Q4 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 DeVita Fourth Quarter 2024 earnings call.
Michelle: 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.
Michelle: If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad.
Speaker Change: If you would like to withdraw your question, press star then the number 2. Mr. Eliason, you may begin.
Speaker Change: Thank you and welcome to our fourth quarter conference call. I'm Nic Eliason, 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.
Speaker Change: 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.
Speaker Change: For further details concerning these risks and uncertainties, please refer to our fourth 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.
Speaker Change: 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.
Speaker Change: 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 Rodriguez: Thank you, Nick, and thank you for joining the call today.
Speaker Change: As we embark on 2025, we're celebrating the 25th anniversary of DaVita. During this time, we have focused our efforts on improving clinical outcomes, enhancing quality of life for our patients and care teams, and being a force for positive change for the health care system.
Speaker Change: It is an honor to carry on this legacy and we look forward to pushing these boundaries in 2025 and the years ahead.
Speaker Change: Today, I will cover highlights of our 2024 performance, provide updates on several components of our growth trajectory, and conclude with guidance for 2025.
Speaker Change: But first, I will begin, as we always do, with a clinical highlight.
Speaker Change: As I noted, we're celebrating our 25 years, a period encompassing remarkable clinical progress.
Speaker Change: Together, with our physician partners, we have achieved so much for the people who have entrusted us with their care.
Speaker Change: Among the many highlights, we have worked to dramatically increase the access to care for patients, especially those living in more rural areas of the country.
Speaker Change: We moved beyond in-center care and supported the proliferation of home dialysis with more than four of every five patients living within 10 miles of a DaVita home program.
Speaker Change: Of the patients now treating at home, more than 80% use connected cyclers, a technology that enables our care teams to remotely monitor and improve patient health outcomes.
Speaker Change: We have expanded from being a dialysis provider to a comprehensive kidney care company, addressing each step in the kidney care journey.
Speaker Change: This includes our Kidney Smart Program, where we have provided free education on managing chronic kidney disease to more than 300,000 people.
Speaker Change: and Integrated Kidney Care, or IKC, where we have pioneered value-based care delivery, successfully partnering with health plans and CMS to provide holistic patient care and addressing rising costs of the health care system.
Speaker Change: Finally, we have enhanced quality of care in 13 countries outside the United States, where we have consistently outperformed the clinical benchmarks in each market.
Speaker Change: I'm energized by the progress we have made to create better outcomes and improve millions of lives. And, of course, we're far from done. Looking at the next chapter, our vision is to continue our unwavering pursuit of a healthier tomorrow.
Speaker Change: Transitioning to 2024 performance. We finish the year on a strong note.
Speaker Change: producing full year adjusted operating income and adjusted EPS in the top half of our guidance range with year-over-year growth of 21% and 26% respectively.
Speaker Change: In a year with several unique hurdles, including changed healthcare outage and hurricane disruption of our supply chain, I am reminded of the resilience of our organization and inspired by the passion of our dedicated care teams.
Speaker Change: Within U.S. Dialysis, we continue to benefit from innovation in our revenue cycle operations.
Speaker Change: Enhanced collection performance in contracting propelled high revenue per treatment growth, offsetting slower than expected rebound in treatment volume.
Speaker Change: Although volume growth was positive for the first year since the pandemic, growth for the full year was below our expectations.
Speaker Change: Mortality and mistreatment rates remain elevated in the fourth quarter and new patient starts were negatively impacted by supply constraints of our peritoneal dialysis solutions.
Speaker Change: On the expense side, we continue our track record of identifying efficiencies and executing on cost-saving initiatives.
Speaker Change: Beyond the U.S. Diocese, we expanded our international presence and continue to grow IKC.
Speaker Change: We have now closed on three of the four acquisitions in Latin America announced last year, with Brazil expected to close mid-year 2025.
Speaker Change: With IKC, we continue making progress on our journey of delivering sustainable, integrated care. For 2024, results for IKC were in line with our expectations, with an adjusted operating loss of $35 million.
Speaker Change: Our strategy remains focused on improving health outcomes and quality of life for our patients, minimizing avoidable medical expense, tightly managing our GNA costs, and pursuing the right opportunities to achieve scale.
Speaker Change: As a reminder, last quarter we highlighted the temporary closure of Baxter's North Cove facility due to Hurricane Helene and the related impact on home dialysis.
