Q3 2019 Earnings Call
Good evening My name is steady and I'll be your conference facilitator for today at this time I would like to welcome everyone to they defeated third quarter 2019 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer your question.
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Mr. King you May begin your conference.
Thank you Debbie and welcome everyone to our third quarter Conference call. We appreciate your continued interest in our company I'm, Jim Gustafson, Vice President of Investor Relations and with me today, our Javier Rodriguez, our CEO Joel Ackerman, our CFO when someone else group, Vice President and Jim Hilger, Our Chief Accounting Officer.
Please note that during this call we may make forward looking statements, but in the meeting at the Federal Securities laws. All of these statements are subject to known and unknown risks and uncertainties that could cause actual results could differ materially from those described in the forward looking statements for further details concerning these risks and uncertainties. Please refer to our third quarter earnings press release, and our SEC filings, including.
Our quarterly report on Form 10-Q for the second quarter 2019 as updated by our quarterly report for Form 10-Q third quarter 2019 are forward looking statements are based on information currently available to us and we do not intend and undertake no duty to update these statements. Additionally, we'd like to remind you that during this call we will discuss some non-GAAP .
Tangible measures reconciliation of these non-GAAP measures to most comparable GAAP financial measures is included in our press release submitted to the FCC and available on our website I'll now turn the call over to our CEO .
Yeah Rodriguez.
Thank you Jim and thank you for joined the call today and as always I will start with a clinical highlights to remind us the clinical is at the heart of what we do here at Davita.
As we talked about a capital markets over 50% of our patients begin dialysis treatments do the hospital setting which is bad for the patients and expenses for the system, we're working hard to lower the number by helping people better manage chronic kidney disease to two efforts first kidney smart, which had the meat has come.
In any education program that provides free education on what the kidney do diet medication and treatment options, including all modalities and transparent I'm pleased to report and we have educated over 180000 people through kidney smart.
And we're making a difference based on attracting we know the kidney smart education individuals to transition to yesterday had better clinical outcomes, both during and after the transition. Additionally, 32% of kidney smart educated individuals begin dialysis on a whole modality, which is almost five times better.
Then the general population.
Our other key effort to improve chronic kidney care is our new nephrology, let entity, the nephrology caroline's, which will enable nephrologist to come together with davita to improve the care coordination for patients.
In this model the meter will create patient education, and predictive analytics, while the physicians will contribute clinical expertise to help the patient slow kidney disease progression and start on home modality. These capabilities are important in both fee for service environment and as we continue to grow our value based care arrangements.
We're off to a good start to supporting 0.1st over 500 to follow this have joined the aligned and Secor second Dr. Lovely Wong from the Cleveland Clinic has agreed to join to me that to lead the way.
Next a few comments on our Q3 performance and results our adjusted Robert It our adjusted operating income results continue to outperform our original estimates at the beginning of the year and we have raised our 2019 adjusted operating income guidance for the second time this year.
Calcimimetic has contributed to our Oh I performance and we have delivered a great outcome.
In addition to resulting in positive financial result, our clinical and operational protocols have both improve health outcomes and driven savings to the health care system.
Well, we expect at least one more quarter positive economics, we continue to expect operating income from calcimimetic to be near breakeven over the long term.
Regarding our financial goal of capital efficient growth our discipline on cost and capital continues with our goal of margin stability. We have delivered strong performance on labor productivity all year, while actively managing our capital expenditures spend down. These efforts have generated strong cash flow a lot.
We have deployed toward share buybacks.
Now, let me comment on some longer term issues and development since our last earnings call.
First up California.
We're disappointed that governor nuisance on 80 to 90 into law. Despite what despite clear evidence of the harm. This union back legislation will cause for many of our most vulnerable patients in California.
Because of the law the American fit kidney fun has made it clear it will have to seize operation.
Operating its patient assistance program in California as of January 2020.
To remind you this will leave nearly 4000 low income primarily minority patients without financial support that they rely upon to afford health insurance.
