DaVita Inc
NYSE:DVA
| US |
|
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
| US |
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
Financial Services
|
| US |
|
Bank of America Corp
NYSE:BAC
|
Banking
|
| US |
|
Mastercard Inc
NYSE:MA
|
Technology
|
| US |
|
Abbvie Inc
NYSE:ABBV
|
Biotechnology
|
| US |
|
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
| US |
|
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
| US |
|
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
| US |
|
Visa Inc
NYSE:V
|
Technology
|
| CN |
|
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
| US |
|
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
| US |
|
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
| US |
|
Coca-Cola Co
NYSE:KO
|
Beverages
|
| US |
|
Realty Income Corp
NYSE:O
|
Real Estate
|
| US |
|
Walt Disney Co
NYSE:DIS
|
Media
|
| US |
|
PayPal Holdings Inc
NASDAQ:PYPL
|
Technology
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
73.2
165.19
|
| Price Target |
|
We'll email you a reminder when the closing price reaches USD.
Choose the stock you wish to monitor with a price alert.
|
|
Johnson & Johnson
NYSE:JNJ
|
US |
|
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
US |
|
|
Bank of America Corp
NYSE:BAC
|
US |
|
|
Mastercard Inc
NYSE:MA
|
US |
|
|
Abbvie Inc
NYSE:ABBV
|
US |
|
|
Pfizer Inc
NYSE:PFE
|
US |
|
|
Palantir Technologies Inc
NYSE:PLTR
|
US |
|
|
Nike Inc
NYSE:NKE
|
US |
|
|
Visa Inc
NYSE:V
|
US |
|
|
Alibaba Group Holding Ltd
NYSE:BABA
|
CN |
|
|
3M Co
NYSE:MMM
|
US |
|
|
JPMorgan Chase & Co
NYSE:JPM
|
US |
|
|
Coca-Cola Co
NYSE:KO
|
US |
|
|
Realty Income Corp
NYSE:O
|
US |
|
|
Walt Disney Co
NYSE:DIS
|
US |
|
|
PayPal Holdings Inc
NASDAQ:PYPL
|
US |
This alert will be permanently deleted.
DaVita Inc
You don't have any saved screeners yet
Good evening. My name is Sheila and I will be your conference facilitator today. At this time, I would like to welcome everyone to the DaVita First 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. [Operator Instructions] Thank you.
Mr. Gustafson, you may begin your conference.
Thank you and welcome everyone to our first 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 the 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 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 those 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 most 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.
Thank you, Jim, and good afternoon. Over the last several months, we have made incredible progress in our efforts to combat the COVID-19 pandemic, and it’s with continued optimism that I provide several updates today starting with vaccination, followed by a summary of the first quarter performance, then an update on our improved outlook for the year, and finally an overview of our ongoing commitment to ESG.
Q1 brought a lot of smiles as a kidney care community administered hundreds of thousands of vaccines to its patients. Providers worked closely with the Biden administration, the CDC, and state governments so the dialysis patients could be vaccinated in a trusted and convenient side of care. We knew that this would help our patients overcome transportation and other access challenges getting to third-party sites. And we had confidence that the hesitancy rate would decline when they received education from a trusted caretaker. Thanks to all the hard work by our teams and the government partners, I’m proud to say that as of yesterday, 72% of our patients nationwide have received at least one vaccine dose.
We also saw an opportunity to positively impact health equity by administering COVID vaccine in our clinics. Similar to the early results in the broader U.S. population in the first few weeks of the vaccine rollout, we saw the vaccination rates for black and Hispanics were approximately 40% below that of white and Asian Americans. This did not sit well with us. We got to work and mobilize our care teams including social workers, dietitians, and medical directors to have one-on-one conversations with patients to address common causes of hesitancy. Our Hispanic patients have now been vaccinated at nearly the same rate as white patient and the gap for our black patients has been reduced to 10%. We are not done. Our pursuit for health equity continues.
On to our first quarter financial results, we delivered solid performance in Q1 as our operating margins returned to 15.7% in the quarter, while we continue to lead through the continued challenges presented by the pandemic. And we covered on our last call, treatment volumes declined in Q1. Our treatments per day hit a low point in mid-February, including the impact of approximately 25,000 mid treatments from the winter storm. Since then, our daily treatment trends have steadily improved. If these trends continue, absent any further infection surges, we believe that our sequential patient census growth through the end of the year could return to pre-COVID level, which is what we incorporated in our guidance ranges we provided last quarter.