Speaker Change: As a result of these challenges, we incurred approximately $6 million of operating income impact in the fourth quarter due to higher costs of saline, fewer patient starts due to the availability of PD solution, and lower productivity from our home caregivers.
Speaker Change: The negative impact was lower than we originally expected due to the extraordinary effort of our supply and physician partners, along with that of our procurement and operating teams.
Speaker Change: By year end 2024, we had resumed admitting new home patients at historical rates.
Speaker Change: However, our inability to start new patients on PD contributed to lower new admits in the fourth quarter.
Speaker Change: Moving next to Orals in the Bundle. Effective January 1st of this year, oral drugs transition from Medicare drug benefit over to the dialysis benefit.
This policy is clearly positive for dialysis patients.
Speaker Change: We are excited to expand access for patients and expand options for prescribers.
Speaker Change: We estimate that up to 20% of patients did not have coverage and are now eligible to receive this therapy.
Speaker Change: Our patients will have support from dieticians and access to all major classes of phosphate binders, including both branded and generic options. We expect the 2025OI contribution to be $0 to $50 million.
Speaker Change: For our 2025 guidance, we're back on a more normal adjusted OI growth trajectory.
Speaker Change: The midpoint of our 2025 guidance for adjusted OI growth is 5.2% and adjusted EPS growth is 11%, the detailed ranges of which can be found in our press release.
Speaker Change: This comes on the heels of a strong 2023 and 2024, years in which we exceeded the top end of our original guidance ranges despite weak volume growth by driving strength in other components of our core and ancillary businesses.
Speaker Change: A priority for 2025 will of course continue to be an intense focus on volume, as we believe in an eventual return to a 2% growth trend, recognizing timing is difficult to predict.
Speaker Change: We will continue to invest in differentiated capabilities to drive performance across our platform with excess capital returned to shareholders through share repurchases.
Speaker Change: We remain committed to our capital allocation strategy as a means to achieve double-digit growth in earnings per share.
Speaker Change: I will now turn it over to Joel to discuss our financial performance in Outlook in more detail.
Thank you, Javier.
Speaker Change: Fourth quarter adjusted operating income was $491 million, bringing full year 2024 adjusted OI to $1.98 billion.
Speaker Change: Q4 adjusted EPS was $2.24, taking full year adjusted EPS to $9.68.
Speaker Change: Free cash flow was $281 million in the fourth quarter and $1.16 billion for the full year.
Speaker Change: I'll start today with some detail on the fourth quarter, followed by some details on our 2025 guidance.
Speaker Change: Fourth quarter U.S. treatment volume increased by 30 basis points over the fourth quarter of 2023, while treatments per day declined 80 basis points versus fourth quarter of 2023.
Speaker Change: Q4 treatment volume came in below our expectations for two reasons.
Speaker Change: First, missed treatments were higher than expected, primarily as a result of severe weather events driving a 40 basis point reduction on year-over-year growth in the quarter.
Speaker Change: And second, new dialysis admits were below forecast partially as a result of the impact of Hurricane Helene on PD supply.
Speaker Change: We estimate the PD supply constraint resulted in the loss of approximately 350 admissions during the quarter. For the full year, treatment growth was 47 basis points, just below the bottom of the range we gave last quarter.
Speaker Change: Fourth quarter revenue per treatment increased approximately $1 sequentially, primarily due to seasonality, bringing full-year RPT growth to 3.7% versus 2023.
Speaker Change: Patient care costs per treatment were up seven dollars sequentially. This was primarily the result of seasonality including health benefits and other field costs with additional impact from higher sequential center closure costs.
Speaker Change: G&A costs increased by 15 million dollars quarter over quarter. This is in line with expectations as we typically see higher G&A spend in the fourth quarter.
Speaker Change: Depreciation and amortization declined by 14 million dollars compared to the third quarter. The largest driver of the reduction was lower center closure costs.
Speaker Change: Adjusted international OI declined by $17 million versus the third quarter.
Speaker Change: This was driven by a $19 million dollar reserve recorded against aged accounts receivable in Brazil.
Speaker Change: underlying operations in our international business remain otherwise in line with expectations.
Speaker Change: During the quarter, we closed the third of our 2024 Latin American acquisitions, expanding our presence in Colombia.
Speaker Change: Our expansion in Brazil remains under government review, and we expect the deal to close mid-year.
