NVIDIA Q4 2022 Earnings Call Transcript

Quartr
Provided by Quartr
February 22, 2023

There are 9 speakers on the call.

Operator

Thank

Speaker 1

you. Good evening. My name is Michelle, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the DaVita 4th Quarter 2022 Earnings Call. Today's conference is being recorded.

Speaker 1

If you have any objections, you may disconnect at this time. 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.

Speaker 1

Lisen, you may begin your conference.

Speaker 2

Thank you, and welcome to our Q4 conference call. We appreciate your continued interest in our company. I'm Nick Eliason, Group 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 the actual results to differ materially from those described in the forward looking statements.

Speaker 2

For further details concerning these risks and uncertainties, please refer to our Q4 earnings press release and our SEC filings, including our most recent annual report on Form 10 ks, all subsequent quarterly reports on Form 10 Q and other subsequent filings that we may make with the SEC. Our forward looking statements are based on 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 most comparable GAAP financial measures Is included in our earnings press release furnished to the SEC and available on our website. I will now turn the call over to Javier Rodriguez.

Speaker 3

Thank you, Nick, and thank you all for joining the call today. We start 2023 with a mix of optimism and uncertainty about the year ahead and with continued conviction in our long term capabilities and strategy. We're grateful for getting through the winter without a surge of COVID related mortality and like bunch of society wondering whether the worst of the COVID pandemic It's finally behind us. I'm encouraged by the progress we've made in the recent months to improve that which is within our control, while we continue to invest in our future. That said, we're cautious in our optimism today because we're still experiencing the impact on volume and labor.

Speaker 3

For today. I'll spend a few minutes on Q4 results and then focus on the future with a summary of our 2023 strategic priorities and then end with our 2023 outlook. Before I dive into these topics, I'll start as I always do with a clinical highlight. Our most impactful clinical initiatives are those that directly improve the quality of life and vitality of our patients. There are many measures serving that important purpose.

Speaker 3

And today, I'll take a moment to recognize the successful efforts to decrease infection rates amongst our vulnerable patient population. One way we measure success is by tracking bloodstream infection, And I'm proud to share that we achieved an all time low bloodstream infection rate for our patients as of the Q3 last year. This reflects a 20% improvement within the last year alone. These results represent just one of many efforts we have undertaken to reduce hospitalizations and mortality, which is a tremendous gift for our patients and their family. I will now pivot to our results.

Speaker 3

Our full year 2022 adjusted operating income came in at the top end of our revised guidance at $1,450,000,000 Adjusted earnings per share from continuing operations for the full year 2022 With $6.60 and we generated $817,000,000 of free cash flow. The primary driver of our 4th quarter performance coming in at the high end of our range was improvement in labor costs. The labor environment continues to be challenging across many dimensions, but 4th quarter was certainly better than 3rd quarter. One particular highlight, our focus on reducing contract labor produced results earlier than expected. We still expect contract labor will be higher than pre COVID levels in 2023 by $20,000,000 to $40,000,000 but that will be significant improvement to 2022.

Speaker 3

We continue to make progress in hiring teammates during the quarter as we work to stabilize center staffing levels and increase retention. Of note, this increase in labor capacity We'll continue to drive higher than typical training and onboarding costs in 2023 until retention normalizes to historical level. We continue to expect wage pressure above historical norms in 2023, but anticipate wage growth at levels below 2022. Despite early optimism for improvement in 2023, the labor markets remain highly dynamic and will remain a key swing Onto volume. Overall results for Q4 were in line with our guidance from last quarter.

Speaker 3

COVID infection and mortality rates in December January were lower than in prior years, which is a welcome relief for our patients and our caregivers. Because the winter surge has historically occurred late in December, the lack of a surge did not result in material improvement Our treatment volumes in Q4 relative to our expectation, but has reduced our expectations for total excess mortality in 2023 by approximately 1,000 patients as compared to our expectations in the range provided last quarter. Last quarter, we also highlighted that patient admissions and mistreatment rates as a key variable to our volume. We continue to see pressure on both of the metrics, but at the levels in line with our most recent expectations. For 2023, we continue to use a wide range of possible volume outcomes in our guidance given the uncertainty of the virus.

