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Cover and table of contents
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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 September 30, 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 October 25, 2024, the number of shares of the registrant’s common stock outstanding was approximately 82.0 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 September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Dialysis patient service revenues | $ | 3,138,561 | $ | 2,951,950 | $ | 9,141,195 | $ | 8,602,669 | |||||||||||||||
| Other revenues | 125,029 | 169,382 | 379,672 | 391,731 | |||||||||||||||||||
| Total revenues | 3,263,590 | 3,121,332 | 9,520,867 | 8,994,400 | |||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Patient care costs | 2,151,875 | 2,067,315 | 6,373,150 | 6,181,348 | |||||||||||||||||||
| General and administrative | 393,534 | 376,883 | 1,123,859 | 1,072,513 | |||||||||||||||||||
| Depreciation and amortization | 187,014 | 188,423 | 549,758 | 550,166 | |||||||||||||||||||
| Equity investment income, net | (3,711) | (7,228) | (15,874) | (22,502) | |||||||||||||||||||
| Gain on changes in ownership interest | — | — | (35,147) | — | |||||||||||||||||||
| Total operating expenses | 2,728,712 | 2,625,393 | 7,995,746 | 7,781,525 | |||||||||||||||||||
| Operating income | 534,878 | 495,939 | 1,525,121 | 1,212,875 | |||||||||||||||||||
| Debt expense | (134,583) | (98,080) | (331,748) | (302,361) | |||||||||||||||||||
| Debt prepayment, extinguishment and modification costs | (10,081) | — | (19,813) | (7,962) | |||||||||||||||||||
| Other loss, net | (16,780) | (19,650) | (56,900) | (14,525) | |||||||||||||||||||
| Income before income taxes | 373,434 | 378,209 | 1,116,660 | 888,027 | |||||||||||||||||||
| Income tax expense | 77,674 | 68,848 | 215,168 | 161,621 | |||||||||||||||||||
| Net income | 295,760 | 309,361 | 901,492 | 726,406 | |||||||||||||||||||
| Less: Net income attributable to noncontrolling interests | (81,072) | (62,729) | (224,479) | (185,536) | |||||||||||||||||||
| Net income attributable to DaVita Inc. | $ | 214,688 | $ | 246,632 | $ | 677,013 | $ | 540,870 | |||||||||||||||
| Earnings per share attributable to DaVita Inc.: | |||||||||||||||||||||||
| Basic net income | $ | 2.56 | $ | 2.70 | $ | 7.86 | $ | 5.95 | |||||||||||||||
| Diluted net income | $ | 2.50 | $ | 2.62 | $ | 7.66 | $ | 5.80 | |||||||||||||||
| Weighted average shares for earnings per share: | |||||||||||||||||||||||
| Basic shares | 83,721 | 91,322 | 86,123 | 90,937 | |||||||||||||||||||
| Diluted shares | 85,795 | 94,041 | 88,422 | 93,317 | |||||||||||||||||||
See notes to condensed consolidated financial statements.
DAVITA INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
(dollars in thousands)
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Net income | $ | 295,760 | $ | 309,361 | $ | 901,492 | $ | 726,406 | |||||||||||||||
| Other comprehensive income (loss), net of tax: | |||||||||||||||||||||||
| Unrealized (losses) gains on interest rate cap agreements: | |||||||||||||||||||||||
| Unrealized (losses) gains | (21,576) | 6,996 | (2,340) | 28,305 | |||||||||||||||||||
| Reclassifications of net realized gains into net income | (1,870) | (21,198) | (45,539) | (55,895) | |||||||||||||||||||
| Unrealized gains (losses) on foreign currency translation: | 56,202 | (47,644) | (62,371) | 27,878 | |||||||||||||||||||
| Other comprehensive income (loss) | 32,756 | (61,846) | (110,250) | 288 | |||||||||||||||||||
| Total comprehensive income | 328,516 | 247,515 | 791,242 | 726,694 | |||||||||||||||||||
| Less: Comprehensive income attributable to noncontrolling interests | (81,072) | (62,729) | (224,479) | (185,536) | |||||||||||||||||||
| Comprehensive income attributable to DaVita Inc. | $ | 247,444 | $ | 184,786 | $ | 566,763 | $ | 541,158 |
See notes to condensed consolidated financial statements.
DAVITA INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(dollars and shares in thousands, except per share data)
| September 30, 2024 | December 31, 2023 | ||||||||||
| ASSETS | |||||||||||
| Cash and cash equivalents | $ | 1,070,775 | $ | 380,063 | |||||||
| Restricted cash and equivalents | 87,869 | 84,571 | |||||||||
| Short-term investments | 20,996 | 11,610 | |||||||||
| Accounts receivable | 2,267,365 | 1,986,856 | |||||||||
| Inventories | 128,999 | 143,105 | |||||||||
| Other receivables | 359,485 | 422,669 | |||||||||
| Prepaid and other current assets | 96,989 | 102,645 | |||||||||
| Income tax receivable | 4,522 | 6,387 | |||||||||
| Total current assets | 4,037,000 | 3,137,906 | |||||||||
| Property and equipment, net of accumulated depreciation of $6,174,254 and $5,759,514, respectively | 2,939,620 | 3,073,533 | |||||||||
| Operating lease right-of-use assets | 2,418,350 | 2,501,364 | |||||||||
| Intangible assets, net of accumulated amortization of $29,374 and $38,445, respectively | 197,854 | 203,224 | |||||||||
| Equity method and other investments | 430,483 | 545,848 | |||||||||
| Long-term investments | 33,844 | 47,890 | |||||||||
| Other long-term assets | 218,956 | 271,253 | |||||||||
| Goodwill | 7,227,630 | 7,112,560 | |||||||||
| $ | 17,503,737 | $ | 16,893,578 | ||||||||
| LIABILITIES AND EQUITY | |||||||||||
| Accounts payable | $ | 488,244 | $ | 514,533 | |||||||
| Other liabilities | 927,530 | 828,878 | |||||||||
| Accrued compensation and benefits | 806,149 | 752,598 | |||||||||
| Current portion of operating lease liabilities | 404,540 | 394,399 | |||||||||
| Current portion of long-term debt | 296,255 | 123,299 | |||||||||
| Income tax payable | 21,268 | 28,507 | |||||||||
| Total current liabilities | 2,943,986 | 2,642,214 | |||||||||
| Long-term operating lease liabilities | 2,237,135 | 2,330,389 | |||||||||
| Long-term debt | 9,260,331 | 8,268,334 | |||||||||
| Other long-term liabilities | 183,030 | 183,074 | |||||||||
| Deferred income taxes | 659,581 | 726,217 | |||||||||
| Total liabilities | 15,284,063 | 14,150,228 | |||||||||
| Commitments and contingencies | |||||||||||
| Noncontrolling interests subject to put provisions | 1,633,011 | 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; 90,132 and 82,624 shares issued and outstanding at September 30, 2024, respectively, and 88,824 shares issued and outstanding at December 31, 2023) | 90 | 89 | |||||||||
| Additional paid-in capital | 295,637 | 509,804 | |||||||||
| Retained earnings | 1,275,301 | 598,288 | |||||||||
| Treasury stock (7,508 and zero shares, respectively) | (1,021,979) | — | |||||||||
| Accumulated other comprehensive loss | (162,334) | (52,084) | |||||||||
| Total DaVita Inc. shareholders' equity | 386,715 | 1,056,097 | |||||||||
| Noncontrolling interests not subject to put provisions | 199,948 | 187,965 | |||||||||
| Total equity | 586,663 | 1,244,062 | |||||||||
| $ | 17,503,737 | $ | 16,893,578 |
See notes to condensed consolidated financial statements.