We’ve provided a bit more detail on volume that supports our outlook. First, with our update in Q1, COVID case counts and new infections within our dialysis population have continued to decline. As of last Friday, the number of active cases amongst our patient across the country decreased approximately 85% from peak prevalence on January 6, 2021. In the last seven day incidence rate for new cases decreased approximately 91% from the week ending January 9, 2021.
Second, we’re grateful that we’re seeing a dramatic decline in the mortality rates associated with COVID. We previously shared that the unfortunate incremental mortality associated with COVID was approximately 7,000 in 2020. In 2021, both our patient mortality count and mortality count in the general population peaked in January. In the first quarter incremental mortality associated with COVID was approximately 3,300 lives, with more than half of that number occurring in January, decreasing to approximately 600 in March. It is too early to provide an estimate for April, but we expect the results will improve versus March.
Chip into full year outlook. Our view of core operation performance for the year remains largely unchanged from our original guidance. However, now that the likelihood of some downside scenarios has decreased due to the trends I had previously mentioned, we are increasing our adjusted earnings per share guidance range to $8.20 to $9 per share, and our adjusted operating income guidance range to $1.75 billion to $1.875 billion. At the midpoint of our revised adjusted operating income guidance this would represent approximately a 4% growth year-over-year. These revised ranges assume no further major disruption from the virus range.
My final topic is our ongoing commitment to environmental, social, and governance matters, or ESG. ESG has become a more significant topic of conversation and investment community over the last couple of years. These are not new areas of focus for us at DaVita. Our beliefs are incorporated into our stated vision of social responsibility that has three components, caring for our patient, caring for each other, and caring for the world around us, including both our communities, and our environment. DaVita continue to execute against this vision, providing top quality clinical care for our patient is at the core of what we do, and because have already spoken at length about our patients care and our efforts to vaccinate our patients, I’d like to highlight a few of our achievements in caring for our teammates, and caring for the world around us.
I believe that fostering an environment rich in diversity and where we all feel that we belong is imperative to our culture, and how we connect with each other, and how we connect with our patients every day. In our commitment to cultivating diversity is evident throughout the organization. It starts with the Board of Directors currently made up of nine leaders from 67% are diverse, including four women and three people of color. The diversity of our team extends to leaders who run the core operations in our clinics, of whom 52% are female, and 27% of people of color. These results have been achieved through thoughtful and deliberate practices to create a diverse pipeline of talent.
In 2021, we published our first report on diversity and belonging, disclosing many of our company’s diverse metrics in our ongoing efforts to cultivate a diverse organization in which everyone feels that he or she belong. We also recently publish our 14th Annual Corporate Social Responsibility report and our first ESG report. These reports disclosed the progress we made in 2020 and lay out our ambitious ESG goals for 2025 including goals to reduce carbon emissions by 50%. To have vendors representing 70% of emission set climate change goals and to achieve engagement scores of 84% or higher among our teammates population. We are pleased with our progress to date on diversity and ESG. And as you can see by our goal, we have a lot more we hope to accomplish.
With that, I’ll turn the call over to Joe.
Thanks, Javier. Q1 was a strong start to the year with solid financial performance. For the quarter, we recorded revenue of approximately $2.8 billion operating income of $443 million and earnings per share of $2.09. As Javier referenced, treatment volume was a large headwind and our non-acquired growth was negative 2.2% compared to negative 0.3% in Q4. While COVID presented the main challenge to NAG in Q1. Winter storms, particularly Uri were responsible for about 30 basis points of the NAG decline, treatments per day bottomed out during the first quarter. So we expect to start seeing quarter-over-quarter growth in Q2. We continue to expect that NAG will be negative for the year, although we expect to see an acceleration of NAG in 2022 and 2023 as mortality rates may be lower than the pre-COVID levels for a few years.
U.S. dialysis revenue per treatment grew sequentially by almost $3 this quarter, as a result of the Medicare rate increase, higher enrollment in MA plan, a slight improvement in commercial mix and higher volume from our hospital services business. Partially offset by the seasonal impact of coinsurance and deductible. U.S. dialysis patient care costs declined sequentially by approximately $6 per treatment, although we continue to experience elevated costs due to the pandemic, such as higher PPE, and certain clinical level expenses from continued infection control protocol.
Our Q1 patient care costs included in nearly $2 per treatment benefit from our power purchase agreement, benefits that we do not expect to persist through the rest of the year. For the quarter, the net headwind related to COVID was approximately $35 million, consisting primarily of higher PPE costs, and the compounding effect of patient mortality associated with COVID partially offset by the benefit from the sequestration suspension, with a number of other items that largely offset each other.