Speaker 3

We have shifted the range up to account for the lack of a meaningful winter surge so far, but have not fully discounted the possibility of a COVID surge later in the year. Our 2023 volume guidance includes a treatment range of down 3% The flat relative to 2022. All else equal, the lack of a COVID event over the remainder of the year Would move us toward the better end of our volume range. Looking forward to 2023, We kicked off the year with a robust and exciting set of priorities. We remain resolute in our commitment to pursue strategic goals That create a strong future for our patients and our company.

Speaker 3

I will highlight 5 of these priorities today, beginning with innovation. First, we're approaching a key milestone in our journey toward digital modernization. After years of development, This year, we're deploying our next generation clinical IT platform. This new cloud based system is designed to provide seamless rollout is well underway and we expect the system will be live in our centers across the country in 2023. This platform will provide a superior experience for our teammates and physician partners, while enhancing clinical care for our patients.

Speaker 3

2nd, on policy, the kidney care community remains active working with CMMI to enhance innovative models that improve care coordination and Advanced Initiatives Around Transplant, Home and Health Equity. At the same time, we're advocating for an update to the industry bundle payment system to better reflect year over year cost increases. And finally, we continue working with the broader kidney community to restore benefit protection for our patients through legislative and regulatory efforts. 3rd, operationally, we remain committed to educating our patients and our physicians to increase adoption of home modalities where clinically appropriate. In support of our over 1700 existing home programs, We are launching transitional care programs across the country to educate new dialysis patients on their modality options.

Speaker 3

We're also working toward a full integration of our technology platform to create a holistic informational ecosystem for better home patient management. 4th, our integrated kidney care business is expected to deliver another year of significant patient growth. With the benefit of increased scale, it will be an important year for us to continue building on our capabilities for IKC to achieve its purpose of driving better outcomes for our patients, better collaborations with physicians and an economic alignment with our payer partners, particularly within the growing Medicare Advantage segment. And finally, to fuel these initiatives, We're maintaining a disciplined approach with our cost structure. For example, this includes our ongoing transition on Eantay therapy and the ongoing consolidation of our facilities footprint to align capacity with treatment volumes.

Speaker 3

This discipline is particularly important in the context of Medicare fee for service rates, which as you know have not kept pace with our increasing patient care costs. As you can see, 2023 will be a dynamic year across many of these efforts and we remain firmly focused on the key operating drivers I previously mentioned. Now shifting out to outlook. For 2023, we're initiating guidance for adjusted operating income of $1,400,000,000 to $1,600,000,000 and adjusted earnings per share of $5.45 to $6.95 This reflects our latest views on continued and the benefit of the cost saving initiatives we have previously outlined. Looking longer term, If we continue to see diminished impact from COVID and moderating labor pressure, we would expect to return to a more normal adjusted OI growth trajectory of 3% to 7%.

Speaker 3

I will now turn it over to Joel to discuss our financial performance and our outlook in more detail.

Speaker 4

Thanks, Javier. Let me first share a few more details on Q4 performance and then I'll add some color on 2023 guidance. For Q4, we delivered $317,000,000 of adjusted operating income and $1.11 of adjusted earnings per share from continuing operations, which resulted in the full year coming in right at the top of the updated guidance range we provided last quarter. For the U. S.

Speaker 4

Dialysis segment, treatments per day were down 1.3% and a higher seasonal mistreatment rate. Adjusted patient care cost per treatment was up $1.78 sequentially. There were 3 primary drivers of this increase, seasonal flu expense, year end benefits and lower fixed cost leverage because of the decline in treatment volume. These were offset by lower contract labor costs in the quarter. Adjusted G and A was down $24,000,000 quarter over quarter.

Speaker 4

This decrease was primarily Driven by the $28,000,000 of California Ballad Initiative expense in Q3. Turning to our other segments, for our IKC business, operating income was roughly flat quarter over quarter. International adjusted operating income decreased $15,000,000 quarter over quarter. This is primarily driven by $7,000,000 in foreign exchange headwinds and an expense related to acquisitions in Brazil. This acquisition expense has an offsetting decrease in taxes, so there's no net impact on the P and L.

Speaker 4

During Q4, we did not repurchase any shares. As we communicated on the Q3 call, our primary deployment of excess capital Will be to pay down debt to return to our target leverage ratio of 3x to 3.5x EBITDA. Turning to 2023, let me add some more detail on our guidance. Our 2023 adjusted operating income guidance is $1,400,000,000 to $1,600,000,000 Compared to our comments on the Q3 call about our expectations for 2023, the only significant update to our expectations Its higher treatment volume due to the lack of a winter COVID surge. To give some more color, Let me run through our latest expectations on the 3 drivers of the U.