DAVITA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(dollars in thousands)
| Nine months ended September 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | 901,492 | $ | 726,406 | |||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | 549,758 | 550,166 | |||||||||
| Loss on extinguishment of debt | 12,527 | 7,132 | |||||||||
| Stock-based compensation expense | 75,392 | 82,313 | |||||||||
| Deferred income taxes | (53,713) | (17,767) | |||||||||
| Equity investment loss, net | 91,100 | 40,121 | |||||||||
| Gain on changes in ownership interest | (35,147) | — | |||||||||
| Other non-cash losses, net | 24,159 | 1,633 | |||||||||
| Changes in operating assets and liabilities, net of effect of acquisitions and divestitures: | |||||||||||
| Accounts receivable | (175,643) | 118,148 | |||||||||
| Inventories | 20,495 | 290 | |||||||||
| Other current assets | 72,477 | 31,842 | |||||||||
| Other long-term assets | (12,858) | 1,101 | |||||||||
| Accounts payable | (43,414) | (33,837) | |||||||||
| Accrued compensation and benefits | 27,314 | 65,279 | |||||||||
| Other current liabilities | 35,646 | 10,822 | |||||||||
| Income taxes | (7,528) | (1,878) | |||||||||
| Other long-term liabilities | (7,646) | (7,945) | |||||||||
| Net cash provided by operating activities | 1,474,411 | 1,573,826 | |||||||||
| Cash flows from investing activities: | |||||||||||
| Additions of property and equipment | (384,786) | (409,011) | |||||||||
| Acquisitions | (161,210) | (7,990) | |||||||||
| Proceeds from asset and business sales | 17,937 | 24,907 | |||||||||
| Purchase of debt investments held-to-maturity | (15,319) | (30,419) | |||||||||
| Purchase of other debt and equity investments | (8,784) | (6,693) | |||||||||
| Proceeds from debt investments held-to-maturity | 22,092 | 94,414 | |||||||||
| Proceeds from sale of other debt and equity investments | 4,558 | 3,930 | |||||||||
| Purchase of equity method investments | (4,497) | (276,006) | |||||||||
| Distributions from equity method investments | 6,554 | 3,364 | |||||||||
| Net cash used in investing activities | (523,455) | (603,504) | |||||||||
| Cash flows from financing activities: | |||||||||||
| Borrowings | 6,623,634 | 2,468,335 | |||||||||
| Payments on long-term debt | (5,437,907) | (2,992,248) | |||||||||
| Deferred and debt related financing costs | (46,011) | (53,466) | |||||||||
| Purchase of treasury stock | (1,020,550) | — | |||||||||
| Distributions to noncontrolling interests | (229,236) | (203,381) | |||||||||
| Net payments related to stock purchases and awards | (112,496) | (41,155) | |||||||||
| Contributions from noncontrolling interests | 10,623 | 11,579 | |||||||||
| Proceeds from sales of additional noncontrolling interests | 860 | 50,962 | |||||||||
| Purchases of noncontrolling interests | (40,751) | (7,875) | |||||||||
| Net cash used in financing activities | (251,834) | (767,249) | |||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | (5,112) | 3,063 | |||||||||
| Net increase in cash, cash equivalents and restricted cash | 694,010 | 206,136 | |||||||||
| 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 | $ | 1,158,644 | $ | 545,125 |
See notes to condensed consolidated financial statements.
DAVITA INC.
