Author Topic: DVA – DaVita HealthCare Partners  (Read 219520 times)

DooDiligence

  • Hero Member
  • *****
  • Posts: 2262
  • ♪ 🎶 ♫ ♪ 🎶 ♫
Re: DVA – DaVita HealthCare Partners
« Reply #570 on: November 30, 2018, 07:32:50 AM »
It's Mrs. B of the Nebraska Furniture Mart

Nice, thanks  ;)
AFL // BRK.B // CLB an incredibly stupid move // DIS // EW // GPC // MO an incredibly stupid ex-CEO // NVO // PSX // ULTA // VDE // VLGEA // WFC

Investable cash 16% + 18 months of survival $


vince

  • Sr. Member
  • ****
  • Posts: 499
Re: DVA – DaVita HealthCare Partners
« Reply #571 on: November 30, 2018, 08:34:20 AM »
It seems the above discussion around capex is using the term loosely, so I'm assuming that's the case. It's really about FCF at the end of the day.

From the last call,
"Lastly, let me provide guidance for 2018. For our annual adjusted operating income guidance, we're narrowing the
range to $1.5 billion to $1.25 billion. This guidance is at the low end of the range we specified last quarter. There
are two reasons for this. First is, we spent $20 million more for advocacy, but we feel great about the results.
Second is $23 million for a change in our executive, retirement policy which Joel will discuss"


G&A cost increased significantly in the quarter due to two items. First, $45 million in advocacy spend, a $32
million quarter-over-quarter increase
. This is in the dialysis and lab segment. Second,
approximately $23 million non-cash charge for modifying and accelerating existing
equity awards due to the adoption of a retirement policy on the treatment of equity awards held by executive officers.
This is in the corporate G&A segment"

______________
"Justin Lake Analyst, Wolfe Research LLC Q
Okay. And then as we think about the underlying run rate of OI coming out of 2018, again with all these moving
parts, how should we think about the right jump off point for 2018 OI going into 2019, once we remove kind of the
charges that aren't going to continue into next year?

Joel Ackerman Chief Financial Officer, DaVita, Inc. A
Yeah. So, I guess, I would start with kind of the 2018 guidance we've given you and then you'd really want to
normalize for a bunch of things. So there is advocacy, which we've talked about, this retirement policy change,
there's the Medicare bad debt which showed up in the first half of the year; and then two other things I'd call out;
one is DaVita Rx which we've called out as a headwind in the back half of the year of $20 million to $35 million
and the third was a one-time good guide from DHS of $17 million at the beginning of the year which we also
called out."


___________________

"Kevin Mark Fischbeck Analyst, Bank of America Merrill Lynch Q
Yeah, so you took the guidance from $1.5 billion to $1.6 billion down – the high end of the range from $1.6 billion
down to $1.525 billion, so you took it down by about $75 million. And there's two discrete items you called out,
advocacy was $20 million more than you had last quarter and then your stock comp was $23 million more, that's
$43 million right there. But in answer to Justin's question earlier, you kind of said the core business was coming
inline if not slightly better than you thought, so why is the high end coming down even more than the range, than
that $43 million?

Joel Ackerman Chief Financial Officer, DaVita, Inc. A
Yeah, so look we guide to a range for a reason there. There are fluctuations as you would expect and as we look
at those, we're comfortable with coming in at this $1.5 billion to $1.525 billion, I don't think there is anything
specific that I would point out."

_________

I think the key to the above potentially lies in the advocacy costs. Unless I'm reading the above posts incorrectly it seems the FCF is under pressure due to costs other than Capex (advocacy is G&A), but impact on FCF is the same.
___________

"In pursuing Proposition 8, we believe that the SEIU-UHW abuse of ballot initiative process and displays disregard
for patients by putting the union's organizing objectives above access to life-sustaining care. Unfortunately, we do
not anticipate them stopping their efforts. We expect this to cause us to spend considerable resource opposing
these types of initiatives over the next years
. While it's difficult to forecast we're assuming an increase in our
baseline spend of $30 million per year on general advocacies plus whatever incremental spend is necessary to
counter the specific initiative."


Mr B...I am not looking at free cash flow and then concluding that it is lower because of capex.  I am looking at the difference between what their capex used to be relative to what mgmt is guiding to.  It's not a question of why fcf is low, we already know its because of elevated capex.  The question is why is it so elevated and more importantly why is mgmt guiding to a higher rate for the forseeable future.