Speaker 4

S. Dialysis business in 2023. First, we expect the year over year change in treatment volume to be between 0% and negative 3%, due primarily to the annualization of excess mortality in 2022 and continued excess mortality through 2023. 2nd, we anticipate revenue per treatment will increase approximately 2 4% year over year, driven roughly 2 thirds by rate increases and 1 third by higher Medicare Advantage and commercial mix. And third, we expect patient care cost per treatment to increase approximately 2% to 2.5%, Driven by wage rate growth and inflationary pressures, partially offset by savings from our new anemia contract and other cost saving initiatives.

Speaker 4

A few additional things to help your thinking about 2023, each of which is incorporated in our guidance. Year over year adjusted operating income is benefited by approximately $50,000,000 due to the absence of the Ballad initiative spend in 2023. Regarding timing of adjusted operating income in 2023, We expect Q1 adjusted OI to be approximately $75,000,000 to $100,000,000 lower than the average of Q2 to Q4 due to typical seasonal factors impacting among other things RPT, treatment days per quarter and labor. Regarding our previously disclosed agreement with Medtronic, We anticipate the transaction will close in the first half of this year. Our initial cash investment will be approximately $300,000,000 at closing.

Speaker 4

On the P and L, we expect approximately $60,000,000 of pre tax losses below OI in 2023, which assumes approximately $30,000,000 in the second quarter $15,000,000 per quarter over the remainder of the year. The EPS impact of this will be approximately $0.47 in 2023. For IKC, we expect OI to be flat to slightly down in 2023 relative to 2022. This is driven by additional growth expenses offset partially by increased shared savings. Our interest expense assumption for the year is $405,000,000 to $425,000,000 For income tax, we anticipate an effective rate of 25% to 27%.

Speaker 4

On cash flow, we expect free cash flow from continuing operations of $650,000,000 to $900,000,000 And finally, we anticipate our leverage ratio at the end of 2023 to be in the range of 3.6 to 3.9x2023 EBITDA. That concludes our prepared comments for today. Operator, Please open the call for Q and A.

Speaker 1

Thank for questions. Our first caller is Andrew Mok with UBS. You may go ahead, sir.

Speaker 5

Hi, good afternoon. To start, you delivered the high end of the revised guide this quarter, but you're leaving the OI growth for 2023 unchanged. So can you help us understand those dynamics a bit better because it sounds like labor costs and volumes are both trending better, which would presumably lead to a better OI outlook for 2023? Thanks.

Speaker 4

Yes, Andrew. Hello, I'll take that one. So I'd say relative to the guidance we gave on the Q3 call, we've really learned 2 things. 1 is, as you highlighted, The quarter came out at the high end of our range, largely as a result of labor. And the second is we didn't have a winter surge.

Speaker 4

As we looked at guidance for the year, we incorporated the volume improvement from no winter surge. We looked at the labor dynamic and ultimately we concluded to leave our labor guidance for 2023 unchanged, really for two reasons. 1, we did see improvement in Q4, but some of that was improvement that we really anticipated in the front half of 2023. It just came in earlier than expected, so you wouldn't expect that to change 2023. The second is we're in a really dynamic labor environment.

Speaker 4

And given all the moving pieces, We ultimately concluded 1 quarter's worth of outperformance wasn't enough yet for us to change our views. So for that reason, We kept labor where it is and the improvement in the guide for next year is really the result of better volume because of no COVID surge in the winter.

Speaker 5

Got it. Do you have the number for contract labor costs in the quarter?

Speaker 4

Yes. Contract labor costs in Q4 was down about $14,000,000 relative to Q3.

Speaker 5

Okay. And then in the prepared remarks, you noted that you would expect to return to a more normal OI trajectory of 3% 3% to 7% if COVID normalizes. Can you help us understand what level of visibility you have into incidence rates for new patients to drive confidence in that restored growth rate should COVID normalize?

Operator

Sure. I'll grab that one. In essence, when we think of growth, we think of it in 2 categories. 1 is what's within our control and The other is the macro factors. Within our control, as we said in the Q4, we've made some progress.

