Q2 2022 DaVita Inc Earnings Call
Good evening My name is Michelle and I will be your conference facilitator today at this time I would 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, if you would like to ask a.
During this time simply press Star then the number one on your telephone keypad. If you like to withdraw your question Press Star then the number two.
Thank you Mr. Ackerman you May now begin your conference.
Thank you and welcome everyone to our second quarter Conference call. We appreciate your continued interest in our company.
I'm, Joel Ackerman, CFO and Treasurer and joining me today is Javier Rodriguez our CEO .
Please note that during this call we may make forward looking statements within the meaning of the federal Securities laws.
All of these statements are subject to known and unknown risks and uncertainties that could cause the actual results to differ materially from those described in the forward looking statements.
For further details concerning these risks and uncertainties.
Please refer to our second quarter earnings press release, and our SEC filings, including our most recent annual report on Form 10-K.
<unk> quarterly reports on Form 10-Q, and other subsequent filings that we make with the SEC 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 except as may be required by law.
Additionally, we'd like to remind you that during this call we will discuss some non-GAAP financial measures. A reconciliation of these non-GAAP measures to the most comparable GAAP financial measures is included in our earnings press release furnished to the SEC and available on our website I will now turn the call over to Javier Rodriguez.
Thank you Joe and thank you for joining the call today I will cover five topics health equity the Supreme Court case second quarter performance and update on our integrated kidney care or <unk> business and I will conclude my remarks with our current thinking for 2023.
Before we discuss the business matters, let me start with a clinical topic that is critical for society.
Equity.
Given the disproportionate impact kidney disease has on patients a color palette that goody.
Most importantly.
Across the key dimensions of access to care access to information and clinical outcome Davita kidney care community have achieved unparalleled equity relative to the vast majority of other disease states.
We have used the focus of our scale to provide consistent equitable access to care and education.
Our leading clinical outcomes and protocols have reduced variability across all patient population, regardless of rate or socioeconomic status.
Our black and Hispanic patient Alright parity you when it comes to dialysis adequacy, phosphorous and calcium lab values as well as hospitalization and mortality.
As another example of our efforts to drive help equity or kidney Smart program is now available in 10 languages and we're participating in a pilot to develop culturally tailored education to underrepresented and underserved patient community.
As it relates to access dialysis services are available to most patients within 10 miles of their homes.
We're proud of these results and now have set our ambition to improve access to transplant and home dialysis.
Now moving on to SCOTUS ruling in Marietta Memorial Hospital matter opened a loophole for plans to circumvent the historic protections for a patient in the Medicare Secondary payer act or MSP.
We continue to believe that this narrow interpretation is not only contrary to Congress is intent when enacting that these provisions.
Could also result in harm to this vulnerable patient population and health equity efforts back.
We're working with the community on several initiatives to not only close this loophole, but apply other antidiscrimination provision to protect these patients right to be able to choose the insurance option that works best for them.
The first step in the process is supporting legislative efforts of members of Congress, who are passionate about protecting not only dialysis patient drive, but also the Medicare Trust, but we're.
We're excited that last Friday bipartisan legislation was introduced to allow Congress to do just that amendment tech of the MSP to close the loophole opened by the Marriott a decision there.
The proposed legislation clarifies that benefit plan seeking the limit or impair benefits based on the need for renal dialysis services like the Marietta plan would be considered a violation of the MSP.
While getting any legislation passed will be difficult in an election year, we believe the restoration of the MSP.
As noncontroversial, and we will work with the congressional budget office to ensure that it will reach score to this state route which should help with passage.
The community is also working with regulators to ensure other anti discrimination protection would apply to address the type of discrimination implemented with the Marriott Memorial Hospital employer group.
Oppose revision to the antidiscrimination provision of the Affordable Care Act that were released last week demonstrate that HHS is serious about protecting against insurance benefit design to discriminate based on a variety of things including disability.
Should we start to see efforts by employer groups to modify benefit plans to take advantage of the work around the MSP created by the Maryland decision there could be legal action based on these anti discrimination provision.
