DaVita Inc. (DVA) Q3 2018 Earnings Report, Transcript and Summary

Good evening. My name is Iris and I will be your conference facilitator today. At this time, I would like to welcome everyone to DaVita's Third Quarter 2018 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. Thank you. Mr. Gustafson, you may begin your conference.

Thank you, Iris, and welcome everyone to our third quarter conference call. We appreciate your continued interest in our company. I'm Jim Gustafson, Vice President of Investor Relations. And with me in the room today are: Joel Ackerman, our CFO; Javier Rodriguez, CEO of DaVita Kidney Care; and Jim Hilger, our Chief Accounting Officer. And also joining us via teleconference are Kent Thiry, our CEO; and LeAnne Zumwalt, Group Vice President. Please note that during this call, we may make forward-looking statements within the meaning of federal securities laws. All of these statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those described in our third quarter release of earlier today and our SEC filings. Please refer to our third quarter earnings release of earlier today or in SEC filings including our most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q. 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. 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 submitted to the SEC and available on our website. I'll now turn the call over to Kent Thiry, our Chief Executive Officer.

Okay. Thank you, Jim, and thanks to all of you for your interest in DaVita. I've got four headlines before we let JR and Joel take over. Headline number one of course is the Prop 8 victory, but I'm going to let Javier talk about that primarily, certainly excellent news for all of our stakeholders. Number two, regarding the sale of DMG, we continue to work together with Optum to close the transaction in 2018. However, as most of you will recall, we did execute an amendment earlier this year to extend the termination date in case we do not meet that timeline in light of the ongoing regulatory approval process. Number three of four, the quarter did have some unusual expenses, which Joel and JR will go through in some depth. So they do not get in the way of your ability to evaluate the ongoing strength of the business. And finally, fourth headline is, as you net it all out, it's a solid operating quarter in what has been so far a solid operating year. And then, finally before we go into all the different detail and synthesis, we are first and foremost a clinical caregiving company. That is what comes first and so consistent with our tradition, we'll always talk about a clinical accomplishment at the top of the call. We're going to broaden that slightly going forward to include either a clinical accomplishment or an improved patient experience. And what I'm going to talk about right now is more in the latter category because so far this year-to-date, we've added on a net basis 1,300 more PD patients, peritoneal dialysis that is, people that can take care of the dialysis without coming into our centers. Now this does not always lead to improved clinical outcomes, in many cases those clinical outcomes will stay the same, but for many of these patients, it's a tremendous improvement in their quality of life, because of the scheduling and physical mobility that they pick up and so that's our patient experience story of the day. Javier, please take it over.

Thank you, Kent, and good afternoon. Let me jump right in. I will discuss four topics today, Prop 8, calcimimetics, team and an update on guidance for 2018. First on Prop 8. Let me start with the obvious. We are pleased that Prop 8 was defeated. This was the right outcome for our patients, California and the entire system. We thank not only the California voters but also the entire coalition of over 160 members that worked hard to defeat this union-backed ballot initiative. The broad coalition included the California Medical Association, the California Hospital Association, the American Nurses Association of California, the American College of Emergency Room Physicians and California Chamber of Commerce to mention a few. 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. Now on to calcimimetics. In the third quarter, both revenue per treatment and cost per treatment declined slightly, so is essentially neutral to operating income. We continue to expect the net impact of calcimimetics to be a mid-single-digit margin before our indirect cost to administer the drug. This excludes any short-lived benefit that may come should generics enter the market. Third, I want to pause and take an opportunity to recognize the professionalism and the dedication of our team, whether it's the California campaigns or the recent hurricanes, our caregivers have stayed committed to delivering life-sustaining therapy. We're proud of and inspired by them. 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. We also would like to – the context of the guidance we provided at the beginning of the year, that guidance was $1.5 billion to $1.6 billion excluding advocacy, because that was such an unprecedented variable and quite distinct from ongoing operation. So if you want to put the updated guidance into context, you would add $95 million to the updated range yielding a $1.595 billion to $1.62 billion. In other words, we will be at the high end or above the original guidance we provided last year. So no matter how you cut it, it was operationally solid quarter and a solid year-to-date. Now, I'll hand it over to Joel for financial details on our results.

