NYSE:DVA DaVita Q2 2024 Earnings Report $138.28 -1.28 (-0.92%) As of 12:06 PM Eastern This is a fair market value price provided by Polygon.io. Learn more. Earnings HistoryForecast DaVita EPS ResultsActual EPS$2.59Consensus EPS $2.47Beat/MissBeat by +$0.12One Year Ago EPS$2.08DaVita Revenue ResultsActual Revenue$3.19 billionExpected Revenue$3.15 billionBeat/MissBeat by +$34.80 millionYoY Revenue Growth+6.20%DaVita Announcement DetailsQuarterQ2 2024Date8/6/2024TimeAfter Market ClosesConference Call DateTuesday, August 6, 2024Conference Call Time5:00PM ETUpcoming EarningsDaVita's Q1 2025 earnings is scheduled for Thursday, May 1, 2025, with a conference call scheduled at 5:00 PM ET. Check back for transcripts, audio, and key financial metrics as they become available.Q1 2025 Earnings ReportConference Call ResourcesConference Call AudioConference Call TranscriptPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfilePowered by DaVita Q2 2024 Earnings Call TranscriptProvided by QuartrAugust 6, 2024 ShareLink copied to clipboard.There are 11 speakers on the call. Operator00:00:00Good 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 Second Quarter 2024 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. Operator00:00:28Thank you. Mr. Eliason, you may begin your conference. Speaker 100:00:32Thank you, and welcome to our Q2 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 100:01:00For further details concerning these risks and uncertainties, please refer to our Q2 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 200:01:48Thank you, Nick, and thank you all for joining the call today. On behalf of all the teammates who provide life saving care to our patients, I am grateful for the opportunity to report another positive quarter for DaVita. We continue to enhance our clinical capabilities, while optimizing our revenue operations and cost structure. Today, I will cover the details of our 2nd quarter performance, comment on the CMS 2025 proposal and wrap up with our outlook for the remaining of the year. But before I dive in, let me begin as we always do with a clinical highlight. Speaker 200:02:23As you know, every day, tens of thousands of DaVita caregivers work to give life to our patients. Nurses play a central role within our interdisciplinary care teams serving as our patient's caregiver, sounding board and familiar face they see over 100 times per year. Unfortunately, thousands of nurses left the profession during the pandemic. As a result, the healthcare system is facing a critical nursing shortage. I am proud of the programs and initiatives we've implemented to support the next generation of dialysis nurses. Speaker 200:03:01I'll highlight three examples. 1st, we're collaborating with leading nursing universities on tailored nephrology specific nursing curriculum. We're also providing financial assistance to remove barriers to entry for prospective nursing students. 2nd, we've created a clinical internship program, immersing students with hands on experience in DaVita dialysis centers. We have 700 clinical entrants this year with more than 2,000 individuals participating since inception of the program. Speaker 200:03:363rd, we built a nurse residency program to support new nurses from student to practicing registered nurse. Our goal is to help hundreds of nurses in the program to feel more confident during their 1st year of practice, which among other things can lead to better patient safety. We're excited to do our part to alleviate some of the pressures of the nursing workforce and to help ensure access to care is not a barrier. Transitioning to the 2nd quarter performance. Adjusted operating income was $506,000,000 and adjusted earnings per share was $2.59 This outcome was ahead of our expectations for the quarter, primarily driven by favorability in patient care costs and continued strength in revenue per treatment or RPT. Speaker 200:04:31Offsetting this favorability was volume growth that was lower than expected. This was primarily due to elevated mistreatments related to spring storms along with lower than expected census gain. Our 2nd quarter adjusted results also included approximately $15,000,000 of center closure costs. In prior periods, we excluded these type of costs from adjusted operating income as non GAAP adjustments. We'll expand on this point throughout the call today. Speaker 200:05:01Let me get some additional detail on RPT growth since it continues to contribute to our strong performance and supports our 2024 guidance increase. There are many variables in RPT, but I'll highlight 2 primary drivers. The first and largest component is continuous improvement in our collection capabilities. This is a multiyear effort, so let me elaborate a bit more on this one. The complexity of revenue operations has increased over the last few years. Speaker 200:05:31Billing and collecting from health plans now more frequently involves new data and process requirements. These challenges include navigating prior authorization, payer specific billing requirements, numerous online payer portals and separately billable items. These layers are exacerbated by a growing list of participating health plans due to the growth of Medicare Advantage and exchanges and by our patients more frequently updating their coverage choices. In response, we made a series of targeted investments in technology and teammates to modernize and retain top in class capabilities. These investments focus on greater automation of routine tasks, increasing rate of electronic claim submission and more frequent benefit insurance verification among other enhancements. Speaker 200:06:26This has improved our overall collection rate and enabled us to collect on claims more quickly reducing day sales outstanding. With more comfort and experience with these capabilities over the past year, we believe these improvements are sustainable and will continue into 2025 beyond. 2nd, our health plan negotiations have resulted in modestly higher rate increases as a result of higher inflationary environment over the past few years. Despite these rate increases, we are still not recouping the full impact of high inflation. We continue our track record of innovation and discipline within our cost structure to bridge this gap. Speaker 200:07:10The combination of these two factors along with continued improvement in payer mix increases our expectations for RPT growth for the year. In the Q1, we communicated our expectation to land on the top end of our range of 2.5% to 3% RPT growth in 2024. With continued progress, we now expect 2024 RPT growth within a range of 3.5% to 4%. Staying on the topic of revenue, CMS recently released its ESRD proposed rule to update the prospective payment system for 2025. The CMS expected rate increase of approximately 2.1% was broadly in line with our internal expectations. Speaker 200:07:57The methodology has become more complex with the introduction of new wage index and while we appreciate CMS's effort to innovate, the proposal falls short of reflecting the industry true cost inflation. We will provide feedback to CMS in hope of improving this methodology in the final rule and in the years ahead. Absent further edits, the proposed rule would continue to put pressure on the system. Additionally, with the proposed rule, CMS reconfirmed its intention to include oral only drugs within the bundle as scheduled beginning next year and identified positive policy changes to aid with this transition. DaVita supports CMS position and given our experience with calcimimetics, we strongly believe this will provide more patients with access to these drugs since many of our patients do not have Part D coverage. Speaker 200:08:55We understand that there are entities arguing for Congress to delay the implementation which stated concern around patient access and the operational ability for providers to comply. DaVita is well prepared and investing the necessary resources to implement this transition in support of our patients. Turning to full year guidance. We are raising our 2024 adjusted operating income guidance while incorporating a change in treatment of our center closure expenses. We are raising 2024 adjusted operating income guidance from the prior range of $1,875,000,000 to $1,975,000,000 to a new range of $1,910,000,000 Speaker 300:09:42to $2,010,000,000 Speaker 200:09:46This represents a $35,000,000 increase at the midpoint of the range. This is the result of a $95,000,000 increase in expected operating performance, offset by now including approximately $60,000,000 of full year center closure costs that we previously would have excluded from adjusted operating income as a non GAAP adjustment. Joel will provide more detail about this change in our non GAAP reporting presentation. This guidance reflects sustained momentum in our key operating metrics, including the revenue per treatment progress we highlighted today and our expectation for a strong performance in the back half of the year. I will now turn it over to Joel to discuss our financial performance and outlook in more detail. Speaker 400:10:35Thanks, Javier. Our 2nd quarter adjusted operating income was $506,000,000 adjusted EPS was $2.59 and free cash flow was $654,000,000 Before I dive into the specifics on our performance for the quarter, let me add some detail to the change in reporting presentation of our non GAAP results that Javier mentioned. As a result of a recent common letter from the SEC to DaVita, we will no longer treat center closure costs as an adjustment in our non GAAP presentations. These center closure costs impact our patient care costs, G and A and depreciation and amortization expense lines. Our adjusted OI and adjusted EPS for Q2 now includes center closure costs and our updated full year 2024 guidance shared today follows the same methodology. Speaker 400:11:37To help with comparisons to prior periods, we are also now showing prior period results under the new methodology. In aggregate, these costs represent approximately $15,000,000 per quarter in 2024 for a total of roughly $60,000,000 expected this year. For comparison, tenor closure costs in 2023 were approximately $100,000,000 For 2025, we are forecasting $20,000,000 to $30,000,000 of center closure costs. These presentation changes have no impact on how we manage our business nor our overall profitability, cash flow or long term expectations. With that, let me break down each of the components of our Q2 performance starting with U. Speaker 400:12:29S. Dialysis and specifically treatment volume. Sequentially, treatments per day were up 1.1% in Q2 versus Q1. This increase was primarily due to census gains in the quarter and a seasonal improvement in mistreatment rate. Compared to the same period last year, 2nd quarter treatments per day were up 50 basis points. Speaker 400:12:58This year over year growth was below our expectations as a result of 2 primary factors. 1st, severe weather events in May June resulted in higher mistreatment rates, representing approximately 20 basis points of headwind on year over year treatment growth for the quarter. We have seen a similar but more pronounced disruption in July with the impact of Hurricane Barrel. 