Q1 2024 DaVita Inc Earnings Call
Michelle: 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 first quarter 2024 earnings call. All lines have been placed on mute to prevent any background noise.
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 first quarter 'twenty 'twenty four earnings call. All lines have been placed on mute to prevent any background noise.
Michelle: After the speaker's remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press star, then the number two. Thank you, Mr. Eliason. You may begin your conference.
Michelle: After the Speakers' remarks, there will be a question and answer period. If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad. If you would like to withdraw your question Press Star then the number two thank you. Mr. Eliason you may begin your conference.
Nic Eliason: Thank you, and welcome to our first quarter conference call. We appreciate your continued interest in our company. I'm Nic Eliason, Group Vice President of Investor Relations, and joining me today are Javier Rodriguez, our CEO, and Joel Ackerman, our CFO.
Eliason: Thank you and welcome to our first quarter Conference call. We appreciate your continued interest in our company.
Nic Eliason: I'm Nicolaisen group, Vice President of Investor Relations and joining me today are Javier Rodriguez, our CEO and Joel Ackerman. Our CFO. 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 <unk>.
Nic Eliason: 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 actual results to differ materially from those described in the forward-looking statement. For further details concerning these risks and uncertainties, please refer to our first quarter earnings press release and our SEC filings, including our most recent annual report on Form 10-K, all subsequent quarterly reports on Form 10-Q, and other subsequent filings that we make with the SEC.
Nic Eliason: For materially from those described in the forward looking statements.
Nic Eliason: For further details concerning these risks and uncertainties. Please refer to our first quarter earnings press release, and our SEC filings, including our most recent annual report on Form 10-K, all subsequent quarterly reports on Form 10-Q, and other subsequent filings that we make with the SEC.
Nic Eliason: Our 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, provided to the SEC, and is available on our website. I will now turn the call over to Javier Rodriguez.
Nic Eliason: Our 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.
Javier J. Rodriguez: Additionally, we'd like to remind you that during this call we will discuss some non-GAAP financial measures.
Nic Eliason: 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.
Javier J. Rodriguez: Thank you, Nick, and thank you all for joining our call today. Through the first quarter, we continued building on the momentum generated through 2023, demonstrating operational discipline while continuing to find opportunities to invest, innovate, and, most importantly, deliver clinical excellence. Today I will cover our first quarter results, provide color on our expanding international business, and wrap up with an update on the changed healthcare claim disruption. Before we get into our first quarter performance, I'll start, as we always do, with a clinical highlight.
Javier J. Rodriguez: Thank you Nick and thank you all for joining our call today.
Javier J. Rodriguez: Through the first quarter, we continued building on the momentum generated through 2023 demonstrating operational discipline, while continuing to find opportunities to invest innovate and most importantly deliver clinical excellence.
Javier J. Rodriguez: Today I'll cover our first quarter results provide color on our expanding international business and wrap up with an update on change healthcare claim disruption.
Javier J. Rodriguez: Before we get into our first quarter performance I will start as we always do with a clinical highlight.
Javier J. Rodriguez: One of our strategic goals is to provide solutions for patients at every stage along the kidney care journey, including helping to support transplantation. Our aspiration is to enable as many patients as possible to receive this life-changing gift. Let me highlight three ways that Davita is helping to address the systemic challenges of kidney transplants. The first is patient referrals to transplant centers. We recently achieved our highest monthly rate, with more than two-thirds of Davita patients under the age of 75 years old being referred for transplant. The second is living donation. The number of living donors in the United States has essentially been flat over the past two decades.
Javier J. Rodriguez: One of our strategic goals is to provide solutions for patients at every stage, along the kidney care journey, including helping to support transplantation or.
Javier J. Rodriguez: Our aspiration is to enable as many patients as possible to receive this life changing gift.
Javier J. Rodriguez: To encourage more living donors, we partnered with the National Kidney Foundation on its Big Ask, Big Give campaign to educate the community about living donation. We also offered patients a range of resources to support them through their conversations about living donations. And finally, because there is a gap in transplant rates across race and ethnicity, we created a new health equity learning lab.
Javier J. Rodriguez: Let me highlight three ways. The davita is helping to address the systemic challenges of kidney transplant.
Javier J. Rodriguez: The first is patient referrals to transplant centers, we recently achieved our highest monthly rate with more than two thirds of davita patients under the age of 75 years old being referred for transplant.
Javier J. Rodriguez: The second is living donation the number of living donors in the United States has essentially been flat over the past two decades.
Javier J. Rodriguez: To encourage more living donors, we partner with the National Kidney Foundation on its big ask Big gift campaign to educate the community on living donation.
Javier J. Rodriguez: We also offered patients a range of resources to support them through the conversations about living donation.
Javier J. Rodriguez: And finally.
Javier J. Rodriguez: Because there is a gap on transplant rates across race and ethnicity recreated a new health equity learning lab by deploying transplant navigators, we're testing novel approaches to drive a more equitable distribution of patient succeeding on their quest to receive a transplant.
Javier J. Rodriguez: By deploying transplant navigators, we're testing novel approaches to drive a more equitable distribution of patients succeeding in their quest to receive a transplant. Through these and other efforts, more than 8,000 Davita patients received a kidney transplant in 2023, the highest number of annual transplants in our history. Unfortunately, the largest challenge continues to be constrained organ supply. You may have seen recent stories about compassionate care cases involving genetically engineered pig kidneys.
Javier J. Rodriguez: Through these and other efforts more than 8000 Davita patients received a kidney transplant in 2023 the highest number of annual transplant in our history.
Javier J. Rodriguez: Unfortunately, the largest challenge continues to be constrained, Oregon supply.
Javier J. Rodriguez: You may have seen recent stories about compassionate care cases involving genetically engineered picking these.
Javier J. Rodriguez: This is an exciting first step, as society aspires to a future where organ availability is no longer a constraint for patients living with kidney disease. However, it is still in its early days for this technology, as human trials will take some time.
Javier J. Rodriguez: This is an exciting first step.
