DaVita Inc. (DVA) on Q2 2021 Results - Earnings Call Transcript
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 Second Quarter 2021 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer period. Thank you. Mr. Gustafson, you may begin your conference. Jim Gustafson: Thank you, and welcome, everyone, to our second quarter conference call. We appreciate your continued interest in our company. I’m Jim Gustafson, 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 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 statements. 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 and subsequent quarterly report on Form 10-Q and any subsequent filings that we make with the SEC. Our forward-looking statements are based upon 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 comparable GAAP financial measures is included in our earnings press release submitted to the SEC and available on our website. I will now turn the call over to Javier Rodriguez. Javier Rodriguez: Thank you, Jim, and good afternoon. We are excited to talk to you today about our strong Q2 performance, our 2021 financial outlook and recent developments on our efforts to transform Kidney Care. First, let me start the conversation with a clinical highlight that kidney transplant is the best treatment option for eligible patients with kidney failure. DaVita has worked hard over the years to help our patients gain access to transplant through education and direct support for patients to get on and stay on the transplantation waitlist. The cumulative impact is meaningful. Last December, we announced the milestone of 100,000 DaVita patients who have received the transplant since the year 2000. To further advance, the cause of transplantation, DaVita and the National Kidney Foundation are collaborating on a yearlong pilot aimed at improving health equity in kidney transplantation with a focus on living donors. Increasing living donor transplant expands access to transplantation by increasing the availability of organ, which has been the limiting factor in the number of transplants performed annually. This pilot provides high touch and customized information to patients and families seeking a kidney transplantation from a living donor. We look forward to learning more from this pilot, improving the health equity of kidney transplant and continuing to be the leader in supporting our patients to receive kidney transplant. Shifting to the latest update on COVID. We have made incredible progress in our efforts to combat the COVID-19 pandemic over the past several months. New COVID infections among our patients continue to drop significantly through the last week of June, down more than 95% from the peak in early January. However, similar to the rest of the country, we have started to see an uptick over the last few weeks. As of last week on a rolling seven-day average basis, new infections are still down more than 90% from the peak. Thus far, our mortality continues to remain low on an absolute basis as we believe that our vaccinated patients are more protected from severe cases of COVID. We continue to educate our patients about the benefits of vaccine to reduce vaccine hesitancy. And we remain confident in our policies and procedures designed to keep our patients and our teammates safe while they’re in our care. Now, let me turn to our financial performance in the second quarter. We delivered strong results in both operating income and earnings per share. Our margins expanded as we continue to manage costs while delivering quality care. As a result, we delivered 6% year-over-year growth in adjusted operating income, and 35% year-over-year growth in our adjusted earnings per share. Our free cashflow was particularly strong in this quarter and we continue to return cash to our shareholders through our stock buyback. With the first half of the year behind us, we are now increasing the midpoint of guidance for the full year. Let me transition to update our progress in our Integrated Kidney Care efforts, otherwise known as IKC. Value-based care for our patients with kidney disease is gaining momentum and appears to have reached an inflection point. We have always believed that coordinating dialysis care with the broader healthcare needs of CKD and ESKD patients could simultaneously improve outcomes and reduce total healthcare costs. For years, we’ve been participating in a variety of small programs and pilots to build our integrated care capability and better understand the economics. We believe we are at that point now where we are ready to shift to the next stage of the evolution of integrated care. You might be wondering why now. The trend towards value-based care is not new either in Kidney Care or other segments of healthcare. So what’s changed to make the developments of scale business viable today? There’s a couple of reasons. First, with the growth of Medicare advantage, payers are looking for innovative ways to manage the increasing number of ESKD patients choosing MA plans. These patients tend to be more complex than most MA patients and should benefit