Speaker Change: Integrated Kidney Care, our value-based care business, ended 2024 with a full year adjusted operating loss of 35 million dollars.
Speaker Change: We continue to execute against our long-term plan, and while the full year came in approximately $15 million ahead of our 2024 expectations,
Speaker Change: This is largely due to timing of revenue from our value-based care contracts and normal variability.
Speaker Change: Below the OI line, fourth quarter debt expense was relatively flat compared to the third quarter. Our leverage ratio at the end of the year was just over three times EBITDA.
Speaker Change: In the fourth quarter, we repurchased 2.3 million shares, and since the start of 2025, we have repurchased approximately 800,000 additional shares.
Speaker Change: I'll turn now to our expectations for 2025. Our 2025 Adjusted Operating Income Guidance is $2.01 billion to $2.16 billion.
At the midpoint, this represents 5.2% year-over-year growth.
Now for some details starting with treatment volume.
Speaker Change: The middle of our adjusted OI guidance range assumes treatment volume growth is flat in 2025 compared to 2024.
Speaker Change: for the key underlying drivers of treatment volume, namely admissions, mortality, and mistreatment rate.
Speaker Change: Our guidance assumes no significant changes to the trends we saw in 2023 and 2024.
Speaker Change: Embedded in this forecast is approximately 50 basis points of headwinds specific to 2025 associated with the number of treatment days and the headwind associated with the disruption in PD admissions in Q4.
Speaker Change: Moving now to revenue per treatment. We anticipate four and a half to five and a half percent revenue per treatment growth year over year.
Speaker Change: Around 40% of this expected growth is the result of new oral phosphate binder reimbursement. The remaining 60% is driven by rate increases, collections improvements, and changes in mix.
Speaker Change: On patient care cost per treatment, we anticipate growth of 6% to 7% year-over-year. Again, oral phosphate binders are a key driver, accounting for approximately 40% of the expected growth year-over-year.
Speaker Change: We anticipate the remaining 60% of the growth to be driven by inflationary increases in labor and other costs, with some offset from declining center closure costs as compared to 2024.
Speaker Change: We expect U.S. dialysis GNA to increase by approximately 4% which is driven by investments in our teams, capabilities, and processes offset by a decline in center closure costs versus 2024.
Speaker Change: We anticipate U.S. dialysis depreciation and amortization to decline by approximately $25 to $30 million, driven by declining center closure costs and lower levels of CapEx in recent years.
Speaker Change: In our IKC business, we expect relatively flat year-over-year adjusted operating income compared to 2024.
Speaker Change: This is consistent with our prior expectations, except for the acceleration of $10-15 million of value-based care revenue from 2025-2024.
Speaker Change: For international, we expect approximately $50 million of year-over-year adjusted OI growth.
Speaker Change: This is the combination of the impact of the Latin America acquisitions we signed in 2024, the reserve against aged accounts receivable in Brazil impacting 2024's results, and continued growth in our existing markets.
Shifting to EPS
Speaker Change: Our guidance for 2025 adjusted earnings per share is $10.20 to $11.30.
Speaker Change: The midpoint of this range represents 11% adjusted EPS growth versus 2024.
primarily driven by adjusted operating income growth.
Speaker Change: and share count reduction due to share repurchases offset by the full run rate of higher debt expenses.
Speaker Change: We anticipate other losses below the operating income line of approximately 75 million dollars, roughly flat, to 2024.
Speaker Change: We expect interest expense of $525 to $555 million, which is a continuation of approximately $135 million per quarter.
Speaker Change: We anticipate an adjusted effective income tax rate of 24 to 26 percent consistent with 2024.
Speaker Change: Free cash flow guidance for 2025 is $1 billion to $1.25 billion.
Speaker Change: Our capital allocation philosophy remains consistent with prior years. We will prioritize capital efficient growth opportunities, target leverage between three and three and a half times EBITDA, and otherwise return capital to shareholders in the form of share repurchases.
Speaker Change: That concludes my prepared remarks for today. Operator, please open the call for Q&A.
Speaker Change: Thank you. 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. Our first caller is Joanna Gajic from Bank of America. You may go ahead.
Joanna Gajic: Hi, thanks so much for taking the question. So I guess first on the volume outlook for 25, so you said flat at the midpoint, is there a range associated with the ROI range?
