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DaVita (DVA)

Participants
Joel Ackerman CFO and Treasurer
Javier Rodriguez CEO
Kevin Fischbeck Bank of America
Justin Lake Wolfe Research
Pito Chickering Deutsche Bank
Call transcript
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Operator

Good evening. My name is Missy, and I’ll be your conference facilitator today. At this time, I’d like to welcome everyone to the DaVita First Quarter 2022 Earnings Call. [Operator Instructions] Thank you. Mr. your begin may you conference. Ackerman,

Joel Ackerman

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

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

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

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

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

Javier Rodriguez

world country our call time. is an events, same It and today. interesting onetime happening facing Joel, you, the portfolio at now all thank the and as right joining Thank all a of our for you time unique are

society rates declined. as we’re gathering and infection On more have interacting communities side, the and as positive COVID

and new between constraints supply consequences the the from the challenging and with Russia economic of pressures inflation, we’re channel On more side, sad war Ukraine. dealing

through why exists. our these to in it keep I mind critical DaVita challenges, organization think is works As

We by XX provides to clinical the highlights. which over patient-focused in call start organization life-sustaining sharing I countries, people a why that to XXX,XXX care is want are

patients care do areas focus to patient’s the our with focused of disease, in one dealing kidney know, has and double-digit that is is of and key the new their amount experience our to quality have home a healthy patients. efforts by primarily care our and in great been with translates early you is for system. our in integrated health on hospitalization As results doing this results are improvement expectations. management, at patients people of the been for the way our care through our our reduction we more seeing our the improving time things they one the scaling our better focus care love. driven Pure with quality With These of they in are reduce of into of in time The patients models that of for the our interventions like partnerships, and which percentage days clinical hospital, spent spend hospital. life care and absolutely our line

are improve life. results, to patients’ our optimistic these and continue about quality we’ll of to find We early ways

Year-over-year, of beginning significant continue months, staffing, news The our challenging that couple over magnitude declined impact the previously, April. approximately mix see Therefore, quarter. good than of in market. the incentive mortality QX, to not we due we excess trends with significantly prior been lower In typical seen X,XXX has operating prior of utilization and we’ve continued volume merit we factors, our of rates positive volumes and but declined patient increased cases expenses. higher and higher The pay, million due experience income and seasonal as inefficient labor both volumes first quarter earnings March share primarily Therefore, yet On COVID estimated resulted national sequentially, staffing Now COVID patients. rate performance. costs higher-than-normal and infections mortality field of a labor we’re in delivered trends, of wage have down per due first increase variant higher to and to let is increased mortality to in patient Operating Omicron treatment quarter. pressures discussed of contract a increases, due in subvariants. of our to was transition primarily income me over with COVID labor and variants, consistent compared last have training of from the lower the sheer expense from X%. productivity cohorting to quarter associated $XXX treatment new The is to $X.XX. first

trends While we’re fall year-over-year we open With ability all higher-than-normal, bottom guidance our of within for these we expect fill challenges, labor more range increases will of performance cost to for in our seeing clinics, experience it’s likely XXXX. in believe to the positive roles that of some our XXXX. our half all

to which or due impact the uncertainty in scenarios COVID. this labor, be and above could results However, environmental our below the costs of of there are

to will above forward continuous historical to to rate To wage need beyond, average Looking levels. for demonstrate offset innovation. cost XXXX preparing growth this continue we’re and impact, we

new identified We help capacity utilization operation pressures. ESA clinical optimization contract, improvements. savings These number opportunities cost procurement include have these from already a to of improvement, G&A mitigate savings inflationary and a efficiencies,

on increases We adjusted wrap payers thoughts some a in will can expect share to rate on benefit keep deliver to these X% We I prepared in of IKC or of with a operating and future, an anticipated us higher with private XXXX adjusted business. path XX%. to my Kidney of in XXXX. full remarks realizing Care and that an Integrated these our with per up rate income growth from on X% growth long-term combined believe government our run X% the expectation savings start savings, earnings to

Markets shared we continue IKC Day, Capital significant see for our As business. to we potential our in

next XX upside months. First, the and with consistent over with delegated patient volumes are modeling some initial strong our potential

we plan on population. patient partnerships partnerships, to ability of physicians with ahead our payer are CKD payers with growth ESKD recognize new are on expected member We track as on new this collaborate trending managing our via effectively payer and

higher than Second, savings XX%. engagement initially the MA recent approximately of cost from may release available strong XXXX given and nephrologist rate forecasted increase be

