Q4 2024 Earnings Summary
- DaVita plans to continue its share repurchase program, returning excess capital to shareholders while maintaining leverage between 3 and 3.5x EBITDA. This capital allocation strategy reflects confidence in the company's cash flow generation and commitment to enhancing shareholder value.
- The Integrated Kidney Care (IKC) business is expected to reach breakeven by 2026, with the company reaffirming its expectations and expressing confidence in the growth and profitability of this segment. This indicates potential for future earnings expansion.
- DaVita's underlying international business remains strong despite a $19 million reserve against aged accounts receivable in Brazil, suggesting resilience and potential for growth in international markets. The company noted that this reserve does not impact the underlying earning power of the international segment.
- The company's guidance assumes flat treatment volume growth in 2025, indicating ongoing challenges in patient acquisition and retention. Despite resolving prior supply chain issues affecting peritoneal dialysis admissions, specific headwinds include approximately 50 basis points associated with the number of treatment days due to the leap year effect and disruptions in PD admissions in Q4.
- Integrated Kidney Care (IKC) is expected to have much slower growth in membership in 2025, as management focuses on driving margin over volume growth. This strategic shift could limit future revenue growth in this business segment, which is expected to remain flattish in operating income and aims to reach breakeven only by 2026.
- Patient care costs per treatment are anticipated to grow by 6% to 7% year-over-year in 2025, driven by inflationary increases in labor and other costs, with labor experiencing higher pressure than pre-COVID levels. This cost growth could pressure margins if not offset by corresponding revenue increases.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Revenue per treatment growth | FY 2025 | 3.5% to 4% | 4.5% to 5.5% | raised |
Adjusted operating income (OI) | FY 2025 | $1.91B to $2.01B | $2.01B to $2.16B | raised |
Adjusted EPS | FY 2025 | $9.25 to $10.05 | $10.20 to $11.30 | raised |
Patient care cost per treatment | FY 2025 | no prior guidance | 6% to 7% YoY | no prior guidance |
U.S. dialysis G&A | FY 2025 | no prior guidance | Increase by approximately 4% | no prior guidance |
Depreciation and amortization | FY 2025 | no prior guidance | Decline by $25 million to $30 million | no prior guidance |
Interest expense | FY 2025 | no prior guidance | $525 million to $555 million, ~ $135M per quarter | no prior guidance |
Adjusted effective income tax rate | FY 2025 | no prior guidance | 24% to 26% | no prior guidance |
Free cash flow guidance | FY 2025 | $950 million to $1.2 billion | $1 billion to $1.25 billion | raised |
Treatment volume growth | FY 2025 | 0.5% to 1% | Flat growth, with headwinds of ~50 bps | lowered |
Clinic closures | FY 2025 | no prior guidance | Approximately 20 centers | no prior guidance |
International adjusted OI growth | FY 2025 | no prior guidance | Approximately $50 million YoY | no prior guidance |
IKC adjusted operating income | FY 2025 | Approximately $50 million loss | Expected to remain relatively flat year-over-year | no change |
Other losses below the operating income line | FY 2025 | no prior guidance | Approximately $75 million | no prior guidance |
Oral phosphate binders | FY 2025 | no prior guidance | $0 to $50 million | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Adjusted Operating Income | FY 2024 | $1.91B to $2.01B | $2.09B (sum of Q1 $484M, Q2 $506M, Q3 $535M, Q4 $565M) → total $2.09B | Beat |
Adjusted EPS | FY 2024 | $9.25 to $10.05 | $11.04 (sum of Q1 $2.73, Q2 $2.56, Q3 $2.57, Q4 $3.18) → total $11.04 | Beat |