Javier J. Rodriguez: Our society aspires to a future, where Oregon availability is no longer constrained for patients living with kidney disease.
Javier J. Rodriguez: It is still in its early days for this technology as human trials will take some time in the meantime, we will continue to invest in transplant and participate and innovations that will improve access to this life changing outcome.
Javier J. Rodriguez: In the meantime, we will continue to invest in transplants and participate in innovations that will improve access to this life-changing outcome. Transitioning to our first quarter performance, adjusted operating income was $463 million, and adjusted earnings per share from continuing operations was $2.38. We had a strong quarter across our core financial trilogy, with treatment volume and patient care costs performing in line with our expectations and incremental upside driven by revenue per treatment.
Javier J. Rodriguez: Transitioning to our first quarter performance adjusted.
Javier J. Rodriguez: Adjusted operating income was $463 million and adjusted earnings per share from continuing operations was $2.38.
Javier J. Rodriguez: We had a strong quarter across our core financial trilogy, with treatment volume and patient care cost performing in line with our expectations.
Javier J. Rodriguez: An incremental upside driven by revenue per treatment.
Javier J. Rodriguez: Our Q1 performance provided increased confidence in our full-year expectations, and therefore, we're raising the bottom of our adjusted operating income guidance, putting our updated range at $1.875 billion to $1.975 billion dollars. Within these consolidated results, our international business is a growing piece of Davita's portfolio. As a reminder, our international strategy is focused on three primary principles.
Javier J. Rodriguez: Our Q1 performance provided increased confidence in our full year expectations and therefore, we are raising the bottom of our adjusted operating income guidance, putting our updated range at 1.875 billion.
Javier J. Rodriguez: Two $1.975 billion.
Javier J. Rodriguez: Within these consolidated results our international business is a growing piece of Davita portfolio. As a reminder, our international strategy is focused on three primary principles first identify markets that enable us to invest in clinical differentiation and provide excellent standards of care to a patient.
Javier J. Rodriguez: First, identify markets that enable us to invest in clinical differentiation and provide excellent standards of care to our patients. Second, operate in countries where we have a path to achieve meaningful scale led by strong local management teams. And finally, hold ourselves to the same discipline of capital efficient growth and attractive risk-adjusted returns that we use for all of our business segments. Following these principles, in March, we signed an agreement to invest $300 million to expand our operations in Brazil and Colombia and enter Chile and Ecuador through the acquisitions of high-quality centers in those four markets.
Javier J. Rodriguez: Second operating countries, where we have a path to achieve meaningful scale led by strong local management teams and finally hold ourselves to the same discipline of capital efficient growth and attractive risk adjusted returns that we use for all of our business segments.
Javier J. Rodriguez: Following this principles in March we signed an agreement to invest $300 million to expand our operations in Brazil, and Colombia, and entered Chile, and Ecuador through the acquisitions of high quality centers in those four markets.
Javier J. Rodriguez: The Chile acquisition has closed, and the transaction in Ecuador, Colombia, and Brazil remains subject to each country's respective antitrust and regulatory approval processes, which we expect to be completed at various times throughout 2024. Opportunistic transactions such as this one are consistent with our overall enterprise capital allocation strategy. Going forward, we will continue to monitor the market for acquisition opportunities that meet our investment criteria, and we otherwise expect international investment to be roughly consistent with our historical levels.
Javier J. Rodriguez: The Chile acquisition has closed and that transaction in Ecuador, Colombia, and Brazil remains subject to each country's respective antitrust and regulatory approval process, which we expect to be completed at various times throughout 'twenty 'twenty four.
Javier J. Rodriguez: Opportunistic transactions such as this one are consistent with our overall enterprise capital allocation strategy.
Javier J. Rodriguez: Going forward, we will continue to monitor the market for acquisition opportunities that meet our investment criteria and we otherwise expect international investment to be roughly consistent with our historical levels.
Javier J. Rodriguez: Upon completion of these transactions and combined with our existing business, we would be the largest dialysis provider in Latin America.
Javier J. Rodriguez: Upon completion of these transactions and combined with our existing business, we would be the largest dialysis provider in Latin America. Once these acquisitions close, we will provide care in 13 countries outside the United States with more than 500 centers treating approximately 80,000 patients and employing nearly 20,000 healthcare professionals. In 2024, we expect international growth to contribute approximately $20 million, or about one percentage point, to Davita's overall enterprise growth in adjusted operating income.
Javier J. Rodriguez: Once these acquisitions close we will provide care in 13 countries outside the United States with more than 500 centers treating approximately 80000 patients and employing nearly 20000 health care professionals.
Javier J. Rodriguez: In 'twenty 'twenty, four we expect international growth to contribute approximately $20 million or about one percentage point to davita as overall enterprise growth in adjusted operating income.
Javier J. Rodriguez: Most importantly, our international clinical outcomes continue to excel. We outperform the clinical benchmarks of every international market in which we operate, and we have reduced hospitalization across all countries by 11 percent since 2021, which has driven a reduction in unnecessary health care expenses and represents a meaningful improvement in our patients' lives. And finally, let me cover our experience with the change healthcare outage and where we stand today. Historically, the vast majority of our U.S. dialysis claims went through the change platform. Similar to many providers, this presented a challenging situation in the back half of Q1, as we were unable to submit claims through this channel.
Javier J. Rodriguez: Most importantly, our international clinical outcomes continued to excel.
Javier J. Rodriguez: We outperformed the clinical benchmarks of every international market in which we operate and we have reduced hospitalization across all countries by 11% since 2021 which has driven a reduction in unnecessary health care expense and represent a meaningful improvement to our patients' lives.
Joel Ackerman: As reflected in our first quarter balance sheet, the increase in our day sales outstanding and borrowing on our revolving credit facility were entirely related to the change outage. Joel will provide more detail, but to summarize, we have resumed billing activity, and we're collecting cash well in excess of our typical levels as we catch up on the claims backlog. As of today, we believe that the operational impact from the changed healthcare disruptions is largely resolved. I will now turn it over to Joel to discuss our financial performance and outlook in more detail.
