DaVita (DVA) 2 Aug 222022 Q2 Earnings call transcript

Good evening. My name is Michelle, and I’ll be your conference facilitator today. At this time, I’d like to welcome everyone to the DaVita Second Quarter 2022 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer period. you. Thank Instructions] [Operator Mr. begin may your you conference. Ackerman,

me and call. meaning the We you, I’m note Ackerman, and that laws. welcome, CEO. call, federal Rodriguez, in forward-looking everyone, conference quarter Joel statements joining Treasurer and may second during our CFO is appreciate Please of company. Javier our to our Thank today we your make this interest continued the within securities

actual that results to subject differ known unknown could are cause described statements uncertainties the those statements. these of from All forward-looking to risks materially and the and in

uncertainties, For press further other subsequent details on please filings, annual concerning refer we our and that and filings Form our these including earnings reports with risks all quarter on XX-Q most the quarterly SEC. recent and report Form second and SEC make our to release XX-K subsequent

information required based duty undertake to statements be may these on and forward-looking update and to currently Our intend do no we by available law. as not except are us, statements

Additionally, non-GAAP release we’d financial and of our is press remind reconciliation in call, the this to website. most A measures. some the during these will included that discuss over available turn to to GAAP we on call financial non-GAAP the earnings comparable will measures like SEC our I furnished measures you to now Javier Rodriguez.

performance, for remarks case, quarter Today conclude cover five or will our will second I topics with Care business update Joel, you, call. Integrated and and for thank I current and Supreme equity the Thank thinking IKC on my Kidney Court joining you health XXXX. our an

society. Equity. that me let is start business critical discuss clinical we Before topics with matters, Health for a

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to on moving financial results. Now

increased our Operating fall labor were the XXXX. of QX, in impact July. June million rates guidance challenge per likely and costs half again the income the in of infections for treatment higher of difficult per X.XXX XXXX. inflationary in after XX above in experienced the earnings billion X.XXX bottom income performance care in half our QX delivered was costs down it's seasonal day by quarter-over-quarter abetted of help remain impact in share managing patient for norms treatments in XXX QX and but operating factor and billion we we with the and mortality $X.XX. the but May into continued to wage these of the second the QX. other sequentially offset With G&A to a forecast is We're of up XXXX range on wage and increases. QX, to and in and our all and mortality by within and significantly increases other impacts of what more utilization similar contracted For mid-treatment, remain approximately population our we QX also in of challenges, base biggest will COVID declined million believe to that to performance swing Labor patient and volumes The QX, surge seasonal Omicron X%. increased COVID from highs through treatment in

business. XXXX of the recognition were on IKT was Turning losses some IKC business year This shared to Operating than our savings than our our of an better earlier anticipated. in revenue in with expected in timing QX. result a update within

from development We positive also prior need period special plan. in benefited our

year, performance than anticipating in to expected. full better overall the For we're initially IKC be

we're in of Looking the care results our Saving model gaining early given XXXX confidence forward, our of Trust. Share

we're growth [ph] XXXX, management also under in [indiscernible] and significantly For membership higher dollars [CKCD] expecting and in our program. both

and associated our update the thinking performance expected. to want than with operating Last, of XXXX first-year income result previously now better growth, be in a improvement significant and in lower As expecting to I the are we XXXX costs on To in on provide investors an updates. I growth IKC lays help refer income section primary overall. of analysts operating in with to press our our views outlook table our these to from you XXXX out drivers the that XXXX in release a about the XXXX.

the believe will range around the year rebound lower significant million. led the us to and market although challenges that we volume to a treatment to growth XXX and million improvement to next XXX deliver continue We uncertainties healthcare labor have

Let walk me you thinking. updated through the

expected largest from of have volume winter in volume we're normal the single now we mortality factors than back to growth what evolution COVID. First, pandemic, year-over-year the range COVID growth learned to of in results, XXXX the have November middle be Omicron pull resulted we source and from in variability benefits in in a historical in growth a our continues surge would based in continued tailwind be of to the to treatment over of headwind from expect XXXX. volume intensive forecasts. These from Uncertainty headwinds forward on remain anticipating the our around to the compared we XXXX a and volume profit our COVID in and from higher XXXX, a of

in the initiatives cost likelihood on working increased. of magnitude and Second, the saving we've the our been has confidence