We along with other kidney care community filed today, a legal challenges to 80 to 90 in Federal Court in California, because we believe it violates the United States Constitution.
Also in California, We recently learned that the Sci you HW has introduced another ballot initiative, which could be voted on in November 2020 election.
You may recall that in 2018, a sponsored a proposition eight which was rejected by the majority of California voters.
The Union has until April together enough signatures to put the proposition on the ballot.
We will oppose this new ballot initiative, which is simply another 10 to inflict harm on providers physician and patient and we believe would add significant unnecessary cost to the system and the taxpayers.
Now onto more constructive development two weeks ago C.M.I. release applications for.
Applications for for voluntary integrated care models for CKD and yes, sorry.
I won't get into the significant detailed today, but let me make a few points.
These models are nephrologist centric.
The models are complex and we will work to educate the nephrologist to help them evaluate and these models makes sense for their practice.
For us the model of appeared quite challenging in the current form and they will require significant investments that are unlikely to move the needle on the economics.
In partnership with the community, we will continue to share the feedback with the government or ways to improve the model design and quality outcomes for patients.
Finally, it's been a busy six month.
And as many of you heard and capital market, we laid out strategy for long term success, including a new set of financial metrics and goals.
The first took knowledge that we have more work to do to achieve our longer term objected and yet as I interact with our care givers I'm, even more confident we're on a path to improve kidney care for our patients.
In closing, we also announced today that Peter router the lead independent director on our board since 2003 and member of our board since 1994. After he took total renal care public plans to retire from the board effective at our annual meeting in 2020.
After helping to lead the board through the Chief Executive transition and the sale of DMG. We believe is now it's time to step down.
We are forever grateful for his tremendous leadership and role in our organization.
Now onto Joe will provide additional detailed on the quarter.
Thank you Javier let me start by providing our Q3 enterprise results for revenue adjusted operating margins and adjusted earnings per share from continuing operations attributable to Davita, we generated $2.9 billion of revenue in the quarter, an increase of 2% over Q3.
2018, as a reminder, in Q3 2018, Davita Rx contributed approximately $100 million of revenue.
Our adjusted operating income was $462 million, resulting in adjusted operating margin of 15.9%, which includes approximately $74 million related to calcimimetic.
Adjusted earnings per share from continuing operations attributable to beat up with a $1.53.
Now, let me walk you through some of the underlying drivers starting with the components of the U.S. dialysis and lab segment.
Non acquired growth for the third quarter was 2.2% effectively flat compared to nagging the prior two quarters.
While we believe we are starting to see some progress and the leading indicators of Nag, it's too early to give any guidance on the timing or magnitude of potential improvement.
Revenue per treatment was down sequentially by 56 cents driven by normal quarterly fluctuations in revenue. We continue to expect RPT for the full year to be in line with our guidance up zero to one per cent compared to 2018.
Combined patient care costs, and dialysis and lab segment Gionee were up approximately one dollar per treatment quarter over quarter, driven primarily by higher compensation and benefits costs offset by lower calcimimetic acquisitions costs.
Focusing on Calcimimetic.
We generated operating income from Calcimimetic, some approximately $74 million this quarter SP remained relatively flat over Q2, well acquisition prices fell significantly.
Revenue per treatment and cost per treatment for calcimimetic were $14.54 and $4.87 respectively.
For full year 2019, we now expect to generate approximately $220 million in profit from Calcimimetic.
Now turning to international for the quarter adjusted operating income was approximately $1 million, including an FX gain of $3 million and excluding an 84 million dollar goodwill impairment to our German operations for the full year, we continue to expect to generate positive adjust.
Did operating income, excluding goodwill impairments and currency adjustments.
Our effective tax rate on adjusted income attributable to Davita from continuing operations for the quarter was 27.6%. We continue to expect our adjusted tax rate attributable to the data for the full year to be between 28, and a half and 29.5%.
Now onto cash flow.
In the third quarter operating cash flow from continuing operations was $648 million and our newly defined free cash flow was $437 million.