from tailored care management. Second, CMS recently initiated the payment model in Kidney Care. We’re preparing to partner with nephrologists and up to 12 markets beginning in January of next year to participate in CKCC voluntary program. Our participation in CKCC model will also provide us with operational scale and more geographies to enter into other value-based arrangements. Lastly, we’ve increased our confidence in our capabilities to deliver clinical and economic value at scale and have leaned in on our willingness to take risks. We believe we’re well positioned to win in integrated care because of our strong partnership with nephrologists, our regular and consistent interactions with patients, a broad kidney care platform that spans various modalities of care setting and a clinical dataset and analytics that we use to create, develop clinical interventions to support our patients holistically. We have a demonstrated track record of improving patient outcomes, coordinating care and lowering costs for patients in risk arrangements. For example, in our ESCOs, we were able to generate non-dialysis cost savings in the high-single digit, which translated into more than double the average savings rates compared to the rest of the industry over the life of the program. With our Special Needs Plan, we have been able to lower mortality by 23% relative to other patients within the same center and county. To give you a better sense of the scale of the business, as of today, approximately 10% of our U.S. dialysis patients are in value-based care arrangements, in which DaVita is responsible for managing the total cost of care. It represents almost $2 billion of annual medical costs under management. In addition, we have various other forms of value-based care arrangements with payers, in which we have economic incentives for improving quality and lowering costs. In 2022, we expect our integrated kidney care business to double in size, both the number of patients and risk arrangements, and the dollars under management. We also expect to see a dramatic increase in the number of CKD lives we have under risk in 2022. To prepare for this growth, we’re currently scaling up our clinical teams and furthering building out our support function, because of the investment, as well as the delays in cost savings impact of our model of care and revenue recognition, we expect to incur a net operating loss of $120 million in 2021 in our U.S. ancillary segment. This outcome is consistent with the OI headwind from IKC growth we called out at the beginning of the year and is of course included in our full year guidance. The doubling of the business next year could result in an incremental operating loss in our ancillary segment of $50 million in 2022. We expect significant improvement in our financial performance beginning in 2023 as we begin to recognize savings from the new contract that we entered in 2021 and 2022. Over the five plus year horizon, we believe that our IKC business could become a sustainable driver of significant operating income growth. Currently we serve approximately 200,000 dialysis patients across the country. We utilize over $12 billion in healthcare services, outside of the dialysis facility, including the cost of hospitalization, outpatient procedures and physician services. In addition, we see an opportunity to manage the care of upstream CKD patients, who currently do not dialyze in our centers. Assuming, that we are managing the total cost of care for more than half of our dialysis patients as well as other CKD patients at low-to-single digit margin, we believe that this could be meaningful financial opportunity. In summary, all of healthcare has been talking about value-based for years. We are excited for DaVita to lead the way. With that, I’ll turn the call over to Joel. Joel Ackerman: Thanks, Javier. We had a strong quarter, despite the continuing operational challenges presented by COVID primarily as a result of strong RPT performance and continued discipline on cost. For the quarter, operating income was $490 million and earnings per share were $2.64. Our Q2 results include a net COVID headwind of approximately $35 million, similar to what we saw in Q1, primarily the impact of excess mortality on volume and elevated PPE costs, partially offset by sequestration relief, and reduced travel and meeting expenses. Turning to volume, in Q2 treatments per day increased by 0.4% compared to Q1, excess mortality declined significantly in Q2 from approximately 3,000 in Q1 to fewer than 500 in Q2. At this point, we’re cautiously optimistic that the worst is behind us, but we’re closely monitoring the potential impact of the Delta variant, especially within pockets of the country that have lower vaccination rates. Longer-term, we continue to believe that we will return to pre-pandemic treatment growth levels with an additional tailwind from lower-than-normal mortality rates. Our U.S. dialysis revenue per treatment grew sequentially by almost $6 this quarter, primarily due to normal seasonal improvements from patients meeting