Q1 2024 Earnings Summary
- DaVita is effectively managing costs, resulting in a 1% year-over-year decrease in cost per treatment due to lower contract costs and productivity gains, despite wage pressure. This cost management is enhancing margins.
- Revenue per treatment is strong, reaching the high end of guidance at approximately 3% year-over-year growth, with expectations for this strength to continue throughout the year, potentially exceeding revenue growth expectations.
- Management is confident in achieving 1% to 2% treatment volume growth for the year, driven by strong new-to-dialysis admissions and reduced impact from clinic closures in upcoming quarters, supporting overall revenue growth.
- Mortality remains elevated relative to pre-COVID levels, potentially impacting treatment volumes and company growth.
- The company experienced negative free cash flow of $327 million in Q1 due to delayed claim submissions from a Change Healthcare outage, leading to increased leverage ratio of 3.3x at the end of Q1.
- DaVita had to draw $765 million on its revolver and suspended share repurchases in March, indicating potential liquidity concerns.
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Revenue per Treatment
Q: Will higher RPT sustain throughout the year?
A: Management noted that the Q1 revenue per treatment (RPT) was strong, but they do not expect the higher rate to persist throughout the year. The better-than-expected performance was due to the pattern coming in differently than modeled. They are not raising guidance assuming the beat persists throughout the year. -
Operating Income Outlook
Q: Can operating leverage sustain above 3%-7% OI guidance?
A: While acknowledging recent strong operating income (OI) growth, management is not changing their long-term OI growth guidance of 3%-7%. They remain optimistic about opportunities to improve margins through revenue initiatives, progress in Integrated Kidney Care (IKC), and capacity utilization improvements. -
Patient Volume Growth
Q: Confidence in achieving 1%-2% treatment growth?
A: Management remains confident in achieving 1%-2% treatment growth for the year, despite Q1 growth being below that range. Factors affecting Q1 included clinic closures and seasonality in new dialysis admits and mortality. They expect growth to come later in the year. -
Wage Inflation
Q: What is the wage inflation assumption for the year?
A: The company is assuming wage inflation of around 5% for the year, which is tracking consistently with expectations. -
Integrated Kidney Care Performance
Q: Are IKC losses on track with projections?
A: Management stated that the IKC business is largely on track with the projected loss of about $50 million for 2024. They noted significant seasonality in the business and that Q1 results were as expected. -
Center Consolidations
Q: What is the expected number of center closures this year?
A: Management expects around 30 net center closures for the full year, reflecting a continued focus on consolidations to improve capacity utilization. -
International Acquisition Strategy
Q: Any updates on international acquisition plans?
A: The recent international acquisition was opportunistic, leveraging economies of scale by utilizing existing operations in those countries. Management maintains a disciplined approach and sees no urgency to accelerate international activity unless it aligns with their criteria. -
Share Repurchase Plans
Q: Will share repurchases reach the $1-$1.5 billion range for 2024?
A: Management still aspires to reach the share repurchase goal of $1–$1.5 billion for 2024, acknowledging a timing component but aiming to achieve it within the year. -
Mortality Trends
Q: How is elevated mortality tracking post-COVID?
A: Elevated mortality has come down significantly since its peak but remains above pre-COVID levels. It varies quarter to quarter, and it's still early to know exact figures for Q1. -
Cost per Treatment
Q: What drove the decrease in cost per treatment?
A: The 1% year-over-year and 3% sequential decrease in cost per treatment was driven by lower contract costs and productivity improvements, offsetting wage pressures. Higher seasonality in Q4 also impacted the sequential comparison. -
MIRCERA Adoption
Q: What is the percentage of patients on MIRCERA?
A: The vast majority, if not all, patients are now on MIRCERA, indicating full adoption and realization of associated cost savings. -
Online Hemodiafiltration
Q: Thoughts on adopting online hemodiafiltration?
A: Management is cautious about adopting online hemodiafiltration in the U.S. While some studies suggest potential benefits, variability in international usage and uncertain reimbursement guidance make it premature to assess its impact.