Third, value-based expanded the nephrologists care. whom number we with with of working are we in have

that, which now I model, in health are a partnership performance using new to to discuss clinical now value-based We nephrologists than to our is in in over turn outlook detail. over financial operate continue around have will to Last, with integrated scale. engaged X,XXX nephrologists greater it electronic at confidence we more with With country CKD XXX the our an record. Joel beginning and

Joel Ackerman

Thanks, Javier.

some our approximately quarter income first biggest $XX The on driver start seasonal me QX of the with additional from results. factors. let operating million details was First, decline of

days, approximately XXX,XXX resulting in treatment First, there were fewer X QX. in treatments fewer

is impact seasonal there from Second, revenue higher on patient negative and coinsurance deductibles.

Third, QX. payroll in are tax expenses higher

primarily due spend. day of to quarter-over-quarter the lower drivers late of on mistreatment cost treatment COVID X,XXX centers. XXXX treatments seasonality on U.S. offset rates excess QX $X.XX, and Patient per income. per in MA primarily mortality from QX due both QX. higher the down increases treatments. impact impact due to expenses and in down QX deductibles, treatment treatment in to per care was were the underlying and Medicare X.X% Now operating $XX largely the or in the quarter-over-quarter, volume seasonal the in in QX from improvement for rate commercial was Higher added fee-for-service up were quarter-over-quarter, to in XXXX per treatment dialysis rates to fixed mix. continued to approximately $X.XX higher of wage our G&A Omicron our approximately the Revenue and primarily of by by coinsurance surge due on negative moving approximately compared million G&A to expenses down impact largely and XXXX,

quarter loss invest stock, XXX,XXX on expectations we since IKC line of for million business the we date end. million was operating for track we’ve additional QX the repurchased shares our business $XX In incremental with and remain in investment an for repurchased in in Our the shares IKC to growth. QX, X.X the continue our as year. to our We

in and rest of the in elimination expect we of vast income to partially QX, in anticipate the to relief. incur away, costs. sequestration of QX a and we QX forward the the as QX, majority then factors Looking fall In ballot full offset reduction XXXX, the QX seasonal the operating from rebound by impact

with fewer costs. increase significantly ballot-related sequentially QX will Finally,

on Now for XXXX. views to our

As we transition Capital at a to Markets our shared Day, consider be we year. XXXX

reversal We expect and to core $XXX $XXX ‘XX income industry’s in see the our initiatives California Capital this million. to operating ballot our Day, sized between against At Markets a COVID IKC and business. of driven million to in XXXX, some income by rebound from rebound of in the we our ‘XX progress operating headwinds, contribution growth a no business, fight in the in

underlying around drivers. X updated XXXX on view the Our revolves of

we in our and anticipating The how largely incorporated in pressures from prior unfolds that will on continued quarters. not environment over these guidance. the are the depend magnitude pressures First, cost labor few next of wages were inflation

historic We not wage that runs challenging year. growth, a of XXXX as pressure couple another in above experiencing of percent we’re are preparing this levels for year as of our although what

Medicare cost longer fee-for-service because contracts. increases commercial our our and multiyear increases of to from payers, most book up will RPT expectation higher is offset catch that some take from and expect these MA other We to our of although

in opportunities XXXX. that number we Second, as Javier materialize expect mentioned, will a we’ve to cost-saving begin identified of

don’t into in of we we efforts CapEx may associated significant some these incur XXXX some anticipate projects, and associated XXXX. XXXX, any expenses these While with with onetime potentially

expenses We have our nonrecurring these excluded guidance. from

COVID. Finally, on

variability forecast. course of significant Our predict pandemic source inability the our remains in of a to the

XXXX negligible, in in from would of excess would views at a which Day XXXX. assumed accelerated be we beginning experience growth mortality COVID Our Capital Markets and scenario

treatment still headwind that uncertainty. forecast COVID mortality into subsides have it versus from volumes we please and a we year, surges. this of together, for $XXX remains If we of to this the it’s improvements we of we early in the headwind all for strong a although XXXX. COVID $XXX XXXX, Putting remains impact surges given the largely position disease the if but XXXX. Operator, continue OI guidance endemic, Q&A. this cautious seen increase and mentioned, tailwind million a give increased if while the open range we’d still environment, future call if XXXX to dynamic as Javier year are on source If million see COVID particularly a feel could full about our quantify given a mortalities about currently in continue in year the good to to believe slip remain not a this As to rebound COVID expect recently,