their co-insurance and deductible obligations. We also saw favorable changes in government rate and mix, including the continued growth in the percentage of patients enrolled in Medicare Advantage. Patient care costs and G&A expense per treatment in total were relatively flat quarter-over-quarter. Our patient care costs decreased sequentially primarily due to reductions in labor costs. Our G&A increased slightly primarily due to charitable contributions and increases in personnel costs. As expected, our U.S. dialysis and lab DSO decreased by approximately six days in Q2 versus Q1, primarily due to collections on the temporary billing holds related to the winter storms in the first quarter. The majority of the impact of the storms on DSO and cash flow were reversed in Q2, but we may see an ongoing, smaller benefit to the balance of the year. During the second quarter, we generated a gain of approximately $9 million on one of our DaVita Venture Group investments, which hit the other income line on our P&L. We have a small investment in Miromatrix Medical that recently went public. The value of this investment at quarter-end was $23 million. Going forward, we will market-to-market every quarter. Now turning to some updates on the rest of this year and some initial thoughts on 2022, as Javier mentioned, we are raising our guidance ranges for 2021 as follows. Adjusted earnings per share of $8.80 to $9.40, adjusted operating income of $1.8 billion to $1.875 billion and free cash flow of $1 billion to $1.2 billion. Also, we now expect our 2021 effective tax rate on income attributable to DaVita to be between 24% and 26% lower than the 26% to 28% range that we had communicated at the beginning of the year. These new guidance ranges exclude the potential impact of a significant fourth COVID surge later this year. I’ll call out two notable potential headwinds during the second half of the year. First is COVID. We continue to expect the impact of excess mortality will be higher in the back half of the year than in the first half of the year, due to the compounding impact of mortality through 2021. We’re also expecting an uptick on costs related to testing, vaccinations and teammate support as a result of the delta variant. As a result, we are increasing the middle of the range of COVID impact for the full year to $170 million from $150 million. That implies a $30 million headwind from COVID in the second half of the year compared to the first half of the year. As a reminder, this is the middle of what is a wide range of possible impacts depending on the impact of the delta or other variants and any additional COVID mandate. Second, we expect to experience losses in our U.S. ancillary segment of approximately $70 million in the second half of the year compared to $50 million in the first half of the year. This incremental loss is due primarily to new value-based care arrangements and start-up costs associated with the CKCC program that launches in 2022. Looking forward to 2022 we do not expect anything unusual among the primary drivers of the business, including RPT, cost per treatment or capital expenditures. However we expect pressure on OI growth from the increased spend on growing our IKC business, the possibility of union activity in 2022 that we did not face in 2021 and the first year of depreciation expense associated with our new clinical IT platform that we have been developing for the past several years. We will provide more specific 2022 guidance on our future earnings call. Operator, let’s open the lines for questions. Q - Pito Chickering: Hey guys, good afternoon and thanks for taking my questions. Lead off here on the IKC that you’re talking about that you disclosed in the script $2 billion of gross revenues and seeing that doubling in 2022, can you remind us how that flows through the P&L in both the dialysis segments and in other ancillary services? When will you begin to disclose these revenues and costs on the P&L so you can model it? And then in five years, where do you think this can go? Is that a $12 billion number that you referenced in the script? And from a margin perspective after year one, you put a high single-digit margin on the $2 billion for next year and then additional drag in the $2 billion in new capitated arrangement? Thanks so much. Joel Ackerman: Thanks, Pito. I hope I got all of that, but please jump in if I didn’t catch it. So starting off, in terms of where it is on the P&L, we’ve got a segment, our strategic initiatives, which breaks down between U.S. and international. The U.S. component of strategic initiatives is an excellent proxy for our IKC P&L. We’ve simplified what exists in that segment over the last few years as we’ve exited some of the strategic initiatives and other than a couple of small things, it’s everything related to IKC through that line. So I think as you think about both revenue and operating income using the U.S. component of SIs as a proxy for our IKC business is a really good way to look at it. So that’s number one. In terms of where this can go over time, look, there