G&A. cost long-term. We our way XXXX shrink have the to for expenses a in cost This lower or it's and non-recurring and fixed some our plans in to will our XXXX costs, result in but expected structure structure procurement our reduce

million, per higher what and a bad wage that rate I higher Markets growth knew discuss to summarize Capital it our and To detail. expect range. increase a patient financial to to meaningful Joel XXX in performance next increases and on still relative to now deliver based year. [indiscernible] turn over lower of Day, we at lowering volume are but XXXX, now we anticipating greater will we're pressure, is we Third, million of result for to XXX This revenue debt. treatment outlook

Thanks, Javier.

$XX due lowered categories. on industry's second having result typical the million and compared driven forward was the treatment to the let care deductibles, originally First, treatments new partial have to In as day in to sequestration appears new approximately day. benefit this results. improvements by of approximately continued increase declined additional up taxes quarter. a of treatment expenses impact and Mistreatment of volumes. in seasonality note Patient Medicare a as in and than rates primarily QX. subvariants. because their across significantly lower by partially some This dialysis per volume excess quarter-over-quarter coinsurance grew This of quarter-over-quarter, QX, result as ballot plans decrease is of the Omicron QX. approximately multiple were of against in QX of patterns in will Omicron for was costs the initiative health by meeting shift patients the me G&A I other QX details to down per higher planned seasonal impact pull first start X.X% versus one QX. payroll U.S. a a as Revenue and MA wave $X.XX normal up acute of was the per treatment July, first was receded. and remained usual California. by as surge contributions is in in X% to and due seasonal well mortality reversed was on primarily but additional $X.XX. June $XX there per campaign treatments the negative the treatment costs of with offset to seasonal from loss our the treatment benefits, an quarter million relief quarter

the the year although on Our estimates not does QX. QX it impact for spend and the the have impact full changed, between initiative ballot timing of

the in largely T&E. you as million, in point was offset pull properties of increased and forward sale the rest a was the of expense, self initiative increase for of the relative help higher the about result things. out Additionally, a Putting spend. The to point understand understanding all the would starting together, couple it think one-time this the QX how gain which compensation of we on I of $XX approximately some ballot results a G&A of year, developed QX to

significant the of the impact on of self-developed flow sale in the gain expense initiative Both G&A was ballot no the through combined quarter line properties. and on items by quarter. the the First, had offset these

IKC in results significantly quarter Second, were for than two anticipated reasons. higher for the

First, in we savings approximately shared of expected recognized XXXX. the back revenue of was million that $XX half

positive had not $XX million of that in the $XX we of resulted prior we these in recurring approximately approximately Together million. in the Second, period XXXX. half do of back quarter development benefit anticipate

were are of largely of these items back result other a we of as what for this for net half another. there the one addition compared would baseline use the earnings benefited In components, year. that there million modeling The for but as the offset earnings quarter, a these approximately is $XX to to every quarter from all

approximately on since the repurchased and X.X end. the that initiative additional our significant QX, stock, unusual the shares shares the we quarter repurchased currently is of In anticipate. budget spending have item only QX, million QX, we XXX,XXX an or we seasonal For and California

Finally, to to Javier’s income. detail comments operating XXXX the bridge I to add want one about

costs included $XXX The the OI million of to we're As in adjusted undertaking and Operator, down in guidance. are expected non-recurring our bringing Q&A. expenses are in to on XX not million. to These initiatives range XXXX. the non-recurring for to in deliver increase $XXX range open he said, call result please we XXXX, this are

from Bank Instructions]. Thank America. you. [Operator of Kevin Fischbeck

may You go ahead, sir.

