Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- DaVita Inc (DVA, Financial) reported adjusted operating income of $506 million and adjusted earnings per share of $2.59, exceeding expectations.
- The company has implemented successful programs to address the nursing shortage, including collaborations with nursing universities, clinical internships, and a nurse residency program.
- Revenue per treatment (RPT) growth is expected to be between 3.55% to 4% for 2024, driven by improvements in collection capabilities and health plan negotiations.
- DaVita Inc (DVA) raised its 2024 adjusted operating income guidance to a range of $1.91 billion to $2.01 billion, reflecting sustained momentum in key operating metrics.
- The company has made targeted investments in technology and automation to improve overall collection rates and reduce days sales outstanding.
Negative Points
- Volume growth was lower than expected due to elevated missed treatments related to spring storms and lower than expected census gains.
- The company faced approximately $15 million in center closure costs in prior periods, which impacted adjusted operating income.
- Mortality rates were higher than forecasted, negatively impacting volume growth expectations for the second half of the year.
- The CMS proposed rule for 2025, with a rate increase of approximately 2.1%, falls short of reflecting the true cost inflation in the industry.
- DaVita Inc (DVA) expects treatment volume growth to be between 0.5% and 1% for the full year, which is below initial expectations.
Q & A Highlights
Q: Can you give us any color on what you saw through the quarter and what you saw in July, and what gives you confidence in the high end of your revised guidance?
A: Through the quarter, we saw elevated missed treatments and lower-than-expected census growth. New to dialysis admissions remain strong, but mortality was higher than forecasted. We have an extra treatment day in the second half of the year, which adds about 30 basis points of growth. We haven't modeled significant changes for the back half of the year, maintaining a cautious outlook.
Q: Can you bridge us to the components of how you raised guidance by $95 million versus previous guidance?
A: The dominant factor is revenue per treatment (RPT) growth, which moved from 3% to 3.5%-4%, worth roughly $85 million. Improvements in labor costs, including reduced premium pay and better productivity, add about $30 million. Offsetting this is a $20 million headwind from lower volume.
Q: What is driving the elevated mortality, and do you expect it to normalize?
A: Mortality is higher than expected, and while we have hypotheses like an elevated flu season, there's no definitive answer. We believe this is not a structural change and expect mortality to revert to normal levels over time. We are monitoring new to dialysis admissions, which remain strong.
Q: Can you provide more details on the improvement in collections and how much runway is left beyond 2024?
A: The improvement in collections is a multi-year effort, and we expect benefits to continue into 2025. While the contribution to RPT growth will decline over time, the improvements achieved so far are sustainable. It's hard to predict the exact runway, but the gains have exceeded our expectations.
Q: How do you see the international operating income margins evolving over the next few years?
A: Growth in international operating income is expected to be higher, driven by acquisitions in Latin America. However, achieving US-level margins is unlikely due to the diverse payer environments and varying dynamics across countries. The focus remains on ensuring risk-adjusted returns and managing cash flow effectively.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