Operator

with from [Operator America. Bank question of Our comes Instructions] Kevin first Fischbeck

Kevin Fischbeck

implies end low All comes kind a the But of the of consensus until that year you estimates of kind which of right. won’t year. play it missed even going the the like guidance, to out these Great. QX, the you I the way cost it sounds to amount. thought, guess is help you’re the guidance reaffirming rest though by when initiatives next decent at

to way it in same pressure the trying QX of the why hurt QX. back to half figure the Just hurt out isn’t year the going

Joel Ackerman

Yes, Kevin.

So patterns during second the second quarter. that million. about related There QX X another one days. of was pressure coinsurance about One really And treatment million that’s fewer dominated deductible, on were and And impacts to the $XX that’s impact. about the and about days totaled by X $XX the -- seasonal worth relates the half to seasonal is OI. and treatment

quarter that of of things I that played But out that there bunch So puts things the will the other back back kind year. for that you most of the takes think explains those if the rest are out, through be you delta. and in a and seasonality, of

Kevin Fischbeck

the things Because question model did things guess you’re correctly? it just is, ask the it Is what are way thought that would? Street I you have in that X known. didn’t that come the way seasonal maybe saying? Or... would QX you the to Is those those

Joel Ackerman

full and expected, typically higher rate thought, COVID. don’t expected. I’d a we’re we view the we was it -- but expected. the was on was came due the because it would is largely say higher it Mortality we quarter And have and than QX for our was mostly where seasonality, that’s than even that’s changing mortality not QX piece, and in to was volume. year, behind mistreatment bigger than but earlier while higher than higher expected, rate of mistreatment around we flu

Kevin Fischbeck

weigh really offset whether do these me then And point wondering have that few the talked you is about you that that start commercial like cost the being mean up, the over rate do guess rate inflation will you Or low the think time. it even and about you about Okay. think opportunity next guys something about over feel going you we be what overall to will ability is with feel how still How rate should have the relatively up? environment? leaves I updates than I less years power? to historically, have costs, power you net do probably to that catch when so though growth or commercial growth bargaining

Javier Rodriguez

this is are answer tell is early as The short Thanks too comprehensively you, the we’ve Kevin, to question. we contracted, most Yes, because, are and of contracts our multiyear. Javier. for told it’s

any on being to a XX% negotiated, only it’s have so XX% year, so given So little you probably and tell. early or to

all so see more we’re a incentives is, contracts to share know, is As who’s to than more to cost we it to the on trying align market any the market, it’s as in and relates overall get power, can got to if save your conversation. do now the system. reality good payers question we progressive What you have do is given our

to of and a X% foreseeable And bit future variables. continue mix to going But tell. you’ve the to we a lot be time us continue and at yield so There’s the for a it’s got, because to least, course, rate long early lot that on tracked X% think revenue, range. since that in other you’re that aware a well of you’ve as in will

Kevin Fischbeck

the in been ‘XX last RPT the steady analogy. the to we just in ‘XX? we state I type What guess question. there? Do by MA. guess we that guess Maybe similar to do lifts here? we all inning in shift? have into shift baseball are Or you the are think expect you get I I are where has aided largely getting or

Javier Rodriguez

in know Yes. from biggest roughly we but don’t subpar in, to being happened, at the obviously jump what being has market I inning went I we’re market. think the

see continue think that overall. it patients market selecting more to our higher just MA Medicare, than MA than a new We higher continue will rate at the be incremental slightly but so we and to

Operator

with Research. Our Wolfe Lake next question comes Justin from

Justin Lake

on we Maybe minute. can for revenue stay a per treatment

you So treatment. hurt $X little million. a that stuff and you about seasonality the around over $XX That’s said a by copays

have premium been up So revenue would about sequentially per X%.

doing, plus revenue piece said mix Given what is other Medicare missing some that on is per MA, better, besides treatment? you plus rate got we’re there commercial here

Joel Ackerman

you’re that No, Justin, there’s nothing missing.