Okay, great, of here. questions couple A thanks.

changed you because a for along think those is better versus on I you're next of how is took the lines, MA pricing to like like what any your of update it outlook way has much year, view about it Medicare rates versus guess, rate So saying up sounds commercial?

components to the three there as rate Kevin, referenced. really are is Medicare you One it. Yes,

of higher component goes, this are component MA. that is collect. and the the bad rates make The pocket higher impact And because the our we to can we collections, cash changes the lower is that changes that improve operational out going that patient expectation third related a we're some systems debt costs, lower think of the results comes to ultimately patient in commercial about higher yield ultimately higher which internally will None some second or higher benefit of RPT. back the drive or and will on our

any Okay. and industry about, expectation you that this pursuing there are that, there initiatives or being I contracts I And any how negotiated? is with view Marietta around there the indication guess, an to is early talked obviously, but negative is fix just the commercial guess,

the early tell. Kevin to short is is it's Javier, too answer

we so And we watch will you if And see know continue let to it. anything. we

last As take there's more time. we that not, employer but these time, segment said which likely a that's is things than small

to And so anything we report on new it. don't have

happened forward the I going kind about a of develop view mentioned your versus that in what is things going And of you Okay. bridge versus conservative already of volumes, 'XX, changed guess, your much that how original you more versus how forward. or have changed of that then for math view a might you've because what's outlook, mass different about view

more think than going forward, going what far. rather where excess more were seen is we've little about than expecting. this what what mortality seen it's is forward I about our happen bit far. so we for will expectations so Volume But a we've below

will have and visibility. when don't year, a growth we Mathematically, but visibility will at a course, have thought we little about that of of we that sort it in would happen forward, talked unwind call is it we Kevin, richer little just unwound, now pull once have as point, it mortality excess we a which we COVID to that Remember, don't happen. one one

And the that so Joel that's the talked. just math

It's the total not changed. predict. so timing has difficult Okay, to the number is just OI too

just that you're So out taking next some of year.

in brought for by of the total middle down Well, the OI XXXX range changed, been has has it the XX.

XXX to it to it So was XXX. XXX. to We've XXX moved

fair XX as well. our So of I volume it's by fully think the accounted There's takes puts change the is XX in some say other middle expectations. that range, at for to and

the talked XXX I that guess hasn't you normalization time. to still the COVID about, thought way think guys to right OI I volumes is number the that XXX over from about, that like changed? on Is

terms our COVID changed think views have from normalization on volumes. don't of I in

move and the go thinking excess what's negative I kind and OI recognizing point about still more we the some forward, But stopped are think to are of where on going we've about is new COVID baseline, impact today how from the we and lower from that. here. away than we've the become and comments made believe in normal, forward at pull ultimately, mortality, needing we to

you. thank Excellent,

next our caller Justin is Lake Research. And Wolf with

sir. You ahead, may go

couple question A follow Kevin's Thanks. ups of there. from

that talked you patient out little you reduce some more First, color. us help benefit might give a pockets, about to changes are going

eligibles of impact, where maximum population pocket way as a of to the in calculating and This we book is reach And ultimately in very the Medicare in dual relates of see the that the is Medicare call component we for maximum changes maximum for earlier collect --and the the our which the bad down. -- know, Yes. in the MA patient patient they'll quicker out as And in particular, that's than their pocket goes the hit dual pocket out you heavy result these it change debt we year. duels very changes. have little, number out of in --

about if dollar going next that to is revenue terms? impact year the thinking for of treatment, that we're half How in

range. somewhere say and in I'd half dollar the a

is that Got to terms bottom-line that in price. it. terms And profitability of of in show right the falls just effectively

Yes.

that updated it's you possible mix? with payer into year. point. that do at employers Marietta And you've it. what that around assumption for I next constant? range about have this the to assuming going are deteriorating stuff any you this Or thinking Got built are But stays mix then, say know to

We're 'XX any Marietta, not change expecting from to no material impact so in mix. the

just then benefits. a Got salaries it. on and And question

our think like assuming in next year? that X% this pressure that million I an year, you this per How it mid-single versus increases? to can again give next and what next this looks you to above be assuming in think And more So target put update typically XX digits that I framework that By you would something year? for you number your for extra X% in of us of that added number year it X% like assumed might X% normal are wage then XX year? are you calculation, year? much terms

Yes.

a second XX expecting the increase It's the for benefit Justin salary And what as year-over-year about out We're saw that reminder, year. year, what quarter. more full on first So that's wage saw we a number the a called so call X%. in XXX quarter. of in we it and for like we this

forward but X%. that X% we're expecting the remain year, you to well down next As come to number look to above

roughly X% So halfway X% number. the somewhere between the and

Appreciate helpful. the That’s comments. Okay.