are a lot of questions around how many members we can enroll here, what our savings rate can be, how much of that will ultimately capture. I think a reasonably simple way to model it would be to start with something like a third of our ESKD population in this user a spend per patient, especially if you’re looking out a few years of $100,000 per patient, and that will give you a medical cost under management. And then the question is, what percent of medical cost under management that we think can turn into OI. And I would say a reasonable number would be something in the low single digits, something equivalent to what a typical MA plan would drive as margin. So 1%, 2%, 3%, maybe 4% in that range as a percentage of medical cost under management, I think is the right way to think about what the potential for this is in the out years. Pito Chickering: Okay. This is… Joel Ackerman: I’m sorry. Pito, you had – I think you had a third question which I didn’t catch. Pito Chickering: Yes. So there’s a few progressions period in there. I guess, will you guys begin disclosing what those gross revenues are as all the patients under management? Just help us model this going forward as well. Joel Ackerman: Yes. So I don’t think we’re not going to disclose a number that we would call gross revenue. I think the number that we will disclose would be what the revenue would be if we used gross revenue accounting, which would be the medical cost under management. And we’ve seen this before, they were under DMG, they were components of the business that were gross accounting and some were net and we would disclose a medical cost under management or something like that and that’s the $2 billion number that Javier talked about in the script. Pito Chickering: Okay. And then a sort of quick follow-up here on just the treatment growth. Can you guys disclose a number of patients you had at the end of 1Q and 2Q? And I’m trying to understand what treatment growth there is in the back half of the year as the excess mortality from COVID hope is behind us. And if we assume it remain at these current levels, is it fair to model treatment growth going positive in the fourth quarter? Joel Ackerman: Yes. So, look, I think the right number to look at is not patients but treatments per day. And the good news, let me try and walk you through, first the good news is treatments per day grew in Q2 over Q1. And I think a sequential view of it will get you a better model than a year-over-year view. So sequentially treatments per day grew in Q2 over Q1 about 400 treatments per day. There is a bunch of things going on in there and so let me try and break it down for you. First, the good news is the new to dialysis treatment starts remain strong. So the question that we’ve gotten in the past about what has happened within the CKD population as a result of COVID, we continue to see strong new to dialysis treatment – admissions. So we don’t feel any pressure there right now. In terms of Q2 over Q1, Q2 did benefit from the storms in Q1, so you’ll remember the storms in – from Yuri led to lower treatment volume in Q1. And so the comparison in Q2 was a positive there. That said, there are few things weighing on the quarter. First acute volumes are down as you would expect with the pandemic, getting better in Q2 over Q1. Second, excess mortality remained above normal. It was well below what we saw in Q1 came down from 3,000 approximately to less than 500, but it’s still above normal. And finally, the mix of treatment days in Q2 was unfavorable. We do a fewer treatments on Tuesday, Thursday, Saturdays than we do on Monday, Wednesdays and Fridays, and that was about a 50 basis point headwind in Q2 over Q1. So just to summarize, the good news is, we’re back to a situation where treatments are growing quarter-over-quarter, the new to dialysis admissions remained strong. That said, there continues to be a bit of noise in the numbers. Pito Chickering: Great. Thanks so much. I’ll jump back in the queue. Operator: Thank you. Our next question comes from Justin Lake from Wolfe Research. Your line is open, sir. Justin Lake: Thanks. I wanted to follow-up on the value-based care. So to Pito’s question, it would be great if you can give us those numbers. And is that going to be just for the government programs? Are you going to be able to – are you going to also put any kinds of MA value-based contracting, commercial value-based contracting that you have in there that’s above and beyond the dialysis side? Joel Ackerman: Yes, that would include all of that, Justin. It would include MA, it would include traditional Medicare, as well as anything on the commercial side. Justin Lake: Okay. So, that number will be all profitability, I assume. Does that include or exclude spending on dialysis? When you talk about the margin, are you talking about the $60,000 that’s ex-dialysis or you’re talking about the $90,000, $95,000 that includes dialysis when you gross-up for the $2 billion? Joel Ackerman: It includes the dialysis number. Justin Lake: Okay. Joel Ackerman: So the patient number would be