Thanks, Javier. Adjusted operating income from continuing operations for the third quarter was $314 million. Let me walk you through the components; first growth, our treatment per day growth of 4% and normalized non-acquired growth of 3.3% continued to be at the low end of our long-term guidance range. On revenue¸ RPT was down $3.75 compared to Q2. Approximately half of the decline is due to the non-recurring Medicare bad debt recoveries from prior periods in the second quarter of 2018. Approximately, 20% was due to a decrease in calcimimetics revenue, which as a reminder had a similar decrease in cost. The remainder is due to other normal puts and takes with revenue. 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 Q&A (8:45). 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. For international, our adjusted operating loss in the quarter was $4 million. We continue to expect to achieve break-even adjusted operating income in Q4 2018, excluding any foreign exchange gains or losses. Now our cash flow, which has remained strong and enduring. Operating cash flow from continuing operations was $362 million for the quarter and nearly $1.2 billion year-to-date. We continue to expect operating cash flow from continuing operations for the year to be $1.4 billion to $1.6 billion. We also expect CapEx for continuing operations for the year to be consistent with the approximately $925 million we mentioned previously. On to share repurchases. Through September 30, 2018, year-to-date we repurchased approximately 16.8 million shares for approximately $1.15 billion, representing more than 9% of our shares outstanding at the beginning of the year. This includes approximately $71 million of stock repurchase since our last earnings call. We made no repurchases after the end of the quarter. For the third quarter, our effective tax rate on income attributable to DaVita from continuing operations was 41.4%. For the full year, we now expect our effective tax rate on income attributable to DaVita from continuing operations to be between 30.5% and 31.5%. This is as a result of the increased advocacy spend and the adoption of the executive retirement policy. Now I'll turn it over to Kent for closing remarks.

Okay. I'd just like to make a few statements before we move to Q&A. Number one, as we try to avoid redundancy in these calls, but at this stage, I can't resist being a little bit redundant to JR. With respect to the SEIU-UHW, it is one thing to try to organize a union and there's very well-developed and heavily supervised processes for that. It's quite another to demonstrate a stunning disregard for patient care by trying to put an entire industry unsustainably under water. It's really strikingly irresponsible for the patients and also ironically for the teammates that they purport to care about. So we will do our best to represent our teammates and patients well going forward as we did this year. Number two, we continue to be very well-positioned for the general movement towards integrated kidney care and in particular for implementing the PATIENTS Act if we're able to get it through the legislature. You might well ask, with the Democrats taking over the House, how does that affect us? The good news here is that for 15 years DaVita has never strayed too far from the middle, one always spends somewhat more time with the majority party. But we have never skewed that very far because we know these things change over time and in the Senate even despite whoever is in the majority, you really need both sides to get something like this done. And so we've all the way along invested in both the Republican and the Democratic sides of the House and have a strong position there. And in fact Democratic constituencies represent a highly disproportionate percentage of the patients who would massively benefit from the PATIENTS Act. And so in some ways it's an even better philosophical and constituent fit. The third of the four comments I'd like to make before Q&A is just to once again point to the resiliency of our cash flow and our respect and caring for that, we take it quite seriously. Fourth and finally, we will continue to work very hard to get the DMG deal closed and put those proceeds to work for you. Operator, could we please move to questions?

Iris?

Jim, do you have a way of getting that...?

I'm sorry. We will now begin the question-and-answer session. We have our first question coming from Justin Lake from Wolfe Research. Your line is now open.

Thanks. Let's start off with the third quarter and kind of the results, obviously, a lot of moving parts here. So if I wanted to simplify it a little bit, the guidance is down about $37 million at the midpoint, you had what sounds like two costs that weren't contemplated that total $43 million, so ex those costs, it sounds like you took the guidance up at the midpoint. Is that the right math to think about, number one, and if that's the case, is it fair to say that the underlying run rate of the core business is running ahead of the previous plan for third quarter and in the fourth quarter?

So Justin, Joel here. Your math is right in terms of where we're running pretty much consistent with what we had expected, bounces around a little bit but no real changes there.

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?

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.

Okay. So if I do that math, I still think I'm coming out to about $1.6 billion in run rate OI. Do you agree with that?

The short answer is yes.

Okay. So as we think ...

We're limited on what we can kind of say from an FD standpoint – not from an FD, from an accounting standpoint about adjusted OI. But yes, I agree with your math.

Okay. And then, given I brought up OI for 2019, maybe is there anything you could tell us about how we should think about that $1.6 billion going forward into next year, how we should think about growth relative to maybe the normal growth rate you talk about in the business?

We're not in a position to give guidance on 2019 right now. We're not going to go there.

Maybe puts and takes, headwinds, tailwinds you want us to think about versus that $1.6 billion.