with is Chickering Deutsche Your Bank. Pito next caller

You may go ahead, sir.

thanks guys, for questions. taking afternoon, my good Hey,

Analyst Day broke getting this you to for savings ups expecting changed and period, in step just And costs as ups from you're men's and details 'XX? your can savings about of progressed of shared back at planned you remind say, XQ this in bit what's back you true we any at care how Going then the sort Can versus these the of and process a $XX IKC us, get part, more little prior expectations? million $XX million the what's true point? what

things look because of And asked. type on that this the lot want I'll and at and downs. jot annual that Well, the happen chance the the really some quarter-over-quarter, probably at to at one it part. ups and it that a way of of basis to -- and in this to that technical it, seasonality these I true But one is ups business. great more we it’s answer one make let lumpiness look Joel down things questions But rather is the flu to said, Joel, all that of business technical of that you at sure this has on but the a look an not

Sure.

the different that's development The take is the you'd see through and the when So is exchanged full revenue. to kind $XX that has than and prior in we the that's the managed period business no clarified, our snip are full when year the revenue recognize and the to there, shared care development the it's out of reconciled prior shared expense process accounting data because P&L. on and a period some savings, there end, the we of to will obviously and numbers million savings extent, become claims we have confident the run plan that

for So we than the got to million we originally it. we when expected revenue that the led versus of what plan some in expected half level earlier the of QX of and XXXX confidence $XX the year that's years, of back

step just you today, we terms are back and make If I'll numbers use to in capital of versus it specific market where clear.

anticipating maybe would still is it seeing that a some the I business, to part roughly where were of a what to from now a to thought. we prior to development say of relative period scaling I'd million come But IKC We better, $XXX expect year development, So relative the structure probably for we overall, part million. in improvement a we're number emphasize were, in $XX this cost it bit loss of we business. is $XX we're the early million lower is that advantages as

it expecting IKC. good but are quarter a was We downs and ups for

something quarter your go how and -- of that -- I first these -- you’ve I'll and those after these of Just in One on losing sort sort you the money at got else. kind the color more today, But money XXXX, in margins making you digging XX look there. need sort of any as are to of question patients to visibility transition patients? from are months of where sort of profitable your

Yes.

positive we're a So not still base clear, first, positive had and just money, against let's we be making period huge there's development those. expense prior savings,

out is timing playing just we year. expected as extent in XXXX the the some to with a it's different bit So

from money? me let with before fast in you're ask on way, guess how I what you Okay. these different convert patients losing making today, money into that a tracking

on Capital at the XXXX the path year has crossover or views where we'll Markets yet. plan around our IKC out business laid a in the Day, Look think become breakeven anything we minus as plus changed where profitability should to we

Okay.

side versus pressure to How questions. people Where growth of of just lack progressing Moving is net to it turnover treatment [indiscernible] year, a today? throughout follow-up on the hires? today hire it is the So and cost half staff? you the due the easy year equation, the of a is do in the how back the to see

talk the that because would unison quarter very different of hard about the markets last on most it I’d this country that but a sub-markets was quarter grab easier It's than period that as have there's feels history the the I entire that crossed feels market-by-market. that. and to say labor a a hardest lot are quarter, the difficult in we company.

So a still contextually market. difficult speaking, it's labor

part are As majority your five not we majority. question, a clinics of to that are our of have so second pockets, pressure. majority ones markets There of there relates are where vast of The markets the accepting vast patients, the patients? it accepting where the are couple or we're vast

first hope the to away they on they and usual, the you important is your get of a of more staffing, once course the revert longer stress than those year. to dialysis. you we're the then wish, normal now most person And where to working out have of you're do home said, in that right the a but is over thing Right acclimating But than safety dynamics are you placed to right has the at get want save and life to we thing is and around time getting so from to so location. through centers travel hospital. the course, it that way new lots of patient, you look if want the to There's

the rate? much. should as How And the interests, back Great. tax number so well Where three half as quick Thanks about year penetration questions. we both home in of think costs your today? is

Thanks.