Operator

We will continue to make progress on being staffed and ready to accept new patients. On the macro, which is sort of the question that many are asking, what is upstream new patient looking like? There are some questions that we still can't quantify, some variables that we still can't quantify. That said, there is nothing we've seen That leads us to conclude that there's a permanent change to new starts. And so the best assumption at this juncture To assume that after COVID plays out that admits would revert to the roughly 2% that we experienced historically.

Speaker 5

Got it. And just a follow-up. I wanted to ask about the ESA switch from EPOGEN to MERCERRA. What sort of cadence are you expecting with respect to transitioning patients? What have you done so far?

Speaker 5

And when do you expect that transition to be complete? Thanks.

Operator

Yes. The cadence is obviously done very carefully with the coordination of all the physicians making their own independent decisions as to what's right for each patient. It will roll out throughout the year and we should be done by the end of 2023.

Speaker 6

Great. Thanks for the color.

Operator

Thank you.

Speaker 1

Thank you. Our next caller is Pito Chickering with Deutsche Bank. You may go ahead, sir.

Speaker 7

Hey, guys. Good afternoon. Sticking with the incidents for a few minutes, it's pretty delayed, but looking at the U. S. RDS incident count for the first half of twenty twenty two is down sort of 5% versus 2021.

Speaker 7

I guess, can you guys help quantify So what your new ads were sort of quarterly throughout 2022? Will you guys sort of assume that to be in 2023?

Speaker 4

Yes. So, our admission rate in 2022 was lower than What we've seen prior to COVID, we called that out and I think that's really one of the big drivers of why What I'd call organic volume or organic growth is down. That's been persistent. It kind of Picked up through the back half of the year and we haven't seen it come down, which is why our guide for 2023 Continues basically to track what we saw in 2022. We haven't built in any material improvement to that.

Speaker 4

That said, as Javier noted, we expect that to revert back to what we saw pre COVID once the direct and indirect impacts Of COVID or Dunn.

Speaker 7

Okay. So looking at the press release, you had about 1200 patients sequentially. I guess, actually, can you quantify for us, is it 63,000 adds with the delta being sort of mortality? I mean, just any color, just Sure. Can you quantify what the new ads were in the 4th quarter?

Speaker 4

We haven't historically reported a new adds number and I'm hesitant to give it now. I think there'd be a bunch of different ways to calculate it. So I'm not sure I have a good answer for that number. That said, look, it is It continues to be depressed. We saw that in Q4.

Speaker 4

There is seasonality that number it tends to pick up in the front half of the year. And so obviously, we're going to be looking for that in the front half of twenty twenty three.

Operator

Yes. If you were going to use really high level math and I'm just trying to Help get the direction going and you say we guided to negative 3 to 0, so that would give you a midpoint of negative 1.5. And if you just do the math of the excess mortality starting off in 2023, that's sort of a negative 2. There's other variables going into it, but that would get you to a plus fifty basis points for new admits give or take. And there's other dynamics, but that gives you direction.

Speaker 7

Okay. Which actually is segue in. I mean, I guess prior to COVID in 2019, you saw generally about a 17% sort of mortality rate gets you to just under for tiers are on average. And during 2020, it was for 20 plus percent mortality rates or sub 5 years. I guess as you're looking at 4th quarter, Are we seeing sort of mortality rates sort of go back to previous levels?

Speaker 7

There's expectations at one point that it would be extended Just want to pull forward due to customer traffic in COVID in 2021, just seeing if that number is starting to extend back again?

Operator

Yes. So if you just look at the numbers just to make sure because there's new people to the story is, in 2020, we announced like roughly 6 1,800 or so excess mortality and we're guiding roughly to 3,000 in 2023. So it is coming down quite aggressively. And I

Speaker 4

think, again, we don't have visibility exactly as to when that would revert. But as COVID unwinds, it looks like it would it should go with the visibility we have back to normal. Yes. And just Pito, just to add to that to help you with your modeling, the excess mortality number in Q4 Based on what we know now and these numbers get updated as the data catches up was roughly 900. If you want to compare that to Q4 of 2021, that number was somewhere around 1500.

Speaker 4

So Q4 over Q4, the numbers come down significantly. And we would expect similarly Q1 2023 over Q1 2022 because of the lack of the surge.

Speaker 7

Okay. One quick follow-up. Can you sort of talk about the nurse turnover? Has that sort of stabilized at this point? And then on the contract labor, what was contract labor running sort of in 2019, just as you think about this normalizing out kind of Where we had to suspend your project labor under pre COVID?