2nd, U. S. Speaker 400:13:29Net census gains were weaker than expected. Although new to dialysis admits grew for the 6th consecutive quarter, mortality was above our forecast. We expect both of these factors to negatively impact the second half of the year. For the full year, we now expect treatment volume growth will likely be between 0.5% 1%. Revenue per treatment was up approximately $6 sequentially. Speaker 400:14:02This increase is primarily due to typical seasonality from higher patient coinsurance and deductibles in Q1. As Javier outlined, we now anticipate full year revenue per treatment growth of 3.5% to 4% for 2024. Patient care costs per treatment were approximately flat quarter over quarter. Typical seasonal declines from items like higher payroll taxes in Q1 offset higher health benefit costs and other inflationary increases in the 2nd quarter. Depreciation and amortization declined $12,000,000 in Q2 versus Q1, partially as a result of a decline in center closure costs. Speaker 400:14:52Center closure costs in D and A were approximately $50,000,000 in 2023 compared to $10,000,000 in 2024. Since these costs are now included in our adjusted D and A numbers, we now expect a year over year adjusted D and A decline of approximately $40,000,000 to $50,000,000 For Integrated Kidney Care or IKC, our value based care business, operating income declined $8,000,000 sequentially. As we have seen in the past, we expect results in the second half of the year to be significantly stronger than the first half as a result of the timing of revenue recognition. International operating income was flat quarter over quarter. We have closed our acquisitions in Ecuador and Chile and expect our acquisitions in Colombia to close in Q3 and in Brazil by year end. Speaker 400:15:55Moving now to capital structure. In the second quarter, we repurchased 2,700,000 shares and to date in Q3, we have repurchased an additional 1,100,000 shares. Leverage at the end of Q2 was 3.1 times EBITDA. This was down from 3 months ago due to growth in trailing 12 month EBITDA and a reduction of net debt by over $200,000,000 As of the end of Q2, we held approximately $400,000,000 of funding from Change Healthcare's parent, UnitedHealth Group related to the cyber event earlier this year. As of today, that balance currently sits at approximately $300,000,000 and we expect additional repayment to align with successful collections on impacted claims. Speaker 400:16:52We continue to collect on change healthcare impacted claims and U. S. Dialysis day sales outstanding have declined by 14 days quarter over quarter. As always, we are assessing opportunities to optimize our capital structure, which includes looking to address the remaining balance of our term loan B maturing in 2026. We continue to target leverage within our range of 3 to 3.5 times. Speaker 400:17:21To this end, we are also assessing opportunities to increase our debt to ensure sufficient capacity to maintain leverage within this range. To conclude, let me share some additional detail about our updated adjusted operating income and adjusted EPS guidance for 2024. As Javier said, our new adjusted OI guidance range is $1,910,000,000 Speaker 500:17:49to $2,010,000,000 Speaker 400:17:52There are several moving pieces within this number, so let me give you the key puts and takes. 1st, we are now including expenses related to center closure costs in this adjusted OI range. This is an approximate $60,000,000 of additional operating expenses that were previously not in our adjusted OI guidance. To reiterate my earlier comments, this is a change in the presentation of our adjusted results and does not impact our GAAP financials or cash flows. 2nd, additional RPT growth of approximately 50 to 100 basis points relative to our previous expectations represents an increase of approximately $85,000,000 at the midpoint. Speaker 400:18:423rd, the range reflects improved expectations for patient care costs, mostly related to labor and productivity improvements, which is mostly offset by our revised volume expectations for the full year. Altogether, these changes represent an approximate $35,000,000 increase in our adjusted operating income guidance at the midpoint of the range. We are also updating our 2024 adjusted earnings per share guidance to a range of $9.25 to $10.05 primarily due to the increase in adjusted OI. That concludes my prepared remarks for today. Operator, please open the call for Q and A. Operator00:19:28Thank you, sir. Tito Chickering with Deutsche Bank. You may go ahead, sir. Speaker 300:19:47Good afternoon, guys. Nice day's quarter and thanks Speaker 600:19:49for taking my questions. On the NAG, can you give us some color on what you saw through the quarter and what you saw in July? Speaker 300:19:55Just looking at the high end Speaker 600:19:56of your revised guidance, you get to grow like 1.5%, which is a big step up versus what you saw in the first half of the year. So just want to sort of see kind of what you guys are seeing to give you confidence in the high end of that? Speaker 500:20:07Sure. Thanks, Pito. So through the quarter, what we really saw was mistreatments were elevated relative to what we expected and our census growth was below expectations. The pattern there has continued. New to dialysis admits remain strong and the growth there is consistent with what we had seen pre COVID and mortality remains elevated. Speaker 500:20:38In terms of the back half of the year, I'd point out one thing that gives us confidence, which is we've got an extra treatment day in the second half of the year, relative to the second half of the year last year. So that in and of itself is about 30 bps of additional growth. Other than that, we really haven't modeled in a whole lot of changes for the back half of the year. We haven't built in much census growth and we're expecting mistreatment rate to continue to be challenging. So if you really think about the back half of the year, year over year growth, it's really about treatment days rather than any change in any of the underlying assumptions. Speaker 600:21:25Okay. Fair enough. And you gave some of the moving parts, but if we exclude the $60,000,000 of closure costs, you raised guidance by $95,000,000 Can you just bridge us the components of sort of how you raised guidance by $95,000,000 versus previous guidance? Just I just want to understand that as I think it went through 2025. Thanks. Speaker 500:21:45Sure. So I'd start with revenue per treatment where we moved the guide from what essentially last quarter was 3% now to 3.5% to 4%. So at the midpoint, 75 bps is worth roughly $85,000,000 So that's number 1. And that's coming from a combination of continued success on the revenue operations, strength in contracting that we've seen through the year so far and then a little bit of mix improvement. So that's the dominant factor and worth $85,000,000 Contributing to that as well is some improvement we're seeing in labor costs. Speaker 500:22:30I'd highlight 2 things there. First, some of the premium pay, whether it's overtime or spot bonuses, have come down. And second, we are seeing a little bit better productivity in the year than expected. Those two things combined are worth about $30,000,000 And offsetting that is about $20,000,000 of OI headwind from the lower volume that we've called out. So plus $85,000,000 from RPT, plus $30,000,000 from labor, minus 20 from volume that will get you to 95 increase before taking into account the $60,000,000 change in center closure cost. Speaker 600:23:18Great. Thanks so much. Operator00:23:21Thank you. Our next caller is Justin Lake with Wolfe Research. You may go ahead, sir. Speaker 700:23:28Thanks. Let me just follow-up on Pito's question there. You said $20,000,000 from lower volume? Speaker 500:23:36That's right, Justin. Speaker 700:23:39And you took down volume by what, 75 bps at the midpoint? Speaker 500:23:45Yes. I would say as we were thinking about it, we probably weren't internally modeling as of last quarter that we'd be at the midpoint. So you'd probably get to a little bit of a lower you'd have to start at a slightly lower volume number to bridge to that $20,000,000 Speaker 700:24:05So maybe it's 50 basis points. I'm just trying to think about the relativity here of Yes. Speaker 500:24:10You're in the right ballpark Speaker 600:24:11there. Volume is Speaker 700:24:12about OI. So in your mind, 50 basis points of volume is about $20,000,000 of OI on an annual basis? Speaker 500:24:24Yes, I would I probably would if you would ask me just standalone what's 50 basis points of volume worth, I probably would have told you $50,000,000 to $60,000,000 So maybe you need a slightly lower number. That's why I Speaker 700:24:37thought you saw the same thing. Speaker 500:24:38I'm sorry. I'm sorry. The team here is correcting me. 1% is worth 50% to 60%. So you're in the right ballpark there. Speaker 700:24:50Okay. And then on center closures, did you say $20,000,000 or $30,000,000 for next year? Speaker 500:24:57Yes, for 20, 25, we think the number will be in that range. Speaker 700:25:03Okay. Speaker 500:25:05And And just to be clear about that, when you're modeling center closure costs, it's important to realize that not all the costs come right when we close a clinic. Some of them like lease acceleration costs, for example, can have a delay from when we close the clinic. So I think by next year, our clinic closure rate should actually be back to what it was pre COVID level, call it 20 clinics a year, somewhere in that range. But the costs we're calling out will be a holdover from what we've seen. Some of them will be a holdover from the clinic closures in 2024. Speaker 700:25:50Got it. That's what I was trying to get to. So you think you'll be back to like 20 center closures next year? Speaker 500:25:57Yes, something like that. This year, I think last quarter we had called out 50 for the year. We're probably running light and I would guess at the end of the year we'll probably have closed only about 40 for the year and getting back to a more normal pace for next year. Speaker 700:26:16Okay. And then just a question before I jump off on revenue per treatment. 