For fiscal year 2021, we now estimate the net negative impact from COVID to be approximately $50 million lower than our guidance last quarter. This is the result of lower COVID impact in Q1. The recently passed extension of the Medicare sequestration relief through the end of the year, and lower other offsets including T&E in the back half of the year. At the middle of our guidance range, this would equate to a $150 million negative impact from COVID in 2021.
Our DSO increased by approximately seven days in Q1 versus Q4, primarily due to temporary billing holds related to the winter storms and the changes in calcimimetics reimbursement. In certain circumstances, we hold claim to make sure we have complete an accurate charge information for payments. This quarter, we had more of these holds, and the last, single largest driver was related to winter storm Uri, which impacted more than 600 of our centers until right in the middle of the quarter.
This has the effect of pushing a significant amount of cash flow from this quarter to the next and cause the corresponding DSO increase in the interim. While claim hold shift cash flow between quarters, they have no negative impact and what we ultimately expect to collect. We’ve already seen a significant increase in cash collections in April and expect a corresponding positive impact on both cash flow and DSOs over the next two quarters.
A couple of final points. In the first quarter, we repurchase 2.9 million shares of our common stock and to-date in April, we repurchase approximately one million additional shares. Debt expense was $67 million for the quarter. We expect quarterly debt expense to increase to approximately $75 million beginning next quarter as a result of the $1 billion of notes issued in late February.
Before we open up the line for Q&A, let me share some reflections. Over the past year, our teams and our business experienced unusual volatility and challenges due to the pandemic. We have weathered this very difficult period because of our dedication of our people, our scale, our innovation, in holistic platform and approach to patient care. As I look forward, our organization is stronger. Our relationships with patients have deepened, that have even more resolved that our comprehensive kidney care platform is well positioned to deliver a best-in-class value proposition for our patients, physicians and hospitals and payer partners.
Now, let’s open it up for Q&A.
Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question will come from Pito Chickering with Deutsche Bank. Your line is open.
Good afternoon, guys, and thanks for taking my questions. First one is on the operating income guidance that you raised it by 3.5% or about $63 million at the midpoint. And you talked about some of the gives and takes sequestration and/or impact in COVID and lower sort of costs in the back half of year. Can you sort of help us quantify which were the drivers of those?
Sure. Hello, Pito, it’s Joel here. So I would think about three things really. We beat this quarter, so obviously that helps with the full year. Sequestration was the biggest driver here and that’s about $50 million. And then looking towards the back half of the year, we’ve taken down some of the COVID offsets that we were expecting from G&A and T&E. As things get a little bit better, we were not expecting as much offset in Q3 and Q4. So you put that all together and that’s where you’ll wind up.
Okay. And then the treatment growth declined 1.3% sequentially and 2.2% year-over-year. I understand there are a lot of missed treatments from host relations from the storms. They’re offset by your acute business and obviously the mortality issue. With that being said, is there any chance you can give us monthly treatments during the quarter and through April? Or just help us understand the pace of recovery and how you plan to get back to patient census to pre-COVID levels by the end of the year.
Yes. Pito, I appreciate the question. We’re not going to give monthly, but let me try and help out a little bit. February was the bottom. And that was driven largely by the mortality issue, but also Uri the storm resulting in about 25,000 missed treatments. We saw recovery in March both as the mortality issue got better as well as the recovery after the storm, and then April trended a little better from there as well. I think it’s a little early to quantify it and try and use a number to draw a trend line. These numbers can bounce around a bit. So that’s where we are.
And the last question, the revenue per treatment was pretty strong, with all the items you laid out. So two quick questions. The first is how much did co-pay pressure did you see in the first quarter? So what would be a good assumption for revenue per treatment in 2Q? And as you look forward for the next couple of years, is there a reason why a 2% revenue per treatment growth wouldn’t be the right assumption to make?
Yes. So a couple of things I’d highlight about Q1 RPT. In terms of quantifying the co-insurance and deductible, that’s somewhere in the $5 to $6 of treatment range. So you’d add that to what you’d expect to see in Q2. We also had a pickup in Q1 over Q4 as a result of calcimimetics. I’ll remind you, calcimimetics OI in 2021 will be similar to 2020, but the seasonal pattern will be very different. So we picked up $2 – about $2 of RPT in Q1 over Q4 from that. In terms of looking forward about what RPT will look like, we’ve moved away from guiding on RPT as you’ll remember. In terms of what’s a reasonable number, is 2% reasonable? I wouldn’t say it’s unreasonable, but it might be a little on the high end of the range that I probably think about, but we’ll have more to say on 2022 RPT obviously later in the year.
