reserve, was 39.5% and 40.1%, respectively. We expect our 2013 effective tax rate attributable to DaVita HealthCare Partners Inc. to be in the range of 37.0% to 38.0%. In addition, we expect our 2013 effective tax rate attributable to DaVita HealthCare Partners Inc. excluding the contingent earn-out obligation adjustment and the loss contingency reserve to be in the range of 39.0% to 40.0%.
  • Center Activity: As of June 30, 2013, we provided dialysis services to a total of approximately 163,000 patients at 2,058 outpatient dialysis centers, of which 2,010 centers are located in the United States and 48 centers are located in ten countries outside of the United States. During the second quarter of 2013, we acquired three dialysis centers and opened a total of 18 dialysis centers in the United States. We also acquired eight dialysis centers outside of the United States.

Outlook

  • We are raising our consolidated operating income guidance for 2013 to now be in the range of $1,830 million to $1,930 million. Our previous consolidated operating income guidance for 2013 was in the range of $1,800 million to $1,900 million.
  • In addition, we are raising our operating income guidance for our dialysis services and related ancillary businesses for 2013 to now be in the range of $1,450 million to $1,500 million. Our previous operating income guidance for our dialysis services and related ancillary businesses for 2013 was in the range of $1,400 million to $1,450 million.
  • We are also lowering our operating income guidance for HCP for 2013 which is now expected to be in the range of $380 million to $430 million. Our previous operating income guidance for HCP for 2013 was in the range of $400 million to $450 million.
  • In addition, we have increased the bottom end of our range for our consolidated operating cash flows for 2013 to now be in the range of $1,400 million to $1,500 million. Our previous consolidated operating cash flows guidance for 2013 was in the range of $1,350 million to $1,500 million.

The consolidated and dialysis services and related ancillary businesses operating income guidance and the consolidated cash flow guidance amounts exclude an estimated loss contingency reserve of $300 million which we accrued in the first quarter of 2013 in connection with the 2010 and 2011 U.S. Attorney Physician Relationship Investigations. In addition, the consolidated operating income guidance amounts exclude the contingent earn-out obligation adjustment. 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.

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