CONSOLIDATED STATEMENTS OF EQUITY
(unaudited)
(dollars and shares in thousands)
| Three months ended September 30, 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 June 30, 2024 | $ | 1,574,840 | 89,855 | $ | 90 | $ | 383,235 | $ | 1,060,613 | (4,774) | $ | (615,948) | $ | (195,090) | $ | 632,900 | $ | 217,116 | |||||||||||||||||||||||||||||||||||||||||||||||
| Comprehensive income: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | 56,417 | 214,688 | 214,688 | 24,655 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | 32,756 | 32,756 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock award plan | 277 | (34,002) | (34,002) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-settled stock-based compensation expense | 25,359 | 25,359 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Changes in noncontrolling interest from: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions | (79,621) | (42,405) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Contributions | 2,420 | 582 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair value remeasurements | 78,955 | (78,955) | (78,955) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Purchase of treasury stock | (2,734) | (406,031) | (406,031) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2024 | $ | 1,633,011 | 90,132 | $ | 90 | $ | 295,637 | $ | 1,275,301 | (7,508) | $ | (1,021,979) | $ | (162,334) | $ | 386,715 | $ | 199,948 |
| Nine months ended September 30, 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 | 158,475 | 677,013 | 677,013 | 66,004 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | (110,250) | (110,250) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock award plan | 1,308 | 1 | (127,701) | (127,700) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-settled stock-based compensation expense | 72,122 | 72,122 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Changes in noncontrolling interest from: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions | (152,702) | (76,534) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Contributions | 8,548 | 2,075 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Acquisitions and divestitures | 491 | 491 | 20,438 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Partial purchases | (36,499) | (3,178) | (3,178) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair value remeasurements | 155,901 | (155,901) | (155,901) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Purchase of treasury stock | (7,508) | (1,021,979) | (1,021,979) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2024 | $ | 1,633,011 | 90,132 | $ | 90 | $ | 295,637 | $ | 1,275,301 | (7,508) | $ | (1,021,979) | $ | (162,334) | $ | 386,715 | $ | 199,948 |
| Three months ended September 30, 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 June 30, 2023 | $ | 1,423,549 | 91,271 | $ | 91 | $ | 555,680 | $ | 468,725 | — | $ | — | $ | (7,052) | $ | 1,017,444 | $ | 188,626 | |||||||||||||||||||||||||||||||||||||||||
| Comprehensive income: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | 44,572 | 246,632 | 246,632 | 18,157 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | (61,846) | (61,846) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock award plan | 77 | (4,750) | (4,750) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-settled stock-based compensation expense | 27,071 | 27,071 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Changes in noncontrolling interest from: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions | (52,382) | (26,821) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Contributions | 4,493 | 140 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Partial purchases | (179) | (179) | (27) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair value remeasurements | 25,171 | (25,171) | (25,171) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2023 | $ | 1,445,403 | 91,348 | $ | 91 | $ | 552,651 | $ | 715,357 | — | $ | — | $ | (68,898) | $ | 1,199,201 | $ | 180,075 |
| Nine months ended September 30, 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 | 131,523 | 540,870 | 540,870 | 54,013 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | 288 | 288 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock award plan | 937 | 1 | (53,353) | (53,352) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-settled stock-based compensation expense | 80,579 | 80,579 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Changes in noncontrolling interest from: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions | (133,656) | (69,725) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Contributions | 10,102 | 1,477 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Acquisitions and divestitures | 13,077 | 13,077 | 30,776 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Partial purchases | (700) | (5,361) | (5,361) | (32) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair value remeasurements | 89,226 | (89,226) | (89,226) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2023 | $ | 1,445,403 | 91,348 | $ | 91 | $ | 552,651 | $ | 715,357 | — | $ | — | $ | (68,898) | $ | 1,199,201 | $ | 180,075 |
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.
2. Revenue recognition
The following tables summarize the Company's segment revenues by primary payor source:
| Three months ended September 30, 2024 | Three months ended September 30, 2023 | ||||||||||||||||||||||||||||||||||
| U.S. dialysis | Other — Ancillary services | Consolidated | U.S. dialysis | Other — Ancillary services | Consolidated | ||||||||||||||||||||||||||||||
| Dialysis patient service revenues: | |||||||||||||||||||||||||||||||||||
| Medicare and Medicare Advantage | $ | 1,641,645 | $ | $ | 1,641,645 | $ | 1,515,860 | $ | $ | 1,515,860 | |||||||||||||||||||||||||
| Medicaid and Managed Medicaid | 216,664 | 216,664 | 207,327 | 207,327 | |||||||||||||||||||||||||||||||
| Other government | 86,680 | 196,257 | 282,937 | 90,549 | 128,980 | 219,529 | |||||||||||||||||||||||||||||
| Commercial | 954,807 | 58,648 | 1,013,455 | 965,331 | 68,192 | 1,033,523 | |||||||||||||||||||||||||||||
| Other revenues: | |||||||||||||||||||||||||||||||||||
| Medicare and Medicare Advantage | 104,217 | 104,217 | 137,149 | 137,149 | |||||||||||||||||||||||||||||||
| Medicaid and Managed Medicaid | (25) | (25) | 331 | 331 | |||||||||||||||||||||||||||||||
| Commercial | 3,735 | 3,735 | 16,063 | 16,063 | |||||||||||||||||||||||||||||||
| Other**(1)** | 6,204 | 13,496 | 19,700 | 6,239 | 11,832 | 18,071 | |||||||||||||||||||||||||||||
| Eliminations of intersegment revenues | (16,140) | (2,598) | (18,738) | (24,289) | (2,232) | (26,521) | |||||||||||||||||||||||||||||
| Total | $ | 2,889,860 | $ | 373,730 | $ | 3,263,590 | $ | 2,761,017 | $ | 360,315 | $ | 3,121,332 |
DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)
| Nine months ended September 30, 2024 | Nine months ended September 30, 2023 | ||||||||||||||||||||||||||||||||||
| U.S. dialysis | Other - Ancillary services | Consolidated | U.S. dialysis | Other - Ancillary services | Consolidated | ||||||||||||||||||||||||||||||
| Dialysis patient service revenues: | |||||||||||||||||||||||||||||||||||
| Medicare and Medicare Advantage | $ | 4,760,340 | $ | $ | 4,760,340 | $ | 4,538,264 | $ | $ | 4,538,264 | |||||||||||||||||||||||||
| Medicaid and Managed Medicaid | 641,738 | 641,738 | 629,118 | 629,118 | |||||||||||||||||||||||||||||||
| Other government | 249,605 | 518,565 | 768,170 | 265,119 | 376,530 | 641,649 | |||||||||||||||||||||||||||||
| Commercial | 2,833,263 | 191,212 | 3,024,475 | 2,676,758 | 183,578 | 2,860,336 | |||||||||||||||||||||||||||||
| Other revenues: | |||||||||||||||||||||||||||||||||||
| Medicare and Medicare Advantage | 304,760 | 304,760 | 317,624 | 317,624 | |||||||||||||||||||||||||||||||
| Medicaid and Managed Medicaid | 816 | 816 | 1,296 | 1,296 | |||||||||||||||||||||||||||||||
| Commercial | 20,875 | 20,875 | 20,888 | 20,888 | |||||||||||||||||||||||||||||||
| Other(1) | 18,224 | 44,165 | 62,389 | 18,822 | 38,108 | 56,930 | |||||||||||||||||||||||||||||
| Eliminations of intersegment revenues | (53,528) | (9,168) | (62,696) | (66,698) | (5,007) | (71,705) | |||||||||||||||||||||||||||||
| Total | $ | 8,449,642 | $ | 1,071,225 | $ | 9,520,867 | $ | 8,061,383 | $ | 933,017 | $ | 8,994,400 |
(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 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 $58,403 and $75,949 during the nine months ended September 30, 2024 and 2023, respectively. The delay in recognition of these amounts resulted predominantly from measurement limitations and recognition constraints on the Company's VBC contracts with health plans, many of which are complex and relatively new arrangements. Recognition of revenue from the Company's government Comprehensive Kidney Care Contracting (CKCC) program also have certain constraints for plan years 2023 and 2024.
