Author Topic: DVA DaVita HealthCare Partners  (Read 185737 times)

DooDiligence

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Re: DVA – DaVita HealthCare Partners
« Reply #620 on: June 21, 2019, 08:15:31 AM »
The last repurchases in the quarter ended Mar 2018 were poorly timed.

4,197,304 shares for @290m = $69 / share.

No repurchases since then?

The following comes from the Mar 2019 Q1 report & I'm not sure but seem to remember hearing them say that debt reduction would be a priority use of cash from the DMG sale?

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We may not be able to use the proceeds from the sale of DMG as planned or we may spend or invest the proceeds in ways that may not improve our results of operations or enhance the value of our common stock.

The purchase price for the sale of the DMG business is subject to customary adjustments, both upward and downward, which could be significant. We plan to use the proceeds from the sale of DMG for significant stock repurchases, to repay debt and for general corporate purposes, including growth investments. A number of factors may impact our ability to repurchase stock and the timing of any such stock repurchases, including market conditions, the price of our common stock, our cash flow position, leverage ratios, and legal, regulatory and contractual requirements and restrictions.

(page 113)

Risk Factors (continued)

In addition, we may identify investments or other uses for the proceeds from the sale of DMG that we believe are more attractive than our current intended uses. Further, there can be no assurance that any investment of the proceeds from the sale of DMG will yield a favorable return.

Under the terms of the equity purchase agreement, we are subject to certain contractual restrictions while the sale of DMG is pending, and certain post-closing contractual obligations that, in some cases, could have a material adverse effect on our business, results of operations and financial condition.

Under the terms of the equity purchase agreement, we are subject to certain restrictions on the conduct of the DMG business prior to completing the sale of DMG, which may adversely affect our ability to execute certain of our business strategies, including the ability in certain cases to enter into or amend contracts, acquire or dispose of assets, incur indebtedness or incur capital expenditures. Such limitations could negatively affect our business and operations prior to the completion of the sale of DMG. Each of these risks may be exacerbated by delays or other adverse developments with respect to the completion of the sale of DMG.

In addition, we agreed to retain certain liabilities of the DMG business for which we have certain indemnification rights against the original 2012 HealthCare Partners (“HCP”) sellers. An escrow was established in connection with our acquisition of the DMG business from the HCP sellers as security for these indemnification rights, including with respect to the OIG investigation into certain patient diagnosis coding practices. We have submitted an indemnification claim against the sellers secured by the escrow for any and all liabilities incurred relating to these matters and intend to pursue recovery from the escrow. However, we can make no assurances that the indemnification and escrow will cover the full amount of our potential losses related to these matters, which could have a material adverse effect on our business, results of operations and financial condition.

(page 114)

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Sounds sufficiently dubious.

I'm not smart enough to figure out what the best use of this capital would be, but they list the weighted average interest rate at a hair over 5% for the quarter.

It seems like if they put more cash into repurchasing at present levels, they MAY be able to sell into the market IF prices improve & then use proceeds for debt reduction & capex?

I'm not saying this would or could happen.

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On another note, when looking at the reports, I noticed a line that says "distributions to non-controlling interests" for $44.2m.

Does a portion of this go to Berkshire?  ???
Healthcare 32.7% - CVS DVA EW NVO // BRK.B - 20.6% // Media & Communication 8.3% - CHTR DIS

Drinkers & Smokers 7.5% - ABEV MO // Auto's & Oil 12.4% - CLB GPC VDE // Tech 0.0%

%'s held @ MV 06/18/2019 minus 18.3% investable cash

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Cigarbutt

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Re: DVA DaVita HealthCare Partners
« Reply #621 on: June 21, 2019, 10:29:13 AM »
...
-

On another note, when looking at the reports, I noticed a line that says "distributions to non-controlling interests" for $44.2m.

Does a portion of this go to Berkshire?  ???
Apologies for two reasons:
1-I no longer follow DVA closely, did not check recent disclosures and this is from memory.
2-The following comments may trigger cognitive dissonance. :)

Let's say you are a kidney specialist who owns a (or several) dialysis centers and DVA makes an offer that you can't refuse. They set up a joint venture and you keep a minority interest that determines your income allocation and other benefits from the venture.

