Author Topic: DVA – DaVita HealthCare Partners  (Read 205723 times)

DooDiligence

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Re: DVA – DaVita HealthCare Partners
« Reply #620 on: June 21, 2019, 08:15:31 AM »
The last repurchases in the quarter ended Mar 2018 were poorly timed.

4,197,304 shares for @290m = $69 / share.

No repurchases since then?

The following comes from the Mar 2019 Q1 report & I'm not sure but seem to remember hearing them say that debt reduction would be a priority use of cash from the DMG sale?

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We may not be able to use the proceeds from the sale of DMG as planned or we may spend or invest the proceeds in ways that may not improve our results of operations or enhance the value of our common stock.

The purchase price for the sale of the DMG business is subject to customary adjustments, both upward and downward, which could be significant. We plan to use the proceeds from the sale of DMG for significant stock repurchases, to repay debt and for general corporate purposes, including growth investments. A number of factors may impact our ability to repurchase stock and the timing of any such stock repurchases, including market conditions, the price of our common stock, our cash flow position, leverage ratios, and legal, regulatory and contractual requirements and restrictions.

(page 113)

Risk Factors (continued)

In addition, we may identify investments or other uses for the proceeds from the sale of DMG that we believe are more attractive than our current intended uses. Further, there can be no assurance that any investment of the proceeds from the sale of DMG will yield a favorable return.

Under the terms of the equity purchase agreement, we are subject to certain contractual restrictions while the sale of DMG is pending, and certain post-closing contractual obligations that, in some cases, could have a material adverse effect on our business, results of operations and financial condition.

Under the terms of the equity purchase agreement, we are subject to certain restrictions on the conduct of the DMG business prior to completing the sale of DMG, which may adversely affect our ability to execute certain of our business strategies, including the ability in certain cases to enter into or amend contracts, acquire or dispose of assets, incur indebtedness or incur capital expenditures. Such limitations could negatively affect our business and operations prior to the completion of the sale of DMG. Each of these risks may be exacerbated by delays or other adverse developments with respect to the completion of the sale of DMG.

In addition, we agreed to retain certain liabilities of the DMG business for which we have certain indemnification rights against the original 2012 HealthCare Partners (“HCP”) sellers. An escrow was established in connection with our acquisition of the DMG business from the HCP sellers as security for these indemnification rights, including with respect to the OIG investigation into certain patient diagnosis coding practices. We have submitted an indemnification claim against the sellers secured by the escrow for any and all liabilities incurred relating to these matters and intend to pursue recovery from the escrow. However, we can make no assurances that the indemnification and escrow will cover the full amount of our potential losses related to these matters, which could have a material adverse effect on our business, results of operations and financial condition.

(page 114)

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Sounds sufficiently dubious.

I'm not smart enough to figure out what the best use of this capital would be, but they list the weighted average interest rate at a hair over 5% for the quarter.

It seems like if they put more cash into repurchasing at present levels, they MAY be able to sell into the market IF prices improve & then use proceeds for debt reduction & capex?

I'm not saying this would or could happen.

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On another note, when looking at the reports, I noticed a line that says "distributions to non-controlling interests" for $44.2m.

Does a portion of this go to Berkshire?  ???
Healthcare 23.9% - CVS EW NVO // BRK.B - 23.0% // Auto's & Oil 14.5% - CLB GPC VDE

Entertainment 4.5% - DIS // Banking 9.8% - WFC // Drinkers & Smokers 6.0% - MO

%'s held @ MV 11/15/2019 minus 18.4% investable cash

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Cigarbutt

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Re: DVA – DaVita HealthCare Partners
« Reply #621 on: June 21, 2019, 10:29:13 AM »
...
-

On another note, when looking at the reports, I noticed a line that says "distributions to non-controlling interests" for $44.2m.

Does a portion of this go to Berkshire?  ???
Apologies for two reasons:
1-I no longer follow DVA closely, did not check recent disclosures and this is from memory.
2-The following comments may trigger cognitive dissonance. :)

Let's say you are a kidney specialist who owns a (or several) dialysis centers and DVA makes an offer that you can't refuse. They set up a joint venture and you keep a minority interest that determines your income allocation and other benefits from the venture.

I could not get comfortable with the level of transparency related to these joint ventures. Some suggest that there is a potential for poor (and inapproprate) incentives.
https://catalyst.nejm.org/dialysis-nephrologists-joint-venture/

There is an ex-colleague of mine who used to say that there is an often overlooked and so far anatomically unidentified nerve that connects your brain (primitive part) to the pocket where you store your wallet.

DooDiligence

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Re: DVA – DaVita HealthCare Partners
« Reply #622 on: June 21, 2019, 11:31:32 AM »
...
-

On another note, when looking at the reports, I noticed a line that says "distributions to non-controlling interests" for $44.2m.