Javier J. Rodriguez: And finally, let me cover our experience with the change healthcare outage and where we stand today historically the vast majority of our U S. Dialysis claim went through that change platform similar or many providers. This presented a challenging situation in the back half of Q1 as we were unable to submit claims through this channel.
Joel Ackerman: As reflected in our first quarter balance sheet the increase in our days sales outstanding and borrowing on our revolving credit facility were entirely related to the change outage.
Joel Ackerman: Joel will provide more detail, but to summarize we have resumed billing activity and we're collecting cash well in excess of our typical levels as we catch up from the claims backlog.
Joel Ackerman: As of today, we believe that the operational impact from the change healthcare disruptions are largely resolved.
Joel Ackerman: I will now turn it over to Joe to discuss our financial performance and outlook in more detail.
Joel Ackerman: Thank you Javier.
Joel Ackerman: First quarter adjusted operating income was $463 million, adjusted earnings per share was $2.38, and free cash flow was negative $327 million. Our Q1 results reflect strong core operating performance, as well as the impacts from delayed submission and payment of claims due to the Change Healthcare outage, which I will expand on shortly. With that, let me dive into the details for the quarter.
Joel Ackerman: First quarter adjusted operating income was $463 million adjusted earnings per share was $2.38 and free cash flow was negative $327 million.
Joel Ackerman: Our Q1 results reflect strong core operating performance as well as the impacts from delayed submission in payment of claims due to the change healthcare outage, which I will expand on shortly.
Joel Ackerman: With that let me dive into the detail for the quarter.
Joel Ackerman: U.S. dialysis treatments per day were slightly lower in Q1 as compared to Q4, consistent with our expectations for the quarter. Q1 was our fifth consecutive quarter of year-over-year new-to-dialysis admissions growth, although mortality remains elevated relative to pre-COVID levels. For the full year, we maintain our expectations of 1% to 2% treatment volume growth. However, revenue per treatment was down approximately $2 quarter over quarter.
Joel Ackerman: U S dialysis treatments per day were slightly lower in Q1 as compared to Q4, consistent with our expectations for the quarter.
Joel Ackerman: Q1 was our fifth consecutive quarter of year over year, new to dialysis admissions growth, although mortality remains elevated relative to pre COVID-19 levels for the full year, we maintain our expectations of 1% to 2% treatment volume growth.
Joel Ackerman: Revenue per treatment was down approximately $2 quarter over quarter.
Joel Ackerman: This is primarily due to typical seasonality related to patient coinsurance and deductibles offset by typical rate increases, contracted escalators, and mix improvements. We continue to see strength in RPT as the result of revenue cycle improvements, and we're trending towards the top of our original RPT range of 2.5 to 3% growth year over year. Non-GAP patient care cost per treatment declined $8 sequentially, down from the seasonally elevated fourth quarter.
Joel Ackerman: This is primarily due to typical seasonality related to patient coinsurance and deductibles offset by typical rate increases contracted escalators and mix improvements we continue to see strength in our P. T. As the result of revenue cycle improvements and we're trending.
Joel Ackerman: Towards the top of our original RPT range of 2.5% to 3% growth year over year.
Joel Ackerman: non-GAAP patient care cost per treatment declined $8 sequentially down from the seasonally elevated fourth quarter.
Joel Ackerman: As a reminder, Q4 seasonality was higher than typical, and we see this reflected in the sequential quarterly change. International Adjusted Operating Income increased $15 million sequentially, a return to normal from a low in Q4 related to higher bad debt reserves. Additionally, Q1 benefited from foreign exchange tailwinds. As Javier mentioned, this quarter we announced acquisitions in four Latin American countries, including our entrance into Chile and our anticipated entrance into Ecuador.
Joel Ackerman: As a reminder, Q4 seasonality was higher than typical and we see this reflected in the sequential quarterly change.
Joel Ackerman: International adjusted operating income increased $15 million sequentially, a return to normal from a low in Q4 related to higher bad debt reserves. Additionally, Q1 benefited from foreign exchange tailwind.
Joel Ackerman: As Javier mentioned this quarter, we announced acquisitions in for Latin American countries, including our entrance into Chile, and our anticipated entrance into Ecuador.
Joel Ackerman: These acquisitions are expected to close at various points during 'twenty 'twenty four and we anticipate that their partial year operating income in 'twenty 'twenty four will largely be offset by expenses related to the acquisitions.
Joel Ackerman: These acquisitions are expected to close at various points during 2024, and we anticipate that their partial-year operating income in 2024 will largely be offset by expenses related to the acquisition. Transitioning to Cash Flow and Capital Allocation As you'll see in our quarterly-end numbers, U.S. dialysis day sales outstanding increased by 19 days, and at the end of the quarter, we were drawn $765 million on our revolver, reflecting an increase in our leverage ratio to 3.3 times at the end of Q1.
Speaker Change: Transitioning to cash flow and capital allocations.
Joel Ackerman: As you'll see in our quarter end numbers U S. Dialysis days sales outstanding increased by 19 days and at the end of the quarter, we were drawn $765 million on our revolver, reflecting an increase in our leverage ratio to three three times at the end of Q1.
Joel Ackerman: As Javier noted, these increases are directly attributable to the Change Healthcare outage. Since the Change platform has come back online, these metrics have improved dramatically. We have caught up and are now current on primary claims submission, cash receipts are catching up, and we have fully paid down the $765 million of revolver draw through a combination of strong April cash flow and interest-free funding from UnitedHealth Group, Change's parent company. By the end of Q2, we expect the majority of the DSO increase to have reversed.
Joel Ackerman: As Javier noted these increases are directly attributable to the change healthcare outage.
Joel Ackerman: Since the change platform has come back online these metrics have improved dramatically.
Joel Ackerman: We have caught up and are now current on primary claim submission.
Joel Ackerman: Cash receipts are catching up and we have fully paid down the 765 million of revolver draw through a combination of strong April cash flow and interest free funding from Unitedhealth group changes parent company.