Operator

Pre COVID was roughly a little below 20,000,000 When we got to a high, we got to roughly $100,000,000 last year and what we told you is that we would run roughly $20,000,000 to $30,000,000 higher in 2023. So that would put you right around $50,000,000 or so. So trying to get halfway through, if you will.

Speaker 3

Great. Thanks so much, guys.

Operator

Thank you.

Speaker 1

Thank you. Our next caller is Gary Taylor with Cowen. You may go ahead, sir.

Speaker 8

Hi, good afternoon, guys. Couple of quick questions. Going back to Integrated Kidney Care, 42,000 full risk patients. What is the guidance or what's built in for 2023? How much patient growth?

Speaker 4

I'd say 50% is a good number to use there, Gary.

Speaker 8

So I mean 50% patient growth and then you're saying the loss is going to be fairly similar to slightly better than that 125, right?

Speaker 4

Right. I think the way to think about that rough numbers is $50,000,000 improvement in shared savings revenue and that's really driven by The shared savings in 2023 that we get for patients that we were at risk for in 2022 And that's offset by roughly $50,000,000 of cost associated with that growth that we're going to see in 2023.

Speaker 8

That makes sense. And I think I understand the accounting you do for that, but the $378,000,000 of revenue you This year for that segment, you've got about $3,500,000,000 of spend. I know that's not all ratable necessarily, but that implies like your net savings that's going into your revenue numbers like 11% of the spend. Is that the right way to think about the results you're achieving so far?

Speaker 4

I think it's tough to do that calculation. The 377 Revenue in 2022 really comes in 2 buckets. Dollars 300,000,000 of it is from the SNPs, which is what I'll call gross revenue. Think of it as accounting similar to a health plans accounting where the Full medical cost comes through revenue. And then the other $76,000,000 is shared savings revenue where we only book the actual shared savings amount.

Speaker 4

We don't book the full cost The medical amount. And I think if you really wanted to look at a number, you take the Call it the gross margin associated with that $377,000,000 It's not that's not an accounting gross margin. This is kind of A financial calculation we would do, it wouldn't comply with GAAP. And You divide that number, which is call it $100,000,000 by the prior year medical spend or the dollars under management from the prior year because that shared savings revenue is associated with the prior year And that ratio would get you to what I'd call a net savings number.

Speaker 8

Got it. Following that. Appreciate it. Last one, Javier, you talked about

Speaker 4

Hey, Gary, I'm sorry. Just a quick correction. I think you said that 23 would be flat to slightly better than 22 and I agreed with that. What I said in the prepared remarks, it would be Flat to slightly worse. So I just wanted to clean that up.

Speaker 8

Okay, thanks. I just want to go to Marietta for a second, Javier, I mean Fresenius is talking about having a lot of confidence in regulatory or legislative and You suggested you're still active there. I guess, is there anything else you can share on where you think that relief is more likely to CMS making regulatory language change or the legislation that was introduced last year. And then in the last part of it would just be Any evidence at all, any of the regional TPAs are doing anything with this yet? It sounds like not given your commercial mix guide for 2023, but just want to

Operator

see. Yes. Thanks for the question, Gary. I won't speculate as to how for how it will come or if or when it will come, but we continue to work very diligently with the kidney community and disability groups to restore our protection for our patients. As it relates to what are we seeing, we have not seen any significant uptick, but we wouldn't expect it given the time of the year we're in because there's a lag in claims and payments.

Operator

So right now, it's going as expected. But one of the things that we're working with the congressional champions Is that they've asked that we produce examples because they're very interested in protecting patients. That's all we have at this juncture. Okay, great. Thank you.

Speaker 6

Thank you.

Speaker 1

And our next caller is Justin Lake with Wolfe Research.

Speaker 6

Hi, everyone. This is Austin on for Justin. Appreciate the questions here. Joel, I guess I wanted to start real quick just on sort of the leverage outlook in that 3.6% to 3.9% that you were speaking to. A, just kind of curious what sort of needs to happen to reach both ends of that range.

Speaker 6

And then off of that on the share repo thinking, is there any timing or outlook embedded in the 2023 guide of when that might resume? Or like alternatively, what do you guys kind of need to see on the debt side To start to resume that resume the repurchase activity.