Does a portion of this go to Berkshire?  ???
Apologies for two reasons:
1-I no longer follow DVA closely, did not check recent disclosures and this is from memory.
2-The following comments may trigger cognitive dissonance. :)

Let's say you are a kidney specialist who owns a (or several) dialysis centers and DVA makes an offer that you can't refuse. They set up a joint venture and you keep a minority interest that determines your income allocation and other benefits from the venture.

I could not get comfortable with the level of transparency related to these joint ventures. Some suggest that there is a potential for poor (and inapproprate) incentives.
https://catalyst.nejm.org/dialysis-nephrologists-joint-venture/

There is an ex-colleague of mine who used to say that there is an often overlooked and so far anatomically unidentified nerve that connects your brain (primitive part) to the pocket where you store your wallet.

Aha, I thought that since BRK owns a minority interest, this was partially going to them.

I'm sure your explanation is clearly spelled out in the footnotes somewhere.

Thanks  ;)
Healthcare 23.9% - CVS EW NVO // BRK.B - 23.0% // Auto's & Oil 14.5% - CLB GPC VDE

Entertainment 4.5% - DIS // Banking 9.8% - WFC // Drinkers & Smokers 6.0% - MO

%'s held @ MV 11/15/2019 minus 18.4% investable cash

i trumpet my ignorance

https://twitter.com/tunawish

ander

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Re: DVA – DaVita HealthCare Partners
« Reply #623 on: June 21, 2019, 05:57:59 PM »
To answer a few of the questions.

The NCI or non-controlling interests is related to the centers where do not have full ownership - the structure is different state by state.

Re: the debt paydown, look at the schedule but they have debt maturities in the near-term and part of the provision was from the sale of DMG all proceeds above $750 needed to go to debt paydown. They have said on earnings call, that they will pay it all down, re-lever and then do their share buyback. They might be doing some in small amounts from current FCF.

Re: 1/3 of market cap being repurchased, they have guided to 3 to 3.5x leverage and have at times been comfortable being higher. So they have about 1x leverage to get to 3.5x which is $2,200 Ebitda (so $1.1 to $2.2B) and the company generates about $800 million of FCF so that would be $1.2 B over 18 months. So $2.3 to $3.4 B of repurchases. Mkt cap of $8.7 B. Implies 26% - 39% buyback.

Can go into more detail.

Spekulatius

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Re: DVA – DaVita HealthCare Partners
« Reply #624 on: June 21, 2019, 09:04:52 PM »
Their last guidance implied $575M in FCF ($1.375B operating cash flow -$800M in Capex). Even that looks like a stretch, given first quarter results.
http://pressreleases.davita.com/2019-05-07-DaVita-Inc-1st-Quarter-2019-Results

They need to turn the business around. Increasing leverage now with falling cash flow is risky.
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ander

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Re: DVA – DaVita HealthCare Partners
« Reply #625 on: June 24, 2019, 11:02:59 AM »
Their last guidance implied $575M in FCF ($1.375B operating cash flow -$800M in Capex). Even that looks like a stretch, given first quarter results.
http://pressreleases.davita.com/2019-05-07-DaVita-Inc-1st-Quarter-2019-Results

They need to turn the business around. Increasing leverage now with falling cash flow is risky.

That was taking only low end of guidance for OCF and CapEx. OCF guidance was $1.375 B to $1.575 B. CapEx was $800 million to $840 million. Mid point of each is $1.475 B OCF - $820 million of capex which would be $655 million of FCF. Do not believe that is a stretch. I project $800 million of FCF. (Note: we are not adjusting for growth capex which would show higher FCF). But agree, to re-rate they need to grow EBIT and show consistent growth (historically, they had done a great job of beating and raising).

zippy1

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Re: DVA – DaVita HealthCare Partners
« Reply #626 on: July 09, 2019, 02:33:30 PM »
Quote
DaVita, Fresenius Medical Fall on Trump Overhaul Report
Shares of dialysis providers sank on Tuesday amid reports that President Donald Trump will unveil a plan to overhaul the U.S. kidney disease treatment market.
Politico reported earlier that the Trump administration is due to announce a series of initiatives to encourage more kidney treatment at home, and away from standalone clinics. DaVita Inc. fell as much as 8.7%, the most since May 8, while Fresenius Medical Care AG’s American depositary receipts dropped 6.5%. The two companies control the largest share of the U.S. dialysis market through vast networks of clinics. American Renal Associates Holdings Inc. slid as much as 7.6%.

“The prospect of losing patients who cover facility and staffing costs would crimp Ebitda near term, though an official proposal has yet to be made,” Bloomberg Intelligence analyst Jason McGorman wrote in a note earlier, addressing the potential impact on DaVita.
Sell-side analysts have warned investors that a Trump speech Wednesday may bring some volatility for dialysis providers. Raymond James analyst Chris Meekins predicts the president could announce a goal of having 80% of kidney patients either receive a kidney transplant or use home dialysis by 2025.