Joanna Gajic: Hi, Joanna, it's Joel here. Thanks for the question. So, yes, there's certainly a range associated with volume.
Joanna Gajic: a fair bit of natural variability in all three of the inputs of admissions, mortality, and mistreatment rate, and that would be one of the factors that would drive the range we gave for OI.
and Javier Rodriguez, Joel Ackerman, Nic Eliason, and Nic Eliason.
Joanna Gajic: Yeah, we decided not to quantify it this year and rather focus on the midpoint of the range.
I don't know that the variability
Joanna Gajic: We would see would differ a whole lot than the variability we would have thought about going into last year but we we missed our going into the year forecast in 2024 by a bit so we were a little hesitant to
to give a range here.
Joanna Gajic: On the comparable metric, right, the volumes were roughly flat in 24, right, just to make sure. So you're kind of assuming a similar dynamic for the full year at 25.
Speaker Change: Roughly 50 basis points. I think it's 47 basis points exactly and
Joanna Gajic: Just to be clear for everyone, when we give a volume forecast here, we're forecasting treatment volumes. We give a number of volume metrics like NAG and...
Joanna Gajic: others that you can calculate, but we're really forecasting total treatment volumes. So the 24 number was up 50 basis points. The midpoint of the range for 25 is flat. They're really two things driving the decline.
Joanna Gajic: One is treatment days. Remember, 2024 was a leap year, and that's worth about 20 basis points of extra growth in 24 that won't happen in 25.
Joanna Gajic: And then, we mentioned the disruption of PD supply from the hurricane. And the result of that was in Q4, we were unable to admit new peritoneal dialysis patients for some period of time.
Joanna Gajic: Some of those patients wound up in center, but we believe we lost roughly 350 patients who otherwise would have come to DaVita who we think decided to pursue peritoneal dialysis with another provider.
Joanna Gajic: in Q4. It didn't have much of an impact on Q4 volume. We'll have a much bigger impact.
Joanna Gajic: on 2025 volume, and that's worth somewhere on the order of 15 to 20 basis points of growth in 2025. So you take that and the days, and that's really what accounts for the 50 basis point decline in terms of the core metrics of mistreatment rate, mortality, and admissions.
Joanna Gajic: We're viewing those in our in our guide as being roughly similar to what we saw in 24
Speaker Change: All right, yeah, I appreciate it, and if I may, on that, um...
Speaker Change: number when you quantify the benefit to OI from the inclusion of the oral drugs into the bundle 0 to 50.
Speaker Change: So I'm a little bit surprised that there is actually a zero, so can you give us a little bit more color, like why there is such a wide range and also, you know, under what scenario is it a zero versus a 50? Thank you.
Javier Rodriguez: Hi, Joanna, this is Javier. Let me grab that one and for the people that haven't been tracking the orals in the bundle This is a class of drugs that the largest is phosphate binders which is a medication to reduce the absorption of dietary phosphate and It was in part
Javier Rodriguez: and is moving to Part B, as in boy. And there are three variables to consider. One is mix, what kind of phosphate binder, and there's some generic and there are some...
Javier Rodriguez: This has a heavy pill burden. You have to take it at meals and snacks, etc., and so many people, for different reasons, have low adherence.
Javier Rodriguez: And so, this is very new to us, and so with those three variables, we're being, I think, prudent in giving you a wide range, and once we get a bit of experience, we will...
Javier Rodriguez: We will see how that plays out. But the midpoint of the range feels...
the most likely spot with what we're seeing now.
Javier Rodriguez: And then I'll add one last point on the volume side, which is it's hard to see volume up to now because in many instances people pick up the prescriptions for 90 days.
Javier Rodriguez: And since we're now only in February, if you picked up your prescription in December or November, we don't have visibility to what kind of medication you're on. So that's why you have such a wide range right now.
Speaker Change: All right, I appreciate it. I guess I'll go back to the queue.
Thank you.
Speaker Change: Our next caller is AJ Rice with UBS. You may go ahead.
Speaker Change: Thanks. Hi, everybody. I think if I heard you right, you said patient treatment costs would be up about 6% to 7%, and that's largely due to the phosphate binder inclusion.
Speaker Change: Can you comment on putting that aside? Is there any change and Significant change in the way you're looking at the growth in patient treatment costs versus what you saw in 24
Sure, so
Speaker Change: The way I think about it, and there are ranges around this, but I'll use the midpoints here. The midpoint of growth in the patient care cost would be 6.5%.
