DaVita Inc.

Good evening. My name is Sheila and I will be your conference facilitator today. At this time, I would like to welcome everyone to the DaVita fourth quarter 2020 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, press star then the number two. Thank you. Mr. Gustafson, you may begin your conference.

Thank you, and welcome everyone to our fourth quarter conference call. We appreciate your continued interest in our company. I'm Jim Gustafson, Vice President of Investor Relations, and joining me today are Javier Rodriguez, our CEO, and Joel Ackerman, our CFO. Please note that during this call, we may make forward-looking statements within the meaning of federal securities laws. All of these statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. For further details concerning these risks and uncertainties, please refer to our fourth quarter earnings press release and our SEC filings, including our most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q and any subsequent filings we make with the SEC. Our forward-looking statements are based upon information currently available to us, and we do not intend and undertake no duty to update 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. Reconciliation of these non-GAAP measures to the most comparable GAAP financial measures is included in our earnings press release submitted to the SEC and available on our website. I will now turn the call over to Javier Rodriguez.

Thanks, Jim. Good afternoon, and thank you for joining the call today to discuss our 2020 performance and thoughts on 2021. For DaVita, 2020 showcased our caregivers and their commitment to patients with kidney disease. COVID created challenges that we could never have imagined one year ago. These challenges, clinical, operational, and financial, led to opportunities for us to harness the strength of our teams and our platforms to support our patients and our community. When I reflect on the year, three things particularly stand out. First, our caregivers teams focus on health and safety of our patients. Second, the creativity and innovation showed by our organization to adopt to the changing landscape. And third, the love, empathy, and dedication of our teams to each other and to our patients. Despite the good work in 2020, the challenges of COVID remain. The latest surge has been particularly difficult for our patients and our care team. The disproportionate impact COVID has on patients with underlying health issues and the elderly continues to manifest itself in the dialysis community. The higher rates of patient mortality that we talked about last quarter unfortunately accelerated in November and continued through January. We estimate that our patient census at the end of 2020 was approximately 7,000 less than what it would have been otherwise absent COVID. As we look to the future, some leading indicators such as fewer new COVID cases, fewer hospitalizations, and the recent vaccination effort give us hope. This leads me to our clinical focus on vaccine. Over the past few months, we've been engaging with the federal government with state agencies and the CDC to identify ways for our caregivers and patients to gain access to the vaccine. We are uniquely positioned to administer vaccines safely and efficiently in our clinics given our infrastructure, our clinical expertise delivering flu vaccines each year, and our ability to monitor patients' health each week. Our conversations with the CDC and federal government are ongoing And we're getting set up in their direct vaccine distribution system to be ready to start the moment we get the green light. In states like Minnesota and several large counties across California, where we have been able to secure direct allocation, vaccination rates are as high as 70%, both because we have access, but also because general acceptance rates are higher when patients see other patients receiving the vaccine. Across much of the rest of the country, the logistics of signing up and the access at separate vaccine sites has been challenging for many patients. Therefore, our ultimate goal remains to obtain direct allocation from the federal government. Now on to our financial performance. Despite the challenges of COVID, we significantly outperformed original financial guidance for 2020. We knew it would be a tough year to deliver profit growth given the headwinds from calcimetic revenue decline and the cost of fighting the ballot initiative in California. When COVID hit, the challenge to deliver growth only increased as COVID created significant uncertainty on our financial results. Despite this uncertainty, we grew our adjusted operating income by double digits, absent the impact of calcimetic, ballot costs, and net COVID impact. We delivered growth in adjusted earnings per share from continuing operations of 34% and generated free cash flow from continuing operations of almost $1.2 billion, while returning $1.4 billion to our shareholders through our share buyback. In Q4 specifically, we experienced a net COVID impact of approximately $60 million, which was higher than we expected. Through the first three quarters of the year, the net COVID impact was reduced as the increased costs associated with COVID were offset by lower benefits, travel, and G&A spend. In Q4, we saw an accelerated impact of higher mortality coming out of the holiday season combined with fewer offsets in benefits and G&A expenses. was a negative COVID impact that was roughly 35 million higher than what we anticipated, bringing our Q4 earnings below the guidance range we provided last quarter. Excluding this increased COVID impact in Q4, our earnings would have been in the middle of our guidance range. As we look ahead to the coming year, our guidance range will be $7.75 to $875 per share, which incorporates our expected impact of COVID and demonstrates our belief in the underlying earnings growth of our business. We believe that our core performance in 2020 creates a solid foundation for us to deliver on the long-term financial goals. Before I hand it over to Joel to cover our quarter and our outlook in greater detail, let me touch briefly on our recent Medicare Advantage enrollment. As a reminder, 2021 is the first year in which existing dialysis patients have the option to enroll in a Medicare Advantage plan. Previously, MA coverage for ESRD had been limited only to patients already enrolled in MA plans before kidney failure or to certain patients in MA special need plans. By the end of 2020, the percentage of our Medicare patients who were enrolled in MA plans was approaching 30%. And based on our preliminary enrollment data, we now expect our percentage of MA patients among Medicare patients to be in the mid-30s in 2021, which is still below the national average. As you would expect, the new enrollment was predominantly from Medicare patients previously without secondary coverage because these patients will benefit from the expanded benefits of MA and the cap on out-of-pocket expenses. The growth in the ESRDMA population creates opportunities for us to build additional momentum toward value-based care that we've been investing. This is an exciting trend, and we're eager to lead the way with our payer and nephrology partners to deliver comprehensive care to our patients, which we believe will help lead to better clinical outcomes and lower overall cost of care. Our 2021 guidance range reflects our expected costs and investments, to build our model of care for our value-based agreement. Now, let me hand it over to Joel.