1, the I think you said in the release that you had some offsets to pricing from lower from mix pressure. What's mix in the Q2 versus Q1? Speaker 500:26:41Mix was down a drop in Q2, but it's hanging right around 11%. It's right where it was at the beginning of the year. Our commercial mix at the end of Q1, which I don't think we disclosed, was a little bit harder to estimate because of some of the changes some of the challenges with Change Healthcare as some of the claims were delayed. But I don't think there's been a lot of movement on commercial mix between Q1 and Q2 that would have any real financial impact. Speaker 700:27:21And then lastly on the exchanges, so I assume that you were at 10.9 to end the year, if I remember the 4th quarter report. But the let's say you're at 11, how much of that's coming from exchanges today and how much of that came from exchanges, let's say pre COVID? Speaker 500:27:42Yes. The number is up about 200 basis points. Speaker 700:27:49Okay. I'll take that. I appreciate it guys. Thanks. Speaker 800:27:54Thank you. Operator00:27:55Thank you. Our next caller is A. J. Rice with UBS. You may go ahead, Speaker 800:27:59sir. Hi. Speaker 300:28:02Thanks for the question. Speaker 600:28:04On the IKC business, I guess, year to date for loss, if I've calculated it right, it's about $60,000,000 I know your target for the year is $50,000,000 And as you did say in the prepared remarks, you think you'll see more positive in the back half of the year. Is $50,000,000 still the expectation? And does that suggest you'll be positive in both the 3rd Q4? Speaker 300:28:29Thanks for the question, A. J. You've got the numbers right, meaning we're negative 60% and change for the up to year to date and we still expect the year to come in that 50% range. But it's not necessarily because there's a big change in the business, but rather revenue recognition on the back end of the year. So that's the big difference there. Speaker 300:28:56And as you know, this business and we've asked you to look at it more on an annual basis because quarter to quarter fluctuation can be a bit more dramatic, but that still holds on the range. Speaker 600:29:08Yes. And A. Speaker 500:29:09J, just on the quarterly spread between Q3 and Q4, It's it can be hard for us to predict when the revenue will land. That said, I would expect Q3 to be a loss making quarter again and Q4 to be a much, much stronger quarter. Then again, depending on when we get information, some of the Q4 revenue could pull forward to Q3. Speaker 600:29:42Okay. And obviously, it sounds like the comments on the volume are mostly around the storm impact on mistreatment. But you did sort of mention mortality. What did you see in mortality? And was that a significant contributor to your decision to adjust or that's just the normal fluctuations you see from quarter to quarter? Speaker 500:30:05Yes. So the short answer is mortality is definitely higher than we expected. And maybe it would be helpful to step back for a second and just give you a sense of how we're thinking structurally about where we are on volume for the year. And as we step back, the question we are have been asking ourselves is we are behind on volume growth, call it 150 bps relative to pre COVID, relative to where we'd like to be. And we are we spend a lot of time trying to quantify that. Speaker 500:30:49We are limited by the information we have, both the quality of the data as well as the timeliness of the data recognizing we're playing with relatively small numbers here right 100 bps, 150 bps with inputs that have a decent amount of volatility. We're decent amount of volatility or variability. That said, as we try and quantify it, we think, the $150,000,000 gap between where our volume growth for the year is relative to where it was pre COVID is really made up of 2 things. About 50 bps to 100 bps of that gap is related to mortality. Mortality is just running higher than it was. Speaker 500:31:36It's actually up this year relative to where it was 6 months ago. And we think structurally that's the biggest component of why we're not 150 basis points higher. The second thing we believe relates to the capital efficient approach we took to managing our clinic footprint. You go back 3 or 4 years, volume for us and the whole industry was beginning to decline. We recognized that our capacity utilization was going down and we were very focused on getting back to a healthy capacity utilization, one that could support our investment in our teams in clinical quality and in information technology. Speaker 500:32:27And the result of that was we pulled back on de novos, before others did and we closed roughly 200 clinics over the last few years. The result of all that was a decline in our clinic share over the last few years, call it a point in a quarter roughly. And with that, we believe we have lost some volume. It's hard to quantify, but if we had to put a range on it, it would probably be somewhere in the range of 40 to 60 basis points. So you put those two things together, 50 to 100 basis points of mortality higher than historical combined with 40 to 60 basis point impact from our clinic footprint management and we think that explains the majority of the 150 basis point gap. Speaker 500:33:28I will note one important thing, new to dialysis admits is not on our list of the gap. As I've said before, those remain strong. The growth in new dialysis admits is consistent with the growth we saw pre COVID and remains at a healthy level. So, I hope at the beginning I answered your question about the year and then gave you a bit more color on the bigger picture. Javier, anything to add? Speaker 500:33:57Yes. I'll add one thing. First of all, at the beginning of Speaker 300:34:00the sentence, Joel inadvertently said $150,000,000 and he was talking about 150 basis points, so just to make sure that the record reflects that the rest of the conversation, he was clear on the 150 basis points. But I think, while he walked you through a lot of numbers, at the end of the day, the question that you and all of us are trying to ask ourselves is, is there a structural change that is going to change the growth rate? And to the best of our ability on the work that we've done, the answer that we come up with is no. It appears that we are in a bit of just a let's call it a period of time when mortality is elevated that we see through these new to dialysis patients that the volume should come back to normality over time. Speaker 600:34:53Okay, great. Thanks so much. Speaker 300:34:55Thank you. Operator00:34:57Our next caller is Andrew Mok with Barclays. You may go ahead, sir. Speaker 900:35:01Great. Thank you. Maybe just a follow-up on that mortality point. I guess, what's the working assumption on why mortality is elevated? Because I think the excess mortality dynamic during the early years of the pandemic would intuitively suggest there would be a tailwind in the aftermath. Speaker 900:35:17So what's your kind of working assumption here on why it remains elevated? Thanks. Speaker 300:35:23Yes. Your question is one that we've been asking a lot and we've been talking to our physician community and trying to understand what is driving it. The reality is that people come up with hypotheses and you can support it a bit, a higher elevated flu season, etcetera. But the real quantifiable answer is not one that we could say with confidence. And if you were going to say on the other side of the equation, we're starting to see improvements on things that should have an impact on mortality like the integrated kidney care, managing people upstream, new drugs, SGL-two and GLP-one, etcetera. Speaker 300:36:10And so, we are scratching our head and we will be working on it. And as soon as we get something with confidence, we will share with you. Speaker 900:36:20Great. Okay. Thank you. And then in the prepared remarks, I think you mentioned that the improvement in collections is a multiyear effort. And given the strong gains we've seen over the last 6 quarters, just where are we in this process? Speaker 900:36:32And how much runway is left beyond 2024? Thanks. Speaker 500:36:37Yes. I would say there's certainly going to be more in 2025 if from nothing else than just the annualization of the improvements we're anticipating in the back half of the year. Looking forward from there, I think it's safe to say that any benefits from this are going to decline over time. And what I mean by that is their contribution to RPT growth will combine over time. I think everything we've achieved so far is sustainable. Speaker 500:37:15That said, it's hard to predict how much more there is and over what time period we're likely to capture it. I think it is fair to say relative to when we started this a few years ago and when we started talking about it with The Street in Q2 of 2022, it has certainly exceeded our expectations. Speaker 900:37:39Got it. And if I could just follow-up on one more point. I think you called out the clinic closures as being a potential drag to volume growth as well. I think given you and your competitor, one of your big competitors are closing clinics at the same time, where do you think how much leakage do you think there is there? And where are those patients going to get their dialysis treatment, if not one Speaker 800:38:03of the 2 large dialysis chains? Thanks. Speaker 500:38:06Yes. So, we've done a lot of work on this. And interestingly enough, the data we have on clinic clinics is actually better or clinic share is better than the data we have on treatment share. And we believe that the mid size and smaller dialysis operators have actually gained share over the last few years. They have closed fewer clinics. Speaker 500:38:34They have built more clinics. And the result of that is probably picking up some volume as a result of that. Speaker 300:38:48And the question on that and we ask ourselves is that good or bad? In general, of course, you start to think of market share. And in this one, it's clinic share. And the way that we've looked at it, and of course time will tell, is that we led the way in stopping de novos as the mortality escalated during the pandemic. So if you see DaVita build, it was very aggressively stopped. Speaker 300:39:16And then we led the way in rightsizing the capacity. And so, if you were just going to do shorthand, you would say we've closed roughly 200 centers. And depending on the math, you could say it's roughly $100,000,000 to $150,000,000 of fixed expense reduction. And the loss of volume is roughly in that $50,000,000 So you would say that just with that math, it looks like we're making the right trade off. Of course, there's a lot of other dynamics of patient access, the local relationship with physicians and all the normal considerations that we have to go into. Speaker 300:39:57But I'm just giving you the money side of it. Speaker 900:40:04Great. Thanks for all the color. Speaker 500:40:06Sure. Hey, before we take the next question, I just want to come back to an answer I gave to, Justin on the exchanges. I talked about 200 basis point increase from the exchanges. I just wanted to clarify that's 200 basis points of revenue, not 200 basis points of mix increase that came from the exchanges. So just wanted to make sure that was clear. Operator00:40:38Thank you. Our next caller is Kevin Fischbeck with Bank of America. You may go ahead, sir. Speaker 800:40:49Great, thanks. Maybe just to follow-up on that point. You just have like the percent of revenue that comes from the exchanges year to date so far? Speaker 500:41:02Yes. I'm not sure we're going to I don't think we're going to give that number, Kevin. Speaker 800:41:08Okay. And then, you made a comment in the prepared remarks about leverage. And I think you said that you were looking to add debt to ensure capacity would be in this range. Are you saying that you would look to potentially lever up to deploy more capital, I guess, on share repurchase? Or were you just talking about something else? Speaker 500:41:29Yes. So I wouldn't use the phrase lever up because what we're really targeting here is maintaining the leverage range of 3 to 3.5 times. And if our goal was to get our leverage range or our leverage multiple above that, that's what I would characterize