Speaker 4

Yes. So we have not built any share repurchases into our guidance for next year. We just think that's the prudent way to model things out. The range is largely driven by the range in OI, which translates into a range in EBITDA. So That's what drives the range there.

Speaker 4

In terms of what we need to see, look, we need to see a very clear path to getting back into the range before we shift our capital allocation priorities back to share repurchases.

Speaker 6

Okay, great. And then on the follow-up kind of on the clinic closures, I think you guys did 44 last quarter, 58 this quarter. I guess we think ahead of 23, Is there kind of a like a point in time number that you guys are kind of targeting in terms of further clinic consolidation? And then off of that, just kind of an update on how the patient

Operator

We don't have a target per se. As you can imagine, it's a process that we take incredibly seriously to make sure that Patients are taken care of and that the community is taken care of and we evaluate a lot of dimension. But it looks to be that the range will be in the 50 to 70 in 2023 clinics will likely consolidate. As it relates to retention of patients, that is an equation that goes that's part of that calculation and we continue to see strong retention of patients Wanting to stay at DaVita. Great.

Speaker 6

And then just one last one for me kind of on an IKC follow-up. The number of at risk patients bounces around a little bit during the year. Just wondering what are the drivers of that in terms of attribution to you guys? And then is there an expectation that Patient mortality in a certain sense is sort of showing up there. And then on the met costs under management, just I guess what are the expectations for cadence and how that moves Through 2023.

Speaker 4

Yes. So there's nothing I'd call out in terms of The movement on the lives over the course of the year, contracts go up or down, the number of lives in our SNIP plans Can move around a little bit. Some of it, I think this quarter was more around rounding than any major moves. In terms of medical spend under management, I think for next year, We expect that number to end somewhere in the $5,000,000,000 range with a lot of that growth coming at the beginning of the year.

Speaker 6

Great. And then sorry, let me squeeze in just one more here. You guys mentioned commercial mix in MA. Just wondering kind of where that tracked in 4Q and then what's kind of embedded for year end 2023 just on the mix side?

Operator

We ended the year with a mix of 10.4 and we don't usually give forward guidance on mix, That's where we ended the year.

Speaker 6

Thanks guys.

Speaker 3

Thank you.

Speaker 1

Our next Caller is Kevin Fischbeck with Bank of America. You may go ahead, sir.

Speaker 6

Great. Thanks. I guess last quarter you mentioned a lot About the mistreatment dynamic. Is there any update there? It sounds like you're saying it came in line with seasonality.

Speaker 6

Does that mean it's back to normal or Back to as you would have expected based upon how things played out in Q3 plus Q4 seasonality.

Operator

Kevin, on the mistreatment, we just highlighted that it was trending higher than it had historically by a percentage point. We also said that this is a dynamic that's going to take some time to A, understand and then B, fix. And so in our guidance, we do not have any significant progress in there until We can really understand the dynamic and lower it. So it came in line in the sense that it wasn't modeled to improve in any dramatic way.

Speaker 6

And so you're assuming that in your 0 to 3, 0 to down 3 volume guidance, it just stays stable?

Speaker 3

Correct.

Speaker 6

Okay. And then as far as the Medtronic JV goes, it sounds like $15,000,000 a quarter The rest of this year, we're assuming when does that become breakeven in your minds? Is that kind of ratable to whatever that year is?

Speaker 4

Yes, I'd say ratable to 2026 is a reasonable estimate.

Speaker 6

Okay. And so if you're still going to be at 3.6 to 3.9 leverage, I guess going back to the earlier point, is it safe to assume that there probably won't share repo in the first half of next year or 2 or if you feel like there's core growth going on, you could potentially see that pathway to deleveraging that would allow you to start repo before you're actually kind of right at that range?

Speaker 4

I think it's a little early to speculate, but we certainly want to retain the optionality to start the share repurchase program before we get there. I'm not saying we will, but we'd want to know that we've got a clear path to getting there.

Speaker 6

Okay. And then I guess, maybe going back to the mix point, you guys did highlight that I think it was a third of the rate growth driver for 2023. Given that the expectation is that there's going to be some sort of recession At some point, I mean, I guess directionally, it sounds like you're still assuming commercial is up. Is that an issue of member months and when those job losses happen. So it's more of a 'twenty four pressure than a 'twenty three pressure.

Speaker 6

And then I guess, if you could provide a little color more color around where you are on the MA penetration side of things and where you might think that can go over time? Thanks.