That would be...
from our
the Orals in the Bundle. So.
Speaker Change: If you're comparing it to what you've seen in prior years, that 3.75% would be the right number. And as we break that down, we typically think of it as...
Speaker Change: Labor and everything else and we see them both moving at about the same pace of growth
Speaker Change: Okay, thanks for that and maybe a follow-up question. On the comments around capital deployment
Speaker Change: Do you have a figure for what you think you'll do on share repurchase? Any comments on the deal pipeline, either international or in the domestic market and what you're seeing out there?
So I'm sharing purchases.
Speaker Change: I'll stick with what we've said in the past, which is our philosophy hasn't changed. We will look for...
Speaker Change: Capital Efficient Growth, either investing in the business or through M&A.
Speaker Change: and we'll keep our leverage or we'll target our leverage in the three to three and a half.
Speaker Change: range, which it's in right now, and everything else will go back to share repurchases. So we're not going to give a number, but I wouldn't expect anything different than what we've seen in the past.
Speaker Change: In terms of M&A we're looking at a few things and I could certainly see a scenario in which we invest hundreds of millions of dollars but as I've said in the past I don't think we're going to do anything
Speaker Change: I don't see anything on the horizon now that would be...
that would significantly change the share repurchase program.
Okay. All right. Thanks a lot.
Speaker Change: Thank you. Our next caller is Peto Checkering with Deutsche Bank. You may go ahead, sir.
Peto Checkering: Hey guys, good afternoon. The U.S. already data is showing sort of flat incidence for end-stage renal disease in 24 and your treatments have been pretty flat this year.
Speaker Change: There's definitely a pretty big debate now about the impact of STL2 inhibitors.
Peto Checkering: On treatment volumes, can you help quantify us the new starts that you guys saw in 2024?
Peto Checkering: versus 2023, just to help sort of compare and contrast what DaVita is seeing versus what USRD data is showing us.
Speaker Change: Let me grab a bit of that question and then Joel can give you the specific answer you asked because we have gotten several people
Joel Ackerman: assuming that the medications are having an impact. And the reality is that our physicians have looked at this very carefully.
Joel Ackerman: And the odds that this is impacting our patient population are quite low at this juncture, and let me tell you why. Number one, the information that we have from CMS
Joel Ackerman: puts the prevalence of CKD patients, advanced CKD, in the low teens.
and the adherence in the mid-60s.
And so the ability to have an impact.
Joel Ackerman: is unlikely. If it were to have an impact, you would also see the offset in mortality.
So, the math...
Joel Ackerman: would hopefully be a positive, meaning it's stretching people's longevity. And so when we talk to our medical professionals and they're reviewing all this data, they are very confident that that is unlikely to be the impact.
Joel Ackerman: for Q4. Our new dialysis admit growth was flattish in Q4, which is the first time it hasn't been running positive since for, I think, eight quarters. So
Joel Ackerman: We've been looking hard at that and I'd say two things about this.
First, if you look at USRDS,
Joel Ackerman: new to dialysis or incidence growth, and we looked carefully at the 10 years leading into COVID. There was a lot of noise in the data during COVID, but if you look at the 10 years before COVID
Joel Ackerman: secular trend, the data bounced back, it would move back and forth, it could move up to 3% year over year, and I think there was a 6% total swing though during those 10 years.
Joel Ackerman: We don't see negative data, one year of negative data in USRDS as
Javier Rodriguez: the start of a trend necessarily, and we're basing that based on history. So that's point one. Second, picking up on what Javier said.
Javier Rodriguez: mortality in CKD4 patients as a result of COVID than it is related to SGLT2 inhibitors or GLP1s for the reason Javier said.
Javier Rodriguez: So, again, two points. One, a negative year of incidence growth is not a new thing. We've seen it before. It hasn't necessarily been the start of a trend. And second of all, if there really is a signal in that noise, we think it's much more likely the result of COVID than these new drugs.
Javier Rodriguez: sort of the drag from, you know, the 50 and 20 base points of losing those 350 patients. But can you actually quantify, you know, how the new starts sort of return to normal levels now that PD supplies have normalized?
Speaker Change: Yeah, so we're back online back to normal. And so you should see that number pick back up our mix pre
Javier Rodriguez: Hurricane was in the mid-15s, right below that, about 15.4 or so.