Now moving on to financial results for Q2, we delivered operating income of 433 million and earnings per share of $2 30.
Operating income was up sequentially by $95 million as seasonal impact in Q1, abated and treatments per day increased quarter over quarter by approximately 1%.
Covid infections and mortality in our patient population decline after the omicron surge in Q1 through May but increased in June and again in July .
The treatment rates were also down significantly from the highs in Q1.
Above the seasonal norm in Q2.
The impact of Covid on mortality mid treatment and treatment volume remain difficult to forecast and is the biggest swing factor for our performance in the second half of 2022 and into 2023.
Labor costs remain a challenge in Q2 with higher contracted labor utilization and base wage increases similar to what we experienced in Q1.
We're managing other patient care costs, and G&A to help offset the impact of wage and other inflationary increases.
With all of these challenges we continue to believe it's more likely that our performance will fall within the bottom half of our guidance range of 152 5 billion to $1 $6 75 billion or 2022.
Turning to an update on our <unk> business.
Operating losses in our <unk> business were better than expected in Q2. This was a result of timing within 2022 with a recognition of some shared savings revenue earlier in the year than anticipated.
We also benefited from positive prior period development in our special needs plans for.
For the full year, we are anticipating overall performance in <unk> to be better than initially expected looking forward, we're gaining confidence in our model of care given the early results of our 2021 share savings to us.
Our 2023, we're also expecting significantly higher growth in our membership and dollars under management and both MA lives and from CK Deep program.
As a result of the better performance in 2022, and the first year costs associated with significant growth. We're now expecting improvement in <unk> operating income in 2020 three to be lower than previously expected.
Last I want to provide an update on our thinking about 2023 overall.
To help our investors and analysts with these update I'll refer you to the table in the outlook section in our press release that lays out our views on the primary drivers of operating income growth from 2022 to 2023.
We continue to believe that we will deliver a significant rebound next year, although the challenges uncertainties around treatment volume growth in the health care labor market have led us to lower the improvement range $200 million to $300 million.
Let me walk you through the updated thinking.
First back in November 2021, we expect the volume headwinds from Covid to be over in 2023, and we're anticipating benefits from a pull forward of mortality from Covid.
These factors resulted in a higher than normal volume growth in the middle of our range and a tailwind from volume in 2023 compared to our historical results.
Based on what we have learned from omicron charge in the winter and the continued evolution of the pandemic. We now expect COVID-19 to remain a headwind to growth in 2023.
Uncertainty around treatment volume incentive growth continues to be the single largest source of variability in our year over year profit forecast.
Second our confidence in the likelihood and the magnitude of the cost saving initiatives. We've been working on has increased.
We have plans underway to reduce our procurement costs lower our fixed cost structure and shrink our G&A.
This will result in some nonrecurring expenses in 2022, and 2023, but is expected to lower our cost structure for the long term.
Third relative to what we knew at capital markets Day, we're now anticipating higher revenue per treatment growth next year. This is the result of higher rate increases and lower patient bad debt.
To summarize for 2023, we still expect to deliver a meaningful increase of $200 million to $300 million.
On volume and wage pressure, we are lowering that range.
I will now turn it over to Joe to discuss our financial performance and outlook in greater detail.
Thanks, Javier first let me start with some additional details on our second quarter results.
Dialysis treatments were up two 3% compared to the first quarter.
This was the result of one additional treatment day, and an increase of approximately 1% in treatments per day.
Excess mortality was down significantly from Q1 as the impact of the first OMA Crum surge receded.
We'll note. This benefit appears to have reversed in June and July has a new wave is having negative impact on volumes.
Mitch treatment rates declined in the quarter as a result of typical seasonal patterns, but remained higher than usual in Q2 because of the new omicron variance.
Revenue per treatment grew quarter over quarter by $4 19.
Primarily due to normal seasonal improvements driven by patients meeting their coinsurance and deductibles as well as the continued shift to MA plans, partially offset by a seasonal decrease in acute treatment volume and the partial loss of Medicare sequestration relief in Q2.