Fair enough. Following from the Q1 call might be helpful

"Now, on to CapEx. First, I wanted to add some detail to our disclosure about our development CapEx. Included in the development CapEx in Table 7 of our press release is capital that we spend for buildings we develop from the ground-up, which we then sell and lease back, as well as the full CapEx amount for clinics that are owned with JV partners.
For both these items, a portion of the capital outlay is temporary and eventually covered by either the buyers of the building or our JV partners. To ensure you have the details to take these factors into consideration when evaluating our cash flow, I would point you to a new line we added to Table 7 called sale of self-developed real estate projects, and to the contributions from non-controlling interest line in our cash flow statement. We hope these will help bridge an accounting view of CapEx to more economic view of cash generation of the business. We continue to expect total CapEx for continuing operations to be around $925 million for 2018. This includes some non-recurring capital spend in 2018. We still expect 2019 CapEx to be more in line with 2017 spend of approximately $800 million.
"

Much appreciated, that definitely makes it clearer.  However, (and keep in mind I haven't done the necessary work in last couple years) I thought they always did this so it is still confusing as to why the change....even 800 is well above what I remember their capex was a few years ago.  Then again, maybe I'm just plain wrong.

flesh

  • Sr. Member
  • ****
  • Posts: 334
Re: DVA – DaVita HealthCare Partners
« Reply #572 on: November 30, 2018, 04:14:31 PM »
Let's look at dva pre DMG, the last full year is 2011. We'll use 2011 d&a as a proxy for steady state capex. Clearly, this is high level.

In 2011, D&a is 4% of revenue

2007-2011 average of d&a is 31% of OCF

In the ttm, on the dialysis side ex dmg, D&A is 6% of revenue and 42.4% of OCF.

2% of ttm rev is 208m. 11.4% ttm OCF is 160m. NTM OCF is higher than TTM by 75m fyi.

If we take the ttm d&a of 620 and subract 208= 412m. If we subtract 160=460m.

The differences are too large.

DVA was already on a acquisitive spree pre 2011, 2011 d&a had some non economic A in there. If we assume zero margin expansion and capex costs rising with inflation since 2011, the numbers would be a bit worse but still a whole lot better than current D&A. OTOH, international D&A as a % is greater now than then, presumably it will pay off. The way I see intrinsic value is this, dmg gone, international sold (reducing ev but not eps/fcf), maintain but don't grow usa except organically(rare business, moat doesn't suffer). The owner's earnings yield plus interest/ex dmg EV is quite tasty for a durable business. This is what can be created, therefore this is the intrinsic value.

Davita care India was sold recently...they've mentioned trimming some INTL and focusing on only a couple areas this year.

There must be a lot of growth capex happening. I wish I knew where it was going. INTL/new opportunities/the new research center/exogenous factors? I don't know. Are they pulling it forward as well? Perhaps to reduce the price paid to take dva private? Was it to induce favorable outcomes by reducing perceived success relating to all the noise over the years? Cheaper buybacks for brk before take over? Just some ideas.






vince

  • Sr. Member
  • ****
  • Posts: 499
Re: DVA – DaVita HealthCare Partners
« Reply #573 on: November 30, 2018, 05:53:40 PM »
Let's look at dva pre DMG, the last full year is 2011. We'll use 2011 d&a as a proxy for steady state capex. Clearly, this is high level.

In 2011, D&a is 4% of revenue

2007-2011 average of d&a is 31% of OCF

In the ttm, on the dialysis side ex dmg, D&A is 6% of revenue and 42.4% of OCF.

2% of ttm rev is 208m. 11.4% ttm OCF is 160m. NTM OCF is higher than TTM by 75m fyi.

If we take the ttm d&a of 620 and subract 208= 412m. If we subtract 160=460m.

The differences are too large.

DVA was already on a acquisitive spree pre 2011, 2011 d&a had some non economic A in there. If we assume zero margin expansion and capex costs rising with inflation since 2011, the numbers would be a bit worse but still a whole lot better than current D&A. OTOH, international D&A as a % is greater now than then, presumably it will pay off. The way I see intrinsic value is this, dmg gone, international sold (reducing ev but not eps/fcf), maintain but don't grow usa except organically(rare business, moat doesn't suffer). The owner's earnings yield plus interest/ex dmg EV is quite tasty for a durable business. This is what can be created, therefore this is the intrinsic value.

Davita care India was sold recently...they've mentioned trimming some INTL and focusing on only a couple areas this year.

There must be a lot of growth capex happening. I wish I knew where it was going. INTL/new opportunities/the new research center/exogenous factors? I don't know. Are they pulling it forward as well? Perhaps to reduce the price paid to take dva private? Was it to induce favorable outcomes by reducing perceived success relating to all the noise over the years? Cheaper buybacks for brk before take over? Just some ideas.

So you are agreeing with me to a certain degree?  The large increase without a clear explanation has significantly reduced my confidence in this organization and no longer clears my 15% return hurdle (current free cash flow yield plus growth equals 15% with a constant multiple), whereas not so long ago it had my highest confidence assuming I could purchase it at a 10-12 fcf multiple (or less of course) I dont know if this fits neatly into your analysis but the dmg acquisition step up for tax purposes increased amortization well above any economic requirement. All your posts are very much appreciated.

MrB

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 1146
Re: DVA – DaVita HealthCare Partners
« Reply #574 on: December 01, 2018, 07:37:38 AM »
Let's look at dva pre DMG, the last full year is 2011. We'll use 2011 d&a as a proxy for steady state capex. Clearly, this is high level.

In 2011, D&a is 4% of revenue

2007-2011 average of d&a is 31% of OCF

In the ttm, on the dialysis side ex dmg, D&A is 6% of revenue and 42.4% of OCF.