we flattish COVID had to On growth penetration due all the of dynamics. the home

the to expense. is mix still and interest as range So it that in XX% Joel? the relates

expense, really go to Yes. the it dynamics one is on amount expect higher three our just normal. QX we QX. There outstanding and Interest revolver are up is than there, in

to we third, it. capped on spread above are our of of not most level XXX And and different rate above now continues a LIBOR, LIBOR on rate increase X.X while and all tier we into Second, debt because our than we're the rather of leverage our capped floating is on floating paying we're debt, go XXX above LIBOR.

that million all think, for together, of put is QX interest estimate. You I reasonable and $XXX QX a expense quarter a

And guess, think we then, for tax the of the about back rate, should I how tax rate year? half

at our I'd rate, guidance not year XX say to we're staying Tax so for the XX. changing

Right. Thanks much. so

Thank you, Pito.

you. Thank

Our next with James is caller Barclays. Sarah

may ahead. You go

on you. guys to given give understand going there? mix, the volume, thought expansion breaking any insight more out wondering you Thank the to but dynamics KPIs have of if like into I commercial some pricing was of things versus

something the that did Sorry, you Is say I you it. didn't at you IKC? say Sarah started? and beginning? where did Or catch

you better. So break wondering around mix dynamics Yes, about can little metrics you're was I the disclosed bit the expanding commercial a thinking indicators, or going performance on to key understand we out if pricing?

down. up sure we’re what's relying the on Sarah, the the moving analysts making commentary the think, understand I and moving and call during investors giving

terms on In putting thinking something that's table a the this not about press release, we've of in recently. been

at bring help the transportation, dosing guys efficiency or next help in headwinds about thinking explore you that for few the can offset down costs look aspects anything to and that just Okay. that Are of years? efficient would there companies partnerships

percent if has that year-after-year, up structure less looking Sarah. quite cost at and discipline maniacal takes that time of time, compounded for said. of the look them so type execution and Yes, hopefully been you've track of We've gone you some things a our than and record, some our focus over

and look of at which have of dosing we algorithms been the type If expensive you pharmaceutical, most historically AI described. our has that ESA, personalized you

in what time that could Any of savings there be Okay. opportunity area? over sense on scale

if $XXX the at million line in $XXX to we that there. embedded cost the and that in -- for the pharmaceutical embedded that's that we so cite it's a there in million look slide, range And it's year Well, have is right next there. savings in you

Okay. Thank you.

Thank you.

caller next Gary Taylor is Cowen. Our with

go may sir. You ahead,

Hi, quarter, range just call Couple apologize. said you But afternoon, first half last release, so of in the couple this thought towards you minutes OI of going the does here, to that on year but had guys. the numbers there first questions, that I I reiterated still bottom back commentary year, first, this of and bottom half is missed good the the any range I for hold? around

to think No I think the we're Gary that. Yes, sticking with change where in come range in. we will

And then, I the seen certainly proceeds but cash the I properties any we've self-developed realized statement, Okay. before, to hadn't accounting hadn't running realized flow the on games were through G&A.

Like in through proceeds XXXX, quarter. when $XX gains ran So I Has as on back material there last I million, been million. G&A? I other was as this? just out that $XX look appreciate ever any large if were this calling that you it curious year

Yes.

much big to offices, bigger related so related this building generally central clinics. they to a So the reason it is was so one business our historically of quarter it

were of but So more we building when clinics the individual smaller were clinics them. numbers there much for -- were historically, there more

So yes, I'd like you they would say have historically. seen numbers this consistent reasonably were,

relative is and anomalous we So reason what it call seen because was you've big the it was so to this recently. out

you at that if when one Cash we point XX of what some related than to DSO flow related could and a on it. up thought or I a that hanging softer head of there around thought, issues. and thought thoughts and DSOs little sort still was timing lower? is Got updated Any

this quarter, hurt big hit flows cash taxes there. by Yes, the were so cash that so was

Medicare Medicare do couple last we've In would of our that terms the that DSOs, structurally payer, it is see and days. Fee-For-Service DSOs a does to and Fee-For-Service have the down. commercial a I years, That DSOs book opportunity there bring it the is very are less an in the more to there's typical an by to as said, shift bring over MA said, increase DSOs. call a think That think from we MA, it to out little of will bit. of I opportunity increase you'd MA, structurally seen the quick Medicare couple more we down DSOs a

there's one talk if Last me, ESA? but reasons know back How you we that is a I or for opportunity just right. and that year-to-year -- obvious you about we multi-year? publicly, for don't [indiscernible] contract, All when do on on lot just think on about this can and around now are guys rate

memory, at good expire end of this contract the our does Gary, Yes. year.

a renewed ESA year-over-year. are million to on and million $XXX increase in contract the $XXX front have the savings embedded We

you. Thank Okay.