and the called you I little few I as think a at the little out. they There -- a out variability, balance look roughly there’s if things, other else are the there you think is to but right story. things, always bit of nothing

Justin Lake

rate me, Remind was year-over-year? what Medicare again

Joel Ackerman

the in It’s somewhere high range. the Xs, X.X% in X.X% to

Justin Lake

Right.

that alone but would you a back. -- gotten Plus, is math gotten you little mix my little better, your alone. you commercial you a over said is that have mix it said. would gotten commercial got have have fuzzy, so would So The X% better, $X

sequentially? number? that do penetration what give And MA And do you then us did can what sequentially? So commercial did mix so

Joel Ackerman

Yes.

government into the there. There’s noise There’s bad There’s changes I debt number, account government. from you high take getting numbers Medicare of some a some is, you tie. shots. have think, think so there’s bit on. and your preventing rate within there, tick little in mix to to I So There’s -- flu which you’re a

Justin Lake

to you Medicare what commercial tell Can mix Advantage did quarter me quarter? first fourth the Okay. and

Joel Ackerman

commercial and for just out under quarter, came XX.X% mix mix at XX% MA the the under just XX.X%, for was quarter.

Justin Lake

XQ? in numbers those were what And

Joel Ackerman

second. Hold MA commercial on was X and XX.XX%. XX% mix was

Justin Lake

when getting said XQ sequential to then rebound... is the And to going Okay. back earnings, you

Joel Ackerman

XX%. on Sorry, you number. I QX bad MA gave a was

Justin Lake

Okay.

a to rebound said to try seeing had we to what issues. you Are models get you’re and at couple fourth thinking with QX seasonality to in line want you -- then XQ least. -- of just like consensus is after rebound So going some

can that with going quarter? you it to be So going is be kind to you with the to line is Is the help fourth quarter fourth Anything rebound, When that? us be to level? of going in beyond there? it say

Joel Ackerman

start away to going question. guidance, Yes. stay reluctant I’m from to that giving really I’m so quarterly

Justin Lake

given a Okay. number wages. us Then on you’d

OI typical it number the $XXX to Do million in an was put give us $XXX you there? to incremental that I think had guide. you updated million to want

Joel Ackerman

Yes.

now I X% end I about that the on came below we’re range about thinking the QX up of think, base billion, think model high looking in and of can, year-over-year. And now we’re that. about you for a probably just somewhere $X.X X%.

of a now year, end We’re somewhere that X%, range. number the smidge high for around maybe looking that would get with above you a full that but the consistent

Justin Lake

I then And of there just of inflation in and hospital as this spend -- came lot that why out start your heads seem think for pressure seeing general dialysis you to -- our rates, to have CMS. of be the rates, when we’re CMS the talking think when guys -- out, of that that I XXXX us But Okay. going looked a lastly, start to start inflation yet. to When labor a for rates -- come you we’re instance, lot in and time that we at don’t do reflected. know some didn’t some to scratching occur? embedding kind Do does there?

Joel Ackerman

Yes.

we assumption. I I ‘XX think more is look, know I’d have why, a say of than but that than was about you higher normal, lot whole probably insight do and the a So good number inflation don’t

not see July. early until rate going We’re to preliminary for the June, XXXX late

Javier Rodriguez

not productivity out index, one number. They to future either the tailored as That’s they some financials. basket some and But case. they and remember, modeling do was then and literally as of would would the future grab with the specific or some come literally experience Justin, that a they update not past grab kind our apply then you kind think so of think, is straightforward formula would that experience

and going bit old, there’s based it’s so be X labor and to lag is it’s on the point. hospitals, of a years So a

Justin Lake

issue. the That’s

Okay. That’s get what on, a appreciate Javi. smarter little I was that. to trying I

building of that is terms years ago. whatever X from whatever inflationary wages pressure there inflation coming happening is on in saying you’re or in, wages is on Medicare So what is

rate ‘XX ‘XX their So based is inflation. on

Javier Rodriguez

Justin. understanding, our That’s

Operator

comes from Pito Chickering. Our question next

Pito Chickering

sequential we that any what quantify assumption? Going back sort XXXX and you then to to treatments the understand on modeling the sort be seasonality. treatments mortality, changes quarter for mistreatments to be can saw to I in] you should [increase first treatments, into in X% April? I Previously, X.X%. in growth of guess growing XQ? March guided of you increase the And And the treatment

Joel Ackerman

Yes.