Patient care cost per treatment was lower by $5 47 per treatment quarter over quarter.
Primarily due to seasonality of health benefits and payroll taxes and lower cost across multiple other categories.
G&A was up approximately $24 million versus Q1.
In Q2, there was approximately $23 million of contribution to the industry's campaign against the ballot initiatives in California.
This is a pull forward of expenses originally planned for Q3.
Our estimates for the full year impact of the spend on the ballot initiatives have not changed although this does impact the timing between Q2 and Q3.
Additionally, there was a one time gain on the sale of some self developed properties of $22 million, which approximately offset the pull forward of the ballot initiative spend.
The increase in G&A relative to Q1 was largely the result of higher compensation expense and the increased peony.
Putting this all together to help you understand how we think about the results in Q2 as a starting point for understanding the rest of the year I would point out a couple of things.
First the ballot initiative expense in the quarter was offset by the gain on the sale of self developed properties.
Both of these items flow through the G&A line and combined had no significant impact on the quarter.
Second results in Ik feed for the quarter were significantly higher than anticipated for two reasons.
First we recognized shared savings revenue of approximately $15 million that was expected in the back half of 2022.
Second we had positive prior period development of approximately $10 million.
Together these resulted in approximately $25 million of benefit in the quarter that we do not anticipate recurring in the back half of 2022.
In addition to these components there were other items as there are every quarter, but these largely offset one another.
The result of all this is that earnings for the quarter benefited from a net of approximately $25 million.
Compared to what we would use as a baseline for modeling earnings for the back half of the year.
For Q3 and Q4, the spending on the California budget initiative is the only significant seasonal or unusual item that we currently anticipate.
In Q2, we repurchased approximately three 9 million shares of our stock and we have repurchased an additional 901000 shares since the quarter end.
Finally, I want to add one detail to Javier <unk> comments about the bridge to 2023 operating income.
As he said we are bringing the range of adjusted Oi increase in 2023 down to $200 million to $300 million.
The initiatives, we are undertaking to deliver on this range are expected to result in non recurring expenses in 'twenty, two and 2023.
These nonrecurring costs are not included in our guidance.
Operator, please open the call for Q&A.
Thank you at this time, if you would like to ask a question you May press Star one.
Please I meet your filing of state your first and last name Unprompted one moment. Please for the first question.
Kevin Fischbeck from Bank of America, You May go ahead Sir.
Okay, great. Thanks, a couple of questions here. So it sounds like Youre, saying you took up your pricing outlook for next year I guess is there.
Any way to think about what has changed along those lines like how much of it is because of a better view on the Medicare rate update versus and day rates versus commercial.
Yes, Kevin it's there are really three components to it one.
One is the Medicare rate as you.
<unk>. The second is some operational and systems changes that we are going to make internally that we think can drive higher yields or higher cash collections, which ultimately results in a higher RPT and the third are some benefit changes that.
It will impact the patient.
The patient component and improve our bad debt because the lower the patient component comes back related to out of pocket cost to lower that goes the higher we will ultimately correct collect none of this is about our expectation of higher rates on commercial or.
Emma.
Okay.
And is there any negative view I guess, obviously with Maria there I know you talked about.
The initiatives are initiatives pursuing to fix that but I guess is there.
And your expectation or any early indications around how commercial contracts are being negotiated.
Kevin This javier.
Short answer is it's too early to tell.
And so we continue to.
Watch it and we will let you know if we see anything as we said last time.
There is a segment that's more likely than not which is a small employer.
But these things take time and so we don't have anything new to report on it.
Okay, and then I guess.
You mentioned that.
You've changed versus your original outlook of bridge between 'twenty three.
Different you about volumes how much of that is because of mass versus what's already happened in the math of that going forward versus kind of your change of view a more conservative view about.
What how things might develop going forward.
I think it's more.
More about what will happen going forward than what we've seen so far volume is a little bit below where we were expecting but this is more about our expectations for excess mortality going forward.
Rather than what we've seen so far.