Joel Ackerman: By the end of Q2, we expect the majority of the DSO increase to have reversed.
Joel Ackerman: In Q1, we repurchased 2.1 million shares, but out of an abundance of caution, we temporarily suspended our share repurchases in March in light of the change disruption. Given where we are today, we expect to resume share repurchases subject to our typical capital allocation considerations. As we look to full year 2024, we are updating adjusted operating income guidance to $1.875 billion to $1.975 billion, a $25 million increase in the midpoint relative to our previous guidance. We are also updating EPS guidance to a range of $9 to $9.80. That concludes my prepared remarks for today. Operator, please open the call for Q&A.
Joel Ackerman: In Q1, we repurchased 2.1 million shares but out of an abundance of caution we temporarily suspended our share repurchases in March in light of the change disruption.
Joel Ackerman: Given where we are today, we expect to resume share repurchases subject to our typical capital allocation considerations.
Joel Ackerman: As we look to full year 'twenty 'twenty four we are updating our adjusted operating income guidance to 1.875 billion to 1.9 $75 billion, a $25 million increase in the midpoint relative to our previous guidance.
Joel Ackerman: We are also updating EPS guidance to a range from $9 to $9.80.
Joel Ackerman: That concludes my prepared remarks for today operator, please open the call for Q&A.
Michelle: Thank you, sir. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. One moment, please, for the first caller. Andrew Mok with Barclays. You may go ahead.
Speaker Change: Thank you Sir if you would like to ask a question. During this time simply press Star then the number one on your telephone keypad one moment. Please for the first caller.
Andrew Mok: Mark with Barclays. You May go ahead Sir.
Andrew Mok: Hi, good afternoon. Thanks for the question. Treatments per day. I want to follow up on that, on those comments. I think you said they were in line with your expectations. They were down sequentially, and the normalized growth was up 40 basis points year over year. So one, trying to understand if there was any impact, whether it's weather or other seasonal impacts on the quarter, and two, you know, any confidence in your levels to get back to one to two percent treatment growth for the year. Like, what sort of visibility do you have on that, and what's going to drive that from here? Thanks.
Andrew Mok: Hi, good afternoon. Thanks for the question treatments per day I want to follow up on that on those comments I think if they were in line with your expectations. They were down sequentially in the normalized growth was up 40 basis points year over year. So while I'm trying to understand if there was any impact whether it's weather or other seasonal impacts on the quarter and two any confidence on.
Unknown Executive: Yeah, thanks, Andrew. So, the big difference between the year-over-year number on treatments per day versus the NAG number or the treatment number is actually a day mix. So, Q1 in 24 had an extra Tuesday, and it also had New Year's Day on a Monday, and what happens then is about half the volume gets pushed to Sunday. Those two things combined can lead to more than half a point of volume swing.
Speaker Change: Yes, thanks, Andrew so.
Unknown Executive: Q1, and 24 had an extra Tuesday, and it also had new year's day on a Monday and what happens then is about half the volume gets pushed to someday.
Unknown Executive: So, I think of Q1 year-over-year as a positive number, 40 or 50 bps of year-over-year growth, but, as you highlighted, below the 1 to 2% range. As I think about how you bridge the range of 1 to 2% versus the Q1 number, I'd point to two things. The first is clinic closures. The timing of clinic closures in the back half of 2023 and the pattern we're expecting for 24 is a drag on volume early in 24, but much less so in the next three quarters. That would be a good one.
Unknown Executive: These clinic closures the timing of clinic closures in the back half of 2023 and the pattern. We're expecting for 'twenty four is a drag on volume early in 'twenty, four but much less so.
Unknown Executive: The second is there's a lot of seasonality both in new dialysis admissions as well as in mortality, and that could move from month to month. And just looking at the pattern of what we saw in 23 versus what we're expecting in 24, we still feel good about the 1 to 2% growth, but we think it's going to come a little later in the year than anticipated. So, I'd emphasize again that Q1 was in line with what we were expecting. The general pattern of new dialysis patients being strong, offset by continued challenges with mortality; none of that has changed, and we feel good about the 1 to 2% for the year.
Unknown Executive: Got it. And then on that mortality comment, I think you said mortality remains elevated relative to pre-COVID levels. Any trends on how that's been tracking kind of year to year or quarter to quarter post-COVID?
Unknown Executive: It has generally come down significantly since its peak, but it does move around from quarter to quarter, and it's frankly still a little early to know exactly where Q1 landed. As you know, we don't find out mortality until a few months after the period, so we're keeping a careful eye on it. As I said, it's come way down but remains elevated.
Unknown Executive: Got it. Okay.
Unknown Executive: Then maybe just one more on patient care costs. Cost per treatment, we're down another 1% year over year, and I think 3% sequentially. Anything in particular stand out there that helped drive this strong result? Thanks. Yeah, so.
Unknown Executive: Yeah, so sequentially, it's a lot about the higher seasonality we saw in Q4 that we called out. Year over year, wage pressure continues, as we've said, but it's offset versus Q1 of 23 by lower contract costs and also a productivity pickup in the quarter.
Philip Chickering: Thank you. Our next caller is Peter Chickering from Deutsche Bank.
Philip Chickering: Hey, good afternoon, guys. So revenue per treatment was really strong in the quarter. Was that due to sort of Hicks enrollment or any other one-timer patients in there? Usually goes up sort of four to five hours sequentially as we burn through copays and deductibles. Is that the right way of thinking about it for the rest of the year?
Unknown Executive: Yeah, I think that is right. The seasonality of call it $5 a treatment that we typically see in Q1, we saw this quarter, so we'd expect to pick that up in RPT in Q2 and the rest of the year. In terms of anything unusual in the quarter, nothing that I would highlight. I think the Q1 number is a pretty clean number off of which to model the rest of the year.
Unknown Executive: Okay, so that's for tracking above your guidance, like if we, you know, let me move back to kind of where you guys are guiding, writing for treatment, you're basically guiding sort of almost mid-single digits, or you know, I mean, sort of above sort of the sort of 3% range, it just continues, right?