more like 100,000 or 90,000 depending on what time period. Justin Lake: Perfect. And you mentioned on the call, in the trend, the press release I should say, that your payer mix changed a little bit to the positive. Can you talk a little bit about commercial volume versus government? Javier Rodriguez: Justin, the reality is, there’s not a lot to say. This is a bit of a numerator, denominator issue. You had more mortality on the Medicare side and the commercial side held strong as people really valued their income and insurance, and so is a lot more resilient than we anticipated. So that’s the dynamic that we’re discussing here. A couple of other things Justin, while you’re asking about the value-based care and how do we calculate it with dialysis and non-dialysis. Yes, I think it’s important to do the math you’re doing, you subtract the dialysis. And then you have to put in there that the payer/government have participation in the savings, the nephrologists then has a participation in the savings and that’s how you trickle down to the percentages, the 1%, 2% or 3% roughly that Joel talked about. Justin Lake: Okay, thanks for that. And can you just give – can you help me with the commercial treatment growth in the quarter? Joel Ackerman: I can tell you, commercial mix was up about 20 bps in Q2 over Q1. Justin Lake: Okay, great. And then in terms of… Joel Ackerman: As a reminder, you don’t get as much from that in COVID when your Medicare patients are passing away as you would in a normal time. Justin Lake: Okay. And then just last question on, you mentioned 2022. I apologize if I missed this, but the tax rate change for this year, do you expect that to continue in 2022? Or is this a reasonable new tax rate to assume? Or should we go back to the original guidance and assume that’s the tax rate for 2022? Joel Ackerman: There’s still a lot we don’t know about how it will play out. I think it is reasonable to assume some if not all of the benefit we are seeing this year will continue for another year, but not in perpetuity. So for 2022, yes, 2023 I’d say no. Justin Lake: Okay, thanks for that. I’ll jump back in. Thanks, guys. Javier Rodriguez: Thank you. Operator: Thank you. Next question comes from Kevin Fischbeck from Bank of America. Your line is open, sir. Kevin Fischbeck: All right, great, thanks. I wanted to dig into this, these investments that you’re making around this value-based care. I just want to make sure the numbers are right. I think you said $120 million this year and then it sounded like you said $50 million. Do you think $50 million incremental so like $170 million or did you mean $120 million goes to $250 million? Joel Ackerman: Incremental. Kevin Fischbeck: Incremental. Okay. Is there – I guess, as we think about that number; is that a net number? If you start to make a 2% margin on the value-based care, is that an offset to that or is that kind of inclusive of any potential profitability? Joel Ackerman: It’s a net number. Kevin Fischbeck: Net number, okay. And then it sounded like you were saying that the $120 million included the CKCC as well, is that true? And does that number, I guess just sort of think about the $120 million to $170 million and the roll off there, is that all included? Javier Rodriguez: Yes. So, Kevin, the CKCC doesn’t start till the beginning of 2022. But we will start investing in the back half of the year in anticipation of that growth. So it’s not – it’s expense that we are building in anticipation of growth related to CKCC. Kevin Fischbeck: Yes. Okay. And then as far as the sequential enrollment treatment growth, I guess, to look like, that’s a better way to look at. There’s a lot of puts and takes into that number. I guess what – once you get back to normal, what should that number look like? I guess like 0.4%, I’m thinking, 1.6% annualized. Like what do you think when this all normalizes, what is the growth rate and volume? Is it a 2% numbers or is it a 3% number. What would it ultimately annualize to? Javier Rodriguez: I think at the end of the day, Kevin, one of the things as you heard from Joel, there’s a lot of different dynamics and interplay for us. The positive is that we’re seeing, let’s call it the new admin stabilize pre-COVID and so the best data we have right now is that we will revert to the pre-COVID numbers. And so I think that’s the best assumption, we keep you posted if that changes. Kevin Fischbeck: Okay. And it sounds like you’re not really seeing anything on the labor side, a number of companies are complaining about labor pressure. I guess could you talk a bit about what you’re doing there? And then it sounds like you talked about union issues. I think you meant kind of ballot initiatives right not actually labor costs, but more ballot initiatives that might be a pressure next year? Javier Rodriguez: Yeah, so let me grab a couple. We’re not going to complain about the pressure, but it’s absolutely there. It is a very dynamic and competitive marketplace. We continue to invest in a differentiated workplace and find that our teammates find great fulfillment