Remember, Kevin we talked a little about a pull forward I E.
We call that sort of Covid unwind at one point, which is we thought that once that excess mortality unwound that we would have a little rich.
Richard growth in one year and now we just don't have visibility mathematically of course, it will happen, but we don't have visibility as to when it will happen.
So that's the math that Joe just talked about.
So the total <unk> number has not changed.
Timing is difficult to predict so you're just taking some of that out.
Next year well the total <unk> for 2023 has changed.
Yes.
The level of the range by 75%. So it was $2 50 to 400, we've moved it to 200 to 375 at the middle of the range I think it's fair to say that 75 is fully accounted for by our change in volume expectations. There are some other puts and takes us.
Well.
I guess I guess.
Thought that you guys talked about like 150 to 200 go lives from the Covid normalization on the volumes over time.
That's still the right way to think about that that number hasnt changed.
I don't think our views on normalization from Covid have changed in terms of volumes I think.
We've stopped kind of thinking about what's the negative impact on Oi from Covid and more recognizing where we are today is the new baseline and how are we going to move forward from here, but the comments, we've made about the pull forward and ultimately excess mortality.
<unk> at some point meeting to go away and become lower than normal we still believe in that.
Excellent. Thank you.
Yes.
Thank you thank you Kevin.
And our next caller is Justin Lake with Wolfe Research you May go ahead Sir.
Thanks.
A couple of follow ups from Kevin's question. There first you talked about some better could you do something to help reduce patient out of pockets.
You might give us a little more color.
Yeah. This this relates to changes in the way Medicare is calculating the maximum out of pocket for.
And for Duals in particular, that's where we see the impact we have a very heavy dual population in our MA book and as the change in Medicare out of a maximum out of pocket changes and these dual eligible <unk> reach there.
Their maximum out of pocket quicker than ultimately the patient component of which as you know we collect very little they'll hit that earlier in the year.
The result is the call it the patient bad debt number goes down.
How big of an impact she got half the revenue per treatment before thinking about next year.
I would say.
Somewhere in the dollar and a half range.
Got it and is that you are effectively pure profitability in terms of all of that falls right to the bottom line in terms of price.
Yes.
Okay.
And then thinking about.
The mix for next year.
No.
You know possible to say what employers are going to do with this barrier to stop at this point, but have you built in to that.
Tibet lanes that you've updated any assumption around deteriorating payer mix or are you assuming that.
That sales process.
We're not expecting any material impact in 'twenty three for Marietta, So no change to the mix.
Got it and then.
Just a question on salaries and benefits so.
I think the number you had put in for this year in terms of your framework are typically 2% to 3% increases I think you added something like 75 million for this year can you give us an update.
Versus that you know that target that extra 75. This year and then what are you assuming in that number next year by our calculation it looks like it might be more mid single digits assumed again next year.
Boucher above that 2% to 3% normal.
Are you assuming for wage pressure next year.
Yes, so just as a reminder, we called out a number more like 125 for this year so call. It <unk>.
Salary wage and benefit increase year over year, and 22 of about 6% and that's what we saw in the first quarter. It's what we saw in the second quarter, we're expecting that for the full year as you look forward to next year.
We're expecting that number to come down, but remain well above that 2% to 3%. So.
We're roughly halfway between the three and the 6% number.
Okay.
That's all falloff appreciate the comments.
Thanks, Jeff.
Thank you our next caller is Peter Chickering with Deutsche Bank You May go ahead Sir.
Hey, good afternoon, guys. Thanks for taking my questions going back to the ITC part you broke out the $15 million of shared savings and $10 million of prior period can you just want to step back a little bit and say whats changed sort of into Q versus what you are expecting at the analyst day and expectations can you remind us whats the process for getting.
True ups from managed care plans at this point and then any more details as you get this true ups about how these cost savings progress throughout 2021.
Well I'll, let Joe answer some of the technical questions you asked but one of the things that I really want to make sure that we dropped down on this one is that this business is has a lot more ups and downs and to look at it quarter over quarter, it's probably not a great way to look at it but rather to look at.