When asked about Trump’s upcoming announcement, the Department of Health and Human Services pointed to a speech Secretary Alex Azar gave in March that emphasized the need for earlier detection of kidney disease to allow for more in-home dialysis.

https://www.bloomberg.com/news/articles/2019-07-09/dialysis-providers-fall-on-report-trump-is-mulling-an-overhaul
https://www.bloomberg.com/news/articles/2019-07-09/dialysis-providers-fall-on-report-trump-is-mulling-an-overhaul

Foreign Tuffett

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Re: DVA – DaVita HealthCare Partners
« Reply #627 on: July 10, 2019, 10:19:36 AM »
Quote
DaVita, Fresenius Medical Fall on Trump Overhaul Report
Shares of dialysis providers sank on Tuesday amid reports that President Donald Trump will unveil a plan to overhaul the U.S. kidney disease treatment market.
Politico reported earlier that the Trump administration is due to announce a series of initiatives to encourage more kidney treatment at home, and away from standalone clinics. DaVita Inc. fell as much as 8.7%, the most since May 8, while Fresenius Medical Care AG’s American depositary receipts dropped 6.5%. The two companies control the largest share of the U.S. dialysis market through vast networks of clinics. American Renal Associates Holdings Inc. slid as much as 7.6%.

“The prospect of losing patients who cover facility and staffing costs would crimp Ebitda near term, though an official proposal has yet to be made,” Bloomberg Intelligence analyst Jason McGorman wrote in a note earlier, addressing the potential impact on DaVita.
Sell-side analysts have warned investors that a Trump speech Wednesday may bring some volatility for dialysis providers. Raymond James analyst Chris Meekins predicts the president could announce a goal of having 80% of kidney patients either receive a kidney transplant or use home dialysis by 2025.

When asked about Trump’s upcoming announcement, the Department of Health and Human Services pointed to a speech Secretary Alex Azar gave in March that emphasized the need for earlier detection of kidney disease to allow for more in-home dialysis.

https://www.bloomberg.com/news/articles/2019-07-09/dialysis-providers-fall-on-report-trump-is-mulling-an-overhaul
https://www.bloomberg.com/news/articles/2019-07-09/dialysis-providers-fall-on-report-trump-is-mulling-an-overhaul

Some very brief Twitter commentary from a healthcare analyst on this

https://twitter.com/HedgeyeEEvans/status/1148998868824207360

thefatbaboon

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Re: DVA – DaVita HealthCare Partners
« Reply #628 on: July 11, 2019, 01:22:55 AM »
It's funny the articles and tweets about Davita and Fresenius taking 20% of the Medicare budget.  These companies collect about 20bn in revenues total against a 700bn medicare budget.  And their net profit after expenses and reinvestment is peanuts in the scheme of the health system profit pool.  It's amazing how badly these dialysis companies have lost control of the narrative.  They must surely be the smallest, lowest margin, most un profitable part of the us healthcare system and their publicity has got so bad that even the fintwit community is lambasting them for gouging and over-earning  :o

Cigarbutt

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Re: DVA – DaVita HealthCare Partners
« Reply #629 on: July 11, 2019, 05:54:02 AM »
It's funny the articles and tweets about Davita and Fresenius taking 20% of the Medicare budget.  These companies collect about 20bn in revenues total against a 700bn medicare budget.  And their net profit after expenses and reinvestment is peanuts in the scheme of the health system profit pool.  It's amazing how badly these dialysis companies have lost control of the narrative.  They must surely be the smallest, lowest margin, most un profitable part of the us healthcare system and their publicity has got so bad that even the fintwit community is lambasting them for gouging and over-earning  :o
In 1973, Medicare in the US was expanded to cover all who needed dialysis (a first for a specific medical condition). FWIW, this is also when medicine became 'socialized' where I live; the establishment showed significant resistance but was seduced by the promise of more consistent payments, sweeping under the rug the growing but unrecognized issue of who was really in the driver's seat. In 1973, for the US, the initial expansion concerned about 10 000 patients and the expected inflation-adjusted cost was felt to never exceed about 1 billion in today's USD. The number of people covered has been multiplied by about 40 and costs have followed the tapeworm curve.

The outlook is meshed with capacity to adapt.

Under the Berkshire umbrella, recently, it has been decided to sell (unusual move) an insurance sub (Applied Underwriters) because of different vision and strategy among the various subs serving the workers comp market. I would say Berkshire Hathaway is in a similar situation today in the cost-value proposition in healthcare and will need to choose if they keep their DaVita position. Opinion: DaVita is relatively ill positioned to adapt. The outlook is related to the capacity to earn a reasonable return but the definition of 'reasonable' goes way beyond its financial boundary and politicians occasionally respond to their constituents (not meant to turn this into a political discussion, just meant to define the context in which dialysis providers operate).

https://fas.org/sgp/crs/misc/R45290.pdf
« Last Edit: July 11, 2019, 06:09:15 AM by Cigarbutt »