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Cover and table of contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended March 31, 2024
or
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___________ to ___________
Commission File Number: 1-14106
DAVITA INC.
| Delaware | 51-0354549 | |||||||
| (State of incorporation) | (I.R.S. Employer Identification No.) |
| 2000 16th Street | ||||||||
| Denver, | CO | 80202 |
Telephone number (720) 631-2100
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class: | Trading symbol(s): | Name of each exchange on which registered: | ||||||||||||
| Common Stock, $0.001 par value | DVA | NYSE |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☒ | Accelerated filer | ☐ | ||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ | ||||||||
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ☒
As of April 26, 2024, the number of shares of the registrant’s common stock outstanding was approximately 87.7 million shares.
DAVITA INC.
INDEX
i
DAVITA INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(dollars and shares in thousands, except per share data)
| Three months ended March 31, | Three months ended March 31, | ||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Dialysis patient service revenues | $ | 2,941,532 | $ | 2,760,034 | |||||||||||||||||||
| Other revenues | 129,023 | 112,665 | |||||||||||||||||||||
| Total revenues | 3,070,555 | 2,872,699 | |||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Patient care costs | 2,078,976 | 2,058,189 | |||||||||||||||||||||
| General and administrative | 362,480 | 331,614 | |||||||||||||||||||||
| Depreciation and amortization | 187,083 | 178,071 | |||||||||||||||||||||
| Equity investment income, net | (6,682) | (6,820) | |||||||||||||||||||||
| Gain on changes in ownership interest | (35,147) | — | |||||||||||||||||||||
| Total operating expenses | 2,586,710 | 2,561,054 | |||||||||||||||||||||
| Operating income | 483,845 | 311,645 | |||||||||||||||||||||
| Debt expense | (99,418) | (100,774) | |||||||||||||||||||||
| Other (loss) income, net | (12,641) | 3,752 | |||||||||||||||||||||
| Income before income taxes | 371,786 | 214,623 | |||||||||||||||||||||
| Income tax expense | 65,806 | 43,955 | |||||||||||||||||||||
| Net income | 305,980 | 170,668 | |||||||||||||||||||||
| Less: Net income attributable to noncontrolling interests | (66,331) | (55,121) | |||||||||||||||||||||
| Net income attributable to DaVita Inc. | $ | 239,649 | $ | 115,547 | |||||||||||||||||||
| Earnings per share attributable to DaVita Inc.: | |||||||||||||||||||||||
| Basic net income | $ | 2.73 | $ | 1.28 | |||||||||||||||||||
| Diluted net income | $ | 2.65 | $ | 1.25 | |||||||||||||||||||
| Weighted average shares for earnings per share: | |||||||||||||||||||||||
| Basic shares | 87,775 | 90,497 | |||||||||||||||||||||
| Diluted shares | 90,547 | 92,483 | |||||||||||||||||||||
See notes to condensed consolidated financial statements.
DAVITA INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
(dollars in thousands)
| Three months ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Net income | $ | 305,980 | $ | 170,668 | |||||||||||||||||||
| Other comprehensive (loss) income, net of tax: | |||||||||||||||||||||||
| Unrealized gains (losses) on interest rate cap agreements: | |||||||||||||||||||||||
| Unrealized gains (losses) | 13,317 | (3,539) | |||||||||||||||||||||
| Reclassifications of net realized gains into net income | (21,628) | (15,742) | |||||||||||||||||||||
| Unrealized (losses) gains on foreign currency translation: | (39,720) | 33,561 | |||||||||||||||||||||
| Other comprehensive (loss) income | (48,031) | 14,280 | |||||||||||||||||||||
| Total comprehensive income | 257,949 | 184,948 | |||||||||||||||||||||
| Less: Comprehensive income attributable to noncontrolling interests | (66,331) | (55,121) | |||||||||||||||||||||
| Comprehensive income attributable to DaVita Inc. | $ | 191,618 | $ | 129,827 |
See notes to condensed consolidated financial statements.
DAVITA INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(dollars and shares in thousands, except per share data)
| March 31, 2024 | December 31, 2023 | ||||||||||
| ASSETS | |||||||||||
| Cash and cash equivalents | $ | 345,131 | $ | 380,063 | |||||||
| Restricted cash and equivalents | 85,650 | 84,571 | |||||||||
| Short-term investments | 10,611 | 11,610 | |||||||||
| Accounts receivable | 2,594,675 | 1,986,856 | |||||||||
| Inventories | 145,808 | 143,105 | |||||||||
| Other receivables | 396,399 | 422,669 | |||||||||
| Prepaid and other current assets | 105,479 | 102,645 | |||||||||
| Income tax receivable | — | 6,387 | |||||||||
| Total current assets | 3,683,753 | 3,137,906 | |||||||||
| Property and equipment, net of accumulated depreciation of $5,921,761 and $5,759,514, respectively | 3,026,170 | 3,073,533 | |||||||||
| Operating lease right-of-use assets | 2,487,158 | 2,501,364 | |||||||||
| Intangible assets, net of accumulated amortization of $37,053 and $38,445, respectively | 201,433 | 203,224 | |||||||||
| Equity method and other investments | 492,541 | 545,848 | |||||||||
| Long-term investments | 47,729 | 47,890 | |||||||||
| Other long-term assets | 262,449 | 271,253 | |||||||||
| Goodwill | 7,229,702 | 7,112,560 | |||||||||
| $ | 17,430,935 | $ | 16,893,578 | ||||||||
| LIABILITIES AND EQUITY | |||||||||||
| Accounts payable | $ | 489,883 | $ | 514,533 | |||||||
| Other liabilities | 859,604 | 828,878 | |||||||||
| Accrued compensation and benefits | 622,127 | 752,598 | |||||||||
| Current portion of operating lease liabilities | 401,371 | 394,399 | |||||||||
| Current portion of long-term debt | 127,616 | 123,299 | |||||||||
| Income tax payable | 82,500 | 28,507 | |||||||||
| Total current liabilities | 2,583,101 | 2,642,214 | |||||||||
| Long-term operating lease liabilities | 2,311,902 | 2,330,389 | |||||||||
| Long-term debt | 9,000,594 | 8,268,334 | |||||||||
| Other long-term liabilities | 179,806 | 183,074 | |||||||||
| Deferred income taxes | 719,545 | 726,217 | |||||||||
| Total liabilities | 14,794,948 | 14,150,228 | |||||||||
| Commitments and contingencies | |||||||||||
| Noncontrolling interests subject to put provisions | 1,503,474 | 1,499,288 | |||||||||
| Equity: | |||||||||||
| Preferred stock ($0.001 par value, 5,000 shares authorized; none issued) | — | — | |||||||||
| Common stock ($0.001 par value, 450,000 shares authorized; 89,822 and 87,703 shares issued and outstanding at March 31, 2024, respectively, and 88,824 shares issued and outstanding at December 31, 2023) | 90 | 89 | |||||||||
| Additional paid-in capital | 428,202 | 509,804 | |||||||||
| Retained earnings | 837,937 | 598,288 | |||||||||
| Treasury stock (2,119 and zero shares, respectively) | (240,117) | — | |||||||||
| Accumulated other comprehensive loss | (100,115) | (52,084) | |||||||||
| Total DaVita Inc. shareholders' equity | 925,997 | 1,056,097 | |||||||||
| Noncontrolling interests not subject to put provisions | 206,516 | 187,965 | |||||||||
| Total equity | 1,132,513 | 1,244,062 | |||||||||
| $ | 17,430,935 | $ | 16,893,578 |
See notes to condensed consolidated financial statements.