We are right around 14.9, so we should see that.
Javier Rodriguez: Get back in line. It'll take a bit of time, maybe a year or so as the year plays out, but we're back to normal.
And just to clarify two things, Pito.
Javier Rodriguez: We're back to normal, but those 350 admits that we lost, they're lost for all of 25. They're not going to come back to us.
Speaker Change: Hence the impact even though we're back to admitting at a normal level. And second, I'll remind everyone even though
Speaker Change: P.D. patients treat every day, when we report our volumes, we normalize that to
Speaker Change: in-center equivalence. So we don't pick up volume or lose volume in our volume count if a patient goes from PD to in-center or vice versa.
Speaker Change: But then let me sort of, you know, ask it one more different way is, you know, there was a sort of...
60 day time period.
when Baxter couldn't supply, sort of, those PD supplies.
Speaker Change: You know, I get you lost those 350 patients, but now that that's normalized, why is the midpoint of the range?
minus the 20 bips from
Speaker Change: from BP or minus the 20 bps from PDE. Kind of why it's flat, you know, the new level if patient trends are already normalized at this point. Because those patients are in center, they're just gonna switch modality, but the treatments are the same.
Speaker Change: Yeah, I would think of it as it's the same 50 basis point dynamic we had last year, driven by mortality, admissions, and mistreatment rate, and then you've got to subtract off for these.
Speaker Change: Two dynamics which are specific to 2025 and and we're in the case. We're not the case in 2024
Great, thanks so much.
Speaker Change: Thank you. Our next caller is Justin Lake with Wolf Research. You may go ahead, sir.
Thanks, I appreciate the questions.
Speaker Change: The non-controlling interests look a little bigger than what I would have expected given the OI in the quarter. Am I missing something there? Which drives that number and was that larger than you expected?
Speaker Change: Yeah, thanks for the question, Justin. It was a little larger than expected.
Speaker Change: I think modeling NCI as a percent of U.S. dialysis operating income for the year is the right way to model it and I don't think anything has changed there overall. There were some collection dynamics associated with with change health care that moved things from one quarter to the next but overall there's no there's no underlying
that's the trend there that I'd call out.
So you're saying the percentage of operating earnings isn't increasing?
Speaker Change: It might be flipping between quarters, but overall the 25 should be in line with the 24.
Exactly.
Speaker Change: Okay, and I was hoping you could, I mean, you ran most of the below-the-line numbers, and yet EPS looks a little bit light versus what I would have thought.
Speaker Change: The only thing I can think of is the share count.
Speaker Change: You want to run that? You want to give us an idea of what your share account expectation is?
I'd rather not. I think...
Speaker Change: I'm trying to think what might not be in there. It depends on how you're modeling it. If you're modeling it by...
business segment, I think
Speaker Change: I think if you're, you know, we gave the other income, we gave the interest expense, we gave the tax rate, so
Speaker Change: I think share count will be ultimately the question and look that'll depend on a bunch of things how much capital
Speaker Change: We deploy to buy back shares. Obviously, what the share price is, it is impacted by when we buy the shares during the year as well, because it's a weight average count over the course of the year.
Speaker Change: Maybe we'll take it offline, Justin. We can make sure there isn't some arithmetic difference.
Speaker Change: I appreciate that the the other question I have is on revenue for treatment a couple things you said
Speaker Change: One, the, you know, that there's still some kind of juice to squeeze from collections.
Speaker Change: which I had the impression listening to you last quarter that you thought that was Petering out of bed. So I was curious how much of an improvement you expect there. You also mentioned pay your mix
Speaker Change: would be great to know kind of where you ended the year and what you're assuming next year. And while you're talking about pay or mix, can you can you give us your, your, you know, maybe the percentage of treatments coming from the exchanges or, you know, members with exchange coverage? Thanks.
Sure, so starting on the collections question,
Speaker Change: What you're seeing in here, I think, is what we've called out over the course of 2024, which is the annualization of collections improvement that kind of hit mid-year of
Speaker Change: 2024, and that's probably worth on the order of $50 million, call it. On the mix, there's really nothing interesting to call out about MA mix.
Speaker Change: we'll move with the industry. There's really not a lot there. On commercial mix, we're at about 11% now and we think we'll pick up a few tens of basis points.
Speaker Change: on that. In terms of the exchanges, we're at about 3% of our population are on the exchanges today.