Unknown Executive: We're right around the high end of the range, right around 3%. If you think of the guide as being up $25 million at the midpoint, and you attribute that to RPT, which is, I think, a fair way to think about it, that would put you right around 3% year over year.
Unknown Executive: Okay, fair enough. But was the street miss modeling the first quarter operating incomes, looking at the adjusted operating income beat of $39 million and the raise of $25 million? You know, it looks like you didn't, you know, because you didn't raise the high point of the range. I'm just curious if you're missing it. And then, is there any reason why I can't analyze the first quarter OI, you know, sort of 23% to get sort of $2 billion?
Unknown Executive: Yeah, so look, seasonality is something that's, I think there are clear patterns in our seasonality, but it does vary from year to year. The RPT pickup from Q1, I think, is probably the clearest part of our seasonality. Other things would be wage pressure tends to grow over the course of the year, as does other parts of RPT, but wage pressure tends to be higher. And then we often see Q4 expenses going up for year-end and other items. So we've seen, as we did in 23, some real negative seasonality in Q4. That's all around U.S. dialysis. IKC is tougher to call out.
Unknown Executive: We tend to do a little bit better in the back half of the year, but as you know, that can fluctuate from year to year. So annualizing Q1, I don't think, is the best way to get you there. I think, actually, if you annualized our OI, you'd come in a little bit below our range. So I think you've got to adjust for the RPT. You've got to think about the Q4 seasonal weakness, and you'd get a number in our range. Okay, great.
Unknown Executive: One quick numbers question. Can you quantify the number of new patients on dialysis in this quarter versus where they were this time last year? Thanks so much.
Unknown Executive: I don't have a number for you, but that number typically grows with around the volume growth of around our historical volume growth numbers, and I think it's right in there with that this quarter as well.
Kevin Mark Fischbeck: Thank you. Our next caller is Kevin Fischbeck with Bank of America. You may go ahead, sir.
Kevin Mark Fischbeck: Great, thanks. You know, I guess it does kind of seem like, you know, go back to the RPT, that it feels more like you're raising the guidance for the outperformance in the quarter on that rather than a continuation of that higher rate. Is that true, or are you saying the guidance now assumes that this higher rate is actually sustained throughout the rest of the year?
Kevin Mark Fischbeck: Sustaining is that true or are you, saying the guidance now assumes that this.
Kevin Mark Fischbeck: Higher rate it actually sustained throughout the rest of the year.
Unknown Executive: Um, I'm not raising it assuming that this beat persists throughout the year. The quarter came in better than expected, but I don't think you can multiply that by four to get to the new number.
Kevin Mark Fischbeck:
Kevin Mark Fischbeck: We're not we're not raising it assuming that this.
Unknown Executive: Beat persist throughout the year.
Unknown Executive: The quarter came in better than expected, but I don't think you can multiply that by four to get to the new number.
Unknown Executive: But why is that the case? It sounds like you're saying there's something unusual about it. So why, because the question before, like why isn't it the seasonal kind of growth off of this space and then, therefore, flow through every quarter?
Unknown Executive: So why is that the case it sounds like you're saying, there's nothing unusual in it. So why Peters question before like why is the seasonal kind of growth off of this space and then therefore flow through every quarter.
Unknown Executive: I think part of it is how we were modeling it for the year, and the pattern came in a little bit different than we expected.
Unknown Executive: Hi.
Unknown Executive: Okay, so you had a higher year-end number and you're just getting there faster, according to Will you see in the Q&A? Okay. And then I guess, just on the IKC business, obviously, there's a lot of focus on cost trends within Medicare Advantage. Companies seem to be all over the place on I know that you're experiencing things to be a little bit different than Medicare Advantage, broadly, but just love to kind of hear how you're seeing utilization play out under your managed programs there.
Unknown Executive: But you've seen it yes.
Unknown Executive: Okay.
Unknown Executive: Our focus on cost trend within Medicare advantage.
Unknown Executive: <unk> seem to be all over the place on I know that you're experiencing maybe a little bit different than Medicare advantage broadly, but just love to kind of hear how you're seeing utilization play out under your managed programs there.
Unknown Executive: Yeah, let me grab that one. I think the question that comes up often is, why are the MA players and kidney donors saying different things? And the reality is that utilization in the broader MA population has more volatility. Our patients, while having many comorbid conditions, they're more predictable, so we have less volatility. In addition, as you know, broader MA had some coding changes that didn't apply to our population. And so that, again, removes some of the volatility that they're experiencing. And so our
Speaker Change: Yes, let me grab that one I think the question that comes up often is why are the MA players and kidney.
Unknown Executive: <unk> different things and the reality is is that.
Unknown Executive: Utilization in the broader MA population has more volatility.
Unknown Executive: Patient.
Unknown Executive: Well have many comorbid condition, they're more predictable.
Unknown Executive: Okay, does that answer your question? Yeah, no, it doesn't. I guess you're basically saying that it's coming in line, it's not, not higher or lower than what you were predicting so far in Q1. Okay, and then maybe just one last question. You know, an international business acquisition. It sounds like you guys are really excited about it. We always just kind of wonder, though, sometimes, like when one large-scale player exits an asset and another large-scale player comes in, like, how do you think about what you can add to those assets? Or how do you think about, you know, what the opportunity was there if someone else, in theory, had similar optionality? felt like it was time to get out. Yeah, it's a
Unknown Executive: If not it is.
Unknown Executive: Yeah, it's a great question, and we're not arrogant enough to say that we're better operators. What we're looking at is that there's some efficiencies to be gained by economies of scale; we were present in these countries, and we had offices that we could leverage. So, in essence, the sixth part of the business was leveraged in a more meaningful way. And so I think that that's how one entity can exit, and the other entity can see it as an attractive asset.
Unknown Executive: But as we said in the beginning, we looked at our normal filters of clinical differentiation. We wanted to scale, and this helped us to scale. And we thought we could get to a good, attractive risk-adjusted return. All right, thank you.