On an annual basis, because of the true ups and the Lumpiness and the seasonality of the flu and all the things that happen in this type of business.
But that said.
Joe one transfer the technical part.
Sure so the <unk>.
Higher period development is on the SNP business and it's no different than the kind of prior period development you would see in a managed care plan and Thats because our accounting there we take the full revenue and the full expense through the P&L.
$15 million of shared savings the process. There obviously the year has to and the claims have to run out to some extent data is exchanged and reconciled and when we become confident that.
The shared savings numbers are clarified thats when we will recognize that revenue. So for some of the 2021 plan years, we got that level of confidence earlier than we expected and thats, what led to the $15 million of revenue in Q2 versus the back half of the year when we had.
We expected it.
If you step back in terms of where we are versus capital markets day.
And I'll I'll use.
I'll use specific numbers just to make it clear. So we were anticipating a loss for the year from hi, Casey of roughly $175 million.
We now expect that number to come in a bit better maybe I'd say, probably a $10 million to $30 million improvement relative to where we were part of that is prior period development part of it is a lower cost structure as we're scaling the business we are seeing some advantage.
As relative to what we thought.
But overall I would emphasize it is still early in the development of this business, we are expecting ups and downs, but it was a good quarter for Casey.
So just sort of dig in there a one more question then I'll go to something else, but as you look at your the patient stat that you got sort of in the first quarter of 2021, any sort of color on sort of where.
Those margins are today or are these so profitable after 18 months kind of just just any any visibility and sort of how you transition from losing money to make money on these patients.
Yeah. So first let's be clear, we're not making money. We just we just had positive prior period development and positive.
Things are still a huge expense space against those so it's it's to some extent playing out as we expected with 2021, just the timing is a bit different.
In the year.
Okay, I guess, let me ask a different way.
With what Youre tracking today, how fast before we convert from losing money on these patients and to make them money.
Look at capital markets day, we laid out a plan where the business should become breakeven in 2025, plus or minus that's the year, where we think will crossover.
Anything on our views around the path to <unk> profitability has changed yet.
Moving to the cost side of the equation as follow up on Justin's questions. How easy is it to hire people today, whereas the turnover today versus the net hires so how is it progressing throughout the year and even any pressure on treatment growth in the back half of the year due to lack of staff.
I'll grab that.
It's hard to talk about the entire country is a unison because there's submarkets and labor markets are very different market by market.
Would say that it feels.
That we have crossed the most difficult period that this quarter feels a lot easier than last quarter, but that was on the hardest quarter in the history of the company. So.
So contextually speaking, it's still a difficult labor market as it relates to the second part of your question are there markets, where we're not accepting patients the vast majority of our clinics are accepting patients.
<unk> majority there are a couple of pockets.
Now five years or so markets that are the vast majority of the ones, where we have pressure and so the way to look at it is.
That if you're a patient the first thing you want to do is of course get out of the hospital.
Theres lots of stress around Acclimating to your new life on dialysis.
But that said the most important thing is you want to safety and once you get to the right. Staffing then you save time away from home and the right location right now we have more centers than usual, where a person has to travel longer than they wish.
But they are getting placed and so we're working through those dynamics and hope to revert to normal over.
Over the course of the year.
Great and then three quick number questions, whereas your home penetration today, how should we think about both interest costs in the back half of the year as well as tax rate. Thanks, so much.
Thanks on the home penetration, we had flattish growth due to all of the Covid dynamics. So that mix is still in the 15% range.
And as it relates to interest expense interest.
Interest expense, we expect it to go up in Q3 and Q4.
The.
There are really three dynamics. There one is just the outstanding amount on our revolver is higher than normal second LIBOR continues to increase and while we are capped on most of our floating rate debt. We're not capped on all of it and third because our.
Leverage level is above three and a half we go into a different tier on our floating rate debt and we're now paying 175 above LIBOR rather than the the.
The spread of 150 above LIBOR you put that all together I think a 100 million a quarter of interest expense for Q3, and Q4 is a reasonable estimate.