Speaker Change: If you go back pre-COVID, I'll give you the number from before the enhanced premium tax credits came in place, and it was right around 2%.
Appreciate it. Thanks for the detail.
Speaker Change: Thank you. Our next caller is Andrew Mock with Barclays. You may go ahead, sir.
Hi, good afternoon.
Andrew Mock: I appreciate the comment that 40% of REV per treatment growth is from phosphate binders. It looks like that's worth about $25 per treatment from Medicare patients. Do I have that math right? And if so, that feels a little bit light versus what CMS quantified ASB to be in the final rates. I'm just trying to understand the absolute dollars on the Medicare patients specifically.
Speaker Change: So no, Andrew, the number is more in the $10 to $15.
Speaker Change: for a Medicare patient and just to get everyone the math. So if you use the middle of that range and recognizing not all of our patients.
Speaker Change: are eligible for orals in through the bundle right if you're on commercial or managed Medicaid there there there are payer classes that aren't getting this
Speaker Change: And even for those who are, those on Medicare and Medicare Advantage, not every patient takes it.
Speaker Change: So, that's why the 40% of our number, which is somewhere around $7.80 in our RPT, is lower than the 10 to 15, because it doesn't apply to all patients.
Speaker Change: Got it, okay. And then on GNA per treatment, I think that was up 6% sequentially and 11% year over year. That looks like a big acceleration and maybe stronger than typical seasonality. Any additional color on what's driving that?
Speaker Change: Yeah, thanks Andrew. I think the best way to think of GNA is in two parts.
Speaker Change: portfolio that we have in there. And so the examples that come to mind.
is IT, where we're getting a lot of benefit.
on another.
Speaker Change: cost line item or our revenue operations where you're picking up.
Speaker Change: The benefit, obviously, on RPT. And so the better way to think about that is that about half and half of that split. And so you're just getting the inflationary part of the cost item, and we're getting good productivity on the other half.
Speaker Change: Got it. Okay. And then on the patient care cost, I think that benefited from a gain on settlement in the quarter. Can you quantify that for us?
Thank you.
Hold on one second.
Speaker Change: Oh, yeah, it's not something that I'll want to call out. It's not a big deal and it's kind of relatively routine and small.
Okay, thanks for all the color.
Thank you.
Ryan Langston: Thank you. Ryan Langston with T.D. Cowan. You may go ahead, sir.
Speaker Change: Thanks, appreciate all the guidance details. Joel, I hope I didn't miss it, but did you touch on sort of seasonality, maybe at the consolidated level, and IKC, like anything sort of historically or different from historical seasonality or anything that we should be aware of, just sort of maybe even first half, second half cadence?
Speaker Change: Yeah, here's the way I'd think about it. So from an operating income standpoint, I'd call out three things first revenue per treatment is always Lighter in q1 and builds over the course of the year. So typically there's about a five dollar Seasonality hit on RPT in q1 as a result of
Speaker Change: bad debt associated with patient pay, and then the RPT tends to build over the course of the year.
So, if you put that in the mix...
I would say our Q1OI
will be roughly 20% of full year OI.
Speaker Change: that grows through Q2 and Q3 and sometimes will drop down a little in Q4. That's at the OI line. As you're modeling...
Speaker Change: EPS, you have to add to that the fact that share buybacks accumulate.
Speaker Change: as the year progresses, and as a result, share count will typically come down.
Speaker Change: So you'll see a little bit more growth in EPS over the course of the year. So Q1 EPS will typically be even lower than that 20% number I talked about for OI.
Speaker Change: the SNP patient count and maybe just similar to the other IKCC.
Speaker Change: and then just any thoughts on anything changed in terms of potentially hitting break even in that business by 2026. Thank you.
Speaker Change: Thanks for the question. We see the business staying flattish this year and we had a bit of a timing thing that was called out about 10 million that rolled into
Speaker Change: 2024, so the OI line will look pretty similar in 2025.
Speaker Change: And what I would say is that we're still sticking to that.
breakeven in 2026.
Speaker Change: time period, and we gave that guidance around 2021, and we've been kind of right on top of our model, and so no change in the expectation.
Speaker Change: Yeah, and on the SNP thing, I wouldn't call out much change in 2025 relative to 2024.
Thank you.
Okay, thanks a lot.
Thank you.
Joanna Gajic with Bank of America. You may go ahead.