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.
DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)
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 September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Net income attributable to DaVita Inc. | $ | 214,688 | $ | 246,632 | $ | 677,013 | $ | 540,870 | |||||||||||||||
| Weighted average shares outstanding: | |||||||||||||||||||||||
| Basic shares | 83,721 | 91,322 | 86,123 | 90,937 | |||||||||||||||||||
| Assumed incremental from stock plans | 2,074 | 2,719 | 2,299 | 2,380 | |||||||||||||||||||
| Diluted shares | 85,795 | 94,041 | 88,422 | 93,317 | |||||||||||||||||||
| Basic net income per share attributable to DaVita Inc. | $ | 2.56 | $ | 2.70 | $ | 7.86 | $ | 5.95 | |||||||||||||||
| Diluted net income per share attributable to DaVita Inc. | $ | 2.50 | $ | 2.62 | $ | 7.66 | $ | 5.80 | |||||||||||||||
| Anti-dilutive stock-settled awards excluded from calculation(1) | 11 | 271 | 135 | 615 |
(1)Shares associated with stock awards excluded from the diluted denominator calculation because they were anti-dilutive under the treasury stock method.
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:
| September 30, 2024 | December 31, 2023 | ||||||||||||||||||||||||||||||||||
| Debt securities | Equity securities | Total | Debt securities | Equity securities | Total | ||||||||||||||||||||||||||||||
| Certificates of deposit and other time deposits | $ | 15,296 | $ | — | $ | 15,296 | $ | 22,109 | $ | — | $ | 22,109 | |||||||||||||||||||||||
| Investments in mutual funds and common stocks | — | 39,544 | 39,544 | — | 37,391 | 37,391 | |||||||||||||||||||||||||||||
| $ | 15,296 | $ | 39,544 | $ | 54,840 | $ | 22,109 | $ | 37,391 | $ | 59,500 | ||||||||||||||||||||||||
| Short-term investments | $ | 15,296 | $ | 5,700 | $ | 20,996 | $ | 7,110 | $ | 4,500 | $ | 11,610 | |||||||||||||||||||||||
| Long-term investments | — | 33,844 | 33,844 | 14,999 | 32,891 | 47,890 | |||||||||||||||||||||||||||||
| $ | 15,296 | $ | 39,544 | $ | 54,840 | $ | 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. Typically, any 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 September 30, 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.
DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)
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 | 37,524 | 139,606 | ||||||||||||||
| Divestitures | (1,687) | (1,506) | (3,193) | ||||||||||||||
| Foreign currency and other adjustments | — | (21,343) | (21,343) | ||||||||||||||
| Balance at September 30, 2024 | $ | 6,517,220 | $ | 710,410 | $ | 7,227,630 | |||||||||||
| Balance at September 30, 2024: | |||||||||||||||||
| Goodwill | $ | 6,517,220 | $ | 860,669 | $ | 7,377,889 | |||||||||||
| Accumulated impairment charges | — | (150,259) | (150,259) | ||||||||||||||
| $ | 6,517,220 | $ | 710,410 | $ | 7,227,630 |
The Company did not recognize any goodwill impairment charges during the nine months ended September 30, 2024 and 2023.
The Company performed various annual impairment assessments during the nine months ended September 30, 2024, with no impairment indicated. None of the Company's various reporting units were considered at risk of significant goodwill impairment as of September 30, 2024.
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:
| September 30, 2024 | December 31, 2023 | ||||||||||
| Mozarc Medical Holding LLC | $ | 238,572 | $ | 324,711 | |||||||
| APAC joint venture | 66,833 | 98,865 | |||||||||
| Other equity method partnerships | 103,303 | 107,282 | |||||||||
| Adjusted cost method and other investments | 21,775 | 14,990 | |||||||||
| $ | 430,483 | $ | 545,848 |
During the nine months ended September 30, 2024 and 2023 the Company recognized equity investment income of $15,874 and $22,502, respectively, from its equity method investments in nonconsolidated dialysis partnerships. The Company also recognized equity investment losses from other equity method investments of $(86,821) and $(38,653) in other loss, net during the nine months ended September 30, 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.
DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)
7. Long-term debt
Long-term debt comprised the following:
| As of September 30, 2024 | |||||||||||||||||||||||||||||
| September 30, 2024 | December 31, 2023 | Maturity date | Interest rate | Estimated fair value**(1)** | |||||||||||||||||||||||||
| Senior Secured Credit Facilities: | |||||||||||||||||||||||||||||
| Term Loan A-1 | $ | 2,289,022 | $ | 1,234,375 | 4/28/2028 | Base +1.75%(2) | $ | 2,277,577 | |||||||||||||||||||||
| Term Loan B-1 | — | 2,603,786 | 8/12/2026 | $ | — | ||||||||||||||||||||||||
| Extended Term Loan B-1 | 1,640,251 | 5/9/2031 | SOFR + 2.00% | $ | 1,638,201 | ||||||||||||||||||||||||
| Revolving line of credit | — | — | 4/28/2028 | Base +1.75%(2) | $ | — | |||||||||||||||||||||||
| Senior Notes: | |||||||||||||||||||||||||||||
| 4.625% Senior Notes | 2,750,000 | 2,750,000 | 6/1/2030 | 4.625 | % | $ | 2,622,813 | ||||||||||||||||||||||
| 3.75% Senior Notes | 1,500,000 | 1,500,000 | 2/15/2031 | 3.75 | % | $ | 1,350,000 | ||||||||||||||||||||||
| 6.875% Senior Notes | 1,000,000 | — | 9/1/2032 | 6.875 | % | $ | 1,035,000 | ||||||||||||||||||||||
| Acquisition obligations and other notes payable(3) | 87,945 | 102,328 | 2024-2036 | 6.55 | % | $ | 87,945 | ||||||||||||||||||||||
| Financing lease obligations(4) | 236,722 | 255,491 | 2025-2040 | 4.62 | % | ||||||||||||||||||||||||
| CHC temporary funding assistance(5) | 119,814 | — | % | $ | 119,814 | ||||||||||||||||||||||||
| Total debt principal outstanding | 9,623,754 | 8,445,980 | |||||||||||||||||||||||||||
| Discount, premium and deferred financing costs(6) | (67,168) | (54,347) | |||||||||||||||||||||||||||
| 9,556,586 | 8,391,633 | ||||||||||||||||||||||||||||
| Less current portion | (296,255) | (123,299) | |||||||||||||||||||||||||||
| $ | 9,260,331 | $ | 8,268,334 |
(1)For the Company's senior secured credit facilities, fair value estimates are based on bid and ask quotes, a level 2 input. For the Company's 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. For the CHC temporary funding assistance, the carrying value presented here approximates the estimated fair value based on the short-term nature of settlement.