DAVITA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(dollars in thousands)
| Three months ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | 305,980 | $ | 170,668 | |||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | 187,083 | 178,071 | |||||||||
| Stock-based compensation expense | 24,542 | 25,373 | |||||||||
| Deferred income taxes | (3,318) | (3,621) | |||||||||
| Equity investment loss, net | 18,531 | 3,044 | |||||||||
| Gain on changes in ownership interest | (35,147) | — | |||||||||
| Other non-cash charges, net | 7,639 | 5,864 | |||||||||
| Changes in operating assets and liabilities, net of effect of acquisitions and divestitures: | |||||||||||
| Accounts receivable | (561,281) | 81,850 | |||||||||
| Inventories | 1,929 | 2,758 | |||||||||
| Other current assets | (13,044) | 66,595 | |||||||||
| Other long-term assets | 1,922 | (615) | |||||||||
| Accounts payable | (14,162) | (20,535) | |||||||||
| Accrued compensation and benefits | (135,041) | (74,144) | |||||||||
| Other current liabilities | 27,237 | (6,486) | |||||||||
| Income taxes | 60,557 | 39,251 | |||||||||
| Other long-term liabilities | (8,263) | (5,516) | |||||||||
| Net cash (used in) provided by operating activities | (134,836) | 462,557 | |||||||||
| Cash flows from investing activities: | |||||||||||
| Additions of property and equipment | (121,015) | (147,705) | |||||||||
| Acquisitions | (105,163) | — | |||||||||
| Proceeds from asset and business sales | 7,040 | 13,474 | |||||||||
| Purchase of debt investments held-to-maturity | (309) | (25,000) | |||||||||
| Purchase of other debt and equity investments | (2,975) | (4,643) | |||||||||
| Proceeds from debt investments held-to-maturity | 300 | 50,258 | |||||||||
| Proceeds from sale of other debt and equity investments | 4,547 | 3,856 | |||||||||
| Purchase of equity method investments | (460) | (7,904) | |||||||||
| Distributions from equity method investments | 2,829 | 1,120 | |||||||||
| Net cash used in investing activities | (215,206) | (116,544) | |||||||||
| Cash flows from financing activities: | |||||||||||
| Borrowings | 1,290,255 | 611,829 | |||||||||
| Payments on long-term debt | (554,544) | (880,552) | |||||||||
| Deferred and debt related financing costs | (99) | (7) | |||||||||
| Purchase of treasury stock | (250,961) | — | |||||||||
| Distributions to noncontrolling interests | (77,348) | (54,837) | |||||||||
| Net payments related to stock purchases and awards | (86,488) | (7,902) | |||||||||
| Contributions from noncontrolling interests | 3,725 | 4,725 | |||||||||
| Proceeds from sales of additional noncontrolling interests | — | 50,832 | |||||||||
| Purchases of noncontrolling interests | (5,221) | — | |||||||||
| Net cash provided by (used in) financing activities | 319,319 | (275,912) | |||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | (3,130) | 2,307 | |||||||||
| Net (decrease) increase in cash, cash equivalents and restricted cash | (33,853) | 72,408 | |||||||||
| Cash, cash equivalents and restricted cash at beginning of the year | 464,634 | 338,989 | |||||||||
| Cash, cash equivalents and restricted cash at end of the period | $ | 430,781 | $ | 411,397 |
See notes to condensed consolidated financial statements.
DAVITA INC.
CONSOLIDATED STATEMENTS OF EQUITY
(unaudited)
(dollars and shares in thousands)
| Three months ended March 31, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Non- controlling interests subject to put provisions | DaVita Inc. Shareholders’ Equity | Non- controlling interests not subject to put provisions | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock | Additional paid-in capital | Retained earnings | Treasury stock | Accumulated other comprehensive loss | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | 1,499,288 | 88,824 | $ | 89 | $ | 509,804 | $ | 598,288 | — | $ | — | $ | (52,084) | $ | 1,056,097 | $ | 187,965 | |||||||||||||||||||||||||||||||||||||||||||||||
| Comprehensive income: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | 44,191 | 239,649 | 239,649 | 22,140 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | (48,031) | (48,031) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock award plan | 998 | 1 | (90,632) | (90,631) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-settled stock-based compensation expense | 23,049 | 23,049 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Changes in noncontrolling interest from: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions | (52,928) | (24,420) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Contributions | 3,127 | 598 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Partial purchases | (1,227) | (2,996) | (2,996) | 20,233 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair value remeasurements | 11,023 | (11,023) | (11,023) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Purchase of treasury stock | (2,119) | (240,117) | (240,117) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2024 | $ | 1,503,474 | 89,822 | $ | 90 | $ | 428,202 | $ | 837,937 | (2,119) | $ | (240,117) | $ | (100,115) | $ | 925,997 | $ | 206,516 |
| Three months ended March 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Non- controlling interests subject to put provisions | DaVita Inc. Shareholders’ Equity | Non- controlling interests not subject to put provisions | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock | Additional paid-in capital | Retained earnings | Treasury stock | Accumulated other comprehensive loss | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | 1,348,908 | 90,411 | $ | 90 | $ | 606,935 | $ | 174,487 | — | $ | — | $ | (69,186) | $ | 712,326 | $ | 163,566 | |||||||||||||||||||||||||||||||||||||||||
| Comprehensive income: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | 36,692 | 115,547 | 115,547 | 18,429 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | 14,280 | 14,280 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock award plan | 239 | 1 | (9,523) | (9,522) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-settled stock-based compensation expense | 24,847 | 24,847 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Changes in noncontrolling interest from: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions | (35,550) | (19,287) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Contributions | 3,748 | 977 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Acquisitions and divestitures | 13,023 | 13,023 | 30,718 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair value remeasurements | 45,031 | (45,031) | (45,031) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | 1,398,829 | 90,650 | $ | 91 | $ | 590,251 | $ | 290,034 | — | $ | — | $ | (54,906) | $ | 825,470 | $ | 194,403 |
See notes to condensed consolidated financial statements.
DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(dollars and shares in thousands, except per share data)
Unless otherwise indicated in this Quarterly Report on Form 10-Q, "the Company", "we", "us", "our" and similar terms refer to DaVita Inc. and its consolidated subsidiaries.
1. Condensed consolidated interim financial statements
The unaudited condensed consolidated interim financial statements included in this report are prepared by the Company. In the opinion of management, all adjustments necessary for a fair presentation of the results of operations are reflected in these condensed consolidated interim financial statements. All significant intercompany accounts and transactions have been eliminated. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets, liabilities, contingencies and noncontrolling interests subject to put provisions. The most significant estimates and assumptions underlying these financial statements and accompanying notes generally involve revenue recognition and accounts receivable, certain fair value estimates, accounting for income taxes and loss contingencies. The results of operations reflected in these interim financial statements may not necessarily be indicative of annual operating results. These condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (2023 10-K). Prior period classifications conform to the current period presentation. The Company has evaluated subsequent events through the date these condensed consolidated interim financial statements were issued and has included all necessary adjustments and disclosures.