Dsos for the U.S. dialysis and lab business declined sequentially by three days to 60 days in Q3 2019 inline with the improvement we forecasted early in 2019 and back to the level. It was at this time last year.
Capex for the quarter was $173 million. We're revising we are revising full year capex guidance down by $60 million to $740 million to $780 million.
Two primary factors are driving the change first we manage down our spend on de Novo clinics and second we delayed spend on some self development projects that will shift into 2020, we expect to see continued progress on reducing capex in 2020.
Since capital markets day, we pit, we purchased an additional 8.9 million shares at an average freight price at $58 in 90 cents per share as a result of these purchases we've reduced our share count by approximately 36.9 million shares or 22% since the close.
Those of the DMG transaction.
I will conclude with some comments on our guidance range as Javier referenced we're increasing our adjusted operating income guidance for the year to 1.74 billion to 1.77 billion, which includes our expectation of approximately 220 million dollar.
As of operating income from Calcimimetic, We're also increasing our operating cash flow guidance from continuing operations for 2019 to 1.5 to 5 billion to 1.675 billion.
For 2020, we're planning to give full guidance next quarter in the interim we are updating the 2020 adjusted EPS guidance, we gave it our capital markets day in September .
As a reminder, our guidance at capital markets day was $5 to 550 per share and excluded any cost associated with ballot initiatives in 2020.
At that time at that time, we did not know if there would be any ballot initiatives introduced.
Now that we know there is one being proposed we've decided to incorporate the current estimated cost of opposing the initiatives in our adjusted EPS range.
Even after adding in this additional cost we're increasing the range by 25 cents. So 525 to 575 per share as a reminder, this range incorporates the estimated the impact of 80 to 90.
Operator, let's now open the line for questions.
Thank you just a reminder, you would like to ask a question. Please press star followed.
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Okay.
Great.
And our first question will come from Steven panel with Goldman Sachs. Your.
Your line is now open.
Good afternoon, guys. Thanks for the question.
I guess just the first thing to follow up on I guess, the new guidance for Calcimimetic profit for the year implies about I guess 68 million or so in Q4, if we've been tracking this right and I think the or the reimbursement for the oral drug is flat sequentially from CMS. So just want to understand why this contribution was step downs.
Sequentially as costs going up or am I missing something else in that.
It's there's I'd say there is a bit of noise in the system. There the reduction I wouldn't read anything material into the reduction.
Got it okay.
And I guess I kind of thinking through that a little bit further. So so the final rule came out and to adapt it looks like Calcimimetic will go to ASP plus zero for next year.
It would seem like you guys are potentially buying better than the market. So I guess like should leave room for profit just given your scale or how should we think about that.
Yes so.
I would say.
There are certainly might be a little bit of profit there could be a little bit a loss theres some noise in the system associated with.
Bad debt that we may not get reimbursed for.
And some other costs so I.
I don't think you'll see a big number.
Either side of zero, but I think zeros are reasonable starting point.
Got it Okay, and then last for me I guess on the patient care cost side for treatment is down pretty significantly year on year.
I'm wondering if you can kind of flush out some of the bigger drivers there maybe touch on epogen costs.
And whether you know thats still favorable kind of sequentially averse to queue. Thank you.
Yes so.
A year over year pharma cost did come down in that is an important driver.
Sequentially. It's not there is there's very little difference between Q2 in Q3 as it relates to even though.
Okay.
Debbie do have another question.
The next question is from Kevin Fischbeck.
Bank of America. Your line is now open.
Okay. Thanks.
Hey, I'm so just wondering.
Clarify the 2020 guidance change it wasn't clear to me exactly why you were raising the EPS number you're quoting a b.
But your.
The rest what does the requisite that there will be some cosmetics benefit next into the beginning of next year or share repurchase what was the yeah. So Kevin I think the best way to think about the change in 2020 is a better share count number to some extent offset by.
The ballot initiative costs as you would imagine there there a bunch of moving pieces in there and we're not ready to give 2020 and guidance yet our budget isn't finished so there are other moving pieces, but if you want to think about the dominant dynamics its its share count driving it up offset by validate.