Justin Lake: And our next caller is Justin Lake with Wolf Research. Justin, your line is open.
Dean Rosales: Thanks, this is Dean Rosales on for Justin. Any color you can share on wage inflation? What are you assuming for the year? And my second question would be any update on how mistreatment rates are tracking sequentially, yearly? Any trends there? Thanks.
Unknown Executive: Yeah, so on wage inflation. We called out at the beginning of the year that we were expecting something around 5%, and it's tracking pretty consistent with what we were expecting. So not a lot to update on that. In terms of the mistreatment rate, it's doing what we had largely expected, which is slowly improving year after year. Um, post COVID, not a lot to call out. It's, it's a pretty small magnitude. We think we'll get back to our historical mistreatment rate over a few years. So in any given year, it's not really a significant number.
Unknown Executive: Got it. Thanks so much. And last one. What should we expect in terms of center consolidations for the remainder of the year? Thank you, Dean. I think the number
Speaker Change: Got it thanks, so much and last one what should we expect in terms of center consolidations for the remainder of the year. Thank you.
Unknown Executive: Thanks Dean. I think the number will be somewhere in the 30 or so closures sort of net. That would be the right number to have on the net build.
Dean L. Rosales: Well, Thanks, Deane I think the number will be somewhere in the 30 or so closures sort of net.
Unknown Executive: That would be the right number to have on the net.
Unknown Executive: And.
Unknown Executive: Closures.
Michelle: Would you like to go to the next question?
Speaker Change: Would you like to go to the next question.
Michelle: Yes, please. Thank you, Dean.
Speaker Change: Let's please thank you Deane.
Gary Paul Taylor: Gary Taylor, we're calling you. You may go ahead, sir.
Michelle: Gary Taylor with Cowen you May go ahead Sir.
Gary Paul Taylor: Hey, good evening, guys. Maybe just to follow up on that last one, that's a 30 net for the next three quarters, or that's the full game.
Speaker Change: Hey, good evening, guys, maybe just to follow up on that last one.
Gary Paul Taylor: 30 net for the next three quarters or that's the full year number.
Unknown Executive: That's a full year number.
Gary Paul Taylor: That's a full year number.
Speaker Change: Got it.
Gary Paul Taylor: I wanted to ask, first, I'm going to commend you for producing margin growth well in excess of what the street is able to model. I think there's a third coordinate row where you produce 30 to 50% OI growth on 6 to 8% revenue growth. So it's really stunning.
Gary Paul Taylor: I just I wanted to ask first a minute commend you for producing margin growth well it.
Gary Paul Taylor: In excess of what the street is able to model I think.
Gary Paul Taylor: The third quarter in a row, where you've.
Gary Paul Taylor: 30% to 50% growth on 6% to 8% revenue growth that's really stunning.
Gary Paul Taylor: Cost Management, Productivity, all the things you guys are doing. Once we anniversary that, so maybe there's another quarter there, but when we get it to the back half of 24, are there still some good reasons to believe that that operating leverage can sustain? You know, it's something. Above your long-term three to seven OI guidance, like what would be a couple key swing factors to be optimistic about, you know, some level of Operating Margin Leverage continues.
Gary Paul Taylor: Cost management productivity all the things you guys are all doing well.
Gary Paul Taylor: Once we anniversary that so maybe there's another quarter there, but when we get it to the back half of 'twenty four.
Gary Paul Taylor: Are there are there still some good reasons to believe that that operating leverage can sustain something.
Gary Paul Taylor: Above your long term three to seven like guidance like what would be a couple key swing factors to be.
Gary Paul Taylor: Optimistic about some level of.
Gary Paul Taylor: Of operating margin leverage continuing.
Unknown Executive: Yeah, so first, thank you, Gary, for those kind words. You know, as we look forward, I don't think we're changing our long-term OI growth number from 3 to 7%. So, I'd start with that.
Speaker Change: Yes. So first thank you Gerry for the for those kind words.
Speaker Change: As we look forward.
Speaker Change: I think I don't think we're changing our long term oi growth number from 3% to 7% so.
Speaker Change: I'd start with that.
Unknown Executive: That said, I also don't think we're running out of opportunities to continue to run the business well and deliver high-quality clinical care to our patients and continue to improve our bottom line and, potentially, our margin. We've, you know, we've done this not just on the back of cost cutting. I would highlight, right, we've done a lot on the revenue side that has kicked in nicely, but I think there are other opportunities as well.
Speaker Change: That said I also don't think we're running out of opportunities to continue to run the business.
Unknown Executive: Well and deliver high quality clinical care to our patients.
Unknown Executive: And continue to improve our bottom line and potentially our margins.
Unknown Executive: We've we've done this not just on the back of cost cutting I would highlight right. We've done a lot on the revenue side that has kicked in nicely, but I think there are other opportunities as well.
Unknown Executive: Continued progress on IKC would be on the list. I think capacity utilization improvements would be another important one that I point to. I think there are other components of our cost structure, which could be productivity, could be other things non-labor-related that we can continue to manage. So I don't feel like we're running out of ideas. That said, we're also not ready to raise our long-term OI guidance above 3 to 7%.
Unknown Executive: <unk> progress on high K C would be on the list I think capacity utilization improvements would be another important one that I.
Unknown Executive: Two I think there are other components of our cost structure, which could be productivity.
Unknown Executive: Could be other things non labor related that we can that we can.
Unknown Executive: We continue to manage so I.
Unknown Executive: I don't feel like we're running out of ideas that said.
Unknown Executive: We're also not ready to raise our long term oi guidance above 3% to 7%.
Unknown Executive: Maybe this is the last one for me. I just want to maybe understand center consolidations a little bit. When we look at average patients per center, certainly a multi-multi-year high, and just in the last couple of years, I think Patients Percenters are up 9% in a couple of years, and your margins are improving, I think. Gary Taylor, Javier Rodriguez, Joel Ackerman, Andrew Mok, Albert Rice, and Elisabeth Clive are driving that. Is this still a key lever going forward or beyond the, you know, the 30 centers Javier talked about?