as levering up. I think the reality is as our EBITDA grows in order to maintain that leverage range of 3 to 3.5 times recognizing we're at the low end of that range right now, we need more debt capacity. And it's just using the middle of the number as EBITDA goes up, you multiply it by 3.25 and that's the capacity you need. Speaker 500:42:17So we're thinking about how much debt capacity do we need to make sure we can stay in that range as EBITDA grows. Speaker 800:42:28Okay. And in theory, that capacity would be used on share repurchase, is that or is there anything else you would Speaker 500:42:34I mean, it would be used using our capital allocation philosophy. So the first thing we would love to do would be to invest it in growth, recognizing it needs to be capital efficient growth and hit our return thresholds. Barring that, share repurchases would certainly be on the at the top of the list of how we would use excess capacity to maintain our leverage level. Speaker 800:43:04Okay. And then I guess just on that point as well, the change line of credit, how do we think about that? That's going to be I mean, it doesn't impact, I guess, your free cash flow, but I guess that would be a use of free cash flow to pay that back or you just collect less from United? Speaker 500:43:22No. I just think of it as debt. And we it's included in our net debt number today. And if we had if we drew an extra $400,000,000 on the revolver or we did a bond deal and we used it to pay down the changed debt, it would it's just one form of debt exchanging for another form of debt. So it wouldn't hit free cash flow. Speaker 500:43:49It wouldn't change our leverage ratio. Speaker 800:43:53Okay. And then I guess just going back to the mortality point, because it is hard to understand, why it's such an issue now. And I mean, I guess it's hard to say you don't fully know the reasons behind it. It's hard to say when it would normalize. But is there any thought about why things wouldn't get back to normal over the next couple of quarters? Speaker 800:44:17And I guess, what is it that you're looking forward to kind of know that you're on the other side of that? Speaker 300:44:24Well, predicting it is not a good idea, I don't think because the odds of being wrong are probably 100%. But the reality is that we do agree with you that we don't think it's structural and that it will revert back to normality. And again, I've highlighted some of the improvements that we think can happen from mortality. And many people say, well, why don't you know exactly what happened? And the assumption is that death happens while they're in dialysis. Speaker 300:44:57And the reality is that there's a lot of more moving pieces and that people can relocate, can go to a sniff, etcetera, etcetera. And so you don't actually get the full story, you have to follow-up and there's a lag in time. And so that's why, we're having to piece it together and work hard to get the information and we'll be back to you. But we've talked to a lot of nephrologists and no one seems to think that there's any systemic trend that we can identify. Speaker 800:45:31Okay. And maybe just last question. Since revenue per treatment seems to be like a big part of the guidance raised, it sounds like everything that's happened so far you think is sustainable. I guess mix maybe moves around a little bit. But can you talk a little bit more about the commercial contracting? Speaker 800:45:49It sounds like that has come in a little bit better maybe than you thought it was going to as far as better capturing recent inflation. How should we think about commercial contracting in the 2025? Is that still going to be a tailwind similar to what you're seeing now or is that going to normalize for some reason? Speaker 300:46:09Well, on RPT, basically, you have to think of 3 dynamics. You have mix, you have negotiation and you have revenue cycle. And so you're asking about the negotiations and I think to think about the future, you have to kind of put yourself into the future, which is what is the environment? Is it still inflationary? What contracts are up for negotiation, etcetera? Speaker 300:46:35As we've explained in the past, we are comprehensively contracted and our big contracts usually come up every 3 to 4 years. So in any given year, you don't get many at bat. What we're focused on is to be a really great partner to our payers. And what that means is to have a great clinical solution at the best cost. Now, so I can't predict what that looks like. Speaker 300:47:02We don't foresee anything that dramatically would change what occurred in 2024. That said, if you wanted to just kind of answer the question, how do you feel about margin, I. E. Bring in the cost considerations to the conversation, I think that the margin strength is likely to remain in 2025. Speaker 800:47:26Helpful. I guess maybe just maybe ask a little bit differently. If you're getting a little bit of commercial contracting, do you feel like there's a shift at all in the negotiations? Whether managed care companies realize they need you more for network reasons or they are appreciating the value you provide more and that's giving you a stronger negotiating power or it's just more inflations higher and so I think kind of the sell Speaker 300:47:54shifts? No, I think the conversations are the same, meaning everybody is trying to do their fair share in containing costs. Everybody is trying to add value to the patient community and have an expansive network and just do the best we can. And of course, we have to take into account cost and inflation and all those type of things. But those dynamics haven't changed other than the consideration for inflation. Speaker 800:48:22Great. Thanks. Thank you. Operator00:48:25And our next caller is Ryan Langston with TD Cowen. You may go ahead. Speaker 1000:48:31Hi, good evening. Thank you. Just a couple for me. On the lower census growth, maybe I missed it, but is that isolated to any particular geographies or maybe are there certain geographies that are maybe performing below kind of the average and maybe pulling that down a little bit? Speaker 500:48:49No, Ryan. We're pretty much seeing that across the board. Speaker 1000:48:56Got it. And then just to clarify, maybe on the RPT improvement, it sounds like obviously you're still working through that and some of that will annualize into 2025. Is it fair to assume that may end up just from a year on year maybe closer to 3.5% to 4% you're guiding this year as opposed to maybe the 2.5% to 3%? Speaker 500:49:20I'm sorry, are you asking about 2025 RPT? Speaker 1000:49:24Yes. I'm asking if you're guiding to 3.5% to 4% this year, but some of it will annualize into next year. Is it fair that the growth rate might be higher or closer to 3.5% to 4% in 2025 versus maybe prior we would have thought maybe closer to 2.5% to 3%. Speaker 500:49:44Yes. It's early for guidance, but I would not go to 3.5% to 4% for next year. I think that would be a real stretch to perform at this level for another year. Speaker 1000:50:01Okay. Thanks. Speaker 300:50:03Thank you. Operator00:50:05Thank you. Pito Chickering with Deutsche Bank. You may go ahead, sir. Speaker 600:50:10Hey, guys. Just some quick follow ups here. What percent of your treatments were home treatments this quarter? And what was your center in legalization this quarter? And how did it compare versus the first Speaker 500:50:20quarter? Yes. Home utilization is still running in the mid to high 15s. In terms of capacity utilization, we're somewhere between 58.5 and 59%, somewhere right around that. Speaker 600:50:40Okay. And on the international business, the margin looks to be about 7% range, I guess. How do you think that evolves over the next sort of couple of years? Speaker 400:50:51I think Speaker 500:50:53growth in international for the next couple of years, especially next year is likely to be higher than it's been in the past, largely driven by the acquisition that we've done in Latin America. Speaker 600:51:11Sorry, for OI margins, like you're tracking around 7%. Speaker 500:51:16OI margins. OI margins Speaker 600:51:18for international, I guess, how does that evolve over time? Speaker 500:51:20Yes. I think it will continue to tick up. I don't have a view on could it ever get to the U. S. Margins, but I would say that's highly unlikely. Speaker 600:51:34All right. Last one for Aki. Speaker 300:51:35The margins internationally have a couple of dynamics. Number 1, there is no such thing as international. There's 12 to 13 countries. And of course, they weigh differently. And in some of these, you have one payer, the government. Speaker 300:51:53And so they will go in periods where there's no increase and then they will have a lump increase. And so it's got a little more unusual dynamic and harder to predict the margin. Speaker 600:52:10So then if margin is, I guess, harder, I guess, why is that a better use of cash flow than doing share repel? Speaker 300:52:18Well, we're confident on the adjusted return, but you're asking a different question, which is, are we seeing margin increases? Speaker 600:52:27Okay, fair enough. And then last one for IQC. You put up about 3,000 lives this quarter versus last quarter, but the medical spend per life is about half of what it was, I guess, on the average last quarter. So as you're bringing new patients on to IKC, can you sort of talk about what type of patient dynamics they are versus who you have currently in there? Thanks so much. Speaker 800:52:49Yes. Speaker 500:52:51I would be cautious with that ratio of medical cost per life. A lot of the lives you're talking about there, their medical costs are not don't actually flow through our P and L. It's only the SNIP lives where the medical costs flow through. So, I probably wouldn't go there with that calculation. Speaker 600:53:16Right. Fair enough. Thanks guys. Speaker 300:53:18Thank you, Peter. Operator00:53:20And at this time, I'm now showing no further questions. Speaker 300:53:24Okay. Thank you, Michelle, and thank you all for the questions. To conclude, it was another strong quarter for DaVita, resulting from our investments in recent years to build a great team, strong systems and enhance our capabilities. As we look ahead, while it's a little early to offer guidance, we believe that the underperformance, the underpinnings of our margins are sustainable. With this foundation, we're excited about the future we can achieve to benefit our patients, partners and teammates. Speaker 300:53:58Thank you for your continued interest in DaVita and be well. Operator00:54:03Thank you. This concludes today's conference call. You may go ahead and disconnect at this time.