Initiatives driving it down.
Okay, and just to think about how we should be modeling cosmetics into next year.
Does that kind of breakeven is that for the full year or do you or does it kind of trend down towards breakeven.
Your goes on there maybe a benefit at the beginning of year moving down to zero.
It could trend down a bit it's hard to know.
Because of the trajectory of ASP is hard to figure out in some of the cost issues, but I'd say, it's fair to say.
Zero for the full year trending down from a little bit positive is beginning potential little bit negative towards the end.
Okay, and then as far as the volume numbers that you talked about I think you said that you're.
It's early you're starting to see some leading indicators of Nag going positive. What are you exactly are you looking for when you talk about leading indicators are what are you seeing that's giving you some.
Optimism.
There's a couple of things that we look at Kevin, but but in essence, what we're doing is we're monitoring that they are right shifts in the right capacity is going online in our centers and that our admissions execution, our we're monitoring the demand.
Into our centralized missions and Thats looking.
To stabilize right there.
Okay, and then maybe last question.
Versus us it seemed like the big Delta in the quarter was calcimimetic sets and excluding that quarter was pretty much in line is that how you're thinking about it internally or or how did this quarter come in versus your internal expectations.
I think Kevin I think Thats, a reasonably fair way to look at it there is a little bit of cost relating to l. tip that is elevated as a result of calcimimetic. So you can think about that in different ways you could attributed to Calcimimetic you could say, it's it's noise in the.
Comp line as we always have noise in the comp line.
But I think yours is a reasonably good starting point.
Great. Thanks.
The next question will come from.
With Wolfe Research your line is Nelson.
Justin Thanks, Hi, how are you doing good evening.
The so just want to go through a few things here first your share repurchase assumptions. So you ended the quarter I think with a a little over 1 billion to you bought back to $56.1 billion plus cares for this quarter I think you typically like to one around 500 million. So should we think about.
Kind of.
Dry powder, that's left $500 million plus.
Whatever free cash flow you generate going forward.
As of the reasonable way to think about it.
So I I start thinking about our share buyback philosophy thinking about our our leverage range and our comments about.
Intrinsic value and all that kind of stuff if you're.
If your question is narrow how much excess cash is on the balance sheet right now.
Net of the buybacks that have happened since September Thirtyth I think your math is is pretty spot on.
Okay. That's a that's helpful. And then the ballot initiative appreciate you kind of putting that into 2020 numbers is it reasonable to think of that that spend that you've built in there.
In a similar ballpark to the incremental spend you had in 2018 the final step out of this sort of.
Yes, so ill tell you, it's a tough number to predict from where we are right now.
That said I think.
That's that's a reasonable number two.
To start with tight as as we kind of played with with that we would say kind of a max of 50 cents a share 50 cents of EPS would be the maximum impact that we're looking at right now, but again, it's still pretty early to to try and put a definitive.
Range around that.
Okay.
And so then we just do some simple math of the business is doing what you expected it to do.
And to your point you took up the.
The EPS by 25 cents plus offset.
Let's call it 25 to 50 cents up.
Of the.
The the ballot initiative costs, you basically assume that the share count the share counts is ending up.
Lets call it 10% to 12% better.
And what you previously expected just because you're buying the stock materially cheaper or is that a reasonable kind of.
But were put on this package.
I'm.
Is your question Justin what are our assumptions today relative to add capital to the assumptions were using a capital markets day are you asking where do we think will be relative to today's share count next year.
No I guess, what I'm asking is more of the former right at the at the capital markets Day Your share assumptions guide you to five to 550 now effectively they're getting you.
I exclude about initiatives are getting your more to like 555 75 to six six over quarter. So it's just youre taking up the I'm just trying to make sure I understand the magnitude of the share repurchase improvement.
Relative to what you thought is that entire movement, which is again north of 10%.
Next ballot.
Justin let let's come back to this question in a couple of minutes there.
There are some heads nodding, yes, and some heads nodding no. So we'll we'll we'll do some quick math here and I'll come back in a couple of minutes.