in the purpose of the work that we do. That said, again the marketplace is quite dynamic. As it relates to the second question, yes, we are talking about the union might come up with another ballot. And so we’ve now unfortunately, every other year have had to deal with it, we hope that they are a little more empathetic to the fact that we’re in a pandemic in that, it is not a good use of the resources, but we just want to continue to talk about it, so no one surprised. Kevin Fischbeck: Okay. And then last question I guess, as we think about the going to growth in the value-based care opportunity is what you’re doing differentiated. Do you think that there is going to be share shifts as a result of this or other smaller players or midsized players going to struggle to do what you’re doing and you’re resonating with the payers, and so that you actually see a volume lift from this or is this kind of where the industry is going in and your push into this is largely kind of the same so that you wouldn’t expect, it is just really more about the revenue and the margin that it is about gaining share? Javier Rodriguez: It’s an interesting play. From our perspective, we believe that we’re really well-positioned and of course there’s a lot of dynamics on volume and mix, how a patient gets to us all the way from a patient choice to a payer choice to physician. And so that dynamic has got a lot going on, can the whole chain there really see the value that we create, I think that over time the answer will be, yes, because the clinical outcomes will show it. And there’ll be transparency where people say, gosh, if I can live there longer if I can get more transplant, if I can get my CKD and not be hospitalized, I want to go there. But as you know, that takes time. And so, from my perspective right now, I’m not assuming a change in sort of a shift in decision making until this plays out a bit more. Kevin Fischbeck: All right, great, thanks. Javier Rodriguez: Thank you. Operator: Our next question comes from Lisa Clive from Bernstein. Your line is open ma’am. Lisa Clive: Hi, thanks very much. Apologies if I missed it in the prepared remarks. So what did you say you’re vaccination rate was for your patients and also what is it for your team mates? And second question, have you been giving third doses for selected patients, given that the immune compromised seem to not responded well to the vaccines in terms of the efficacy? And then lastly, are you still testing patients and teammates before every session and just wondering how that is going to evolve in the coming quarters? Javier Rodriguez: All right. But let me grab them and then if I miss anyone want to please come back at me. The patient vaccinated complete with two doses is around 72% or so, teammates is in 68. We’re starting to tracking those people that are intend to get a vaccine and we’re tracking somewhere in the 1% or 2% that are either thinking of getting in their first cycle. To my knowledge there is nothing of significance in the third dosage yet in our population. And so I know that the physician community is discussing it, but I don’t have any major numbers on that. And then what was your last question? Lisa Clive: Just in terms of that… Javier Rodriguez: Testing, we didn’t test all the patients. I think that was in the assumed question. What we do is, we of course test anyone that has any symptoms. And then of course our patients get tested a lot more because they’re using so much healthcare than when they go to other physician offices or hospitals or other things, they get tested. So they’re disproportionately tested. But we just test when they are symptoms. Lisa Clive: Okay, thanks very much. Javier Rodriguez: Thank you, Lisa. Operator: Thank you. Our next question comes from Pito Chickering from Deutsche Bank. Your line is open sir. Pito Chickering: Hey, guys. Thanks for taking the follow-up here. Linking back to the IKC piece as investors are bit confused on these disclosures, my understanding today as you collect $2 billion of sort of gross revenues, about half of that look in the dialysis costs and the other half are in medical costs or other medical costs. So when you referenced of 1% to 4% margin, that’s on the full $2 billion, so should we think about instead as a 2% to 8% margin on a $1 billion of non-dialysis cost? Javier Rodriguez: Either way works, we’ve decided to standardize on the full cost, but either way is perfectly fine way to do the math. Pito Chickering: Okay, perfect. And then I will make hit one on patient care costs. Obviously, with our investor concern our labor inflation during 2Q, obviously your cost per treatment were down sequentially driven by a number of areas. But as I think about patient care costs over the next couple of years. Can you give us additional color on what can drive further efficiencies here, specifically around center occupancy increasing and the shift in home dialysis? Thanks so much. Javier Rodriguez: Well, let me grab it, as it relates to the inflation, of course, we’ve been very good over time. If you do our CAGR over the