And then tax rate I guess, how should we think of a tax rate that's like house of your tax rate.
We're not changing our guidance.
For the year, so staying at 25 to 27.
Thanks, so much.
Thank you Peter.
Thank you our next caller is Sarah James with Barclays. You May go ahead.
Thank you.
If you guys have given any more thought to expansion of the kpis to give insight into commercial mix.
Things like pricing.
Sure.
Yes.
William.
Help us understand some of the dynamics going on there.
I'm sorry, Sir.
Did you say Casey is that where you started or did you say something at the beginning I didnt catch it yeah. No I was I was wondering if you are thinking about expanding key performance indicators are the metrics you disclosed around commercial mix breakout.
So we can understand the dynamics going on a little bit better.
I think Sarah we are relying on giving the commentary during the call, making sure the analysts and the investors understand what's moving up and moving down in terms of putting this in a table on the press release, that's not something we've been thinking about recently.
Okay.
Are there aspects of partnerships that you guys connect floor for efficiency I'm thinking about.
Companies that look at.
Efficient dosing.
To help bring down cost or transportation, just anything that would help offset.
The headwind.
And the next few years.
Yes, we've been looking at them for quite some time and hopefully our track record. If you look compounded year after year, our cost structure has gone up less than a percent overtime and so that take maniacal focus and discipline and execution.
Some of the types of things that you said if you look at.
Say, which has been historically our most.
Expensive pharmaceutical we have personalized dosing and AI algorithms of the type of as you described.
Okay.
Any sense of scale of savings opportunity there could be over time in that area.
Well, it's embedded in the 200 to 300 million that we cite for next year.
And so it's in that range right there.
If you look at that slide.
We have in there.
The cost savings that's embedded in the pharmaceutical line, though.
Thank you.
Thank you.
Our next caller is Gary Taylor with Cowen You May go ahead Sir.
Hi, good afternoon guys.
<unk>.
A couple of numbers questions first.
Going back to last call.
And I missed the first couple of minutes here, so I apologize, but I thought in the first quarter.
Towards the bottom half of the Oi range.
This year.
You reiterated that range in the release, but is there any commentary around.
Bottom house for this year does that still hold.
Yes, Gary I think we're sticking with that no change to where in the range, we think will come in.
Okay.
And then I hadn't realized before certainly we've seen the proceeds on the self developed properties through the cash flow statement, but I hadn't realized any accounting gains we're running through.
G&A so I appreciate you.
Calling that out.
This quarter has it ever been as large as this like when I look back on proceeds last year $56 million 2020 $93 million.
I was just curious if there were any other material gains that ran through G&A.
Yes. So the reason it was so big this quarter as it related to one of our central business office is so much bigger building historically, they generally related to clinics. So the numbers for individual clinics were much smaller but.
When we were building more clinics historically there were more of them. So yeah, you would have seen numbers like this they were I'd say reasonably consistent historically.
<unk>.
So the reason we called this out is because it was so big in it and it was anomalous relative to what you've seen recently.
Got it.
Cash flow a little softer than we thought dsos still hanging up there around 65.
Some of that was related to what you thought at one point were sort of timing related.
Issues any updated thoughts on on DSO.
Yes.
Lower yes.
Yeah. So the cash flows were hurt by cash taxes. This quarter. So that was the big hit there in terms of Dsos, we do think theres an opportunity to bring it down that said I would call out that the shift to MAA from Medicare fee for service that we've seen over the last couple of years.
Structurally increase our dsos by a couple of days.
Medicare is a is a very quick payer.
The MAA Dsos are more typical to the dsos you'd see in a commercial book and as we have less Medicare fee for service and more MAA. It does structurally increase the Dsos that said I think there is an opportunity to bring it down a little bit.
Got it and last one for me can you just.
I know you guys.
For obvious reasons don't talk a lot about this publicly here AMG contract or are we back on year to year on that now or is that.
Multi year, how do we think about if and when there is opportunity.
Around rate on Esa.
