DaVita Inc.

Good evening. My name is Michelle and I will be your conference facilitator today. At this time, I would like to welcome everyone to the DaVita first quarter 2023 earnings call. Today's conference is being recorded. If you have any objections, you may disconnect at this time. All lines have been placed on mute to prevent any background noise. After the 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 and then the number one on your telephone keypad. If you would like to withdraw your question, please press star, then the number two. Thank you, Mr. Eliasson. You may begin your conference.

Thank you, and welcome to our first quarter conference call. We appreciate your continued interest in our company. I'm Nick Eliasson, 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 Law. 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. For further details concerning these risks and uncertainties, please refer to our first quarter earnings press release and our SEC filings, including our most recent annual report on Form 10-K, all subsequent quarterly reports on FORB 10-Q, and other subsequent filings that we 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.

Thank you, Nick, and thank you all for joining the call today. 2023 is off to a strong start for DaVita. We enter the year with a cautious balance of optimism about our ability to execute against our plan and uncertainty about treatment volume in a challenging labor market. In the first quarter, we performed well in our key metrics, and our results benefited from an improving macro environment. While some external uncertainties remain, the continuation of current trends would put us on a path to deliver strong results for the full year. Before I get into the details about the quarter, I would like to elaborate on an area of our long-term strategy, which is to connect transitions of care through solutions for our patients across each step in the kidney care continuum. That leads me to our clinical highlight around CKD education. Periodically, we have provided updates on our community education program called Kidney Smart. Raising awareness through education in the kidney care community is critical, particularly given the fact that one in seven American adults have chronic kidney disease and the majority of these people are not aware. Our Kidney Smart program is designed to help those patients understand and manage their kidney health and is frequently recommended by nephrologists as a go-to resource for patient education. To help remove the barriers to health equity, we've offered these classes in 10 different languages. In 2022, over 33,000 CKD patients attended the Kidney Smart Class, the best ever for the 12-year history of the program. Moreover, in 2022, the VITA patients who attended Kidney Smart Classes were more than twice as likely to choose a home modality in consultation with their nephrologist and care team. Transitioning to our financial performance. In the first quarter, we delivered adjusted operating income of $352 million and adjusted earnings per share of $1.58. As we discussed in prior quarters, we implemented a number of initiatives in the second half of 2022 to respond to the pressures associated with lower volumes and higher costs. These plans, combined with a strong operating rigor, translated into positive results in the quarter. And we're now seeing some of the operating metrics that impacted margins in 2022 begin to normalize. I'll start with the biggest driver of Q1 outperformance, labor. We made good progress on labor costs in the quarter, which reflected a combination of operating diligence and improvement in the overall labor environment. As we have said in the past, successful labor management requires effectively managing the interplay between wage growth, contract labor, and training costs. Our operators continue to improve on the permanent staffing levels within our clinics, which has enabled us to drive further reduction in contract labor costs during Q1. We're tracking ahead of plan in our efforts to cut our full-year contract labor expense in half relative to last year. The increase in permanent teammates combined with elevated turnover resulted in training costs in the quarter above historical norms although below the peak we saw last summer. This is in line with our expectations, and we anticipate improvement in our training productivity in the back half of the year. This will largely depend on successful teammate retention, which has historically tracked closely with the health of the broader labor market. Moving on to treatment volume. Quarter over quarter treatments per day were up approximately 1% and better than the middle of our expected range. This was driven by net census gains due to both higher admits and lower mortality. Because of the annualization of excess mortality from 2022, we still anticipate a reduction in overall treatment volume on a year-over-year basis, and we continue to assume excess mortality over the balance of this year. That said, we're encouraged by our first quarter volume results. What we saw in Q1 proves to be a trend. We would expect to finish the year in the top half of our volume forecast range of down 3% to flat relative to 2022. Transitioning to a couple of strategic topics, on April 1st, DeVita and Medtronic announced the launch of Mozark Medical, a new independent device company focused exclusively on innovative kidney health technologies. Mozark's current products and its R&D pipeline ranging from kidney access technologies to advanced home dialysis and acute therapies, are intended to improve the overall patient experience and increase access to home-based care. This investment reaffirms our commitment to realizing scale transformation in kidney care and allow us to fuel innovation in partnership with Medtronic, a global leader in healthcare technology. And finally, a note on integrated kidney care, or IKC. We continue to make progress consistent with our business plan and demonstrate that our model of care is improving the health and well-being of our patients. I'll highlight two examples of this. First, across our IKC program, more than half of our patients achieve an optimal start, which means the patient initiates dialysis treatment at home or appropriate vascular access in place. reduce costly and difficult hospitalizations, and on average, lead to a reduction in the continuing cost of care in the month and year that follow. Second, recent data continues to show an encouraging differentiation in hospitalization rates from patients in our IKC program versus our overall patient population. As we continue to scale our IKC business, which is measured by the total dollars of medical spend in our program, we will continue to focus on driving our net saving rate while pursuing a cost-efficient model of care. In summary, looking across our most important operating metrics, we're seeing progress at a faster rate than assumed in our initial forecast. Therefore, we are revising our adjusted operating income range of $1.4 billion to $1.6 billion to a range of $1.475 billion to $1.625 billion and revising our adjusted earnings per share range of $5.45 to $6.95 to a range of $6.20 to $7.30. Aside from the COVID disruption in the labor market, other important factors for the remaining of the year include continued progress against our cost-saving initiatives, which Joe will elaborate on, and of course, our continued effort to restore patient benefit protection through our advocacy efforts. I will now turn it over to Joe to discuss our financial performance and outlook in more detail.