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallDaVita Q2 202400:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsPress Release(8-K)Quarterly report(10-Q) DaVita Earnings HeadlinesDaVita’s Q1 2025 Earnings: What to ExpectApril 21, 2025 | msn.com3 No-Brainer Warren Buffett Stocks to Buy Right NowApril 19, 2025 | fool.com[Action Required] Claim Your FREE IRS Loophole GuideThis shouldn't surprise anyone who's been paying attention, but... Pres. Trump may be about to unleash the biggest "dollar reset" since 1971.April 25, 2025 | Colonial Metals (Ad)Why DaVita Stock Got Rocked This WeekApril 18, 2025 | fool.comDaVita Inc. (NYSE:DVA): A Case of Limited Growth PotentialApril 18, 2025 | msn.comDVA March 2026 Options Begin TradingApril 16, 2025 | nasdaq.comSee More DaVita Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like DaVita? Sign up for Earnings360's daily newsletter to receive timely earnings updates on DaVita and other key companies, straight to your email. Email Address About DaVitaDaVita (NYSE:DVA) provides kidney dialysis services for patients suffering from chronic kidney failure in the United States. The company operates kidney dialysis centers and provides related lab services in outpatient dialysis centers. It also offers outpatient, hospital inpatient, and home-based hemodialysis services; operates clinical laboratories that provide routine laboratory tests for dialysis and other physician-prescribed laboratory tests for ESRD patients; and management and administrative services to outpatient dialysis centers. In addition, the company offers integrated care and disease management services to patients in risk-based and other integrated care arrangements; clinical research programs; physician services; and comprehensive kidney care services. Further, it engages in the provision of acute inpatient dialysis services and related laboratory services; and transplant software business. The company was formerly known as DaVita HealthCare Partners Inc. and changed its name to DaVita Inc. in September 2016. 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There are 11 speakers on the call. Operator00:00:00Good 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 Second Quarter 2024 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. Operator00:00:28Thank you. Mr. Eliason, you may begin your conference. Speaker 100:00:32Thank you, and welcome to our Q2 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 100:01:00For further details concerning these risks and uncertainties, please refer to our Q2 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 200:01:48Thank you, Nick, and thank you all for joining the call today. On behalf of all the teammates who provide life saving care to our patients, I am grateful for the opportunity to report another positive quarter for DaVita. We continue to enhance our clinical capabilities, while optimizing our revenue operations and cost structure. Today, I will cover the details of our 2nd quarter performance, comment on the CMS 2025 proposal and wrap up with our outlook for the remaining of the year. But before I dive in, let me begin as we always do with a clinical highlight. Speaker 200:02:23As you know, every day, tens of thousands of DaVita caregivers work to give life to our patients. Nurses play a central role within our interdisciplinary care teams serving as our patient's caregiver, sounding board and familiar face they see over 100 times per year. Unfortunately, thousands of nurses left the profession during the pandemic. As a result, the healthcare system is facing a critical nursing shortage. I am proud of the programs and initiatives we've implemented to support the next generation of dialysis nurses. Speaker 200:03:01I'll highlight three examples. 1st, we're collaborating with leading nursing universities on tailored nephrology specific nursing curriculum. We're also providing financial assistance to remove barriers to entry for prospective nursing students. 2nd, we've created a clinical internship program, immersing students with hands on experience in DaVita dialysis centers. We have 700 clinical entrants this year with more than 2,000 individuals participating since inception of the program. Speaker 200:03:363rd, we built a nurse residency program to support new nurses from student to practicing registered nurse. Our goal is to help hundreds of nurses in the program to feel more confident during their 1st year of practice, which among other things can lead to better patient safety. We're excited to do our part to alleviate some of the pressures of the nursing workforce and to help ensure access to care is not a barrier. Transitioning to the 2nd quarter performance. Adjusted operating income was $506,000,000 and adjusted earnings per share was $2.59 This outcome was ahead of our expectations for the quarter, primarily driven by favorability in patient care costs and continued strength in revenue per treatment or RPT. Speaker 200:04:31Offsetting this favorability was volume growth that was lower than expected. This was primarily due to elevated mistreatments related to spring storms along with lower than expected census gain. Our 2nd quarter adjusted results also included approximately $15,000,000 of center closure costs. In prior periods, we excluded these type of costs from adjusted operating income as non GAAP adjustments. We'll expand on this point throughout the call today. Speaker 200:05:01Let me get some additional detail on RPT growth since it continues to contribute to our strong performance and supports our 2024 guidance increase. There are many variables in RPT, but I'll highlight 2 primary drivers. The first and largest component is continuous improvement in our collection capabilities. This is a multiyear effort, so let me elaborate a bit more on this one. The complexity of revenue operations has increased over the last few years. Speaker 200:05:31Billing and collecting from health plans now more frequently involves new data and process requirements. These challenges include navigating prior authorization, payer specific billing requirements, numerous online payer portals and separately billable items. These layers are exacerbated by a growing list of participating health plans due to the growth of Medicare Advantage and exchanges and by our patients more frequently updating their coverage choices. In response, we made a series of targeted investments in technology and teammates to modernize and retain top in class capabilities. These investments focus on greater automation of routine tasks, increasing rate of electronic claim submission and more frequent benefit insurance verification among other enhancements. Speaker 200:06:26This has improved our overall collection rate and enabled us to collect on claims more quickly reducing day sales outstanding. With more comfort and experience with these capabilities over the past year, we believe these improvements are sustainable and will continue into 2025 beyond. 2nd, our health plan negotiations have resulted in modestly higher rate increases as a result of higher inflationary environment over the past few years. Despite these rate increases, we are still not recouping the full impact of high inflation. We continue our track record of innovation and discipline within our cost structure to bridge this gap. Speaker 200:07:10The combination of these two factors along with continued improvement in payer mix increases our expectations for RPT growth for the year. In the Q1, we communicated our expectation to land on the top end of our range of 2.5% to 3% RPT growth in 2024. With continued progress, we now expect 2024 RPT growth within a range of 3.5% to 4%. Staying on the topic of revenue, CMS recently released its ESRD proposed rule to update the prospective payment system for 2025. The CMS expected rate increase of approximately 2.1% was broadly in line with our internal expectations. Speaker 200:07:57The methodology has become more complex with the introduction of new wage index and while we appreciate CMS's effort to innovate, the proposal falls short of reflecting the industry true cost inflation. We will provide feedback to CMS in hope of improving this methodology in the final rule and in the years ahead. Absent further edits, the proposed rule would continue to put pressure on the system. Additionally, with the proposed rule, CMS reconfirmed its intention to include oral only drugs within the bundle as scheduled beginning next year and identified positive policy changes to aid with this transition. DaVita supports CMS position and given our experience with calcimimetics, we strongly believe this will provide more patients with access to these drugs since many of our patients do not have Part D coverage. Speaker 200:08:55We understand that there are entities arguing for Congress to delay the implementation which stated concern around patient access and the operational ability for providers to comply. DaVita is well prepared and investing the necessary resources to implement this transition in support of our patients. Turning to full year guidance. We are raising our 2024 adjusted operating income guidance while incorporating a change in treatment of our center closure expenses. We are raising 2024 adjusted operating income guidance from the prior range of $1,875,000,000 to $1,975,000,000 to a new range of $1,910,000,000 Speaker 300:09:42to $2,010,000,000 Speaker 200:09:46This represents a $35,000,000 increase at the midpoint of the range. This is the result of a $95,000,000 increase in expected operating performance, offset by now including approximately $60,000,000 of full year center closure costs that we previously would have excluded from adjusted operating income as a non GAAP adjustment. Joel will provide more detail about this change in our non GAAP reporting presentation. This guidance reflects sustained momentum in our key operating metrics, including the revenue per treatment progress we highlighted today and our expectation for a strong performance in the back half of the year. I will now turn it over to Joel to discuss our financial performance and outlook in more detail. Speaker 400:10:35Thanks, Javier. Our 2nd quarter adjusted operating income was $506,000,000 adjusted EPS was $2.59 and free cash flow was $654,000,000 Before I dive into the specifics on our performance for the quarter, let me add some detail to the change in reporting presentation of our non GAAP results that Javier mentioned. As a result of a recent common letter from the SEC to DaVita, we will no longer treat center closure costs as an adjustment in our non GAAP presentations. These center closure costs impact our patient care costs, G and A and depreciation and amortization expense lines. Our adjusted OI and adjusted EPS for Q2 now includes center closure costs and our updated full year 2024 guidance shared today follows the same methodology. Speaker 400:11:37To help with comparisons to prior periods, we are also now showing prior period results under the new methodology. In aggregate, these costs represent approximately $15,000,000 per quarter in 2024 for a total of roughly $60,000,000 expected this year. For comparison, tenor closure costs in 2023 were approximately $100,000,000 For 2025, we are forecasting $20,000,000 to $30,000,000 of center closure costs. These presentation changes have no impact on how we manage our business nor our overall profitability, cash flow or long term expectations. With that, let me break down each of the components of our Q2 performance starting with U. Speaker 400:12:29S. Dialysis and specifically treatment volume. Sequentially, treatments per day were up 1.1% in Q2 versus Q1. This increase was primarily due to census gains in the quarter and a seasonal improvement in mistreatment rate. Compared to the same period last year, 2nd quarter treatments per day were up 50 basis points. Speaker 400:12:58This year over year growth was below our expectations as a result of 2 primary factors. 