All right I'll get back into queue, then thanks guys.
The next question comes from Peter just curious with Deutsche Bank. Your line is now open.
Hey, guys. Thanks for taking my questions. If you go for the patient care costs in the quarter or sounds of Calcimimetic, some moved about $4 sequentially.
Excluding that is still down 620 year over year Epo was part of that can you breakout breakout how much of that decline came from sourcing costs.
So you're im sorry, you're asking year over year.
On.
On page corridor.
Judging from nursing <unk>, Peter I don't have that number I don't think we've ever disclosed anything anywhere near that level of granularity.
Sounds like it is it fair to think that if we look at the year over year decline in patient care costs, excluding sequentially for our favorable impacts from Calcimimetic.
At $6.20 is it fair to think that half of that is labor and half of that is.
Areas like drugs like Oh or is there any sort of you tell you can give us or why that would.
Keeps declining so well.
So I, Peter I'm thinking about year over year, so not in the quarter, specifically and I think it's it year over year gives you a cleaner number takes out some of the noise.
As we think about patient care costs, our expectations are will come inside the guidance range, which is remember up half a percent to 1% and.
If you think about how do we get there it's comp pressure. So maybe that's what you're asking about in that.
That comp pressure comes largely in the form of of wage rate pressure.
And that's offset by the the Ipoed decline I mean, there a bunch of other things going on in there, but but at a very high level I think thats, a reasonable way of thinking about it but year over year the cost per treatment is up not down.
Okay fair enough the organic growth looks of stabilized this quarter.
Is there were just you can talk about sort of also headwinds you face from facilities.
Hitting Max capacity in states like California.
So I mean, we I guess, we've talked about this before in terms of the the pressure that can come on it admissions growth if you're running labor to efficiently and you can think about it as as Max capacity you can think about it is shifts.
Being full in the pressure to not open a new shift because of the negative impact that can have on on labor productivity. So.
That's a dynamic that that we're keeping a careful eye on.
I wouldn't necessarily attributed to any specific market.
Got it the dynamic you're calling out is certainly one that we're we're.
Keeping a careful item.
Great and then last questions from me.
Just as more and more focus on treating patients at home versus in the center can you break out what percentage of patients are treated.
At home and foreseeing off Nephrologist again, just or change their behavior to get more patients.
Happy of this heavier.
The mix is roughly 12% PD and a little below the 2% on H. HD. So were little below the 14, if you combine the two modality.
The PD is growing at a nice healthy trend and it's similar to what it was before we had the shortage and so there is clearly an interest in making sure that the patients go to the right modality.
But we've seen that and years in the path.
Great. Thanks, so much.
Yes.
Your next question comes from with Mayo.
With.
Your line is now open.
Okay. Thanks, Hey afternoon, so when the final yes, R&D rule admittedly I haven't read the whole thing, but was there anything that surprised you with Q IP AK Guy anything I know theres. This innovative transitional drug add on change for supplies equipment, just wasn't sure if that means any.
Thing.
For you.
Lynne do you want to comment on that.
Sure.
First the final rule is very similar almost exactly to the preliminary rule until they had teed up.
Certain medical.
Supplies, which will be truly innovative could get some partial incremental reimbursement. So that's.
Positive.
Sure, but it was not a surprise does that answer your question.
I think so maybe be helpful to explain elaborate a little bit more maybe an example of how the to dapple would work for this new supply and.
Equipment.
I guess I don't fully understand how it works.
Well I don't think they gave complete details, but what I can tell you is that in the final rule role. They said the equipment or supply misrepresenting advancement that we substantially improving its renal dialysis services. So that's kind of there.
Orientation.
There is going to be a process, which.
These devices will be asked introduced after one 120 20 and it will be.
The decisions were made to the FDA marketing authorization.
So I'm not sure what exactly you're looking for be happy to answer specific questions are taken offline with you know.
No. That's that's that's really helpful things quickly and.
My other question I, just wanted to kinda talk about California for a second in.