Operator

Well, let me grab the private pay mix and the recession impact. It will be, of course, Very specific to what segments get impacted and how long the recession lasts because our patients have shown that they would like to get COBRA and maintain coverage. In addition, they've also Have had great success in their coverage and the exchanges. And so that would make it more resilient. And then of course, if the recession is long lasting, then who knows what the impact would be.

Operator

But assuming that it is a normal recession in time length. I think that our patients have shown a tendency to want to keep their private insurance. On your second question, which I think was MA mix, we ended the year 47.3%. What we continue to see is now we're into normal open enrollments and we have a little more of a tick now every quarter and so it will continue to increase. And if you had to put a leveling place over the long term.

Operator

I think it would be slightly below 50 or around 50 if you force me to speculate into the future.

Speaker 6

All right, great. And maybe just one last question. The cost cutting initiative that you did, I mean, maybe it's just that there's more specificity as far as the charge Everything else that you outlined here, but I just want to make sure that this is more or less kind of as you envisioned it last quarter or did you accelerate anything or do anything differently as Q4 played

Operator

out. No, I think Joe said it well. We are Doing what we said we would in Q3 along all the dimensions that we spoke of. And then on labor, some of the efficiencies just came in slightly faster than we anticipated. The rest of the stuff remains.

Speaker 6

All right. Great. Thanks.

Speaker 3

Thank you.

Speaker 1

Thank you. Andrew Mok with UBS. You may go ahead, sir.

Speaker 5

Great. Just a few numbers questions to follow-up. Your DNA increased about $20,000,000 sequentially. Is that from the new clinical IT investments? Or is there something else driving that DNA higher In the quarter, is that a good number to think about for 2023 from a run rate perspective?

Speaker 4

Yes. I think modeling consolidated DNA for 2023. I'd say we don't expect that to change very much from the full year 2022.

Speaker 5

So D and A will be flat even though it ticked up in the Q4 is what you're saying on a full year basis?

Speaker 4

Yes.

Speaker 5

And what's driving the decrease then? Is that from lower clinics?

Speaker 4

I think the important thing here, Andrew, would be to focus on the non GAAP DNA. You've got to Exclude the costs associated with clinic closures and anything else. On a non GAAP basis, I think you'll see it's relatively flat in Q4 over Q3.

Speaker 5

Okay. Got it. And then maybe just A quick update on home dialysis initiatives. Where is that tracking relative to long term goals? And as you shut down clinics, should we expect that number to trend higher over time?

Operator

Thanks. Yes. Thanks for the question, Andrew. Our home mix ended up 15.2% And that is tracking consistent to where we expected. We do not think there's a linkage between closing centers and having home mix increase, but rather, the transitional centers that we talked about and making sure that our patients have home remote monitoring and other tools, so they feel confident and connected and want to be able to go home.

Operator

We're in essence also reeducating nephrologists so that they can be comfortable to have more patients at home. Those variables will be way more important than, the centers because we're being so thoughtful as to which clinics we close and so patients in essence

Speaker 5

Got it. And maybe on that point, I think you touched on this briefly, but what exactly are you doing Ensure that you're retaining patients in the clinics that you do close, what are you doing to prevent any sort of leakage there?

Operator

Well, the patients have choice, of course, and their nephrologists have choices and they can go wherever they deem appropriate for their life. But in general, we have relationships with them and they feel comfortable with their care. And so when we sit with a patient and tell them about a center closure, We tell them about their options and then they choose and many times they feel comfortable staying within DaVita center. And then The ones that obviously choose to go somewhere else, but the vast majority have decided to stay with DaVita and their nephrologists.

Speaker 6

Got it. Thanks for all the color.

Operator

Thank you.

Speaker 1

And at this time, I am showing no further questions.

Operator

Okay. Well, thank you, Michelle, and thank you all for your questions and for your continued interest in DaVita. I'll finish where I started with optimism for the year ahead. Although we will continue to stay away from any COVID predictions, I'm encouraged by our recent progress. As outlined today, we will continue to pursue our strategic priorities to create the best long term capabilities and outcomes for our patients, teammates and shareholders.

Operator

Thank you all for joining the call today and be well.

Remove Ads
Powered by Quartr
Earnings Conference Call
NVIDIA Q4 2022
00:00 / 00:00
Remove Ads