2. Revenue recognition
The following tables summarize the Company's segment revenues by primary payor source:
| Three months ended March 31, 2024 | Three months ended March 31, 2023 | ||||||||||||||||||||||||||||||||||
| U.S. dialysis | Other — Ancillary services | Consolidated | U.S. dialysis | Other — Ancillary services | Consolidated | ||||||||||||||||||||||||||||||
| Dialysis patient service revenues: | |||||||||||||||||||||||||||||||||||
| Medicare and Medicare Advantage | $ | 1,531,497 | $ | $ | 1,531,497 | $ | 1,482,767 | $ | $ | 1,482,767 | |||||||||||||||||||||||||
| Medicaid and Managed Medicaid | 210,123 | 210,123 | 205,776 | 205,776 | |||||||||||||||||||||||||||||||
| Other government | 82,587 | 145,785 | 228,372 | 82,044 | 121,585 | 203,629 | |||||||||||||||||||||||||||||
| Commercial | 925,831 | 70,172 | 996,003 | 835,393 | 54,516 | 889,909 | |||||||||||||||||||||||||||||
| Other revenues: | |||||||||||||||||||||||||||||||||||
| Medicare and Medicare Advantage | 103,110 | 103,110 | 93,238 | 93,238 | |||||||||||||||||||||||||||||||
| Medicaid and Managed Medicaid | 395 | 395 | 570 | 570 | |||||||||||||||||||||||||||||||
| Commercial | 6,940 | 6,940 | 1,206 | 1,206 | |||||||||||||||||||||||||||||||
| Other**(1)** | 6,122 | 15,203 | 21,325 | 6,180 | 12,839 | 19,019 | |||||||||||||||||||||||||||||
| Eliminations of intersegment revenues | (24,463) | (2,747) | (27,210) | (22,047) | (1,368) | (23,415) | |||||||||||||||||||||||||||||
| Total | $ | 2,731,697 | $ | 338,858 | $ | 3,070,555 | $ | 2,590,113 | $ | 282,586 | $ | 2,872,699 |
(1) Consists primarily of management service fees in the Company's U.S. dialysis business and research fees, management fees, and other non-patient service revenues in the Other - ancillary services businesses.
There are significant uncertainties associated with estimating revenue, many of which take several years to resolve. These estimates are subject to ongoing insurance coverage changes, geographic coverage differences, differing interpretations of contract coverage and other payor issues, as well as patient issues, including determination of applicable primary and secondary coverage, changes in patient insurance coverage and coordination of benefits. As these estimates are refined over time, both positive and negative adjustments to revenue are recognized in the current period.
Dialysis patient service revenues. Revenues are recognized based on the Company’s estimate of the transaction price the Company expects to collect as a result of satisfying its performance obligations. Dialysis patient service revenues are recognized in the period services are provided based on these estimates. Revenues consist primarily of payments from government and commercial health plans for dialysis services provided to patients.
Other revenues. Other revenues consist of revenues earned by the Company's non-dialysis ancillary services as well as fees for management and administrative services to outpatient dialysis businesses that the Company does not consolidate. Other
DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)
revenues are estimated and recognized in the period the performance obligation is met, subject to applicable measurement constraints. The Company's integrated kidney care (IKC) revenues include revenues earned under risk-based arrangements, including value-based care (VBC) arrangements. Under its VBC arrangements, the Company assumes full or shared financial risk for the total medical cost of care for patients below or above a benchmark. The benchmarks against which the Company incurs profit or loss on these contracts are typically based on the underlying premiums paid to the insuring entity (the Company's counterparty), with adjustments where applicable, or on trended or adjusted medical cost targets.
For its IKC business, the Company recognized revenues for performance obligations satisfied in previous years of $19,450 and $12,821 during the three months ended March 31, 2024 and 2023, respectively. The delay in recognition of these amounts resulted predominantly from measurement limitations and recognition constraints on our VBC contracts with health plans, many of which are complex and relatively new arrangements. The Company's revenue recognition for its government Comprehensive Kidney Care Contracting (CKCC) program also remains constrained for plan year 2023.
Measurements of revenue for the Company's IKC risk-based arrangements are complex, sensitive to a number of key inputs, and require meaningful estimates for a number of factors, including but not limited to member alignment data, third-party medical claims expense, outcomes on various quality metrics, and ultimate risk adjustment factor (RAF) scores. Information and other measurement limitations on these factors may constrain revenue recognition for a risk-based arrangement until a period after the Company's performance obligations have been met.
3. Earnings per share
Basic earnings per share is calculated by dividing net income attributable to the Company by the weighted average number of common shares outstanding. Weighted average common shares outstanding include restricted stock unit awards that are no longer subject to forfeiture because the recipients have satisfied either the explicit vesting terms or retirement eligibility requirements.
Diluted earnings per share includes the dilutive effect of outstanding stock-settled stock appreciation rights and unvested stock units as computed under the treasury stock method.
The reconciliations of the numerators and denominators used to calculate basic and diluted earnings per share were as follows:
| Three months ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Net income attributable to DaVita Inc. | $ | 239,649 | $ | 115,547 | |||||||||||||||||||
| Weighted average shares outstanding: | |||||||||||||||||||||||
| Basic shares | 87,775 | 90,497 | |||||||||||||||||||||
| Assumed incremental from stock plans | 2,772 | 1,986 | |||||||||||||||||||||
| Diluted shares | 90,547 | 92,483 | |||||||||||||||||||||
| Basic net income per share attributable to DaVita Inc. | $ | 2.73 | $ | 1.28 | |||||||||||||||||||
| Diluted net income per share attributable to DaVita Inc. | $ | 2.65 | $ | 1.25 | |||||||||||||||||||
| Anti-dilutive stock-settled awards excluded from calculation(1) | 391 | 1,295 |
(1)Shares associated with stock awards excluded from the diluted denominator calculation because they were anti-dilutive under the treasury stock method.
DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)
4. Short-term and long-term investments
The Company’s short-term and long-term investments, consisting of debt instruments classified as held-to-maturity and equity investments with readily determinable fair values or redemption values, were as follows:
| March 31, 2024 | December 31, 2023 | ||||||||||||||||||||||||||||||||||
| Debt securities | Equity securities | Total | Debt securities | Equity securities | Total | ||||||||||||||||||||||||||||||
| Certificates of deposit and other time deposits | $ | 22,014 | $ | — | $ | 22,014 | $ | 22,109 | $ | — | $ | 22,109 | |||||||||||||||||||||||
| Investments in mutual funds and common stocks | — | 36,326 | 36,326 | — | 37,391 | 37,391 | |||||||||||||||||||||||||||||
| $ | 22,014 | $ | 36,326 | $ | 58,340 | $ | 22,109 | $ | 37,391 | $ | 59,500 | ||||||||||||||||||||||||
| Short-term investments | $ | 7,011 | $ | 3,600 | $ | 10,611 | $ | 7,110 | $ | 4,500 | $ | 11,610 | |||||||||||||||||||||||
| Long-term investments | 15,003 | 32,726 | 47,729 | 14,999 | 32,891 | 47,890 | |||||||||||||||||||||||||||||
| $ | 22,014 | $ | 36,326 | $ | 58,340 | $ | 22,109 | $ | 37,391 | $ | 59,500 |
Debt securities. The Company's short-term debt investments are principally bank certificates of deposit with contractual maturities longer than three months but shorter than one year. The Company's long-term debt investments are bank time deposits with contractual maturities longer than one year. These debt securities are accounted for as held-to-maturity and recorded at amortized cost, which approximated their fair values at March 31, 2024 and December 31, 2023.
Equity securities. Substantially all of the Company's short-term and long-term equity investments are held within a trust to fund existing obligations associated with the Company’s non-qualified deferred compensation plans.