Great. Thanks so much.
Thank you. Our next question…
I’m sorry, operator. Pito, just to jump in on that, that my comment, obviously, you’d have to adjust for sequestration, which would go away presumably between 2022 and 2021 and that would be a big number.
Yes, of course. It’s more so just excluding sequestration to gives and takes within the overall market demand, the shift to MA, was a 2% reasonable.
Exactly.
Thank you. Our next question will come from Kevin Fischbeck with Bank of America. Your line is open.
Great. Thanks. Maybe just staying on the RPT for a second. Is it fair to say that when you listed the things that throw RPT in the quarter, that they were listed in the order of importance that the rate update was the biggest one?
I’d say there are four things and they’re roughly all about the same order of magnitude, and that’s the Medicare rate update, calcimimetics, the mix changes – commercial mix change and then MA. They’re roughly in the same order of magnitude.
Okay, that’s helpful. And then I guess, when we think about the improvement in volumes that you expect to see as the year goes on, how should we think about that from a mix perspective? Is that volume improvement, disproportionately commercial improvement? And does that have any implications for margins or profits?
Yes. So I’d say the likelihood is that the mix will be more Medicare than commercial. Remember, the mortality we’ve seen as a result of COVID was disproportionate in the older population as you would expect, and our older population is disproportionately Medicare. So as you see the unwind happen from COVID over the next X number of years, we think that would lead to a lower kind of our commercial mix trending down a bit. In terms of the implications for margin, there’s an offset to that, recognizing that these new patients will be filling unused capacity and that would have a tendency to drive margins up. How those two – those countervailing forces play forth, remains to be seen and it’s a tough number to predict its dependent on a lot of the some of the underlying assumptions.
Okay, that’s helpful. If it wasn’t 100%, clear to me, what you were saying as far as your bridge to the guidance. You’ve said he took down some of the COVID offsets, does that – are you basically saying that you were prepared for things to get worse, and you had cost cuts all lined up and now that things are coming in better you don’t feel the need to push that as much as that?
No, our T&E is down. And it’s been down since the beginning of COVID, as teammates travel less, and we had modeled that continuing through the end of the year. And now we think, for example, that T&E in Q3 and Q4 could return closer to pre-COVID levels. So the offset, the benefit we got from lower T&E is probably going to be less than we anticipated.
Okay, that’s helpful. And I guess last question, can you give an update on your contracting outlook for Medicare Advantage. Are there any large books of business that are up for renewal next year? And how are things going on as far as rates and conversations around going to more value based models?
Yes, Kevin, this is Javier. How are you? Thanks for the question. Let me just start off by saying that there is no spike or change in volume of renewals or anything like that it’s in its normal cycle. The conversations continue to be highly, highly aligned and trying to make sure that we add more value to the patients and help in the care continuum. So, and the fact that we’re doing more complicated contracts, instead of a fee-for-service, means that it takes longer. So as it relates to that there’s nothing sort of there to talk about, because the outlook is kind of unchanged, and it’s incorporated in our guidance.
All right, thanks.
Thank you.
Thank you. [Operator Instructions] Our next question will come from Justin Lake with Wolfe Research. Your line is open.
Thanks. Good afternoon. Few questions to you. First, in terms of the guidance change, it looks like you talked about things getting a little bit better on the COVID front, I think you said $50 million when you knit it all together, and that’s basically we took up or what you took the guy by? So does that imply that the first quarter looked better than my model and I think better than consensus? So does that mean that the quarter was actually kind of in line with your views? Or was the first quarter kind of materially better from an OI perspective?
Yes, I’d say Justin, the, the Q1 was within the range of what we were expecting, I’d say it’s a little bit on the positive side, but it’s early in the year to start tinkering with our full year guidance and our full year forecast. So despite what I would characterize as a strong quarter, we chose to keep things in line.
Okay. And then the $150 million, I think you said Joel, was the net COVID headwinds?
Correct, for the year.
For the full year. Okay. So, but it looks like that has a bunch of different components, right? If I think about it, there’s COVID costs right, as a part of it, there’s the negative impact on treatments, then there’s the benefit of sequestration, which it sounds like you put in there. And then there’s some cost offsets. So, I’m just trying to think about, is there any way to help us understand those four buckets?