Speaker Change: Maybe last one for me I, just want to maybe understand center consolidations, a little bit when we look at <unk>.
Unknown Executive: Average patients per center, certainly multi multi year high and just in the last couple of years I think.
Unknown Executive: Patients per center.
Unknown Executive: 9% and a couple of years and your margins improved I think.
Unknown Executive: Nearly 300 basis points as that's happened some of that is the consolidation some of that is expansion of your home programs.
Unknown Executive: Going forward or bill on the.
Unknown Executive: You know the 30 centers Javier talks about.
Unknown Executive: Okay.
Unknown Executive: I think, let me clarify because a couple of those numbers didn't resonate, but maybe we can clarify them here. I think the better way to think about it is, how are we doing in the utilization of our centers? And pre-closing of these centers, pre-the excess mortality, we were in the mid-60s of utilization, and right now, we're at 58-ish percent utilization. And so we have more capacity available, and therefore, we're less likely to have a need to deploy capital to build centers. And while our home has improved, it hasn't improved that much. Our mix continues to be around 15 percent of our patients are at home. And so hopefully, that clarifies a couple of those points there.
Speaker Change: Let me clarify because a couple of those numbers didnt resonate, but maybe we can clarify I'm here I think the better way to think about it is how are we doing in utilization of our centers and pre closing of these centers pre.
Unknown Executive: Excess mortality, we were in the mid sixties of utilization and right now we're at 58.
Unknown Executive: <unk> percent utilization and so we have more capacity available and therefore were less likely to have a need to deploy capital to build centers and while our home has improved it hasnt improved that much our mix continues to be around 15% of our patients at home.
Unknown Executive: So hopefully that clarifies a couple of those points there.
Unknown Executive: Yeah, and Gary, just to add one thing to what Javier said, we can improve capacity utilization without closing any more centers. We just, we're just absorbing treatment growth in our existing footprint.
Speaker Change: And Gary just to add one thing onto what Javier said, we can improve capacity utilization without closing any more centers. We just we're just absorbing treatment growth in our existing footprint.
Unknown Executive: Adding shifts and adding machines. Okay, thank you.
Speaker Change: Adding adding shifts adding machines.
Unknown Executive: Right.
Speaker Change: Yeah got it okay. Thank you.
Speaker Change: Thank you and once again.
Unknown Executive: Yeah.
Albert J. William Rice: Thank you. And once again, if you would like to ask a question, you may press star one. Our next caller is AJ Rice with UBS. You may go ahead, sir.
Speaker Change: Thank you and once again, if he would like to ask a question you May press Star one.
Albert J. William Rice: Our next caller is AJ rice with UBS you May go ahead Sir.
Albert J. William Rice: Thanks. Hi everybody.
Albert J. William Rice: Thanks, Hi, everybody.
Unknown Executive: First, maybe just to ask about the trajectory of IKC. I know you were forecasting for 24, a loss of about 50 million. And I think in the first quarter, you're at 26 million. I know there are seasonal factors and a variety of things going on. But I just wonder, if you would say you were on track, are you running a little better? Or how should we put that in perspective?
Albert J. William Rice: First maybe just to ask on the trajectory on Casey I know you are.
Unknown Executive: Forecasting for 'twenty for a loss of about $50 million.
Unknown Executive: I think in the first quarter at 26 million I know theres seasonal factors and a variety of things going on but I. Just wonder if you would say you are on track or you're running a little better or how should we put that in perspective.
Unknown Executive: Yeah, I would say we're largely on track. There's a lot of seasonality in this business, and obviously, you know, you learn more as the year progresses. But there was nothing surprising to us in the Q1 results.
Unknown Executive: Yes.
Unknown Executive: I would say we're largely on track there is a lot of seasonality in this business and obviously.
Albert J. William Rice: Okay. And then another thing coming off the fourth quarter, I think we had triangulated, I don't think it was your specific guidance, but we triangulated that you were sort of expecting share repurchases to be in the billion to billion and a half range for 24 with your comments about how the first quarter played out. Do you think you'll still get to something that maybe approximates that? Or should we just assume that the first quarter share purchase activity is gone, and you'll continue in the last three at the previous rate?
Unknown Executive: Okay.
Unknown Executive: And then the other thing coming up.
Albert J. William Rice: Quarter, I think we had triangulate I don't think youre specific guidance, but triangulate. It that you were sort of expecting share repurchases to be in the billions of billions in the half.
Albert J. William Rice: Page 424, with your comments about how the first quarter played out.
Albert J. William Rice: Do you think you'll still get to something that may be approximate that or should we just assume that.
Albert J. William Rice: The diverse quarter share repurchase activity has gone and yields continue the last three at the previous rate.
Unknown Executive: I think we still aspire to that goal. There's obviously a timing component to it, and we'll watch it, but we're still aiming to get it all done.
Speaker Change: Well I think we still aspire to that goal, there's obviously a timing component to it and we'll watch it there were still aspiring to get it all done.
Albert J. William Rice: Okay, and just lastly, to follow on the question and comments about the international acquisition, I guess it sounds like that is, in your mind, more of a opportunistic deal that came along that allows you, like you said, to leverage in certain markets and enter some new ones. Is there anything that's happening on the international front that makes you think that the pace of activity there could step up?
Speaker Change: Okay, and just lastly to follow on.
Speaker Change: Question and the comments about the international acquisition I guess it sounds like that is in your mind more of a opportunistic deal that came along that allows you to like you said the leverage in certain markets and enter some new ones is there anything that's happening on the international front that makes you think.
Albert J. William Rice: Huh.
Albert J. William Rice: The pace of activity there could step up.
Unknown Executive: No, I think you've got it in the right light, which is that we are opportunistic and we're always looking for a transaction that meets the criteria that we've outlined. If we don't find it, we don't execute, and if we find it, we do. And so there's no urgency or rush, but rather just doing business with discipline and according to our plan.