(2)The Company's senior secured credit facilities bear interest at Term SOFR, plus an interest rate margin, with certain portions also subject to a credit spread adjustment (CSA). Term SOFR plus CSA is referred to as "Base" in the table above. The Term Loan A-1 and revolving line of credit bear a CSA of 0.10%.
(3)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 September 30, 2024.
(4)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.
(5)The Change Healthcare (CHC) temporary funding assistance, as described below, is interest-free and amounts provided under this program are subject to repayment within 45 business days from a future date to be mutually agreed to by the parties. The balance is included in the Company's current portion of long-term debt as of September 30, 2024.
(6)As of September 30, 2024, the carrying amount of the Company's senior secured credit facilities has been reduced by a discount of $8,410 and deferred financing costs of $30,740, and the carrying amount of the Company's senior notes has been reduced by deferred financing costs of $38,729 and increased by a debt premium of $10,711. 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.
DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)
Scheduled maturities of long-term debt at September 30, 2024 were as follows:
| 2024 (remainder of the year) | $ | 163,416 | |||
| 2025 | $ | 177,412 | |||
| 2026 | $ | 187,944 | |||
| 2027 | $ | 204,790 | |||
| 2028 | $ | 1,924,071 | |||
| 2029 | $ | 41,185 | |||
| Thereafter | $ | 6,924,936 |
On May 9, 2024 (the Fourth Amendment Effective Date), the Company entered into the Fourth Amendment (the Fourth Amendment) to its senior secured credit agreement dated as of August 12, 2019 (as amended, restated, supplemented or otherwise modified from time to time, the Credit Agreement). The Fourth Amendment modified the Credit Agreement to, among other things, extend the maturity date for a portion of its Term Loan B-1 in the aggregate principal amount of $911,598 and extend an additional incremental principal amount of $728,653 (together, referred to as the Extended Term Loan B-1). The Company used the incremental proceeds from the Extended Term Loan B-1 to prepay a proportionate amount of the principal balance still outstanding on its Term Loan B-1.
The Extended Term Loan B-1 bears interest at the Company’s option, based on (i) the Base Rate (as defined below) plus the Applicable Margin (as defined below), or (ii) the forward-looking term rate based on the secured overnight financing rate that is published by CME Group Benchmark Administration Limited (Term SOFR) plus the Applicable Margin. The “Base Rate” is defined as the highest of (i) the Federal Funds Rate, as published by the Federal Reserve Bank of New York, plus 0.50%, (ii) the prime commercial lending rate of Wells Fargo as established from time to time and (iii) Term SOFR for an interest period of one month plus 1.00%; provided that if Term SOFR or the Base Rate is less than 0.00% such rate shall be deemed to be 0.00% for purposes of the Credit Agreement. The “Applicable Margin” for the Extended Term Loan B-1 is 2.00% in the case of Term SOFR loans, and 1.00% in the case of Base Rate loans. The Extended Term Loan B-1 requires quarterly principal payments beginning on December 31, 2024 of 0.25% of the aggregate principal amount of the Extended Term Loan B-1 outstanding on the Fourth Amendment Effective Date, with the balance due on May 9, 2031.
As a result of the Fourth Amendment transaction described above, the Company recognized debt prepayment, extinguishment and modification costs of $9,732 in the second quarter of 2024 comprised partially of fees incurred for this transaction and partially of deferred financing costs and original issue discount written off for the portion of debt considered extinguished and reborrowed as a result of the Fourth Amendment. For the portion of the debt that was considered extinguished and reborrowed, the Company recognized constructive financing cash outflows and financing cash inflows on the statement of cash flows of $6,302 and $728,653 for the Extended Term Loan B-1, respectively, and constructive financing cash outflows of $722,351 for the prepayment of a portion of Term Loan B-1, even though no funds were actually paid or received. Another $13,282 of the debt considered extinguished related to the Extended Term Loan B-1 represented a non-cash financing activity.
On August 13, 2024, the Company entered into the Sixth Amendment (the Sixth Amendment) to the Credit Agreement. The Sixth Amendment modified the Credit Agreement to extend an additional incremental principal amount of $1,100,000 on its Term Loan A-1 (together with the existing Term Loan A-1 balance, referred to as the Increased Term Loan A-1). The Sixth Amendment also incorporated the provisions of the Fifth Amendment to the Credit Agreement, dated as of August 7, 2024, which removed a cap on the amount of incremental term "A" loans the Company can incur under the Credit Agreement. The Company used a portion of the net proceeds from this transaction along with the net proceeds from the issuance of 6.875% Senior Notes due 2032, described below, to prepay the remainder of the balance outstanding on its Term Loan B-1 maturing 2026 in the amount of $949,819, the balance outstanding on its revolving line of credit and related accrued interest and fees. The remaining borrowings added cash to the balance sheet for general corporate purposes.
The Increased Term Loan A-1 bears interest at Term SOFR, plus a CSA of 0.10% and an interest rate margin which is subject to adjustment depending upon the Company's leverage ratio under the Credit Agreement, and which can range from 1.25% to 2.25%, provided that this adjusted rate shall never be less than 0.00%. The Increased Term Loan A-1 requires amortizing quarterly principal payments that began on September 30, 2024 of $29,728 per quarter through June 30, 2027, and $44,591 per quarter from September 30, 2027 through March 31, 2028, with the balance due on April 28, 2028.
DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)
As a result of the Sixth Amendment transaction described above, the Company recognized debt prepayment, extinguishment and modification costs of $10,081 in the third quarter of 2024 comprised partially of fees incurred for this transaction and partially of deferred financing costs and original issue discount written off for the extinguishment of the Term Loan B-1. Additionally, $861,282 of the debt considered extinguished and reborrowed related to the Increased Term Loan A-1 represented a non-cash financing activity.