1st, severe weather events in May June resulted in higher mistreatment rates, representing approximately 20 basis points of headwind on year over year treatment growth for the quarter. We have seen a similar but more pronounced disruption in July with the impact of Hurricane Barrel. 2nd, U. S. Speaker 400:13:29Net census gains were weaker than expected. Although new to dialysis admits grew for the 6th consecutive quarter, mortality was above our forecast. We expect both of these factors to negatively impact the second half of the year. For the full year, we now expect treatment volume growth will likely be between 0.5% 1%. Revenue per treatment was up approximately $6 sequentially. Speaker 400:14:02This increase is primarily due to typical seasonality from higher patient coinsurance and deductibles in Q1. As Javier outlined, we now anticipate full year revenue per treatment growth of 3.5% to 4% for 2024. Patient care costs per treatment were approximately flat quarter over quarter. Typical seasonal declines from items like higher payroll taxes in Q1 offset higher health benefit costs and other inflationary increases in the 2nd quarter. Depreciation and amortization declined $12,000,000 in Q2 versus Q1, partially as a result of a decline in center closure costs. Speaker 400:14:52Center closure costs in D and A were approximately $50,000,000 in 2023 compared to $10,000,000 in 2024. Since these costs are now included in our adjusted D and A numbers, we now expect a year over year adjusted D and A decline of approximately $40,000,000 to $50,000,000 For Integrated Kidney Care or IKC, our value based care business, operating income declined $8,000,000 sequentially. As we have seen in the past, we expect results in the second half of the year to be significantly stronger than the first half as a result of the timing of revenue recognition. International operating income was flat quarter over quarter. We have closed our acquisitions in Ecuador and Chile and expect our acquisitions in Colombia to close in Q3 and in Brazil by year end. Speaker 400:15:55Moving now to capital structure. In the second quarter, we repurchased 2,700,000 shares and to date in Q3, we have repurchased an additional 1,100,000 shares. Leverage at the end of Q2 was 3.1 times EBITDA. This was down from 3 months ago due to growth in trailing 12 month EBITDA and a reduction of net debt by over $200,000,000 As of the end of Q2, we held approximately $400,000,000 of funding from Change Healthcare's parent, UnitedHealth Group related to the cyber event earlier this year. As of today, that balance currently sits at approximately $300,000,000 and we expect additional repayment to align with successful collections on impacted claims. Speaker 400:16:52We continue to collect on change healthcare impacted claims and U. S. Dialysis day sales outstanding have declined by 14 days quarter over quarter. As always, we are assessing opportunities to optimize our capital structure, which includes looking to address the remaining balance of our term loan B maturing in 2026. We continue to target leverage within our range of 3 to 3.5 times. Speaker 400:17:21To this end, we are also assessing opportunities to increase our debt to ensure sufficient capacity to maintain leverage within this range. To conclude, let me share some additional detail about our updated adjusted operating income and adjusted EPS guidance for 2024. As Javier said, our new adjusted OI guidance range is $1,910,000,000 Speaker 500:17:49to $2,010,000,000 Speaker 400:17:52There are several moving pieces within this number, so let me give you the key puts and takes. 1st, we are now including expenses related to center closure costs in this adjusted OI range. This is an approximate $60,000,000 of additional operating expenses that were previously not in our adjusted OI guidance. To reiterate my earlier comments, this is a change in the presentation of our adjusted results and does not impact our GAAP financials or cash flows. 2nd, additional RPT growth of approximately 50 to 100 basis points relative to our previous expectations represents an increase of approximately $85,000,000 at the midpoint. Speaker 400:18:423rd, the range reflects improved expectations for patient care costs, mostly related to labor and productivity improvements, which is mostly offset by our revised volume expectations for the full year. Altogether, these changes represent an approximate $35,000,000 increase in our adjusted operating income guidance at the midpoint of the range. We are also updating our 2024 adjusted earnings per share guidance to a range of $9.25 to $10.05 primarily due to the increase in adjusted OI. That concludes my prepared remarks for today. Operator, please open the call for Q and A. Operator00:19:28Thank you, sir. Tito Chickering with Deutsche Bank. You may go ahead, sir. Speaker 300:19:47Good afternoon, guys. Nice day's quarter and thanks Speaker 600:19:49for taking my questions. On the NAG, can you give us some color on what you saw through the quarter and what you saw in July? Speaker 300:19:55Just looking at the high end Speaker 600:19:56of your revised guidance, you get to grow like 1.5%, which is a big step up versus what you saw in the first half of the year. So just want to sort of see kind of what you guys are seeing to give you confidence in the high end of that? Speaker 500:20:07Sure. Thanks, Pito. So through the quarter, what we really saw was mistreatments were elevated relative to what we expected and our census growth was below expectations. The pattern there has continued. New to dialysis admits remain strong and the growth there is consistent with what we had seen pre COVID and mortality remains elevated. Speaker 500:20:38In terms of the back half of the year, I'd point out one thing that gives us confidence, which is we've got an extra treatment day in the second half of the year, relative to the second half of the year last year. So that in and of itself is about 30 bps of additional growth. Other than that, we really haven't modeled in a whole lot of changes for the back half of the year. We haven't built in much census growth and we're expecting mistreatment rate to continue to be challenging. So if you really think about the back half of the year, year over year growth, it's really about treatment days rather than any change in any of the underlying assumptions. Speaker 600:21:25Okay. Fair enough. And you gave some of the moving parts, but if we exclude the $60,000,000 of closure costs, you raised guidance by $95,000,000 Can you just bridge us the components of sort of how you raised guidance by $95,000,000 versus previous guidance? Just I just want to understand that as I think it went through 2025. Thanks. Speaker 500:21:45Sure. So I'd start with revenue per treatment where we moved the guide from what essentially last quarter was 3% now to 3.5% to 4%. So at the midpoint, 75 bps is worth roughly $85,000,000 So that's number 1. And that's coming from a combination of continued success on the revenue operations, strength in contracting that we've seen through the year so far and then a little bit of mix improvement. So that's the dominant factor and worth $85,000,000 Contributing to that as well is some improvement we're seeing in labor costs. Speaker 500:22:30I'd highlight 2 things there. First, some of the premium pay, whether it's overtime or spot bonuses, have come down. And second, we are seeing a little bit better productivity in the year than expected. Those two things combined are worth about $30,000,000 And offsetting that is about $20,000,000 of OI headwind from the lower volume that we've called out. So plus $85,000,000 from RPT, plus $30,000,000 from labor, minus 20 from volume that will get you to 95 increase before taking into account the $60,000,000 change in center closure cost. Speaker 600:23:18Great. Thanks so much. Operator00:23:21Thank you. Our next caller is Justin Lake with Wolfe Research. You may go ahead, sir. Speaker 700:23:28Thanks. Let me just follow-up on Pito's question there. You said $20,000,000 from lower volume? Speaker 500:23:36That's right, Justin. Speaker 700:23:39And you took down volume by what, 75 bps at the midpoint? Speaker 500:23:45Yes. I would say as we were thinking about it, we probably weren't internally modeling as of last quarter that we'd be at the midpoint. So you'd probably get to a little bit of a lower you'd have to start at a slightly lower volume number to bridge to that $20,000,000 Speaker 700:24:05So maybe it's 50 basis points. I'm just trying to think about the relativity here of Yes. Speaker 500:24:10You're in the right ballpark Speaker 600:24:11there. Volume is Speaker 700:24:12about OI. So in your mind, 50 basis points of volume is about $20,000,000 of OI on an annual basis? Speaker 500:24:24Yes, I would I probably would if you would ask me just standalone what's 50 basis points of volume worth, I probably would have told you $50,000,000 to $60,000,000 So maybe you need a slightly lower number. That's why I Speaker 700:24:37thought you saw the same thing. Speaker 500:24:38I'm sorry. I'm sorry. The team here is correcting me. 1% is worth 50% to 60%. So you're in the right ballpark there. Speaker 700:24:50Okay. And then on center closures, did you say $20,000,000 or $30,000,000 for next year? Speaker 500:24:57Yes, for 20, 25, we think the number will be in that range. Speaker 700:25:03Okay. Speaker 500:25:05And And just to be clear about that, when you're modeling center closure costs, it's important to realize that not all the costs come right when we close a clinic. Some of them like lease acceleration costs, for example, can have a delay from when we close the clinic. So I think by next year, our clinic closure rate should actually be back to what it was pre COVID level, call it 20 clinics a year, somewhere in that range. But the costs we're calling out will be a holdover from what we've seen. Some of them will be a holdover from the clinic closures in 2024. Speaker 700:25:50Got it. That's what I was trying to get to. So you think you'll be back to like 20 center closures next year? Speaker 500:25:57Yes, something like that. This year, I think last quarter we had called out 50 for the year. We're probably running light and I would guess at the end of the year we'll probably have closed only about 40 for the year and getting back to a more normal pace for next year. Speaker 700:26:16Okay. And then just a question before I jump off on revenue per treatment. 