Thank you.

next is with Justin Research. Our Lake caller Wolfe

You go sir. ahead, may

Thanks.

few on follow-ups in you give going kind can the here, us an first times, X.X you you where on a of see by year you where were your leverage, end? release and Just targets leverage of at see quick update this press kind

Yes.

our one will another, and it. in us it share the we've in a we Where necessarily changed seen being be them that third. leverage flow back we time you most of years a think time go always things, on not XXXX, X in target up wind to if this been but think would being depend the So of year want you hasn't a I obviously X.X being well few below well to range times all and few at buybacks and I consistent is a have end cash and above earnings free of

for out plan the over on we're number back because X.X to not give will those to not, all it and right factors. time, But there. a we're get believe range say depend X I'd we is us we times to to continue So going

repo, of company the on, shareholders terms repo. cash consistent has Any in even it thoughts you leverage possible talked then in being been via deploying And share that a you more it. back extremely shares next back to higher? Would some use Got about Is to buyback of months, that flow? versus X more cash to keep just you higher the debt and that stock? free level buy over XX at potentially

aggressive to returning the to the you bit, shareholders. a thing is, Justin, and but little get on more course, on to you to also you you has focused is right you uncertainty. on And and little consistently margin, know opportunity we’re it's have then complicated one we're trade-offs, those going as so you table. topic is world more a up at but the a it's can stay all you then, it, do think staying uncertainty and take on little There lever that that good a count is have the question now because look a of more everything the a

at a back discount lastly, your just to a repurchase? par the I've Okay. on leverage couple that thoughts is lower of of because And a questions debt then terms Any decent trading share leverage, gotten buying discount moment. at versus just debt in at to

think trade-offs opportunities the some capital to both at Yes. we we look I return to extent -- of our relative shareholders. mean, of to as those

we'll depending look So at both on trading. them, where they're of

towards Although buybacks back I think buying the lean history tend is to debt. we clear, over share our

haven't -- just get heard in I kind Got an earlier to it. just wanted facing the And so back timeframe the normal get expected shortage it year, in industry recently last to was update much about question, of dialysis to there. they’d know, June-July over the just

anxiety Yes. Thanks, are a et Justin. below but little high period cetera. share to having inventory of are the The levels we've passed normally they and what

forward. the can us So is worst I and behind think we move

All right. Thanks again.

you. Thank

Thank Chickering Pito you. Bank. from Deutsche

ahead, go may sir. You

or shareholder little guys one these, on deal Medtronic sort that on of, the the was you just that just of you May, thought detail Hey, just goals use last of announced in so cash. here, that more follow-up can go Thanks. into you a transaction the guys best why a

report partner and much Well, innovation not Medtronic. technologies with medical We're and Pito. to develop excited there's to

that have passed the only that deal. to pro-competitive has the report of a FTC the so it's and Hart-Scott-Rodino think we thing period is I

of So it come directionally back probably next we anticipated was and that's scrutiny exciting and positive so will a went to to and of be course but early, year, it ask, and close low lot thing that can always for the report. transaction FTC not in QX of a the its more us and course, how

Fair much. Thanks enough. so

you. Thank

showing am this And further at no I questions. time,

you, Thank right. All Michelle.

closing two got thoughts. Just

been contributions total talking a Kidney life of quality patients our improving lowering decade the Integrated costs. of we've toward over First, about and of for the Care potential

this we sizable on hard at Now we capabilities potential. needed systems, work, deliver are very to and building population, a have the

the Second, We the very we all. and savers. of resilience creating teammate’s operating you your agility we'll environment landscape some the to interest I and by headwinds appreciate am very as and See tough. macro proud discussed cost of offset are these company our in talking be soon.

Thank today's call. you. conference concludes This

go You and disconnect ahead may time. this at