5. Goodwill
Changes in the carrying value of goodwill by reportable segment were as follows:
| U.S. dialysis | Other — Ancillary services | Consolidated | |||||||||||||||
| Balance at December 31, 2022 | $ | 6,416,825 | $ | 659,785 | $ | 7,076,610 | |||||||||||
| Acquisitions | — | 25,723 | 25,723 | ||||||||||||||
| Impairment charges | — | (26,083) | (26,083) | ||||||||||||||
| Foreign currency and other adjustments | — | 36,310 | 36,310 | ||||||||||||||
| Balance at December 31, 2023 | $ | 6,416,825 | $ | 695,735 | $ | 7,112,560 | |||||||||||
| Acquisitions | 102,082 | 35,208 | 137,290 | ||||||||||||||
| Divestitures | (1,687) | — | (1,687) | ||||||||||||||
| Foreign currency and other adjustments | — | (18,461) | (18,461) | ||||||||||||||
| Balance at March 31, 2024 | $ | 6,517,220 | $ | 712,482 | $ | 7,229,702 | |||||||||||
| Balance at March 31, 2024: | |||||||||||||||||
| Goodwill | $ | 6,517,220 | $ | 858,977 | $ | 7,376,197 | |||||||||||
| Accumulated impairment charges | — | (146,495) | (146,495) | ||||||||||||||
| $ | 6,517,220 | $ | 712,482 | $ | 7,229,702 |
The Company did not recognize any goodwill impairment charges during the three months ended March 31, 2024 or the three months ended March 31, 2023. None of the Company's various reporting units were considered at risk of significant goodwill impairment as of March 31, 2024.
DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)
6. Equity method and other investments
The Company maintains equity method and other minor investments in the private securities of certain other healthcare and healthcare-related businesses as follows:
| March 31, 2024 | December 31, 2023 | ||||||||||
| Mozarc Medical Holdings LLC | $ | 303,243 | $ | 324,711 | |||||||
| APAC joint venture | 68,165 | 98,865 | |||||||||
| Other equity method partnerships | 105,678 | 107,282 | |||||||||
| Adjusted cost method and other investments | 15,455 | 14,990 | |||||||||
| $ | 492,541 | $ | 545,848 |
During the three months ended March 31, 2024 and 2023 the Company recognized equity investment income of $6,682 and $6,820, respectively, from its equity method investments in nonconsolidated dialysis partnerships. The Company also recognized equity investment losses from other equity method investments of $(19,029) and $(2,478) in other (loss) income, net during the three months ended March 31, 2024 and 2023, respectively.
See Note 8 to the Company's consolidated financial statements included in the 2023 10-K for further description of the Company's equity method investments.
7. Long-term debt
Long-term debt comprised the following:
| As of March 31, 2024 | |||||||||||||||||||||||||||||
| March 31, 2024 | December 31, 2023 | Maturity date | Interest rate | Estimated fair value**(1)** | |||||||||||||||||||||||||
| Senior Secured Credit Facilities: | |||||||||||||||||||||||||||||
| Term Loan A-1 | $ | 1,226,563 | $ | 1,234,375 | (2) | SOFR+CSA+1.75%(3) | $ | 1,214,297 | |||||||||||||||||||||
| Term Loan B-1 | 2,596,928 | 2,603,786 | 8/12/2026 | SOFR+CSA+1.75%(3) | $ | 2,596,928 | |||||||||||||||||||||||
| Revolving line of credit | 765,000 | — | (2) | SOFR+CSA+1.75%(3) | $ | 765,000 | |||||||||||||||||||||||
| Senior Notes: | |||||||||||||||||||||||||||||
| 4.625% Senior Notes | 2,750,000 | 2,750,000 | 6/1/2030 | 4.625 | % | $ | 2,464,688 | ||||||||||||||||||||||
| 3.75% Senior Notes | 1,500,000 | 1,500,000 | 2/15/2031 | 3.75 | % | $ | 1,256,250 | ||||||||||||||||||||||
| Acquisition obligations and other notes payable(4) | 94,758 | 102,328 | 2024-2036 | 6.65 | % | $ | 94,758 | ||||||||||||||||||||||
| Financing lease obligations(5) | 246,227 | 255,491 | 2024-2038 | 4.59 | % | ||||||||||||||||||||||||
| Total debt principal outstanding | 9,179,476 | 8,445,980 | |||||||||||||||||||||||||||
| Discount, premium and deferred financing costs(6) | (51,266) | (54,347) | |||||||||||||||||||||||||||
| 9,128,210 | 8,391,633 | ||||||||||||||||||||||||||||
| Less current portion | (127,616) | (123,299) | |||||||||||||||||||||||||||
| $ | 9,000,594 | $ | 8,268,334 |
(1)For the Company's senior secured credit facilities, fair value estimates are based upon bid and ask quotes, a level 2 input. For our senior notes, fair value estimates are based on market level 1 inputs. For acquisition obligations and other notes payable, the carrying values presented here approximate their estimated fair values, based on estimates of their present values typically using level 2 interest rate inputs.
(2)Outstanding Term Loan A-1 and the Revolving line of credit balances are due on April 28, 2028, unless any of Term Loan B-1 remains outstanding 91 days prior to the Term Loan B-1 maturity date, in which case the outstanding Term Loan A-1 and the Revolving line of credit balances become due at that 91 day date (May 13, 2026).
(3)The Company's senior secured credit facilities bear interest at Term SOFR, plus a CSA and an interest rate margin, as detailed in the table above. The Term Loan A-1 and revolving line of credit bear a CSA of 0.10%. As of March 31, 2024, the CSA for all tranches outstanding on the Company's Term Loan B-1 was 0.11%.
(4)The interest rate presented for acquisition obligations and other notes payable is their weighted average interest rate based on the current fixed and variable interest rate components in effect as of March 31, 2024.
DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)
(5)Financing lease obligations are measured at their approximate present values at inception. The interest rate presented is the weighted average discount rate embedded in financing leases outstanding.
(6)As of March 31, 2024, the carrying amount of the Company's senior secured credit facilities has been reduced by a discount of $2,251 and deferred financing costs of $30,358, and the carrying amount of the Company's senior notes has been reduced by deferred financing costs of $30,313 and increased by a debt premium of $11,656. As of December 31, 2023, the carrying amount of the Company's senior secured credit facilities was reduced by a discount of $2,487 and deferred financing costs of $32,498, and the carrying amount of the Company's senior notes was reduced by deferred financing costs of $31,491 and increased by a debt premium of $12,129.
During the first three months of 2024, the Company made regularly scheduled principal payments under its senior secured credit facilities totaling $7,812 on Term Loan A-1 and $6,858 on Term Loan B-1.
As of March 31, 2024, the Company's 2019 interest rate cap agreements described below have the economic effect of capping the Company's maximum exposure to SOFR variable interest rate changes on equivalent amounts of the Company's floating rate debt, including all of Term Loan B-1 and a portion of Term Loan A-1. The remaining $323,491 outstanding principal balance of Term Loan A-1 and $765,000 balance outstanding on the revolving line of credit are subject to SOFR-based interest rate volatility. These cap agreements are designated as cash flow hedges and, as a result, changes in their fair values are reported in other comprehensive income. The original premiums paid for the caps are amortized to debt expense on a straight-line basis over the term of each cap agreement starting from its effective date. These cap agreements do not contain credit risk-contingent features.