So growth a we down kind are model that thinking it had the in of see the year-over-year to the we be about somewhere treatment is a X% way to better over past, quarter. We closer dramatic of course I’d X decline to will now. X.X% relative and talked say to the the did

So XXX numbers were memory, February the of X,XXX a north is January, think, few in then, in from this something and but March. I hundred in

did patterns really So the lot excess to the significantly. to per mortality and hold, come you’d hold. growth how come historical terms historical in in model number If QX clear expect will summer. of QX, next not here. in of -- surge see uncertainty It’s patterns If whether down day a treatment again, the

Pito Chickering

the it’s there’s XQ in So to XX I round. sequentially, mean us more treatment your see growing guys you also with April, this any had on guess, be mortality that excess if days, you or basis XQ? from range I not but they’re where give then we just what you mean points in could should is tracking? -- I treatments

quantify you treatment I XQ. help in us So guess growth can just for

Joel Ackerman

Yes.

day you’ll with modeling cleaner of of focus all, -- a days. because number I So get number on just the first per treatments I’d treatment

not quantify saying sure it’s comfortable It’s yet. I’m ready going go think to I’m it up. I’m to I --

Pito Chickering

per of quarter, mix in it? add from right guess, of the a revenue first treatment. around on per copays, Normally, guess that $X, with cetera. the XQ, about et there’s way question Justin’s And $X treatment. to Is XQ I thinking of Okay. for XXX and moving parts lot XQ we sort revenue from I

Joel Ackerman

in suspense a for in about number we dollars right that QX. for is QX. normal That of sequestration remember I half are million number your year. think $XX would I cut gets getting

call of a million of $X So $X or we’ll as revenue it, lose, million that. result

So little a that treatment. will of us more cost bit $X than

Pito Chickering

Okay.

way So of thinking XXX in XQ? of about is right sort the

Joel Ackerman

a that’s starting good think I yes. point,

Pito Chickering

And Okay. last here. then question

the give [IPF patients your of from the of from XXXX? sort Just to are ‘XX? question on you joined quarter quarter how the us you had what versus get patients on did -- those your And in the did Group], first of ‘XX color XQ this is, you down $XXX of the for true-ups your then some of On last curious sort million the of cadence fourth managed sort expectations. partners change? guys versus how Any you did of in care the in I color if in could losses ‘XX losses million sequentially fourth I saw quarter. [IKC] the guess $XXX losses

considering more Just online. patients I up that bring thought would have you gone

So if for up you can sort me, of tie great. that be would that all

Joel Ackerman

Yes.

much on XXXX year. they’ll come in true-ups, the first, So later the

believe anything We seen that, reason got on haven’t we’ve much different. to significantly really is no so

In of they’re in IKC little down a the QX. bit losses, terms

got I QX there’s last anything I that really payments -- but to think some we just normal it’s of there. big call think mostly out don’t year variability. in

Pito Chickering

care for you last year? from do When partners the your true-ups Okay. get managed

Joel Ackerman

be them I the while the partners, there’s numbers you claims half year. but you’ve different It until the are. to let got varies would the a will quite out know expect for of Remember, -- of what most run in in back really

Pito Chickering

just confirmation. last then Got And it.

of million. the million for XXXX, is maintaining $XXX range for guidance Your still $XXX but low the end the you’re to

that for be models mean ‘XX? around should we -- our that have XXXX So ‘XX

Joel Ackerman

Yes.

$XXX million build $XXX you. I So gave million we number to of the off the new

my head. in I’m the So doing I mean just math

in XXXX. you’re the code I the ZIP with think right

Operator

at other time. queue I’m in no questions this showing

Javier Rodriguez

Well, usual, with improvements uncertainty, discussed XX,XXX we our Patient rates. outcomes in and materially particular short to as patients our energize in to volume of couple life to and the of inflation visibility have Thank wage comments. than a and term you. me Because continues the COVID let Okay. continue closing less professionals. quality end of of

reduce capabilities We thank of to these well. and investments very our to feel to years outperform and that energy you continue cost ahead. investment us position DaVita. we a are deploying building uncertainties, your innovate mitigate to and in we’re the that the for and some lot time Be of I in will structure confident

Operator

conclude does conference. today’s That

time, at you for thank disconnect may You and joining. this