Let's assume that view in the industry the AK up for unsuccessful getting perhaps an injunction filed and.
We actually see the eight Ks pull out of the state all together what are the other.
Options for patients that at this point them and presumably you've thought about this I'm just sort of curious come January one like what ultimately may may happen.
Yeah, it's going to be very interesting to see how it plays out.
And then of course, there different categories in some instances of patients will be able to get funding and some other way and in some instances, they're going to lose their coverage and so.
We're trying to do math around and Thats why we try to be helpful. With the range that we provided and we embedded in our guidance.
But if the reality is that weve never been in a situation like that.
And that's why the range is a bit wide.
Yeah.
And is there another when I'm thinking about other.
Ways to obtain premium support the only thing that comes to mind is.
Tax credits premium support and.
The exchange market places is there any other obvious.
Substitution for premium support.
Not that we are aware of course, we are pursuing all options some might qualify for medical and other things up. So that's why the math is a little tricky and again the range is a bit wide. Okay. Now that's helpful and maybe two real quick ones on Joel I didn't know if you commented on commercial mix.
So if not can you and then can we get the the actual ending share count on September Thirtyth No. If you gave that either.
Yes, we didnt, we didn't comment on commercial mixtures theres not a lot to talk about Q3 tends to be seasonally a little bit weaker because of Medicare open enrollment, but but nothing nothing significant.
[noise] ending share count.
So the ending share count at the end of Q3 was just under 134 million 133.9 million remember that excludes the shares we bought back right in the quarter ended Greg helpful. Thanks, guys.
I'm sorry before before the next question, Justin I want to get back to you.
It's always hard to compare ranges, but roughly speaking I think you can think of our share count.
Forecast being down about 10% relative to what we talked about as capital markets day.
Our next question will come from Gary Taylor with Jpmorgan. Your line is now open.
Hey, good afternoon, just a few.
Quick ones for the 2020 ballot initiatives did I Miss that did you size, what you thought that would be.
Yes, Gary we achieved two ways to to think about it one is using what we spend in 2018 as a potential proxy. The second is we were thinking if you want to think about it on an earnings per share basis.
We would say 50 cents impact on 2020 would be at the kind of.
Max.
Got you and will you called that out for us and the quarterly is like you did in 2018 with incentives in the corner I expect we will I think will.
We're trying to develop a pattern of calling out things that are unusual like.
Like Calcimimetic action and the ballot initiatives. So the answer is yes, I do want to remind everyone on the call that the spend on the ballot initiatives is not tax deductible.
So.
As you're modeling the impact on EPS keep that in mind.
Just another one when I look at full year from where we started the year in January you're like guidance is up 130 to 200 million am I right that.
Calcimimetic started the year as 80 million dollar lie assumption. That's now that's now a 220. So so the low end of that is covered by.
The Calcimimetic increase.
Yes, so Gary we I don't think we gave the specific calcimimetic number at the beginning of the year.
I, if I were to think about a number for early year Calcimimetic I think your numbers a bit high.
So if you're if you're trying to say of the Oh why increase from the beginning of the year how much of that is the result of Calcimimetic. Some therefore, what's been the what's your thinking about core FFO why now relative to the beginning of the year I think it's safe to say that the vast.
The majority of the increases the result of Calcimimetic.
Coral wise up a bit but not a lot.
Thank you last question I know last quarter.
We were surprised by the magnitude of labor productivity you had.
In the quarter and I know your thoughts at that time or that was going to reverse to.
Some degree so as I sit here and sort of adjusts for the decline in the cosmetics costs in the quarter et cetera, I mean, it looks like it labor productivity wasn't as good as you experience in the two Q, but still looks.
Very.
Attractive on a on a year over year basis is that the way you're looking at is there anything else any other color.
On those two Q productivity gains and how they carried into the third quarter.
With your Directionally, sorry, Gary your Directionally correct.
On the math that you said a couple of things to call out as well as as our volume decrease we did a great job of adjusting and I think we explain the interdependency between sometimes having.
