DAVITA INC. Q4 FY2024 earnings call

• Clinical highlights: Achieved increased access to care, with over 80% of home dialysis patients using connected cyclers for remote monitoring. Expanded to a comprehensive kidney care company with programs like Kidney Smart and Integrated Kidney Care, and outperformed clinical benchmarks in 13 international markets.
• 2024 performance: Finished the year strong despite hurdles like Change Healthcare outage and supply chain disruptions. Adjusted operating income and EPS were in the top half of guidance ranges. Enhanced collection performance and revenue per treatment growth offset slower treatment volume rebound. Mortality and mistreatment rates were elevated, and new patient starts were impacted by PD supply constraints.
• Operational updates: Closed three of four Latin American acquisitions in 2024, with Brazil deal expected mid-2025. IKC results were in line with expectations with an adjusted operating loss of $35 million. Resumed admitting new home patients at historical rates by year-end 2024 but faced lower new admits in Q4 due to PD supply issues.

In 2024, full-year adjusted operating income was $1.98 billion and adjusted EPS was $9.68. Fourth quarter adjusted operating income was $491 million. International adjusted OI declined by $17 million in the fourth quarter due to a $19 million reserve against aged accounts receivable in Brazil. Integrated Kidney Care (IKC) had a full-year adjusted operating loss of $35 million. For product segments, US dialysis saw various performance metrics with considerations for volume, revenue per treatment, and expenses. International expansion continued with three of four Latin American acquisitions closed in 2024, and the Brazil deal expected mid-2025. Revenue contribution details: oral drugs transition to dialysis benefit was estimated to contribute $0 to $50 million in 2025.

• 2025 adjusted operating income guidance: $2.01 billion to $2.16 billion, midpoint 5.2% year-over-year growth. Adjusted EPS guidance: $10.20 to $11.30, midpoint 11% growth.
• Treatment volume: Flat compared to 2024, with headwinds from treatment days and PD admissions disruption.
• Revenue per treatment: Anticipates 4.5%-5.5% growth, with ~40% from new oral phosphate binder reimbursement.
• Patient care cost per treatment: Anticipates 6%-7% growth, with oral phosphate binders and inflationary costs driving growth.
• IKC: Expected relatively flat adjusted operating income year over year.
• International: Anticipates ~$50 million year-over-year adjusted OI growth from Latin America acquisitions and existing markets.

• Supply chain disruptions: Hurricane impact on PD supply led to $6 million operating income impact in Q4 2024 and negative impact on 2025 adjusted operating income.
• Volume uncertainties: Mortality, mistreatment rates, and PD admissions disruptions pose risks to volume growth.
• Reimbursement variability: The wide range for oral drug inclusion in the bundle (0 to $50 million) introduces uncertainty due to factors like mix, volume, and adherence.

Q: On volume outlook for 2025, Joel Ackerman explained that the midpoint assumes flat treatment volume with headwinds from treatment days and PD admissions disruption, and that mortality, mistreatment rates, and admissions trends are viewed as similar to 2024.

A: Joel Ackerman Q: Javier Rodriguez was asked about the wide range for oral drug inclusion benefit (0 to $50 million). He explained it's due to variables like mix of phosphate binders, volume, and adherence, and that the midpoint is the most likely spot with new prescription visibility being limited early in the year.

A: Javier Rodriguez Q: AJ Rice asked about new starts in 2024 vs 2023 and SGLT2 inhibitors' impact. Joel Ackerman and Javier Rodriguez responded that a negative year of incidents growth is not new, and they think the impact is more likely from COVID than new drugs.

A: Joel Ackerman, Javier Rodriguez Q: AJ Rice inquired about PD supply stabilization and new starts return to normal. Javier Rodriguez stated PD supplies are back to normal, and new starts should pick up but will take time, with the impact of lost 350 patients being a drag on 2025 volume.

A: Javier Rodriguez Q: Andrew Mok asked about revenue per treatment growth and Medicare patient dollars. Joel Ackerman clarified the revenue per treatment growth from oral drugs is lower as not all patients are eligible and not all take the medication.

A: Joel Ackerman Q: Pito Chickering asked about IKC revenue recognition and Brazil reserve. Joel Ackerman and Javier Rodriguez explained IKC revenue recognition evolves with experience, and the Brazil reserve impacted Q4 adjusted OI but doesn't affect underlying business earning power.

A: Joel Ackerman, Javier Rodriguez