last five years or so, I believe we’re right at 1% or so slightly below. And so we view the levers quite thoughtfully over time in there, we are managing an essence pharmaceuticals, we’re managing productivity and of course wage rate and there’s other things like supplies and other miscellaneous items which we are very diligent on. So we don’t think those dynamics will change much other than during COVID of course, the PPE has gone up dramatically and we hope that that stabilizes over time. As it relates to the wage inflation, we have nothing really particular to say about it. We are another player in this really dynamic marketplace and it feels like it’s shifting quite aggressively right now is that a short period or does that sustain itself. So I don’t think I can comment on the multi-year, it is fair to say that we are aggressively looking at all the pharmaceutical and all the options to make sure that our physicians have the choice of their pharmaceutical, but at the best price possible. So I don’t know if I got to all of your questions. I think the last part of it was around capacity utilization and of course we are watching it very aggressively. We went from a time when we were very aggressive on the de novo build to. As you can see, we really tapered that back and we’re building a lot more home centers, which are a lot more capital efficient. We will keep that sort of balance in check, because we know the patients need the interplay between the home and the center and so there needs to be capacity available and as we lost here roughly 5% of our patient during COVID. We are aggressively taking a look at our portfolio to make sure that our patients have access and that we are not having centers that are not the right capacity. Pito Chickering: Okay. And then, sort of last follow-up question for your, on the IKC at least for now. Is it fair to think about the operating income in the dialysis segment being unchanged as you increase your penetration with IKC patients? Javier Rodriguez: Yeah, I think that’s fair. We are trying to present this in a way that represents the fact that the business is, they are not independent in so far as they are intricately, they are linked and that’s why we think and we are excited about our opportunity to win in IKC, but trying to present them as separate income statements, if you will. So you can assess how the core historical dialysis business doing and how the new IKC business doing. Pito Chickering: And then last one here. Is it fair to think that kind of as a role just for third quarter results that you be able to give us additional disclosures in the press release around this sort of new segment or division? Javier Rodriguez: We are taking a careful look about what’s the right level of disclosure as the IKC business grows and making sure the shareholders have a good understanding of the economics of the business, the progress, the investment, the spending et cetera, so more to come on where we land on that. Pito Chickering: Great, thanks so much guys. Javier Rodriguez: Thank you. Operator: Thank you. There are no further questions in queue at this time. Javier Rodriguez: Okay, well thank you Missy, let me make a couple of closing comments. Number one, our core business is strong. Number two, we are entering an exciting and dynamic time with an opportunity to deliver a lot of value for our patients by connecting and coordinating their care with payers, nephrologist and providers. Point three, the clinical and the economic prices are absolutely meaningful and like most valuable prices, there is a lot to do to make the plan a reality. Point four, if for whatever reason we cannot accomplish the desired outcomes the economic risk is limited structurally, because there are termination rights and off-ramps. So in summary, there is a big price with limited downside. So hopefully that helps you think of how we’re thinking about, sorry that lets you understand a little of how we’re thinking about it. We thank you for your support and we enter this new chapter together. Be well, everyone. Operator: That does conclude today’s conference. You may disconnect at this time and thank you for joining.DVA Ratings Summary
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DaVita Upgraded at UBS, Shares Gain 3%
UBS upgraded DaVita's (NYSE:DVA) rating from Neutral to Buy, revising the price target upwards from $100.00 to $142.00. As a result, shares gained more than 3% yesterday.
The firm’s rationale hinges on notable positive revisions to the 2024 forecasts for EBIT, which is now anticipated to reach $1.793 billion, and EPS, projected at $9.00. Both these estimates significantly surpass Street consensus figures.
The bank’s viewpoint underscores the anticipation of a turning point in treatment growth, expected in the second and third quarters, followed by a more pronounced surge in 2024. This growth trajectory is reinforced by improved pricing strategies and a more streamlined cost structure, integrating savings from the End Stage Renal Disease Seamless Care Organizations (ESA) and clinic closures.