The following table summarizes the Company’s interest rate cap agreements outstanding as of March 31, 2024:
| Year cap agreements executed | Notional amount | SOFR maximum rate | Approximate effective date | Notional reduction or contractual maturity date At December 31 unless noted | |||||||||||||||||||||||||||||||
| 2024**(1)** | 2025 | 2026 | |||||||||||||||||||||||||||||||||
| 2019 | $ | 3,500,000 | 2.00% | 6/30/2020 | $ | 3,500,000 | |||||||||||||||||||||||||||||
| 2023 | $ | 1,000,000 | 3.75% | 6/30/2024 | $ | 500,000 | $ | 500,000 | |||||||||||||||||||||||||||
| 2023 | $ | 1,000,000 | 4.00%(2) | 6/30/2024 | $ | 250,000 | $ | 750,000 | |||||||||||||||||||||||||||
| 2023 | $ | 1,000,000 | 4.75%(3) | 6/30/2024 | $ | 250,000 | $ | 750,000 | |||||||||||||||||||||||||||
| 2023 | $ | 500,000 | 5.00%(4) | 6/30/2024 | $ | 500,000 | |||||||||||||||||||||||||||||
| 2023 | $ | 250,000 | 4.50% | 12/31/2024 | $ | 250,000 | |||||||||||||||||||||||||||||
| 2023 | $ | 750,000 | 4.00% | 12/31/2024 | $ | 250,000 | $ | 500,000 |
(1)The Company's 2019 cap agreements mature on June 30, 2024.
(2)Effective January 1, 2025, the maximum rate of 4.00% decreases to 3.75% for these interest rate caps.
(3)Effective January 1, 2025, the maximum rate of 4.75% decreases to 4.00% for these interest rate caps.
(4)Effective January 1, 2025, the maximum rate of 5.00% decreases to 4.50% for these interest rate caps.
The fair value of the Company's interest rate cap agreements, which are classified in other long-term assets on its consolidated balance sheet, was $67,356 and $79,805 as of March 31, 2024 and December 31, 2023, respectively.
See Note 10 for further details on amounts reclassified from accumulated other comprehensive loss and recorded as debt expense (offset) related to the Company’s interest rate cap agreements for the three months ended March 31, 2024 and 2023.
As a result of the variable rate cap from the Company's 2019 interest rate cap agreements, the Company’s weighted average effective interest rate on its senior secured credit facilities at the end of the first quarter of 2024 was 4.88%, based on the current margins in effect for its senior secured credit facilities as of March 31, 2024, as detailed in the table above.
The Company’s weighted average effective interest rate on all debt, including the effect of interest rate caps and amortization of debt discount, for the three months ended March 31, 2024 was 4.51% and as of March 31, 2024 was 4.69%.
As of March 31, 2024, the Company’s interest rates were fixed and economically fixed on approximately 50% and 88% of its total debt, respectively.
As of March 31, 2024, the Company had $735,000 available and $765,000 drawn on its $1,500,000 revolving line of credit under its senior secured credit facilities. Credit available under this revolving line of credit is reduced by the amount of
DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)
any letters of credit outstanding under the facility, of which there were none as of March 31, 2024. The Company also had letters of credit of approximately $154,373 outstanding under a separate bilateral secured letter of credit facility as of March 31, 2024.
8. Commitments and contingencies
The majority of the Company’s revenues are from government programs and may be subject to adjustment as a result of: (i) examination by government agencies or contractors, for which the resolution of any matters raised may take extended periods of time to finalize; (ii) differing interpretations of government regulations by different Medicare contractors or regulatory authorities; (iii) differing opinions regarding a patient’s medical diagnosis or the medical necessity of services provided; and (iv) retroactive applications or interpretations of governmental requirements. In addition, the Company’s revenues from commercial payors may be subject to adjustment as a result of potential claims for refunds, as a result of government actions or as a result of other claims by commercial payors.
The Company operates in a highly regulated industry and is a party to various lawsuits, demands, claims, qui tam suits, governmental investigations (which frequently arise from qui tam suits) and audits (including, without limitation, investigations or other actions resulting from its obligation to self-report suspected violations of law) and other legal proceedings, including, without limitation, those described below. The Company records accruals for certain legal proceedings and regulatory matters to the extent that the Company determines an unfavorable outcome is probable and the amount of the loss can be reasonably estimated. As of March 31, 2024 and December 31, 2023, the Company’s total recorded accruals with respect to legal proceedings and regulatory matters, net of anticipated third party recoveries, were immaterial. While these accruals reflect the Company’s best estimate of the probable loss for those matters as of the dates of those accruals, the recorded amounts may differ materially from the actual amount of the losses for those matters, and any anticipated third party recoveries for any such losses may not ultimately be recoverable. Additionally, in some cases, no estimate of the possible loss or range of loss in excess of amounts accrued, if any, can be made because of the inherently unpredictable nature of legal proceedings and regulatory matters, which also may be impacted by various factors, including, without limitation, that they may involve indeterminate claims for monetary damages or may involve fines, penalties or non-monetary remedies; present novel legal theories or legal uncertainties; involve disputed facts; represent a shift in regulatory policy; are in the early stages of the proceedings; or may result in a change of business practices. Further, there may be various levels of judicial review available to the Company in connection with any such proceeding.
The following is a description of certain lawsuits, claims, governmental investigations and audits and other legal proceedings to which the Company is subject.
Certain Governmental Inquiries and Related Proceedings
2017 U.S. Attorney Colorado Investigation: In November 2017, the U.S. Attorney’s Office, District of Colorado informed the Company of an investigation it was conducting into possible federal healthcare offenses involving DaVita Kidney Care, as well as several of the Company’s wholly-owned subsidiaries. In addition to DaVita Kidney Care, the matter currently includes an investigation into DaVita Rx, DaVita Laboratory Services, Inc. (DaVita Labs), and RMS Lifeline Inc. (Lifeline). In each of August 2018, May 2019, and July 2021, the Company received a Civil Investigative Demand (CID) pursuant to the FCA from the U.S. Attorney's Office relating to this investigation. In May 2020, the Company sold its interest in Lifeline, but the Company retained certain liabilities of the Lifeline business, including those related to this investigation. The Company is engaged in discussions with the U.S. Attorney's Office and the Civil Division of the United States Department of Justice to resolve this matter. The Company can make no assurance as to the final outcome. The Company has reserved $40,000 for this matter, which includes any potential payment of attorneys' fees.
2020 U.S. Attorney New Jersey Investigation: In March 2020, the U.S. Attorney’s Office, District of New Jersey served the Company with a subpoena and a CID relating to an investigation being conducted by that office and the U.S. Attorney’s Office, Eastern District of Pennsylvania. The subpoena and CID request information on several topics, including certain of the Company’s joint venture arrangements with physicians and physician groups, medical director agreements, and compliance with its five-year Corporate Integrity Agreement, the term of which expired October 22, 2019. In November 2022, the Company learned that, on April 1, 2022, the U.S. Attorney’s Office for the District of New Jersey notified the U.S. District Court for the District of New Jersey of its decision not to elect to intervene in the matter of U.S. ex rel. Doe v. DaVita Inc. and filed a Stipulation of Dismissal. On April 13, 2022, the U.S. District Court for the District of New Jersey dismissed the case without prejudice. On October 12, 2022, the U.S. Attorney’s Office for the Eastern District of Pennsylvania notified the U.S.
DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)
District Court, Eastern District of Pennsylvania, of its decision not to elect to intervene at this time in the matter of U.S. ex rel. Bayne v. DaVita Inc., et al. The court then unsealed an amended complaint, which alleges violations of federal and state False Claims Acts, by order dated October 14, 2022. On November 8, 2023, the private party relator filed a fourth amended complaint. On November 29, 2023, the Company filed a motion to dismiss the fourth amended complaint.
2020 California Department of Insurance Investigation: In April 2020, the California Department of Insurance (CDI) sent the Company an Investigative Subpoena relating to an investigation being conducted by that office. CDI issued a superseding subpoena in September 2020 and an additional subpoena in September 2021. Those subpoenas request information on a number of topics, including but not limited to the Company’s communications with patients about insurance plans and financial assistance from the American Kidney Fund (AKF), analyses of the potential impact of patients’ decisions to change insurance providers, and documents relating to donations or contributions to the AKF. The Company is continuing to cooperate with CDI in this investigation.
2023 District of Columbia Office of Attorney General Investigation: In January 2023, the Office of the Attorney General for the District of Columbia issued a CID to the Company in connection with an antitrust investigation into the AKF. The CID covers the period from January 1, 2016 to the present. The CID requests information on a number of topics, including but not limited to the Company’s communications with AKF, documents relating to donations to the AKF, and communications with patients, providers, and insurers regarding the AKF. The Company is cooperating with the government in this investigation.
2024 Federal Trade Commission Investigation: In April 2024, the Company received from the Federal Trade Commission (FTC) two CIDs in connection with an industry investigation under Section 5 of the Federal Trade Commission Act regarding the acquisition of Medical Director services and provision of dialysis services. The CIDs cover the period from January 1, 2016 to the present and generally seek information relating to restrictive covenants, such as non-competes, with physicians. The Company is cooperating with the government in this investigation.
Although the Company cannot predict whether or when proceedings might be initiated or when these matters may be resolved (other than as may be described above), it is not unusual for inquiries such as these to continue for a considerable period of time through the various phases of document and witness requests and ongoing discussions with regulators and to develop over the course of time. In addition to the inquiries and proceedings specifically identified above, the Company frequently is subject to other inquiries by state or federal government agencies, many of which relate to qui tam complaints filed by relators. Negative findings or terms and conditions that the Company might agree to accept as part of a negotiated resolution of pending or future government inquiries or relator proceedings could result in, among other things, substantial financial penalties or awards against the Company, substantial payments made by the Company, harm to the Company’s reputation, required changes to the Company’s business practices, an impact on the Company's various relationships and/or contracts related to the Company's business, exclusion from future participation in the Medicare, Medicaid and other federal health care programs and, if criminal proceedings were initiated against the Company, members of its board of directors or management, possible criminal penalties, any of which could have a material adverse effect on the Company.
Other Proceedings
2021 Antitrust Indictment and Putative Class Action Suit: On July 14, 2021, an indictment was returned by a grand jury in the U.S. District Court, District of Colorado against the Company and its former chief executive officer in the matter of U.S. v. DaVita Inc., et al. alleging that purported agreements entered into by DaVita's former chief executive officer not to solicit senior-level employees violated Section 1 of the Sherman Act. On April 15, 2022, a jury returned a verdict in the Company’s favor, acquitting both the Company and its former chief executive officer on all counts. On April 20, 2022, the court entered judgments of acquittal and closed the case. On August 9, 2021, DaVita Inc. and its former chief executive officer were added as defendants in a consolidated putative class action complaint in the matter of In re Outpatient Medical Center Employee Antitrust Litigation in the U.S. District Court, Northern District of Illinois. This class action complaint asserts that the defendants violated Section 1 of the Sherman Act and seeks to bring an action on behalf of certain groups of individuals employed by the Company between February 1, 2012 and January 5, 2021. On September 26, 2022, the court denied the
DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)
Company's motion to dismiss. The Company disputes the allegations in the class action complaint, as well as the asserted violations of the Sherman Act, and intends to defend this action accordingly.
Additionally, from time to time the Company is subject to other lawsuits, demands, claims, governmental investigations and audits and legal proceedings that arise due to the nature of its business, including, without limitation, contractual disputes, such as with payors, suppliers and others, employee-related matters and professional and general liability claims. From time to time, the Company also initiates litigation or other legal proceedings as a plaintiff arising out of contracts or other matters.
Other than as may be described above, the Company cannot predict the ultimate outcomes of the various legal proceedings and regulatory matters to which the Company is or may be subject from time to time, including those described in this Note 8, or the timing of their resolution or the ultimate losses or impact of developments in those matters, which could have a material adverse effect on the Company’s revenues, earnings and cash flows. Further, any legal proceedings or regulatory matters involving the Company, whether meritorious or not, are time consuming, and often require management’s attention and result in significant legal expense, and may result in the diversion of significant operational resources, may impact the Company's various relationships and/or contracts related to the Company's business or otherwise harm the Company’s business, results of operations, financial condition, cash flows or reputation.
Other Commitments
The Company also has certain potential commitments to provide working capital funding, if necessary, to certain nonconsolidated dialysis businesses that the Company manages and in which the Company owns a noncontrolling equity interest or which are wholly-owned by third parties of approximately $8,423.
9. Shareholders' equity
Stock-based compensation
During the three months ended March 31, 2024, the Company granted 696 stock-settled restricted and performance stock units with an aggregate grant-date fair value of $96,222 and a weighted average expected life of approximately 3.4 years.
As of March 31, 2024, the Company had $189,601 in total estimated but unrecognized stock-based compensation expense under the Company's equity compensation and employee stock purchase plans. The Company expects to recognize this expense over a weighted average remaining period of 1.5 years.
Share repurchases
The following table summarizes the Company's common stock repurchases during the three months ended March 31, 2024:
| Three months ended March 31, 2024 | |||||||||||||||||||||||||||||||||||
| Shares repurchased | Amount paid**(1)** | Average price paid per share**(2)** | |||||||||||||||||||||||||||||||||
| Open market repurchases: | 2,119 | $ | 240,117 | $ | 112.76 |
(1)Includes commissions and the 1% excise tax imposed on certain stock repurchases made after December 31, 2022 by the Inflation Reduction Act of 2022. The excise tax is recorded as part of the cost basis of treasury stock repurchased and, as such, is included in stockholders’ equity.
(2)Excludes commissions and the excise tax described above.
The Company did not repurchase any shares during the three months ended March 31, 2023. Furthermore, the Company did not repurchase any shares subsequent to March 31, 2024 through May 2, 2024.
As of December 31, 2023, the Company is authorized to make share repurchases pursuant to a December 17, 2021 Board authorized repurchase plan of $2,000,000. This authorization allows the Company to make purchases from time to time in the
DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)
open market or in privately negotiated transactions, including without limitation, through accelerated share repurchase transactions, derivative transactions, tender offers, Rule 10b5-1 plans or any combination of the foregoing, depending upon market conditions and other considerations.
As of May 2, 2024, the Company has a total of $1,072,904, excluding excise taxes, available under the current authorization for additional share repurchases. Although this share repurchase authorization does not have an expiration date, the Company remains subject to share repurchase limitations, including under the terms of its senior secured credit facilities.