Borrowings under the Company's senior secured credit facilities are guaranteed and secured by substantially all of DaVita Inc.'s and certain of the Company’s domestic subsidiaries' assets and rank senior to all unsecured indebtedness. Borrowings under the Term Loan A-1, Extended Term Loan B-1 and revolving line of credit rank equal in priority for that security and related subsidiary guarantees. The Credit Agreement contains certain customary affirmative and negative covenants such as various restrictions or limitations on permitted amounts of investments (including acquisitions), share repurchases, payment of dividends, and redemptions and incurrence of other indebtedness. Many of these restrictions and limitations will not apply as long as the Company’s leverage ratio calculated in accordance with the Credit Agreement is below 4.00:1.00. In addition, the Credit Agreement requires compliance with a maximum leverage ratio covenant, tested quarterly, of 5.00:1.00 through June 30, 2026 and 4.50:1.00 thereafter (subject to an increase to 5.00:1.00 during the four fiscal quarters following a material acquisition).
On August 13, 2024, the Company issued $1,000,000 aggregate principal amount of 6.875% senior notes due 2032 (the 6.875% Senior Notes) in a private offering pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended. The 6.875% Senior Notes pay interest on March 1 and September 1 of each year beginning March 1, 2025 and mature on September 1, 2032. The 6.875% Senior Notes are unsecured senior obligations and rank equally in right of payment with the Company's existing and future unsecured senior indebtedness. The 6.875% Senior Notes are guaranteed by each of the Company’s domestic subsidiaries that guarantee its senior secured credit facilities. The Company may redeem up to 40% of the aggregate principal amount of the 6.875% Senior Notes at any time prior to September 1, 2027 at 106.875% of the aggregate principal amount from the proceeds of one or more equity offerings, plus accrued and unpaid interest. On and after September 1, 2027, the Company may at its option redeem the 6.875% Senior Notes, in whole or from time to time in part, at certain redemption prices specified in the indenture governing these notes plus accrued and unpaid interest. If the Company experiences certain change of control events, the Company must offer to repurchase all of the 6.875% Senior Notes (unless otherwise redeemed) at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest. The 6.875% Senior Notes contain restrictive covenants that limit the ability of the Company and the subsidiary guarantors of the 6.875% Senior Notes to, among other things and subject to certain exceptions and qualifications, create certain liens, enter into certain sale/leaseback transactions, or merge with or into, or convey, transfer or lease all or substantially all of their assets. The 6.875% Senior Notes and related subsidiary guarantees do not have any registration or similar rights and are not expected to be registered for exchange on public markets. As of September 30, 2024, the Company incurred $11,187 in fees and other professional expenses associated with this transaction that were capitalized and will amortize over the term of the 6.875% Senior Notes.
In addition to the prepayment of Term Loan B-1, as described above, during the first nine months of 2024, the Company made regularly scheduled principal payments under its senior secured credit facilities totaling $45,353 on Term Loan A-1 and $13,716 on Term Loan B-1.
On March 1, 2024, Change Healthcare (CHC), a subsidiary of UnitedHealth Group, launched a temporary assistance funding program (CHC Funding) 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 from a future date to be mutually agreed to by CHC and the Company.
CHC has restored claims submission functionality and the Company has resumed claims submissions and billing processes through CHC’s information technology systems. Through a combination of CHC's platform and certain alternate billing processes, the Company is current on its primary claims submissions, but does continue to see delays in collections with some payors. As of September 30, 2024, the remaining CHC Funding amount outstanding was $119,814.
The Company's 2019 interest rate cap agreements expired on June 30, 2024 and a portion of the Company's 2023 cap agreements became effective on or prior to June 30, 2024, as detailed in the table below. As of September 30, 2024, the effective portion of the Company's 2023 interest rate cap agreements have the economic effect of capping the Company's
DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)
maximum exposure to SOFR variable interest rate changes on equivalent amounts of the Company's floating rate debt, including all of Extended Term Loan B-1 and a portion of Term Loan A-1. The remaining $429,273 outstanding principal balance of Term Loan A-1 is 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.
During 2024 the Company entered into several forward interest rate cap agreements, described below, that have the economic effect of capping the Company's exposure to SOFR variable interest rate changes on specific portions of the Company's floating rate debt (2024 cap agreements). These 2024 cap agreements are designated as cash flow hedges and, as a result, changes in their fair values will be reported in other comprehensive income. These 2024 cap agreements do not contain credit-risk contingent features and become effective and expire as described in the table below.
The following table summarizes the Company’s interest rate cap agreements outstanding during the nine months ended September 30, 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 | 2027 | ||||||||||||||||||||||||||||||||||||||
| 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 | |||||||||||||||||||||||||||||||||
| 2024 | $ | 1,000,000 | 4.50%(5) | 12/31/2025 | $ | 500,000 | $ | 500,000 | |||||||||||||||||||||||||||||||||
| 2024 | $ | 750,000 | 4.00%(6) | 12/31/2025 | $ | 250,000 | $ | 500,000 |
(1)The Company's 2019 cap agreements matured 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.
(5)Effective December 31, 2026, the maximum rate of 4.50% increases to 4.75% for these interest rate caps.
(6)Effective December 31, 2026, the maximum rate of 4.00% increases to 4.25% 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 $17,312 and $79,805 as of September 30, 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 and nine months ended September 30, 2024 and 2023.
As a result of the variable rate cap from the Company's 2023 interest rate cap agreements, the Company’s weighted average effective interest rate on its senior secured credit facilities at the end of the third quarter of 2024 was 7.01%, based on the current margins in effect for its senior secured credit facilities as of September 30, 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 and nine months ended September 30, 2024 was 5.69% and 4.84% and as of September 30, 2024 was 5.71%.
As of September 30, 2024, the Company’s interest rates were fixed and economically fixed on approximately 59% and 95% of its total debt, respectively.
DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)
As of September 30, 2024, the Company had an undrawn revolving line of credit under its senior secured credit facilities of $1,500,000. Credit available under this revolving line of credit is reduced by the amount of any letters of credit outstanding under the facility, of which there were none as of September 30, 2024. The Company also had letters of credit of approximately $154,474 outstanding under a separate bilateral secured letter of credit facility as of September 30, 2024.