Yes. So you’ve got it right. And I think it ultimately, it’s a pretty simple calculation. You take the excess costs associated with PPE and that roughly offsets with sequestration. And then everything else is a wash and what you resulted in is basically, the negative impact of mortality, which is in that $150 million range. So there are a lot of moving pieces, but net-net, they mostly cancel out and leave you with the impact of mortality.
Okay. And then as you think about the impact on mortality, obviously to your point, we probably saw a bottom in the first quarter, and things are expected to get better through the year. So, I’m just trying to think about the pace of that, $150 million, right? Because it’s the exit rates going to be important coming out of fourth quarter, to think about the impact on next year. So, can you help us think about that, in terms of where you think that impact is in this quarter? And where you think that impact will be kind of in the fourth quarter?
Yes. So this stuff gets pretty technical, pretty quickly. But let me try and help you out. I think the way I would think about it to simplify it as you start with what our typical NAG is. And if you want to grab a number, go back pre-COVID and pick something in the low 2%s, 2.2%, something like that. And you really see that impacted by any continued excess mortality. But again, we think that’s declining rapidly, you’ll probably see some in Q2, but going down quickly, again, assuming COVID plays out the way we expect on its way out. But obviously things could be different.
So start with NAG, add excess mortality then adjust for what could be a challenge to the pipeline, if you want to assume there’s any CKDs for impact. We don’t have data on that. But if we look at what we see in terms of new agonists, we don’t see any impact there that we don’t see any impact from that right now, but you’d have to incorporate that. And then we see a tailwind coming up as patients who otherwise would have died in the next quarter or two passed away as a result of COVID. And that’s a hard one to measure.
So that’s how I’d model it. If you want to get kind of simplistic and I realize I’m throwing a lot of numbers and a complicated story at you. I think…
I’m begging you to get the perfect Joel.
You add back the tailwind associated with lower mortality post-COVID. And that’s how you start modeling what NAG looks like going forward.
All right, I’ll not smart enough to figure that out. But we’ll talk about it offline. Just last question. The – can you give us the commercial mix change from kind of, what you were looking at in the fourth quarter kind into the first quarter here?
It went up a small amount, not much, but it was up a little bit.
All right. Thanks, guys.
Thank you. Our next question will come from Pito Chickering with Deutsche Bank. Your line is open.
Hey, thanks for taking my follow-up questions. A couple quick ones here. It’s been a pretty fun two years from a share repurchase perspective, I’m just curious, what we think about is the right leverage ratio for the business at this point, it kind of where should we deploy the rest of that into share repo is it around 3.5, at this point so want to just get a feeling for how we should think about leverage ratios versus share repo?
Yes. So look, I think we’ve been pretty consistent on this. And nothing has really changed; we want to be in that three to 3.5 times where we’re at 3.39. Right now, we did a $1 billion bond deal during the quarter. Cash flow for the rest of the year is likely to be relatively strong. You saw cash flow in Q1 was weak. And we think we’ll make that up over the course of the year, but no reason to think our philosophy and approach to leverage ratio and buybacks is going to change over the near future.
Second one is quicker one, what was the percentage of your Medicare Advantage penetration, this year versus last year?
We disclosed last time as our expectation is in line, what we said was mid-to-high 30% and markets roughly around 43%. So, we’re slightly below the rest of the market still in the mid-to-high 30s.
Okay. So what percent of your patients were treated in the home this quarter, if you see that accelerating, sort of in this post-COVID environment?
The percentage hasn’t changed much because with NAG decreasing, but that segment of our business did increase in particular PD, PD grew around 4%. Home hemodialysis, the HH part of it decreased, but net-net that’s the segment of the businesses that continues to grow. We think that there is appetite from the physician community and the patients to have more flexibility and freedom. And we are innovating and creating a lot of technology so that the patients feel more comfortable and more confident, more convenient, being connected to our care site. So, we do expect that the modalities will continue to grow.
Okay, great. Thanks so much guys.
Thank you.
Thank you. We are showing no further questions at this time.
Okay, well, hopefully that short means that it was pretty clear. Let me just say some closing comments. Q1, 2021, in my mind, and in my heart and in many of our caregivers will always be remembered and come with a lot of fulfillment for vaccinating literally 10s of 1000s of patients, in many instances not being dramatic or overstating it literally life sustaining.
Second, the quarter financials are pretty straightforward and pending a shift in the virus. We begin a path toward our historical normalization. And then lastly, our teams continued unwavering commitment towards caring and innovating to improve the lives of our patients. We thank you for your interest in DaVita. And we look forward to talking to you soon. Stay safe.
Thank you. That does conclude today’s conference. Thank you for participating. You may disconnect at this time.