I could not get comfortable with the level of transparency related to these joint ventures. Some suggest that there is a potential for poor (and inapproprate) incentives.
https://catalyst.nejm.org/dialysis-nephrologists-joint-venture/

There is an ex-colleague of mine who used to say that there is an often overlooked and so far anatomically unidentified nerve that connects your brain (primitive part) to the pocket where you store your wallet.

DooDiligence

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Re: DVA – DaVita HealthCare Partners
« Reply #622 on: June 21, 2019, 11:31:32 AM »
...
-

On another note, when looking at the reports, I noticed a line that says "distributions to non-controlling interests" for $44.2m.

Does a portion of this go to Berkshire?  ???
Apologies for two reasons:
1-I no longer follow DVA closely, did not check recent disclosures and this is from memory.
2-The following comments may trigger cognitive dissonance. :)

Let's say you are a kidney specialist who owns a (or several) dialysis centers and DVA makes an offer that you can't refuse. They set up a joint venture and you keep a minority interest that determines your income allocation and other benefits from the venture.

I could not get comfortable with the level of transparency related to these joint ventures. Some suggest that there is a potential for poor (and inapproprate) incentives.
https://catalyst.nejm.org/dialysis-nephrologists-joint-venture/

There is an ex-colleague of mine who used to say that there is an often overlooked and so far anatomically unidentified nerve that connects your brain (primitive part) to the pocket where you store your wallet.

Aha, I thought that since BRK owns a minority interest, this was partially going to them.

I'm sure your explanation is clearly spelled out in the footnotes somewhere.

Thanks  ;)
Healthcare 32.7% - CVS DVA EW NVO // BRK.B - 20.6% // Media & Communication 8.3% - CHTR DIS

Drinkers & Smokers 7.5% - ABEV MO // Auto's & Oil 12.4% - CLB GPC VDE // Tech 0.0%

%'s held @ MV 06/18/2019 minus 18.3% investable cash

i trumpet my ignorance

https://twitter.com/tunawish

ander

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Re: DVA DaVita HealthCare Partners
« Reply #623 on: June 21, 2019, 05:57:59 PM »
To answer a few of the questions.

The NCI or non-controlling interests is related to the centers where do not have full ownership - the structure is different state by state.

Re: the debt paydown, look at the schedule but they have debt maturities in the near-term and part of the provision was from the sale of DMG all proceeds above $750 needed to go to debt paydown. They have said on earnings call, that they will pay it all down, re-lever and then do their share buyback. They might be doing some in small amounts from current FCF.

Re: 1/3 of market cap being repurchased, they have guided to 3 to 3.5x leverage and have at times been comfortable being higher. So they have about 1x leverage to get to 3.5x which is $2,200 Ebitda (so $1.1 to $2.2B) and the company generates about $800 million of FCF so that would be $1.2 B over 18 months. So $2.3 to $3.4 B of repurchases. Mkt cap of $8.7 B. Implies 26% - 39% buyback.

Can go into more detail.

Spekulatius

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Re: DVA DaVita HealthCare Partners
« Reply #624 on: June 21, 2019, 09:04:52 PM »
Their last guidance implied $575M in FCF ($1.375B operating cash flow -$800M in Capex). Even that looks like a stretch, given first quarter results.
http://pressreleases.davita.com/2019-05-07-DaVita-Inc-1st-Quarter-2019-Results

They need to turn the business around. Increasing leverage now with falling cash flow is risky.
To be a realist, one has to believe in miracles.

ander

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Re: DVA DaVita HealthCare Partners
« Reply #625 on: June 24, 2019, 11:02:59 AM »
Their last guidance implied $575M in FCF ($1.375B operating cash flow -$800M in Capex). Even that looks like a stretch, given first quarter results.
http://pressreleases.davita.com/2019-05-07-DaVita-Inc-1st-Quarter-2019-Results

They need to turn the business around. Increasing leverage now with falling cash flow is risky.

That was taking only low end of guidance for OCF and CapEx. OCF guidance was $1.375 B to $1.575 B. CapEx was $800 million to $840 million. Mid point of each is $1.475 B OCF - $820 million of capex which would be $655 million of FCF. Do not believe that is a stretch. I project $800 million of FCF. (Note: we are not adjusting for growth capex which would show higher FCF). But agree, to re-rate they need to grow EBIT and show consistent growth (historically, they had done a great job of beating and raising).