1, the I think you said in the release that you had some offsets to pricing from lower from mix pressure. What's mix in the Q2 versus Q1? Speaker 500:26:41Mix was down a drop in Q2, but it's hanging right around 11%. It's right where it was at the beginning of the year. Our commercial mix at the end of Q1, which I don't think we disclosed, was a little bit harder to estimate because of some of the changes some of the challenges with Change Healthcare as some of the claims were delayed. But I don't think there's been a lot of movement on commercial mix between Q1 and Q2 that would have any real financial impact. Speaker 700:27:21And then lastly on the exchanges, so I assume that you were at 10.9 to end the year, if I remember the 4th quarter report. But the let's say you're at 11, how much of that's coming from exchanges today and how much of that came from exchanges, let's say pre COVID? Speaker 500:27:42Yes. The number is up about 200 basis points. Speaker 700:27:49Okay. I'll take that. I appreciate it guys. Thanks. Speaker 800:27:54Thank you. Operator00:27:55Thank you. Our next caller is A. J. Rice with UBS. You may go ahead, Speaker 800:27:59sir. Hi. Speaker 300:28:02Thanks for the question. Speaker 600:28:04On the IKC business, I guess, year to date for loss, if I've calculated it right, it's about $60,000,000 I know your target for the year is $50,000,000 And as you did say in the prepared remarks, you think you'll see more positive in the back half of the year. Is $50,000,000 still the expectation? And does that suggest you'll be positive in both the 3rd Q4? Speaker 300:28:29Thanks for the question, A. J. You've got the numbers right, meaning we're negative 60% and change for the up to year to date and we still expect the year to come in that 50% range. But it's not necessarily because there's a big change in the business, but rather revenue recognition on the back end of the year. So that's the big difference there. Speaker 300:28:56And as you know, this business and we've asked you to look at it more on an annual basis because quarter to quarter fluctuation can be a bit more dramatic, but that still holds on the range. Speaker 600:29:08Yes. And A. Speaker 500:29:09J, just on the quarterly spread between Q3 and Q4, It's it can be hard for us to predict when the revenue will land. That said, I would expect Q3 to be a loss making quarter again and Q4 to be a much, much stronger quarter. Then again, depending on when we get information, some of the Q4 revenue could pull forward to Q3. Speaker 600:29:42Okay. And obviously, it sounds like the comments on the volume are mostly around the storm impact on mistreatment. But you did sort of mention mortality. What did you see in mortality? And was that a significant contributor to your decision to adjust or that's just the normal fluctuations you see from quarter to quarter? Speaker 500:30:05Yes. So the short answer is mortality is definitely higher than we expected. And maybe it would be helpful to step back for a second and just give you a sense of how we're thinking structurally about where we are on volume for the year. And as we step back, the question we are have been asking ourselves is we are behind on volume growth, call it 150 bps relative to pre COVID, relative to where we'd like to be. And we are we spend a lot of time trying to quantify that. Speaker 500:30:49We are limited by the information we have, both the quality of the data as well as the timeliness of the data recognizing we're playing with relatively small numbers here right 100 bps, 150 bps with inputs that have a decent amount of volatility. We're decent amount of volatility or variability. That said, as we try and quantify it, we think, the $150,000,000 gap between where our volume growth for the year is relative to where it was pre COVID is really made up of 2 things. About 50 bps to 100 bps of that gap is related to mortality. Mortality is just running higher than it was. Speaker 500:31:36It's actually up this year relative to where it was 6 months ago. And we think structurally that's the biggest component of why we're not 150 basis points higher. The second thing we believe relates to the capital efficient approach we took to managing our clinic footprint. You go back 3 or 4 years, volume for us and the whole industry was beginning to decline. We recognized that our capacity utilization was going down and we were very focused on getting back to a healthy capacity utilization, one that could support our investment in our teams in clinical quality and in information technology. Speaker 500:32:27And the result of that was we pulled back on de novos, before others did and we closed roughly 200 clinics over the last few years. The result of all that was a decline in our clinic share over the last few years, call it a point in a quarter roughly. And with that, we believe we have lost some volume. It's hard to quantify, but if we had to put a range on it, it would probably be somewhere in the range of 40 to 60 basis points. So you put those two things together, 50 to 100 basis points of mortality higher than historical combined with 40 to 60 basis point impact from our clinic footprint management and we think that explains the majority of the 150 basis point gap. Speaker 500:33:28I will note one important thing, new to dialysis admits is not on our list of the gap. As I've said before, those remain strong. The growth in new dialysis admits is consistent with the growth we saw pre COVID and remains at a healthy level. So, I hope at the beginning I answered your question about the year and then gave you a bit more color on the bigger picture. Javier, anything to add? Speaker 500:33:57Yes. I'll add one thing. First of all, at the beginning of Speaker 300:34:00the sentence, Joel inadvertently said $150,000,000 and he was talking about 150 basis points, so just to make sure that the record reflects that the rest of the conversation, he was clear on the 150 basis points. But I think, while he walked you through a lot of numbers, at the end of the day, the question that you and all of us are trying to ask ourselves is, is there a structural change that is going to change the growth rate? And to the best of our ability on the work that we've done, the answer that we come up with is no. It appears that we are in a bit of just a let's call it a period of time when mortality is elevated that we see through these new to dialysis patients that the volume should come back to normality over time. Speaker 600:34:53Okay, great. Thanks so much. Speaker 300:34:55Thank you. Operator00:34:57Our next caller is Andrew Mok with Barclays. You may go ahead, sir. Speaker 900:35:01Great. Thank you. Maybe just a follow-up on that mortality point. I guess, what's the working assumption on why mortality is elevated? Because I think the excess mortality dynamic during the early years of the pandemic would intuitively suggest there would be a tailwind in the aftermath. Speaker 900:35:17So what's your kind of working assumption here on why it remains elevated? Thanks. Speaker 300:35:23Yes. Your question is one that we've been asking a lot and we've been talking to our physician community and trying to understand what is driving it. The reality is that people come up with hypotheses and you can support it a bit, a higher elevated flu season, etcetera. But the real quantifiable answer is not one that we could say with confidence. And if you were going to say on the other side of the equation, we're starting to see improvements on things that should have an impact on mortality like the integrated kidney care, managing people upstream, new drugs, SGL-two and GLP-one, etcetera. Speaker 300:36:10And so, we are scratching our head and we will be working on it. And as soon as we get something with confidence, we will share with you. Speaker 900:36:20Great. Okay. Thank you. And then in the prepared remarks, I think you mentioned that the improvement in collections is a multiyear effort. And given the strong gains we've seen over the last 6 quarters, just where are we in this process? Speaker 900:36:32And how much runway is left beyond 2024? Thanks. Speaker 500:36:37Yes. I would say there's certainly going to be more in 2025 if from nothing else than just the annualization of the improvements we're anticipating in the back half of the year. Looking forward from there, I think it's safe to say that any benefits from this are going to decline over time. And what I mean by that is their contribution to RPT growth will combine over time. I think everything we've achieved so far is sustainable. Speaker 500:37:15That said, it's hard to predict how much more there is and over what time period we're likely to capture it. I think it is fair to say relative to when we started this a few years ago and when we started talking about it with The Street in Q2 of 2022, it has certainly exceeded our expectations. Speaker 900:37:39Got it. And if I could just follow-up on one more point. I think you called out the clinic closures as being a potential drag to volume growth as well. I think given you and your competitor, one of your big competitors are closing clinics at the same time, where do you think how much leakage do you think there is there? And where are those patients going to get their dialysis treatment, if not one Speaker 800:38:03of the 2 large dialysis chains? Thanks. Speaker 500:38:06Yes. So, we've done a lot of work on this. And interestingly enough, the data we have on clinic clinics is actually better or clinic share is better than the data we have on treatment share. And we believe that the mid size and smaller dialysis operators have actually gained share over the last few years. They have closed fewer clinics. Speaker 500:38:34They have built more clinics. And the result of that is probably picking up some volume as a result of that. Speaker 300:38:48And the question on that and we ask ourselves is that good or bad? In general, of course, you start to think of market share. And in this one, it's clinic share. And the way that we've looked at it, and of course time will tell, is that we led the way in stopping de novos as the mortality escalated during the pandemic. So if you see DaVita build, it was very aggressively stopped. Speaker 300:39:16And then we led the way in rightsizing the capacity. And so, if you were just going to do shorthand, you would say we've closed roughly 200 centers. And depending on the math, you could say it's roughly $100,000,000 to $150,000,000 of fixed expense reduction. And the loss of volume is roughly in that $50,000,000 So you would say that just with that math, it looks like we're making the right trade off. Of course, there's a lot of other dynamics of patient access, the local relationship with physicians and all the normal considerations that we have to go into. Speaker 300:39:57But I'm just giving you the money side of it. Speaker 900:40:04Great. Thanks for all the color. Speaker 500:40:06Sure. Hey, before we take the next question, I just want to come back to an answer I gave to, Justin on the exchanges. I talked about 200 basis point increase from the exchanges. I just wanted to clarify that's 200 basis points of revenue, not 200 basis points of mix increase that came from the exchanges. So just wanted to make sure that was clear. Operator00:40:38Thank you. Our next caller is Kevin Fischbeck with Bank of America. You may go ahead, sir. Speaker 800:40:49Great, thanks. Maybe just to follow-up on that point. You just have like the percent of revenue that comes from the exchanges year to date so far? Speaker 500:41:02Yes. I'm not sure we're going to I don't think we're going to give that number, Kevin. Speaker 800:41:08Okay. And then, you made a comment in the prepared remarks about leverage. And