10. Accumulated other comprehensive loss
| Three months ended March 31, 2024 | Three months ended March 31, 2023 | ||||||||||||||||||||||||||||||||||
| Interest rate cap agreements | Foreign currency translation adjustments | Accumulated other comprehensive loss | Interest rate cap agreements | Foreign currency translation adjustments | Accumulated other comprehensive loss | ||||||||||||||||||||||||||||||
| Beginning balance | $ | 27,853 | $ | (79,937) | $ | (52,084) | $ | 98,685 | $ | (167,871) | $ | (69,186) | |||||||||||||||||||||||
| Unrealized gains (losses) | 17,745 | (39,720) | (21,975) | (4,716) | 33,561 | 28,845 | |||||||||||||||||||||||||||||
| Related income tax | (4,428) | — | (4,428) | 1,177 | — | 1,177 | |||||||||||||||||||||||||||||
| 13,317 | (39,720) | (26,403) | (3,539) | 33,561 | 30,022 | ||||||||||||||||||||||||||||||
| Reclassification into net income | (28,818) | — | (28,818) | (20,975) | — | (20,975) | |||||||||||||||||||||||||||||
| Related income tax | 7,190 | — | 7,190 | 5,233 | — | 5,233 | |||||||||||||||||||||||||||||
| (21,628) | — | (21,628) | (15,742) | — | (15,742) | ||||||||||||||||||||||||||||||
| Ending balance | $ | 19,542 | $ | (119,657) | $ | (100,115) | $ | 79,404 | $ | (134,310) | $ | (54,906) |
The interest rate cap agreement net realized gains reclassified into net income are recorded as debt expense in the corresponding consolidated statements of income. See Note 7 for further details.
11. Acquisitions and divestitures
During three months ended March 31, 2024 the Company acquired dialysis businesses, as follows:
| Three months ended March 31, 2024 | ||||||||
| Cash paid, net of cash acquired | $ | 105,163 | ||||||
| Liabilities assumed | $ | 357 | ||||||
| Fair value of previously held equity method investments | $ | 67,526 | ||||||
| Number of dialysis centers acquired — U.S. | 9 | |||||||
| Number of dialysis centers acquired — International | 67 |
In these transactions, the Company acquired a controlling interest in a previously nonconsolidated U.S. dialysis partnership for which it recognized a non-cash gain of $35,147 on our prior investment upon consolidation. The Company estimated the fair value of its previously held equity interests using appraisals developed with independent third party valuation firms.
The assets and liabilities for these acquisitions were recorded at their estimated fair values at the dates of the acquisitions and are included in the Company’s consolidated financial statements, as are their operating results, from the designated effective dates of the acquisitions.
The initial purchase price allocations for these acquisitions have been recorded at estimated fair values based on information that was available to management and will be finalized when certain information arranged to be obtained is received. In particular, certain income tax amounts are pending final evaluation and quantification of any pre-acquisition tax contingencies. In addition, valuation of intangibles, contingent earn-outs, leases, and certain other working capital items relating to these acquisitions are pending final quantification.
DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)
The following table summarizes the assets acquired and liabilities assumed in these transactions and recognized at their acquisition dates at estimated fair values, as well as the estimated fair value of noncontrolling interests assumed in these transactions:
| Three months ended March 31, 2024 | |||||
| Current assets | $ | 33,732 | |||
| Property and equipment | 32,274 | ||||
| Right-of-use lease assets and other long-term assets | 29,703 | ||||
| Indefinite-lived licenses | 3,329 | ||||
| Goodwill | 137,290 | ||||
| Liabilities assumed | (43,024) | ||||
| Noncontrolling interests assumed | (20,258) | ||||
| $ | 173,046 |
The amount of goodwill related to these acquisitions recognized or adjusted during the three months ended March 31, 2024 that is deductible for tax purposes was $59,521.
12. Variable interest entities (VIEs)
At March 31, 2024, these condensed consolidated financial statements include total assets of VIEs of $293,733 and total liabilities and noncontrolling interests of VIEs to third parties of $139,024. There have been no material changes in the nature of the Company's arrangements with VIEs or its judgments concerning them from those described in Note 22 to the Company's consolidated financial statements included in the 2023 10-K.
13. Fair values of financial instruments
The Company measures the fair value of certain assets, liabilities and noncontrolling interests subject to put provisions (redeemable equity interests classified as temporary equity) based upon certain valuation techniques that include observable or unobservable inputs and assumptions that market participants would use in pricing these assets, liabilities, temporary equity and commitments. The Company has also classified assets, liabilities and temporary equities that are measured at fair value on a recurring basis into the appropriate fair value hierarchy levels as defined by the Financial Accounting Standards Board (FASB).
The following table summarizes the Company’s assets, liabilities and temporary equities measured at fair value on a recurring basis as of March 31, 2024:
| Total | Quoted prices in active markets for identical assets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | ||||||||||||||||||||
| Assets | |||||||||||||||||||||||
| Investments in equity securities | $ | 36,326 | $ | 36,326 | |||||||||||||||||||
| Interest rate cap agreements | $ | 67,356 | $ | 67,356 | |||||||||||||||||||
| Liabilities | |||||||||||||||||||||||
| Contingent earn-out obligations for acquisitions | $ | 20,951 | $ | 20,951 | |||||||||||||||||||
| Temporary equity | |||||||||||||||||||||||
| Noncontrolling interests subject to put provisions | $ | 1,503,474 | $ | 1,503,474 |
Investments in equity securities represent investments in various open-ended registered investment companies (mutual funds) and common stocks and are recorded at fair value estimated based on reported market prices or redemption prices, as applicable. See Note 4 for further discussion.
Interest rate cap agreements are recorded at fair value estimated from valuation models utilizing the income approach and commonly accepted valuation techniques that use inputs from closing prices for similar assets and liabilities in active markets as well as other relevant observable market inputs at quoted intervals such as current interest rates, forward yield
DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)
curves, implied volatility and credit default swap pricing. The Company does not believe the ultimate amount that could be realized upon settlement of these interest rate cap agreements would be materially different from the fair value estimates currently reported. See Note 7 for further discussion.
As of March 31, 2024, the Company had contingent earn-out obligations associated with business acquisitions that could result in the Company paying the former owners a total of up to approximately $63,862 if certain performance targets or quality margins are met over the next one year to four years. The estimated fair value measurements of these contingent earn-out obligations are primarily based on unobservable inputs, including key financial metrics such as projected earnings before interest, taxes, depreciation, and amortization (EBITDA), revenue and other key performance indicators. The estimated fair values of these contingent earn-out obligations are remeasured as of each reporting date and could fluctuate based upon any significant changes in key assumptions, such as changes in the Company's credit risk adjusted rate that is used to discount obligations to present value.
The estimated fair value of noncontrolling interests subject to put provisions is based principally on the higher of either estimated liquidation value of net assets or a multiple of earnings for each subject dialysis partnership, based on historical earnings, revenue mix, and other performance indicators that can affect future results. The multiples used for these valuations are derived from observed ownership transactions for dialysis businesses between unrelated parties in the U.S. in recent years, and the specific valuation multiple applied to each dialysis partnership is principally determined by its recent and expected revenue mix and contribution margin. As of March 31, 2024, an increase or decrease in the weighted average multiple used in these valuations of one times EBITDA would change the estimated fair value of these noncontrolling interests by approximately $195,000. See Notes 16 and 23 to the Company's consolidated financial statements included in the 2023 10-K for further discussion of the Company’s methodology for estimating the fair value of noncontrolling interests subject to put obligations. For a reconciliation of changes in noncontrolling interests subject to put provisions during the three months ended March 31, 2024, see the consolidated statement of equity.
The Company's fair value estimates for its senior secured credit facilities and senior notes are based upon quoted bid and ask prices for these instruments, typically a level 2 input. See Note 7 for further discussion of the Company's debt.
