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 second 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 the number one on your telephone keypad. If you would like to withdraw your question, press star, then the number two. Mr. Eliason, you may begin your conference.

Thank you, and welcome to our second quarter 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. For further details concerning these risks and uncertainties, please refer to our second quarter earnings press release and our SEC filings, including our most recent annual report on Form 10-K, 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.

Thank you, Nick, and thank you for joining our call today. I hope that everyone's having a safe and joyful summer. At DaVita, we've been focused on innovation and continuous improvement to provide the highest quality of care for our patients. Hand in hand with these efforts, we've been driving operational improvements across our organization. Our second quarter performance reflects strong traction across those initiatives, putting us on a path to deliver strong clinical outcomes and financial results for the year. Today, I will cover the second quarter results, offer some perspective on the industry landscape and drivers of long-term performance, and update our full year guidance. Before we get into the second quarter details, I would like to take a moment to celebrate a clinical and technological milestone. On our February call, we mentioned the rollout of our next generation clinical IT system, which we refer to as Center Without Walls, or CWOW. I'm happy to report that after five years of development, CWOW is now live in each of our approximately 2,700 clinics across the United States. This patient-centric, cloud-based system combines and replaces four legacy systems and is designed to provide seamless flow of information across each of our centers and all modalities. This includes real-time clinical dashboards, data sharing with our physicians and integrated kidney care platforms, and notifications such as critical lab alerts. For ease of use, it features wristbands for quick teammate login, improved ability to track and reschedule mistreatment, enhanced real-time documentation, and consolidated reporting for streamlined analysis. And while we're enthused about these immediate benefits, the most significant enhancement is the state-of-the-art data structure and platform upon which we can build further capabilities, including artificial intelligence, to advance the care delivery, in the years ahead. With this groundbreaking platform, our clinicians are able to access the right information at the right time in the right place. Transitioning to our financial performance, in the second quarter, we delivered adjusted operating income of $432 million and adjusted earnings per share of $2.08. These results were driven by improvements across our financial trilogy of treatment volume, revenue per treatment, and patient care costs. I'll touch on each of these in a bit more detail. On volume, we saw our second consecutive quarter of improvements in census and treatments per day. This is encouraging as it's a result of better macro environment and progress in our operating initiatives. We're trending near the top of our original volume range of down 3% to flat year-over-year And if these trends continue, we would anticipate delivering volume growth in 2024. Shifting to revenue and revenue per treatment. Revenue per treatment was particularly strong in the quarter. This was primarily driven by typical seasonal factors from patients meeting their copays and deductibles, along with normal expected rate increases and improvement in mix, including Medicare Advantage. Adding to the RPT increase, We have seen progress from investments we've been making in our revenue cycle capabilities. These investments resulted in higher cash collections and a decline in our DSO. I'm excited about the investments we've been making in this area, which represent a good example of how we are constantly improving operations. And finally, patient care costs improved as expected in the quarter. Although base wage increases remain well above historic pre-pandemic levels, other expenses including contract labor and pharmaceuticals continue to decline. This benefit was partially offset by elevated training costs. While staffing levels in our clinic are in a much better position compared to last year, we continue to experience above average turnover among facility teammates. As a result, we no longer expect an improvement in our training productivity during the back half of this year. Taking a step back from the most recent results, I would like to offer some reflections on the broader industry landscape and our effort to drive performance going forward. Beginning with the reimbursement rates. We're disappointed by CMS's proposed rule to update the ESRD prospective payment system for 2024. Specifically, the proposed rate increase falls short of expected cost inflation in 2024, and it fails to adjust for the acknowledged inflation forecast miss relative to actual wage and inflation increases over the past two years. The kidney care community will continue to advocate for for an adjustment mechanism to reconcile these forecast errors, similar to what exists today for skilled nursing facilities. In response to the persistent cost inflation, we are continuing our track record of innovation across all areas of our cost structure. Most recently, we consolidated portions of our facility footprint and reduced pharmaceutical costs through our conversion to Mercera for anemia management. These programs are proceeding in line with our expectations. Going forward, we will continue to drive cost efficiencies across the P&L. Through these efforts and continued improvement in our volume trends, we continue to target 3% to 7% long-term growth of our enterprise adjusted operating income. Looking forward to the remainder of the year, given our progress during the second quarter, we're revising our adjusted operating income range of $1.475 billion to $1.625 billion to a new range of $1.565 billion to $1.675 billion. We're also updating our adjusted earnings per share range of $6.20 to $7.30 to a new range of $7 to $7.80. Our performance relative to this guidance will continue to depend heavily on momentum in patient census trends, our ability to manage patient care costs within the broader labor environment, and sustained improvement in revenue cycle management. I'll now turn the call to Joel to discuss financial performance and outlook in more detail.