2% of ttm rev is 208m. 11.4% ttm OCF is 160m. NTM OCF is higher than TTM by 75m fyi.

If we take the ttm d&a of 620 and subract 208= 412m. If we subtract 160=460m.

The differences are too large.

DVA was already on a acquisitive spree pre 2011, 2011 d&a had some non economic A in there. If we assume zero margin expansion and capex costs rising with inflation since 2011, the numbers would be a bit worse but still a whole lot better than current D&A. OTOH, international D&A as a % is greater now than then, presumably it will pay off. The way I see intrinsic value is this, dmg gone, international sold (reducing ev but not eps/fcf), maintain but don't grow usa except organically(rare business, moat doesn't suffer). The owner's earnings yield plus interest/ex dmg EV is quite tasty for a durable business. This is what can be created, therefore this is the intrinsic value.

Davita care India was sold recently...they've mentioned trimming some INTL and focusing on only a couple areas this year.

There must be a lot of growth capex happening. I wish I knew where it was going. INTL/new opportunities/the new research center/exogenous factors? I don't know. Are they pulling it forward as well? Perhaps to reduce the price paid to take dva private? Was it to induce favorable outcomes by reducing perceived success relating to all the noise over the years? Cheaper buybacks for brk before take over? Just some ideas.

So you are agreeing with me to a certain degree?  The large increase without a clear explanation has significantly reduced my confidence in this organization and no longer clears my 15% return hurdle (current free cash flow yield plus growth equals 15% with a constant multiple), whereas not so long ago it had my highest confidence assuming I could purchase it at a 10-12 fcf multiple (or less of course) I dont know if this fits neatly into your analysis but the dmg acquisition step up for tax purposes increased amortization well above any economic requirement. All your posts are very much appreciated.

Capex (excl acquisitions) from the cash flow statement/Rev shed some light (see attached). Clearly a step up Vince (elevated 1 point avg)  post-DMG v pre-DMG (pre/post 2012). Note: "2018 Norm" in the chart is 800m guided normalized capex/Estimated rev for 2018 $11.4Bn, which assumes their guided 800m includes capex for DMG. Basic point is it seems to support the notion that recent capex is above trend, they've been there before '96-'99 and between management guidance and DMG sale there seems to be a decent probability that capex will reduce going forward.

vince

  • Sr. Member
  • ****
  • Posts: 499
Re: DVA – DaVita HealthCare Partners
« Reply #575 on: December 01, 2018, 12:23:25 PM »
Much appreciated

MrB

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 1146
Re: DVA – DaVita HealthCare Partners
« Reply #576 on: December 11, 2018, 01:38:12 AM »
Any news here or just a rehash of old short thesis? Don't have access.


DaVita (DVA) Named Best Short Idea at Hedgeye, Sees 30% Downside - Bloomberg

https://www.streetinsider.com/Analyst+Comments/DaVita+%28DVA%29+Named+Best+Short+Idea+at+Hedgeye%2C+Sees+30%25+Downside+-+Bloomberg/14907524.html
“We think the trend in commercial patient volume, reimbursement, and margins are coming under pressure alongside regulatory problems. We see significant downside in the next 12 months as the company has little flexibility and apparently no plan except for repurchasing stock.”
Analyst is Tom Tobin

Spekulatius

  • Hero Member
  • *****
  • Posts: 4743
Re: DVA – DaVita HealthCare Partners
« Reply #577 on: December 11, 2018, 04:24:58 AM »
Any news here or just a rehash of old short thesis? Don't have access.


DaVita (DVA) Named Best Short Idea at Hedgeye, Sees 30% Downside - Bloomberg

https://www.streetinsider.com/Analyst+Comments/DaVita+%28DVA%29+Named+Best+Short+Idea+at+Hedgeye%2C+Sees+30%25+Downside+-+Bloomberg/14907524.html
“We think the trend in commercial patient volume, reimbursement, and margins are coming under pressure alongside regulatory problems. We see significant downside in the next 12 months as the company has little flexibility and apparently no plan except for repurchasing stock.”
Analyst is Tom Tobin

I think it is noteworthy that the larger competitor Fresenius just had a significant earning reset.
Life is too short for cheap beer and wine.

ValueMaven

  • Sr. Member
  • ****
  • Posts: 393
Re: DVA – DaVita HealthCare Partners
« Reply #578 on: December 14, 2018, 05:50:41 AM »
very different business models...

I've been buying a lot of DVA here recently...expecting a nice Q1 once the deal with UNH gets done...seems to me that the market is under-pricing the upside here ...  I think this one quickly trades to the high 60s, low 70s IMHO

cubsfan

  • Hero Member
  • *****
  • Posts: 1811
Re: DVA – DaVita HealthCare Partners
« Reply #579 on: December 17, 2018, 06:18:02 AM »
I guess we know why it moved down now. Hope they get this done soon:

http://investors.davita.com/static-files/57510643-7d9b-4e1a-873e-b9fefff66b36

Deal reduced $500M.