Labour and volume and the correlation of managing both of those pieces. So we did go up or over Q2, and we do with what we're seeing we expected to go up even further in Q4 as we're seeing the hiring numbers.
And the training costs for the fourth quarter.
Thank you.
Yes.
Your next question will come from.
Research your line.
Thanks appreciate eliminated for a couple of follow ups.
You mentioned the impact of the benefit from a or.
Dr relative to this year.
Should reverse next year or is there any kind of number you want to for us for that that was your kind of keep in mind.
Not really it's relatively small than I think there.
It's not something I would call out as a significant headwind or tailwind going from 19 to 20.
Okay, and then obviously, we're now looking out.
2020, and thinking about 2021 first just for a second.
It's just simple to say that 2020 earnings that you've got out there now are depressed by about 50 cents because of the ballot.
Is there there's no offsetting good guy there to think about such that you know 2021.
I would be effectively 50 cents tailwind is the ballot initiative costs go away.
Just because there's no balance that your and.
Earnings report about it which would be set higher before you kind of thinking about capital deployment in core growth is there any kind of walk. So it's you want to for out there before we go to think about no I think the 57 is a pretty clean headwind into next year and tailwind into 21.
That's a that's helpful.
And then just a couple of a follow ups.
I think peto asked about home starts.
The clearly yourselves and others are pushing too to accelerate home so I think.
The number you gave their of 12% in 2% what's your current number it would it be helpful. Maybe to share with us the that does the new starts.
And how that might have changed over the last couple of years or even just the last three to six months seems to become a bigger push have you seen any kind of meaningful change there.
The reality Justin is that we have we had a bit of a disruption with the shortage of supply so it's hard to connect but.
Pre supply shortage.
We were running around the same rates that we are now which is in the low double digits. So anywhere between 12, sorry tenant 13% on PD.
The HD has been more in the flattish.
Range.
So the people that fall out roughly replaced with the new colors.
Okay does that answer your question.
The new starts really isn't any different as your point.
Well well there are different than they were a couple of years ago, because we had the shortage and then of course, you have to step up and you've got to tell people that you're ready and you've got to get the market to be confident you can supply it et cetera, and so we are actually quite a energized by how quickly the market reacted and how much and.
Yes, there is and again I think with what we said in capital market. It's also not looking like.
No there's going to be transformational.
But rather evolutionary change.
Got it and then Javier.
You guys put an 8-K yesterday that kind of talked about your new compensation agreement and it looks pretty unique and that's it looks like you're pulling forward about five years of Ah of stock comp.
Into a into one and so I just wanted to know if there is I know in the there was a strike price number in that.
Taking a high 60 Sevens before you were in the money on those ours use but is there anything else in terms that we should know about in terms of.
Vesting that you know do you have to hit certain hurdle rates is that in the proxy I can go dig out number one and maybe you could just give us some color on kind of given this is fairly unique from what I've seen in the.
In my time, I'd, just love to kind of your kind of how you thought about there's another board thought about it and I know you ran about shareholders as well so maybe just spend a bit along that thanks.
Hey, Justin it's Joel I'll take this.
On the on the narrow question divesting it best 50% at the end the year three and 50% at the end the year for there is no performance best thing I think the the concept here is creating a a premium price is effectively what used to ensure that.
Javier get significant value when the shareholders get significant value and that's really what the board was trying to create here wasn't alignment in alignment of incentives between the new CEO and the long term shareholders of the company and I think there was a lot of support.
As we went out to talk to shareholders and I would add this will be put to a vote by the shareholders. So all the shareholders would get the opportunity to approve this so really the guiding principle here was aligning incentives for a.
For the new CEO .
For the long term shareholders and I would one other point I'd I'd highlight is that there is a five year holding period here. So this isn't about driving the stock price up towards a single or two separate vesting events Javier has to hold.
The stock that he gets here for five years.
Thanks for all the color there appreciate it.
The next question comes from Peter Chicory with Deutsche Bank. Your line is now open.
Hey, Thanks to this point all the questions and answers so thanks much.
All right. Thanks.