Free Cash Flow (FCF) | FY 2024 | $950M to $1.2B | ~$1.92B (derived from “Net Income” + “Adjustments/Non-Cash” ± “Working Capital” − “CapEx” each quarter) | Beat |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Share repurchase program and capital allocation strategy | Q1 2024: Repurchased 2.1M shares; temporarily suspended repurchases due to outage; invested US$300M in Latin America. Q2 2024: Emphasized growth-first approach and share buybacks if excess capacity remains; targeting 3–3.5x leverage. | Q4 2024: Reiterated same philosophy, repurchased 2.3M shares in Q4 and 800K in early 2025; still pursuing capital-efficient growth before share repurchases. | Consistent emphasis on balancing growth investments and repurchases. |
Integrated Kidney Care (IKC) performance and breakeven timeline | Q1 2024: Loss of US$26M in Q1; on track with the US$50M loss forecast; no explicit breakeven date given. Q2 2024: Year-to-date loss of ~US$60M, expecting stronger revenue in H2. | Q4 2024: Adjusted operating loss of US$35M for 2024; target breakeven remains 2026. | No change in breakeven expectation; performance largely aligns with forecasts. |
Treatment volume growth and patient acquisition | Q1 2024: 1–2% full-year growth target; mortality remained elevated. Q2 2024: Revised to 0.5–1% due to higher mortality and clinic closures. | Q4 2024: Achieved 47 bps for the full year, below prior guidance; forecast flat volume for 2025. | Ongoing challenges with missed treatments, admissions, mortality. |
Cost management and per-treatment cost trends | Q1 2024: Cost per treatment down 1% YoY, citing productivity improvements. Q2 2024: Flat costs QoQ; reduced labor expenses offset by clinic closure costs. | Q4 2024: Expects 6–7% cost increase in 2025, mostly due to inflation and oral phosphate binders. | Inflationary pressures growing; cost-control efforts ongoing but facing headwinds. |
Mortality rates | Q1 2024: Still above pre-COVID levels, impacting volume growth. Q2 2024: Identified as structural factor for ~50–100 bps gap in volume vs. pre-COVID. | Q4 2024: Remains a stable headwind; COVID in CKD-4 seen as a bigger factor than SGLT2/GLP-1 impact. | Continues to dampen volume; sentiment unchanged. |
Clinic closures and resulting market share shifts | Q1 2024: ~30 closures expected; short-term drag on volume. Q2 2024: ~200 closures in recent years; mid-size players gaining share. | Q4 2024: ~20 closures per year considered normal; no discussion of share shifts. | Closure pace returning to normal; smaller competitors grew share earlier. |
International business performance | Q1 2024: US$15M sequential OI improvement; acquisitions in LatAm offset by higher bad debt in Brazil. Q2 2024: No specific mention. | Q4 2024: Recorded US$19M reserve in Brazil; expects ~US$50M YoY OI growth in 2025 driven by acquisitions and normalization. | Continued expansion with near-term hit from Brazil AR reserve. |
Free cash flow, liquidity, and leverage considerations | Q1 2024: -US$327M FCF due to delayed claims; revolver draw raised leverage to 3.3x. Q2 2024: US$654M FCF; leverage at 3.1x. | Q4 2024: US$1.16B FCF; leverage ~3x; 2025 FCF guidance of US$1–1.25B. | Strong improvement and stable leverage within target range. |
Supply chain disruptions | Q1 2024: Not referenced. Q2 2024: Not referenced. | Q4 2024: Hurricane Helene disrupted PD supply, causing ~350 lost admissions; ~15–20 bps negative impact on 2025 growth. | Newly mentioned issue in Q4, negatively affecting home dialysis volumes. |
Leap year effect | Q1 2024: Not referenced. Q2 2024: Expected ~30 bps benefit in H2 2024. | Q4 2024: ~20 bps benefit in 2024; none expected in 2025, contributing to flat growth outlook. | Known short-term tailwind in 2024 becomes a headwind in 2025. |
Change Healthcare outage affecting claims | Q1 2024: Significant disruption; contributed to negative FCF, required revolver draw. Q2 2024: Partial repayment of funds; recovery of claims in progress. | Q4 2024: Mentioned only as a past hurdle with no ongoing effect. | Issue largely resolved; no lasting impact on financials. |
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Volume Growth Outlook
Q: Are you assuming flat treatment volumes for 2025?