Yes, Gary good memory, our contract does expire at the end of this year.
We have renewed a contract.
On the Esa front and the savings are embedded in that 200 to 300 million.
Increase year over year.
Okay.
Yes.
Thank you.
Our next caller is Justin Lake with Wolfe Research you May go ahead Sir.
Thanks, So just a few quick follow ups here first on leverage you were in the press release, you're at three eight times can you give us an update on where you see kind of your leverage targets and.
Where do you see this kind of going by year end.
Yes, so our leverage target hasnt changed of three to three and a half times and I think we've always been consistent that this is <unk>.
The range, we want to be in most of the time, but not necessarily all of the time and if you go back a few years you would've seen us.
Well above it and well below it.
Where we wind up in year end and in 2023, I think will will depend on a few things.
Share buybacks being one of them obviously.
Earnings being another free cash flow being a third.
So we're.
We're not we're not going to give out a number because it will depend on all those factors, but I'd say over time, we continue to believe three to three five times is the right range for us and we plan to get back there.
Got it and in terms of share repo you know the company has been extremely consistent and then deploying cash back to back to shareholders via repo any any thoughts on you know that you talked about leverage potentially being even higher is it possible that you buy back more.
Shares over the next six to 18 months.
Versus just free cash flow.
Keep that you know at a higher level.
And use use some of that got to to buyback more stock.
Justin we're always staying at it because you know it's a complicated topic, but the one thing you can count on all that we're gonna stay consistently focused on.
And returning to shareholders and then on the margin question is did you get a little more aggressive and lever up a bit because you think it's a good opportunity.
And then of course, you also have to look that the world is a little more uncertainty there is a little more uncertainty right now and so you have to take all those tradeoffs.
But everything's on the table.
Okay, and then just lastly in terms of leverage I have gotten a couple of questions. Just because your debt is trading at a at a decent discount to par at the moment any thoughts on buying back that debt at a discount to lower leverage.
Versus share repurchases.
Yeah.
I mean, we look at the relative trade offs of we think of those both is to some extent opportunities to return capital to our shareholders.
So we will look at both of them, depending on where they're trading although I think the history is clear we tend to lean towards share buybacks over over buying back our debt.
Got it and last question just you know the.
The the industry was facing a dialysis shortage.
Over the earlier in the year Havent heard much about it recently I know you did expect it to kind of get back to normal in the June July timeframe. So just wanted to get an update there.
Yes, Thanks Justin.
The inventory levels are a little.
Below what they normally are but we've passed the period of high anxiety and having to you know share.
Sure et cetera, So I think the worst is behind us and we can move forward.
Thanks again.
Thank you Peter Peter Chickering from Deutsche Bank, You May go ahead Sir.
Hey, guys just one last follow up here just on the Medtronic deal you guys announced in May just go into a little more of a detail on the goals of that transaction and sort of why you felt that was best use of shareholder.
Cash thanks.
Well, there's not much to report Peto, we're excited to partner and develop.
Medical innovation and technologies with Medtronic.
I think the only thing that we have to report it.
The FTC.
It has passed the period of the Hart, Scott Rodino and so.
It's a pro competitive deal so we anticipated it to be low scrutiny and that's how it went of course, the FTC can always come back and ASP, but that was a positive thing and directionally exciting for us.
And it's early of course, the transaction will probably close in Q1 of next year and so not a lot more to report.
Fair enough. Thanks, so much thank.
Thank you.
And at this time I am showing no further questions.
Alright, Thank you Michelle I've, just got two closing thoughts.
First we've been talking for over a decade about the potential contributions of integrated kidney care toward improving the quality of life of our patients and lowering total cost.
Now we have a sizable population and we are very hard at work building systems the capabilities needed to deliver on this potential.
Second the operating environment and macro landscape as we discussed are very tough.
I am very proud of the teammates resilience and agility to offset some of these.
Headwinds by creating cost savers.
Your interest in our company and we'll be talking soon be well.
Thank you. This concludes today's conference call you May go ahead and disconnect at this time.