The next question will come from John Ransom with Raymond James Your line is now open.
Hi, John Hi, guys Hey.
Let's let's pick a point in time, a couple of years ago, where all the payer for Mad at you about the exchanges and you had some tough.
Negotiations and let's say that was the the not here.
Where are you I mean this is the qualitative question, but where are you kind of long term with some of your key payers and I know, it's always going to be somewhat adversarial, just because of the structure of the industry, but what steps are you taking to may be Dol down some of that.
So some of that contention thanks.
Yes, Thanks, John in General I. Thank.
You've stated we had some issues on understanding what happened with the exchanges in relation to our industry in the economics.
The dialysis industry I've gone out on FCL Road show with several of the largest payors and continue to reach out to many.
To make sure that a they understand the dynamics and the framework that we have and how unique it it.
Do I want to make sure that there are clear that we are very.
Very into long term.
Sort of value.
Arrangements and that we are open to being creative and a new structure that we are not married to some kind of fee for service hold structure. We are confident that we are the best to be the primary care for our patients.
Because of the amount of time this spend with us and all that comorbid conditions that we can impact and that we can structure something that is both good for the patient good for the payers and good for us and so that's why we're excited to build the capabilities of integrated care that message is resonating, but as you know it takes two to Dan.
And it's a complicated.
Dumbs arrangements and Matt to make sure that you get a holistic costs across the commercial population et cetera, So established benchmark and trends.
So they can do good risk arrangements, so were up and running I think the conversations will take years, so you're not going to wake up one day and say, while there was a tectonic shift I might be wrong on that but it looks like it'll be a slower.
A slower transitions, but the payers are reacting quite well to it.
Okay.
And it's your fate and life to the between difficult people, so speaking of difficult people physicians.
Yeah, one of the things we here as you know this this moved at home and you guys are said to us.
A bit of it is a culture and a physician training issue and you have some markets where you have very little you have some markets, where it's 25%.
So again qualitative question, where are you and your and your charm initiative, what the doctors to get some of them maybe to think a little more about the PD.
As a first alternative versus maybe what some of them might be defaulting to the clinic.
Yeah, our position are actually quite reasonable.
And what they want to do is make sure they do what's right for the patient.
And they really worry about whats right for the patient whats right for the system and they're very independent and their nature and then they're thinking and so what we have to do is make sure that we put the rightsizing and the rights specific and the right analytics. So they can train and encourage the right patients to go home.
And once we do that the doctors are quite onboard to do whatever is right for the patient in the system.
So we're working on that and of course.
We have thousands of them. So it takes some time and as you said some are more.
Bullish in some would want to wait to see how it plays out.
Okay. That's it for me thank you.
Thank you John .
The next question comes from.
William Blair. Your line is now open.
I'm not.
Hi, good afternoon. Thanks for taking my question heavier I wanted to follow on your comments around some of this Sienna Maya model as you mentioned that they would require significant investment upfront and then maybe not quite like has moved the needle for you in the near term are there things in particular that youre, providing feedback to four.
MSN things you'd like to see change that would make them more.
More compelling.
Thank you Andy Nephrologist partners.
We are and the industry is actually very well aligned including Medpac.
So there's a lot of comments out there that try to make sure that people understand.
How these work in power to use something to be useful for you Matt it.
They are little like the frameworks are little like the Escos and then more complicated and so we now have experience on how surprising it is and let's call. It a difficult to understand how and what you're going to get paid because the benchmark changes and there's little visibility into it so I imagine.
Adding all that risk, but now you have a physician practice instead of a well capitalized corporation.
So physician practice would have to be out of pocket and not know exactly what is cash flows would be.
That's that's really an uncomfortable position for small business.
So we have a lot of more detail, but in general I think thats, a good healthy way to think about it.
Okay. Thanks.
Thank you.
I'm showing no further questions in queue at this time.
Well I want to close out by thanking all of you. We will continue to work hard for you and for our patients talk to you next quarter.
And that today's conference. Thank you for your participation you may now disconnect.