A: Yes, we expect flat volume growth in 2025, compared to a 50 basis point increase in 2024 [1]. The decline is due to two factors: first, the leap year effect, as 2024 was a leap year adding about 20 basis points of extra growth that won't recur in 2025 [1]. Second, we lost approximately 350 peritoneal dialysis (PD) patients due to a hurricane disrupting PD supply in Q4 2024, impacting 2025 volumes by about 15 to 20 basis points [1][5][6]. Our core metrics like mistreatment rate, mortality, and admissions are expected to be similar to 2024 [1]. -
Impact of Oral Drugs Inclusion
Q: How will including oral drugs in the bundle affect operating income?
A: The inclusion of oral phosphate binders into the bundle could impact operating income by $0 to $50 million, with the midpoint being the most likely outcome [2]. The wide range is due to variables like drug mix (generic vs. branded), volume, and patient adherence, which is currently low due to a heavy pill burden [2]. We're being prudent since this is new territory and expect more clarity as the year progresses [2]. -
Patient Treatment Cost Increase
Q: What's driving the 6-7% increase in patient treatment costs?
A: We anticipate patient care costs to grow by 6.5% in 2025 [3]. This includes 3.75% from historical costs and 2.75% due to the inclusion of oral drugs in the bundle [3]. Both labor costs and other expenses are expected to increase at about the same 3.75% rate, with labor continuing to face higher pressure than pre-COVID levels [3]. -
Revenue per Treatment Growth
Q: What's contributing to revenue per treatment growth, and any expectations for payer mix?
A: Revenue per treatment will benefit from the annualization of collections improvement worth approximately $50 million [11]. We expect the commercial mix, currently at 11%, to increase by a few tens of basis points [11]. Patients on exchanges make up about 3% of our population, up from 2% before enhanced premium tax credits [11]. -
Integrated Kidney Care (IKC) Progress
Q: Any updates on IKC patient counts and path to breakeven?
A: IKC is expected to be flattish in 2025, and we're still on track to reach breakeven in 2026 [15]. We're focused on driving margin and are being selective with contracts, so membership growth may be slower in 2025 [19]. IKC operating income is typically back-half loaded due to seasonality and timing of revenue recognition [14]. -
Capital Deployment Strategy
Q: How do you plan to allocate capital regarding share repurchases and M&A?
A: Our capital deployment philosophy remains consistent [4]. We'll pursue capital-efficient growth, targeting leverage in the 3 to 3.5x range, and excess capital will go toward share repurchases [4]. We're exploring M&A opportunities and could invest hundreds of millions of dollars, but we don't expect significant changes to our share repurchase program [4]. -
SGLT2 Inhibitors Impact on Volumes
Q: Are new diabetes drugs affecting treatment volumes?
A: We believe the impact of SGLT2 inhibitors on our patient population is currently quite low [5]. Our admission growth has been stronger than USRDS data but weakened in Q4 2024 [5]. If there's any negative impact on admissions, it's more likely due to mortality in CKD stage 4 patients from COVID rather than these medications [5]. -
Noncontrolling Interest (NCI)
Q: Is the percentage of operating earnings attributable to NCI increasing?
A: No, the NCI percentage remains consistent [8][9]. Any quarter-to-quarter variations are due to collection dynamics, but overall, there's no underlying trend change [8]. -
General & Administrative Expenses Increase
Q: What's driving the rise in G&A per treatment?
A: G&A expenses are up due to two factors [13]. About half is from traditional cost inflation, and the other half is from investments in areas like IT and revenue operations, which are yielding benefits in other line items [13]. -
Brazil Reserve Impact
Q: Did the $19 million reserve in Brazil affect operating income?
A: Yes, we took a $19 million reserve related to aged accounts receivable, which impacted operating income this quarter [20]. This doesn't affect the underlying earning power of our international business [20].