Speaker Change: No I think you've got it in the right light, which is we're opportunistic and we're always.
Unknown Executive: Looking for a transaction that meets the criteria that we've outlined.
Unknown Executive: If we don't find it we don't execute and if we find that we do.
Unknown Executive: According to our plan.
Albert J. William Rice: Okay, great. Thanks a lot.
Speaker Change: Okay, great. Thanks, a lot.
Speaker Change: Thank you.
Elisabeth Decou Bedell Clive: And our next caller is Lisa Clive with Bernstein. You may go ahead.
Albert J. William Rice: And our next caller is Lisa Clive with Bernstein, you May go ahead.
Elisabeth Decou Bedell Clive: Hi, I have a few questions for you. On the utilization figures that you mentioned, that's just looking at your in-center population, right? I'm just trying to think about how to layer in home patients on top of that, assuming that population continues to grow faster than your in-center patients, whether essentially that improves the number of patients per clinic, but then in terms of utilization, you just think of the in-center population. And then, second question: could you tell us what percentage of your patients are on Mercera today?
Elisabeth Decou Bedell Clive: Hi, a few questions from me on the utilization figures that you mentioned, that's just looking at your in center population right I'm, just trying to think about how to layer in.
Elisabeth Decou Bedell Clive: Home patients on top of that assuming that population continues to grow faster than your in center patients whether essentially.
Elisabeth Decou Bedell Clive: No that.
Elisabeth Decou Bedell Clive: It improves the number of patients per clinic.
Elisabeth Decou Bedell Clive: But then in terms of utilization do you think of an center and then.
Elisabeth Decou Bedell Clive: Second question could you tell us what percentage of your patients are on Mircera today, just trying to understand how much more cost you.
Elisabeth Decou Bedell Clive: Just trying to understand how much more cost you could potentially squeeze out from that transition. And then lastly, do you have any... preliminary thoughts, or comments on online hemodiafiltration? I assume in your European centers, you use that technology. It obviously remains to be seen how quickly FMC can launch those machines and ramp up. Gail to be able to sell them in the US, but just would love your thoughts on that.
Elisabeth Decou Bedell Clive: You can potentially squeeze out from that transition and then lastly, do you have any.
Elisabeth Decou Bedell Clive: Preliminary thoughts comments on online hemodialysis filtration I assume in your European centers.
Elisabeth Decou Bedell Clive: You use that technology.
Elisabeth Decou Bedell Clive: And obviously it remains to be seen how quickly FMC can.
Elisabeth Decou Bedell Clive: Scale to be able to.
Elisabeth Decou Bedell Clive: Sell them and then you asked but just would love your thoughts on that.
Unknown Executive: Sure, let me take them in order, and if I miss anything, please remind me. On utilization, that number is the chronic center utilization. And the way to think about a home is, of course, it can add patients much easier and with much lower capital deployment. And so you've got it right that that utilization that we gave is in-center. As it relates to Mercera, pretty much the vast majority, if not all, are now on Mercera. And so that's played out.
Gail: Sure, let me take them in order and if I Miss anything. Please remind me on utilization that number is the chronic center utilization and the way to think about a home is of course, it can add patients much easier and with much lower capital deployment.
Unknown Executive: So you've got it right that that utilization that we gave is in center.
Unknown Executive: As it relates to Mircera the pretty much the vast majority if not all are now on mircera.
Unknown Executive: And so that's played out.
Unknown Executive: And then on hemodialyze filtration, I think it will be interesting to see how that plays out in the United States because, as you know, it's allowed in many different countries and the numbers that we have are really all over the place, meaning in some countries the vast majority of patients get it, while in others it's a tiny percentage of the patients that get it. And so while there's one or two studies that say that it could be better because it gets the mid-molecules through, there's a lot of holes that you can poke in those studies, and so we'll have to see how that plays out.
Unknown Executive: And then on hemodialysis alteration.
Unknown Executive: So while there is one or two studies.
Unknown Executive: Say that it could be better because it gets the mid molecules through.
Unknown Executive: There's a lot of holes that you can poke in those studies and so.
Unknown Executive: We'll have to see how that plays out and then of course, the FDA approved the machine but.
Unknown Executive: And then, of course, the FDA approved the machine, but we don't have any reimbursement guidance, so at the end of it, you'll have to incorporate, A, what the doctor wants, what the patient wants, because it might take more time to do that treatment, and then put the economic model on top of that. So we've got too many variables that are still to be defined to be able to size them in a helpful way. Thanks for that!
Elisabeth Decou Bedell Clive: Thanks for that. It was very helpful.
Elisabeth Decou Bedell Clive: At the end of it you'll have to incorporate a doctor wants what the patient wants because it might take more time to do that treatment and then put the economic model on top of that so we've got too many variables there that are still to be defined.
Elisabeth Decou Bedell Clive: To be able to size it help away.
Elisabeth Decou Bedell Clive: Thank you that's very helpful.
Speaker Change: Thank you Lisa.
Michelle: And at this time, I'm showing no further questions. Speakers, I'll turn the call back over to you for any closing comments.
Speaker Change: And at this time I'm showing no further questions speakers I'll turn the call back over to you for any closing comments.
Javier J. Rodriguez: Okay, well, thank you, Michelle. And thank you all for your questions and interest in Davita. As we discussed on the call, we're off to a strong start of the year. And, of course, we'll continue to work hard to stay on this trajectory. First and foremost, we will remain vigilant in providing great clinical care for our patients. Thank you all for joining the call, and be well.
Speaker Change: Okay, well, thank you Michelle and thank you all for your questions and interest in Davita as we discussed on the call. We're off to a strong start of the year and of course, we'll continue to work hard to stay on this trajectory first and foremost we will remain vigilant in providing great clinical care for our patients.
Javier J. Rodriguez: Thank you all for joining the call and be well.
Speaker Change: And thank you. This concludes today's conference call. You May go ahead and disconnect at this time.
Michelle: And thank you. This concludes today's conference call. You may go ahead and disconnect at this time.