I think you said that you were looking to add debt to ensure capacity would be in this range. Are you saying that you would look to potentially lever up to deploy more capital, I guess, on share repurchase? Or were you just talking about something else? Speaker 500:41:29Yes. So I wouldn't use the phrase lever up because what we're really targeting here is maintaining the leverage range of 3 to 3.5 times. And if our goal was to get our leverage range or our leverage multiple above that, that's what I would characterize as levering up. I think the reality is as our EBITDA grows in order to maintain that leverage range of 3 to 3.5 times recognizing we're at the low end of that range right now, we need more debt capacity. And it's just using the middle of the number as EBITDA goes up, you multiply it by 3.25 and that's the capacity you need. Speaker 500:42:17So we're thinking about how much debt capacity do we need to make sure we can stay in that range as EBITDA grows. Speaker 800:42:28Okay. And in theory, that capacity would be used on share repurchase, is that or is there anything else you would Speaker 500:42:34I mean, it would be used using our capital allocation philosophy. So the first thing we would love to do would be to invest it in growth, recognizing it needs to be capital efficient growth and hit our return thresholds. Barring that, share repurchases would certainly be on the at the top of the list of how we would use excess capacity to maintain our leverage level. Speaker 800:43:04Okay. And then I guess just on that point as well, the change line of credit, how do we think about that? That's going to be I mean, it doesn't impact, I guess, your free cash flow, but I guess that would be a use of free cash flow to pay that back or you just collect less from United? Speaker 500:43:22No. I just think of it as debt. And we it's included in our net debt number today. And if we had if we drew an extra $400,000,000 on the revolver or we did a bond deal and we used it to pay down the changed debt, it would it's just one form of debt exchanging for another form of debt. So it wouldn't hit free cash flow. Speaker 500:43:49It wouldn't change our leverage ratio. Speaker 800:43:53Okay. And then I guess just going back to the mortality point, because it is hard to understand, why it's such an issue now. And I mean, I guess it's hard to say you don't fully know the reasons behind it. It's hard to say when it would normalize. But is there any thought about why things wouldn't get back to normal over the next couple of quarters? Speaker 800:44:17And I guess, what is it that you're looking forward to kind of know that you're on the other side of that? Speaker 300:44:24Well, predicting it is not a good idea, I don't think because the odds of being wrong are probably 100%. But the reality is that we do agree with you that we don't think it's structural and that it will revert back to normality. And again, I've highlighted some of the improvements that we think can happen from mortality. And many people say, well, why don't you know exactly what happened? And the assumption is that death happens while they're in dialysis. Speaker 300:44:57And the reality is that there's a lot of more moving pieces and that people can relocate, can go to a sniff, etcetera, etcetera. And so you don't actually get the full story, you have to follow-up and there's a lag in time. And so that's why, we're having to piece it together and work hard to get the information and we'll be back to you. But we've talked to a lot of nephrologists and no one seems to think that there's any systemic trend that we can identify. Speaker 800:45:31Okay. And maybe just last question. Since revenue per treatment seems to be like a big part of the guidance raised, it sounds like everything that's happened so far you think is sustainable. I guess mix maybe moves around a little bit. But can you talk a little bit more about the commercial contracting? Speaker 800:45:49It sounds like that has come in a little bit better maybe than you thought it was going to as far as better capturing recent inflation. How should we think about commercial contracting in the 2025? Is that still going to be a tailwind similar to what you're seeing now or is that going to normalize for some reason? Speaker 300:46:09Well, on RPT, basically, you have to think of 3 dynamics. You have mix, you have negotiation and you have revenue cycle. And so you're asking about the negotiations and I think to think about the future, you have to kind of put yourself into the future, which is what is the environment? Is it still inflationary? What contracts are up for negotiation, etcetera? Speaker 300:46:35As we've explained in the past, we are comprehensively contracted and our big contracts usually come up every 3 to 4 years. So in any given year, you don't get many at bat. What we're focused on is to be a really great partner to our payers. And what that means is to have a great clinical solution at the best cost. Now, so I can't predict what that looks like. Speaker 300:47:02We don't foresee anything that dramatically would change what occurred in 2024. That said, if you wanted to just kind of answer the question, how do you feel about margin, I. E. Bring in the cost considerations to the conversation, I think that the margin strength is likely to remain in 2025. Speaker 800:47:26Helpful. I guess maybe just maybe ask a little bit differently. If you're getting a little bit of commercial contracting, do you feel like there's a shift at all in the negotiations? Whether managed care companies realize they need you more for network reasons or they are appreciating the value you provide more and that's giving you a stronger negotiating power or it's just more inflations higher and so I think kind of the sell Speaker 300:47:54shifts? No, I think the conversations are the same, meaning everybody is trying to do their fair share in containing costs. Everybody is trying to add value to the patient community and have an expansive network and just do the best we can. And of course, we have to take into account cost and inflation and all those type of things. But those dynamics haven't changed other than the consideration for inflation. Speaker 800:48:22Great. Thanks. Thank you. Operator00:48:25And our next caller is Ryan Langston with TD Cowen. You may go ahead. Speaker 1000:48:31Hi, good evening. Thank you. Just a couple for me. On the lower census growth, maybe I missed it, but is that isolated to any particular geographies or maybe are there certain geographies that are maybe performing below kind of the average and maybe pulling that down a little bit? Speaker 500:48:49No, Ryan. We're pretty much seeing that across the board. Speaker 1000:48:56Got it. And then just to clarify, maybe on the RPT improvement, it sounds like obviously you're still working through that and some of that will annualize into 2025. Is it fair to assume that may end up just from a year on year maybe closer to 3.5% to 4% you're guiding this year as opposed to maybe the 2.5% to 3%? Speaker 500:49:20I'm sorry, are you asking about 2025 RPT? Speaker 1000:49:24Yes. I'm asking if you're guiding to 3.5% to 4% this year, but some of it will annualize into next year. Is it fair that the growth rate might be higher or closer to 3.5% to 4% in 2025 versus maybe prior we would have thought maybe closer to 2.5% to 3%. Speaker 500:49:44Yes. It's early for guidance, but I would not go to 3.5% to 4% for next year. I think that would be a real stretch to perform at this level for another year. Speaker 1000:50:01Okay. Thanks. Speaker 300:50:03Thank you. Operator00:50:05Thank you. Pito Chickering with Deutsche Bank. You may go ahead, sir. Speaker 600:50:10Hey, guys. Just some quick follow ups here. What percent of your treatments were home treatments this quarter? And what was your center in legalization this quarter? And how did it compare versus the first Speaker 500:50:20quarter? Yes. Home utilization is still running in the mid to high 15s. In terms of capacity utilization, we're somewhere between 58.5 and 59%, somewhere right around that. Speaker 600:50:40Okay. And on the international business, the margin looks to be about 7% range, I guess. How do you think that evolves over the next sort of couple of years? Speaker 400:50:51I think Speaker 500:50:53growth in international for the next couple of years, especially next year is likely to be higher than it's been in the past, largely driven by the acquisition that we've done in Latin America. Speaker 600:51:11Sorry, for OI margins, like you're tracking around 7%. Speaker 500:51:16OI margins. OI margins Speaker 600:51:18for international, I guess, how does that evolve over time? Speaker 500:51:20Yes. I think it will continue to tick up. I don't have a view on could it ever get to the U. S. Margins, but I would say that's highly unlikely. Speaker 600:51:34All right. Last one for Aki. Speaker 300:51:35The margins internationally have a couple of dynamics. Number 1, there is no such thing as international. There's 12 to 13 countries. And of course, they weigh differently. And in some of these, you have one payer, the government. Speaker 300:51:53And so they will go in periods where there's no increase and then they will have a lump increase. And so it's got a little more unusual dynamic and harder to predict the margin. Speaker 600:52:10So then if margin is, I guess, harder, I guess, why is that a better use of cash flow than doing share repel? Speaker 300:52:18Well, we're confident on the adjusted return, but you're asking a different question, which is, are we seeing margin increases? Speaker 600:52:27Okay, fair enough. And then last one for IQC. You put up about 3,000 lives this quarter versus last quarter, but the medical spend per life is about half of what it was, I guess, on the average last quarter. So as you're bringing new patients on to IKC, can you sort of talk about what type of patient dynamics they are versus who you have currently in there? Thanks so much. Speaker 800:52:49Yes. Speaker 500:52:51I would be cautious with that ratio of medical cost per life. A lot of the lives you're talking about there, their medical costs are not don't actually flow through our P and L. It's only the SNIP lives where the medical costs flow through. So, I probably wouldn't go there with that calculation. Speaker 600:53:16Right. Fair enough. Thanks guys. Speaker 300:53:18Thank you, Peter. Operator00:53:20And at this time, I'm now showing no further questions. Speaker 300:53:24Okay. Thank you, Michelle, and thank you all for the questions. To conclude, it was another strong quarter for DaVita, resulting from our investments in recent years to build a great team, strong systems and enhance our capabilities. As we look ahead, while it's a little early to offer guidance, we believe that the underperformance, the underpinnings of our margins are sustainable. With this foundation, we're excited about the future we can achieve to benefit our patients, partners and teammates. Speaker 300:53:58Thank you for your continued interest in DaVita and be well. Operator00:54:03Thank you. This concludes today's conference call. You may go ahead and disconnect at this time.Read morePowered by