DaVita stock plunges after company reports third-quarter earnings
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The price of DaVita stock plunged last week after the company reported a major drop in revenue in the third quarter and downgraded its outlook for the rest of the year.
“The third quarter was a challenging quarter for us,” Javier Rodriguez, CEO of DaVita Inc., said in a press release. “Like others in the health care community, negative volume trends due to COVID and continued labor pressure impacted our financial performance more than expected.
“Looking ahead, I remain confident in our business and ability to leverage our end-to-end kidney care platform as a differentiated asset,” Rodriguez said.
The company spent $185 million repurchasing 2.1 million shares of common stock during the third quarter at an average cost of $87.10 per share – almost $17 more per share than its closing price last week.
Treatments down
DaVita reported that dialysis treatments for the third quarter of 2022 were 7,335,825, or an average of 92,859 treatments per day, representing a per day decrease of 0.4% compared to the second quarter of 2022. Normalized non-acquired treatment growth in the third quarter of 2022 compared to the third quarter of 2021 was - 2.1%, DaVita said in a press release. “The headwinds in volumes have persisted longer than we assumed, and contract labor costs and productivity did not begin to improve in the quarter as we had expected,” Rodriguez said during the conference call. “We are now assuming these pressures will continue longer than previously anticipated. As a result and given the continued uncertainty from COVID and the labor market, we are lowering our guidance for the year and our outlook for 2023 as well,” he said.
The company will reduce its 2022 adjusted operating income guidance to a range of $1.375 billion to $1.45 billion, he said.
Admissions decline
Rodriguez, who replaced long-time company CEO Kent Thiry in 2019, said treatment revenue is down because fewer patients filled dialysis stations left by patients who died during the pandemic. After admissions declined earlier in the year because of the surge in the omicron variant of the COVID-19 virus, a rebound in the second half of the year was expected, the company said. “We did not see the expected rebound in [the third quarter] and are assuming continued pressure on admissions in [the fourth quarter] and through 2023,” Rodriguez said.
Likewise, the company lost treatment revenue during the omicron surge as patients did not come to treatments. “We anticipated these increases would return to seasonal norms after the winter surge, and they have not,” Rodriguez told analysts. “As a result, we’re now assuming these [missed treatments] will remain elevated through the end of this year through 2023.”
Like other dialysis providers, DaVita saw lower mortality rates from COVID in 2022, but Rodriguez said “excess mortality remains a challenge for us. We expect it to persist in [the fourth quarter] and into 2023. The magnitude of the impact will depend on the size and the severity of COVID surges this winter and through the rest of 2023.”
Besides volume challenges, the company experienced “extremely significant wage pressure” this year, with an expected higher cost of about $100 million to $125 million, Rodriguez said during the earnings call.
Other revenue losses were due to reinstatement of the 2% Medicare sequestration as of July 1, as well as a decrease in commercial mix patients. The company said it closed 44 dialysis centers in the U.S. in 2022 after a “strategic review of our outpatient clinic capacity requirements and utilization, which have been impacted both by declines in our patient census in some markets due to the COVID-19 pandemic, as well as by our initiatives toward, and advances in, increasing the proportion of our home dialysis patients.” The company said it spent $40 million to close dialysis clinics in the third quarter.
As of Sept. 30, the company provided dialysis services to approximately 243,800 patients at 3,128 outpatient dialysis centers, of which 2,776 centers were in the United States and 352 centers were in 11 countries outside of the United States. During the third quarter, DaVita acquired five dialysis centers and opened six new dialysis centers. The company also acquired three dialysis centers, opened three dialysis centers and closed three dialysis centers outside of the United States during the third quarter.
References:
DaVita Inc. 3rd quarter 2022 results. https://investors.davita.com/2022-10-28-DaVita-Inc-3rd-Quarter-2022-Results. Published Oct. 28, 2022. Accessed Oct. 30, 2022.
Californians to vote again on tougher dialysis clinic rules. www.healio.com/news/nephrology/20220810/californians-to-vote-again-on-tougher-dialysis-clinic-rules. Published Aug. 10, 2022. Accessed Oct. 31, 2022.
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