8. Commitments and contingencies
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 September 30, 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 included 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 False Claims Act 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. On May 6, 2024, the Company finalized and executed a settlement agreement with the government and the relator in a qui tam matter that included a settlement amount of $34,487 for this matter. On May 7, 2024, the government notified the U.S. District Court, District of Colorado of its decision to intervene for purposes of settlement in the matter of U.S. ex rel. Kogod v. DaVita Inc., et al. The government and the relator agreed to voluntarily dismiss all substantive claims in the matter, and, on July 18, 2024, the District Court dismissed all claims except for the relator’s statutory claim for expenses, attorney’s fees, and costs. The Company disputes the relator’s request for expenses, attorney’s fees, and costs, and intends to defend accordingly.
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. 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.
DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)
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 the 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 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.
DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)
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 $7,562.
9. Shareholders' equity
Stock-based compensation
During the nine months ended September 30, 2024, the Company granted 723 stock-settled restricted and performance stock units with an aggregate grant-date fair value of $100,209 and a weighted average expected life of approximately 3.4 years.
As of September 30, 2024, the Company had $154,712 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 1.3 years.
Share repurchases
The following table summarizes the Company's common stock repurchases during the three and nine months ended September 30, 2024:
| Three months ended September 30, 2024 | Nine months ended September 30, 2024 | ||||||||||||||||||||||||||||||||||
| Shares repurchased | Amount paid**(1)** | Average price paid per share**(2)** | Shares repurchased | Amount paid**(1)** | Average price paid per share**(2)** | ||||||||||||||||||||||||||||||
| Open market repurchases: | 2,734 | $ | 406,031 | $ | 147.20 | 7,508 | $ | 1,021,979 | $ | 134.98 |
(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.
Subsequent to September 30, 2024 through October 25, 2024, the Company repurchased 622 shares of its common stock for $101,017 at an average price paid of $160.77 per share. The Company did not repurchase any shares during the three and nine months ended September 30, 2023.
Effective on December 17, 2021, the Board authorized a repurchase plan of $2,000,000. Effective on September 5, 2024, the Board increased the Company's existing authorization by $2,000,000 in additional repurchasing authority. This authorization allows the Company to make purchases from time to time in the 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.
DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)
As of October 25, 2024, the Company has a total of $2,198,297, 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.
Berkshire share repurchase agreement
On April 30, 2024, the Company entered into an agreement (the share repurchase agreement) with Berkshire Hathaway Inc. on behalf of itself and its affiliates (collectively, Berkshire). Under the share repurchase agreement, at any time Berkshire beneficially owns at least 45.0% of the issued and outstanding common stock of the Company in the aggregate, the Company shall repurchase from Berkshire, and Berkshire shall sell to the Company, on a quarterly basis, a number of shares of common stock sufficient to return Berkshire’s aggregate beneficial ownership to 45.0% of the Company's issued and outstanding common stock. The per share price the Company will pay Berkshire for any such share repurchase will be the volume-weighted average price per share paid by the Company for any shares of common stock repurchased by the Company from public stockholders pursuant to the Company’s share repurchase program during the applicable repurchase period.
Under this agreement, repurchases of common stock by the Company from Berkshire will occur on the date that is two business days prior to the date of the Company’s regular quarterly or annual investor call to publicly report earnings; however, if at any time the Company determines that Berkshire beneficially owns or will beneficially own shares of common stock representing more than 49.5% of the issued and outstanding common stock in the aggregate, such determination will trigger immediate share repurchases under this agreement.
As of September 30, 2024 and October 25, 2024, Berkshire beneficially owned less than 45.0% of the outstanding common stock of the Company and, as a result, no repurchase obligation exists at either date.
10. Accumulated other comprehensive loss
| Three months ended September 30, 2024 | Nine months ended September 30, 2024 | ||||||||||||||||||||||||||||||||||
| 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 | $ | 3,420 | $ | (198,510) | $ | (195,090) | $ | 27,853 | $ | (79,937) | $ | (52,084) | |||||||||||||||||||||||
| Unrealized (losses) gains | (28,748) | 56,202 | 27,454 | (3,116) | (62,371) | (65,487) | |||||||||||||||||||||||||||||
| Related income tax | 7,172 | — | 7,172 | 776 | — | 776 | |||||||||||||||||||||||||||||
| (21,576) | 56,202 | 34,626 | (2,340) | (62,371) | (64,711) | ||||||||||||||||||||||||||||||
| Reclassification into net income | (2,493) | — | (2,493) | (60,679) | — | (60,679) | |||||||||||||||||||||||||||||
| Related income tax | 623 | — | 623 | 15,140 | — | 15,140 | |||||||||||||||||||||||||||||
| (1,870) | — | (1,870) | (45,539) | — | (45,539) | ||||||||||||||||||||||||||||||
| Ending balance | $ | (20,026) | $ | (142,308) | $ | (162,334) | $ | (20,026) | $ | (142,308) | $ | (162,334) |
| Three months ended September 30, 2023 | Nine months ended September 30, 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 | $ | 85,297 | $ | (92,349) | $ | (7,052) | $ | 98,685 | $ | (167,871) | $ | (69,186) | |||||||||||||||||||||||
| Unrealized gains (losses) | 9,319 | (47,644) | (38,325) | 37,712 | 27,878 | 65,590 | |||||||||||||||||||||||||||||
| Related income tax | (2,323) | — | (2,323) | (9,407) | — | (9,407) | |||||||||||||||||||||||||||||
| 6,996 | (47,644) | (40,648) | 28,305 | 27,878 | 56,183 | ||||||||||||||||||||||||||||||
| Reclassification into net income | (28,244) | — | (28,244) | (74,475) | — | (74,475) | |||||||||||||||||||||||||||||
| Related income tax | 7,046 | — | 7,046 | 18,580 | — | 18,580 | |||||||||||||||||||||||||||||
| (21,198) | — | (21,198) | (55,895) | — | (55,895) | ||||||||||||||||||||||||||||||
| Ending balance | $ | 71,095 | $ | (139,993) | $ | (68,898) | $ | 71,095 | $ | (139,993) | $ | (68,898) |
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.
DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)
11. Acquisitions and divestitures
During the nine months ended September 30, 2024 the Company acquired dialysis businesses as follows:
| Nine months ended September 30, 2024 | |||||
| Cash paid, net of cash acquired | $ | 161,210 | |||
| Contingent earn-out obligations | $ | 296 | |||
| Liabilities assumed | $ | 54,033 | |||
| Fair value of previously held equity method investments | $ | 67,526 | |||
| Number of dialysis centers acquired — U.S. | 12 | ||||
| Number of dialysis centers acquired — International | 91 |
Included 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 its 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, property and equipment, leases, and certain other working capital items relating to these acquisitions are pending final quantification.
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:
| Nine months ended September 30, 2024 | |||||
| Current assets | $ | 150,907 | |||
| Property and equipment | 46,738 | ||||
| Right-of-use lease assets and other long-term assets | 51,491 | ||||
| Indefinite-lived licenses | 10,722 | ||||
| Goodwill | 139,606 | ||||
| Liabilities assumed | (96,141) | ||||
| Noncontrolling interests assumed | (20,258) | ||||
| $ | 283,065 |
The amount of goodwill related to these acquisitions recognized or adjusted during the nine months ended September 30, 2024 that is deductible for tax purposes was $61,506.
12. Variable interest entities (VIEs)
At September 30, 2024, these condensed consolidated financial statements include total assets of VIEs of $294,071 and total liabilities and noncontrolling interests of VIEs to third parties of $125,404. 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.
DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)
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 September 30, 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 | $ | 39,544 | $ | 39,544 | |||||||||||||||||||
| Interest rate cap agreements | $ | 17,312 | $ | 17,312 | |||||||||||||||||||
| Liabilities | |||||||||||||||||||||||
| Contingent earn-out obligations for acquisitions | $ | 17,281 | $ | 17,281 | |||||||||||||||||||
| Temporary equity | |||||||||||||||||||||||
| Noncontrolling interests subject to put provisions | $ | 1,633,011 | $ | 1,633,011 |
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 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 September 30, 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 $53,599 if certain performance targets or quality margins are met over the next one year to five 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 September 30, 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 $220,000. 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
DAVITA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)
(unaudited)
(dollars and shares in thousands, except per share data)
obligations. For a reconciliation of changes in noncontrolling interests subject to put provisions for the three and nine months ended September 30, 2024, see the consolidated statement of equity.
The Company's fair value estimates for its senior secured credit facilities are based upon quoted bid and ask prices for these instruments, a level 2 input. For the Company's senior notes, fair value estimates are based on market level 1 inputs. 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 Holding 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 September 30, 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 September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Segment revenues: | |||||||||||||||||||||||
| U.S. dialysis | |||||||||||||||||||||||
| Dialysis patient service revenues: | |||||||||||||||||||||||
| External sources | $ | 2,883,656 | $ | 2,754,778 | $ | 8,431,418 | $ | 8,042,561 | |||||||||||||||
| Intersegment revenues | 16,140 | 24,289 | 53,528 | 66,698 | |||||||||||||||||||
| U.S. dialysis patient service revenues | 2,899,796 | 2,779,067 | 8,484,946 | 8,109,259 | |||||||||||||||||||
| Other revenues: | |||||||||||||||||||||||
| External sources | 6,204 | 6,239 | 18,224 | 18,822 | |||||||||||||||||||
| Total U.S. dialysis revenues | 2,906,000 | 2,785,306 | 8,503,170 | 8,128,081 | |||||||||||||||||||
| Other—Ancillary services | |||||||||||||||||||||||
| Dialysis patient service revenues | 254,905 | 197,172 | 709,777 | 560,108 | |||||||||||||||||||
| Other external sources | 118,825 | 163,143 | 361,448 | 372,909 | |||||||||||||||||||
| Intersegment revenues | 2,598 | 2,232 | 9,168 | 5,007 | |||||||||||||||||||
| Total ancillary services revenues | 376,328 | 362,547 | 1,080,393 | 938,024 | |||||||||||||||||||
| Total net segment revenues | 3,282,328 | 3,147,853 | 9,583,563 | 9,066,105 | |||||||||||||||||||
| Elimination of intersegment revenues | (18,738) | (26,521) | (62,696) | (71,705) | |||||||||||||||||||
| Consolidated revenues | $ | 3,263,590 | $ | 3,121,332 | $ | 9,520,867 | $ | 8,994,400 | |||||||||||||||
| Segment operating margin (loss): | |||||||||||||||||||||||
| U.S. dialysis | $ | 549,476 | $ | 509,135 | $ | 1,625,399 | $ | 1,330,992 | |||||||||||||||
| Other—Ancillary services | 13,906 | 28,098 | (16,188) | (18,372) | |||||||||||||||||||
| Total segment operating margin | 563,382 | 537,233 | 1,609,211 | 1,312,620 | |||||||||||||||||||
| Reconciliation of segment operating income to consolidated income before income taxes: | |||||||||||||||||||||||
| Corporate administrative support | (28,504) | (41,294) | (84,090) | (99,745) | |||||||||||||||||||
| Consolidated operating income | 534,878 | 495,939 | 1,525,121 | 1,212,875 | |||||||||||||||||||
| Debt expense | (134,583) | (98,080) | (331,748) | (302,361) | |||||||||||||||||||
| Debt prepayment, extinguishment and modification costs | (10,081) | — | (19,813) | (7,962) | |||||||||||||||||||
| Other loss, net | (16,780) | (19,650) | (56,900) | (14,525) | |||||||||||||||||||
| Consolidated income before income taxes | $ | 373,434 | $ | 378,209 | $ | 1,116,660 | $ | 888,027 |
Depreciation and amortization expense by reportable segment was as follows:
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| U.S. dialysis | $ | 170,543 | $ | 175,908 | $ | 503,805 | $ | 514,710 | |||||||||||||||
| Other—Ancillary services | 16,471 | 12,515 | 45,953 | 35,456 | |||||||||||||||||||
| $ | 187,014 | $ | 188,423 | $ | 549,758 | $ | 550,166 |
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:
| Nine months ended September 30, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| U.S. dialysis | $ | 331,031 | $ | 363,895 | |||||||||||||||||||
| Other—Ancillary services | 53,755 | 45,116 | |||||||||||||||||||||
| $ | 384,786 | $ | 409,011 |
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 intends to adopt this ASU for the fiscal year ended December 31, 2025 and is still assessing the effect this guidance may have on its consolidated financial statement disclosures.
Next: Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.