Speaker Change: Oh, yes. Hi. Thanks. Thanks for follow-up. I mean, most of them have asked, but the last one on my list was, the free cash flow guidance implies that free cash flow could be down year over year. Is it because 24 was that much better or anything to call out?
Speaker Change: Yeah, I'd say probably the biggest thing to call out is just working capital changes. You know, there can be big swings at the end of each year, which is why we guide to such a wide range. There's nothing in particular I'd call out in the free cash flow.
Speaker Change: Okay, and in terms of clinic closures, are you willing to give us a range of what you plan for the 25 in your guidance for closures?
Speaker Change: I think we've now hit a pretty normal position, so we will close what I'd say pre-pandemic, which is somewhere in the 20 or so centers on a yearly basis.
Thank you for watching!
Okay, that's helpful. Thank you so much.
Thank you.
Speaker Change: Thank you. Our last caller is Peto Chickering with Deutsche Bank. You may go ahead, sir.
Peto Chickering: Hey guys, just following up on Ryan's questions on IKC. It looks like since last score you know that you picked up 900 patients on the risk-based integrated care but lost 2,300 patients in
the Integrated Care Arrangement, I guess.
Peto Chickering: Why did you guys lose those patients? And then the second one there is, you know, to your point, the IKF is always sort of back uploaded as you get the true-ups.
Peto Chickering: from Managed Care. As you guys get more and more experience, at which point do you move from more of a cash-based accounting system into more of an accrual system just as you get more experience?
Peto Chickering: So, my Chief Accounting Officer is sitting across the table from me, glaring about cash accounting. So, I'll just clarify. We don't do cash accounting. We are careful about when we recognize our revenue and when the information flows in.
Speaker Change: That said, I understand the spirit of your question, Pito, and we have evolved, right? Our value-based care component, which is the work we do with MA, has had...
Speaker Change: been more comfortable estimating revenue a little bit earlier, so we've made progress there on CKCC, which is the Medicare fee-for-service program.
Speaker Change: Small changes like this aren't indicative of any underlying change in our IKC business.
Speaker Change: Okay, so apologies to your Chief Accounting Officer on that one. I guess, you know, looking at sort of 25, you know, I guess how do the lives evolve this year? Do you see, you know, a step up as you have the last few years? Or is this more sort of the run rate that you guys will have within IKC?
Speaker Change: I would say for 25, we remain focused on driving margin. I think there are contracts out there that we just see as unattractive and we are not going to pursue just for the sake of...
Speaker Change: volume growth and revenue growth. So I would say 25 is likely to look like a much slower growth year from a membership standpoint.
Speaker Change: Okay and then last questions and apologies if I missed that. In the script you talk about a reserve in Brazil of 19 million dollars. Was that an AR write-off that impacted OI or kind of what was the details around that? Thank you so much.
Speaker Change: Yeah, so it it flowed through OI this quarter. It was generally, it was not generally, it was all about aged AR generally from 23 and even before then so
Speaker Change: As I think about it and the core earning power of the international business in 2024, this really doesn't impact the underlying earning power of the business, but it did flow through I from an accounting standpoint.
Correct.
but it also benefited, I mean, if you're...
Speaker Change: thinking about headwind, tailwind, quality of earnings, whatever kind of analysis you're thinking, I would also point out it did benefit from that pull forward of IKC revenue from 2025 of about $10 million. Yeah, so it's 491 plus 10 minus 19, or plus 19 minus 10. Got it. Thanks so much, guys. I think that's a reasonable way of looking at it.
Speaker Change: Thank you. At this time, I'm showing no further questions. Speakers, I'll turn the call back over to you for closing comments.
Speaker Change: Okay, thank you, Michelle, and thank you for the questions. In closing, I will go back to where we began the call by highlighting 25 years of clinical innovation.
Speaker Change: We take our responsibility seriously to continue to be the legacy of improving the lives of our patients and care teams.
Speaker Change: Regarding the financials, while the components of DaVita OI and EPS growth vary from year to year, what remains constant is our commitment to operating excellence and innovation.
Speaker Change: We will continue to apply that discipline across the VITAS platform, including our core dialysis metrics as revenue, cost structure, and volume, while returning excess capital to our shareholders. Thank you all for joining the call, and be well.
Speaker Change: Thank you. This concludes today's conference call. You may go ahead and disconnect at this time.