The book value of the Company's contingent consideration payable to Medtronic, Inc. for its interest in Mozarc Medical Holdings LLC approximates its estimated fair value, which is based on level 3 inputs.
Other financial instruments consist primarily of cash and cash equivalents, restricted cash and cash equivalents, accounts receivable, accounts payable, other accrued liabilities, lease liabilities and debt. The balances of financial instruments other than debt and lease liabilities are presented in these condensed consolidated financial statements at March 31, 2024 at their approximate fair values due to the short-term nature of their settlements.
14. Segment reporting
The Company’s operating divisions are composed of its U.S. dialysis and related lab services business (its U.S. dialysis business), its U.S. integrated kidney care business, its U.S. other ancillary services and its international operations (collectively, its ancillary services), as well as its corporate administrative support.
The Company’s separate operating segments include its U.S. dialysis and related lab services business, its U.S. integrated kidney care business, its U.S. other ancillary services, its operations in each foreign sovereign jurisdiction, and its equity method investment in the Asia Pacific joint venture (APAC JV). The U.S. dialysis and related lab services business qualifies as a separately reportable segment, and all other operating segments have been combined and disclosed in the other segments category. See Note 24 to the Company's consolidated financial statements included in the 2023 10-K for further description of how the Company determines and measures results for its operating segments.
DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)
The following is a summary of segment revenues, segment operating margin (loss), and a reconciliation of segment operating margin to consolidated income before income taxes:
| Three months ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Segment revenues: | |||||||||||||||||||||||
| U.S. dialysis | |||||||||||||||||||||||
| Dialysis patient service revenues: | |||||||||||||||||||||||
| External sources | $ | 2,725,575 | $ | 2,583,933 | |||||||||||||||||||
| Intersegment revenues | 24,463 | 22,047 | |||||||||||||||||||||
| U.S. dialysis patient service revenues | 2,750,038 | 2,605,980 | |||||||||||||||||||||
| Other revenues: | |||||||||||||||||||||||
| External sources | 6,122 | 6,180 | |||||||||||||||||||||
| Intersegment revenues | — | — | |||||||||||||||||||||
| Total U.S. dialysis revenues | 2,756,160 | 2,612,160 | |||||||||||||||||||||
| Other—Ancillary services | |||||||||||||||||||||||
| Dialysis patient service revenues | 215,957 | 176,101 | |||||||||||||||||||||
| Other external sources | 122,901 | 106,485 | |||||||||||||||||||||
| Intersegment revenues | 2,747 | 1,368 | |||||||||||||||||||||
| Total ancillary services revenues | 341,605 | 283,954 | |||||||||||||||||||||
| Total net segment revenues | 3,097,765 | 2,896,114 | |||||||||||||||||||||
| Elimination of intersegment revenues | (27,210) | (23,415) | |||||||||||||||||||||
| Consolidated revenues | $ | 3,070,555 | $ | 2,872,699 | |||||||||||||||||||
| Segment operating margin (loss): | |||||||||||||||||||||||
| U.S. dialysis | $ | 525,737 | $ | 361,098 | |||||||||||||||||||
| Other—Ancillary services | (11,502) | (24,865) | |||||||||||||||||||||
| Total segment operating margin | 514,235 | 336,233 | |||||||||||||||||||||
| Reconciliation of segment operating income to consolidated income before income taxes: | |||||||||||||||||||||||
| Corporate administrative support | (30,390) | (24,588) | |||||||||||||||||||||
| Consolidated operating income | 483,845 | 311,645 | |||||||||||||||||||||
| Debt expense | (99,418) | (100,774) | |||||||||||||||||||||
| Other (loss) income, net | (12,641) | 3,752 | |||||||||||||||||||||
| Consolidated income before income taxes | $ | 371,786 | $ | 214,623 |
Depreciation and amortization expense by reportable segment was as follows:
| Three months ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| U.S. dialysis | $ | 172,852 | $ | 166,961 | |||||||||||||||||||
| Other—Ancillary services | 14,231 | 11,110 | |||||||||||||||||||||
| $ | 187,083 | $ | 178,071 |
DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)
Expenditures for property and equipment by reportable segment were as follows:
| Three months ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| U.S. dialysis | $ | 104,953 | $ | 130,966 | |||||||||||||||||||
| Other—Ancillary services | 16,062 | 16,739 | |||||||||||||||||||||
| $ | 121,015 | $ | 147,705 |
15. New accounting standards
New standards not yet adopted
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (ASU 2023-07), which improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The guidance also requires disclosure of the chief operating decision maker's (CODM) position for each segment and detail of how the CODM uses financial reporting to assess their segment’s performance. ASU 2023-07 is effective for all public entities for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company has completed its initial assessment of the impact of this new guidance and does not expect it to have a material impact on the Company's consolidated financial statements.
In December 2023, the Financial Accounting Standards Board issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which expands income tax disclosure requirements to include additional information related to the rate reconciliation of effective tax rates to statutory rates, as well as additional disaggregation of taxes paid in both U.S. and foreign jurisdictions. The amendments in the ASU also remove disclosures related to certain unrecognized tax benefits and deferred taxes. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024. The amendments may be applied prospectively or retrospectively, and early adoption is permitted. The Company is currently assessing the effect this guidance may have on its consolidated financial statements.
16. Subsequent Events
Change Healthcare Funding Agreement
On February 21, 2024, we received notice from Change Healthcare (CHC), a subsidiary of UnitedHealth Group (United) of a cybersecurity breach affecting some of CHC's information technology systems. At the time, CHC acted as an intermediary for processing the vast majority of our payment claims for domestic commercial and government payors. In response to the cybersecurity breach, both the Company and CHC severed those business service connections between our systems and CHC’s. As a result of the outage, the Company was unable to submit payment claims through CHC's platform. The Company was able to submit Medicare claims outside of CHC's platform, but experienced a significant reduction in cash flow during this period of time due to the CHC outage. On March 1, 2024, CHC launched a temporary assistance funding program to help bridge the gap in short-term cash flow needs for providers impacted by the disruption of CHC's services. Under the program, CHC provides funding to providers for amounts that would otherwise have been received (with certain limitations), but for the disruption in processing electronic claims as a result of the outage. Amounts provided under this program are subject to repayment within 45 business days of receiving notice from CHC that claims processing and payment processing services have been restored and payments impacted during the service disruption period are being processed. Such notice has not been received as of the date of this filing. As of April 30, 2024, DaVita had received approximately $472,000 of funds related to this program, which were utilized along with cash on hand to pay off the $765,000 previously outstanding on the Company's revolving line of credit under its senior secured credit facilities.
CHC began to restore claims submission functionality on March 28, 2024 and the Company has resumed submission of most of its commercial claims through CHC's platform, although the Company continues to experience payment collection delays. As of March 31, 2024, because the outage impacted the Company's ability to submit claims, our patient accounts receivable balances and days sales outstanding (DSO) increased, which ultimately negatively impacted our cash flows for the first quarter of 2024, and resulted in an increase in outstanding borrowings under our revolving credit facility. Subsequent to March 31, 2024, accounts receivable balances and DSO have declined and are expected to continue to decline over the next few months as we continue claims submissions and cash collections.
DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)
Fourth Amendment to Credit Agreement
The Company plans to enter into a fourth amendment to its existing credit agreement which is expected to extend the maturity date for approximately $1,640,300 of our senior secured term loan B-1 facility to 2031, among other things. The transaction is expected to close in May 2024, subject to agreement on and delivery of definitive documentation.
Next: Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.