Not really.

Okay. I'll jump back in the queue. Thank you.

Thanks.

And Justin, while I've got you on the guidance question, I was given a piece of paper that said that I did not say the right guidance range, you probably picked up on it. The guidance range should be $1.5 billion to $1.525 billion. So my apologies for that.

We have our next question coming from Kevin Fischbeck from Bank of America Merrill Lynch. Your line is now open.

Great, thanks. I wanted to follow up on that guidance, that's probably the right way to think about it looking at the midpoint of the two, but it does look like a bigger decline on the top end of that range of $75 million, I don't know if you can kind of say that $45 million of its advocacy and the stock comp, I understand most of that decline, but if the core business is kind of coming inline if not slightly better, then why is the top line coming down even more than kind of those two one-time charges?

Joel, why don't you continue.

Kevin, I'm not sure I understood the question. Could you say that again?

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?

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.

Okay. And then with the treatment numbers, it has been really bouncing around the bottom end of that long term 3.5 million to 4.5 million (19:30) range, that you guys talk about, is there anything you know driving that, are you seeing any issues around demand or is this just an issue around opening new de novo sites?

The short answer is ...

JR, do you want to...?

Yeah. Thanks, Kent. There is obviously a lot of noise in the volume. We are seeing it in the lower end of the range or below the range. And so there's nothing that we can tell from what we have the data had several years of lag. And there's several dynamics going on with upstream diseases like hypertension, diabetes, what's going on with mortality and transplants. So, unfortunately, I don't have anything that could be useful on that. We're seeing the same things that you are.

But you're not – you're not expecting to – you still think 3.5 million to 4.5 million (20:28) is the right range, there is no reason to think that it's now 3 million to 4 million (20:31).

We're looking at all the variables and we'll get back to you if we need to change that guidance.

Okay. And then last question just on the DMG sale, I was a little – I wasn't sure exactly what was – what am I to infer from the impairment charge on that business? Is there something along the lines of – sounds like there is no change to the deal itself, do you still expect the same proceeds, I wasn't quite sure if there was something that we should be reading into, I guess, A, the commentary the deal might drop into 2019 and then B, just that you had to do valuation of that business?

Yeah. So the valuation adjustment is the result of our need to evaluate fair value every quarter. And based on our update of the various inputs including the transaction itself, risks, timing, the performance of the business et cetera, we booked this valuation reserve. As far as timing is concerned, look this is a complicated regulatory process but we continue to work hard with Optum to close the transaction in 2018.

But nothing's changed about what you think the net proceeds will be?

In terms of changes to the deal, the only changes that have been made have been the termination date.

Okay. All right. Great. Thanks.

Okay, operator...

Sorry. Our next question comes from Steve Tanal from Goldman Sachs. Your line is now open. Stephen Tanal - Goldman Sachs & Co. LLC: Good afternoon, guys. Thanks for the question. So I just wanted to dig into RPTs for a minute, a couple of specific questions. It didn't sound like you sized calcimimetics on RPTs this quarter, but that it did step down from 2Q where I think it was about $19. Can you share the number for 3Q?

JR, you want to grab that?

The decline for the quarter is $0.81. That's the RPT impact from calcimimetics. Stephen Tanal - Goldman Sachs & Co. LLC: Got it. Sequentially, so about $0.18 in the quarter.

Roughly, yeah. Stephen Tanal - Goldman Sachs & Co. LLC: Okay. And then just commercial mix and rate, any update there. Did that have any impact on RPTs or is there anything changing inside of that bucket?

Go ahead, JR.

Yeah. On RPT, a couple of things. Let me start off by saying we're not seeing anything unusual in our negotiations. Number two, we have seen a slight decline in commercial mix and a small shift toward lower paying plans, and so – but one would ask the question what can one take into the future, what are the trends, and unfortunately on that one, there is no clear trend, so there's nothing that you can take forward at this juncture. Stephen Tanal - Goldman Sachs & Co. LLC: Got it. And any color on kind of the shift in the lower paying plans, is that exchanges or I don't know, how best to think about that as – any additional context there?

We don't have any insight into it but yes they're shifting towards exchanges and lower paying plans. Stephen Tanal - Goldman Sachs & Co. LLC: Got it. Okay. And just lastly kind of related to this line, but maybe a little bit bigger picture, we've been expecting about $7 million of loss revenue kind of recapture from the 3Q 2017 hurricanes and obviously had some exposure. It looks like you probably had some exposure to Florence and maybe a little bit to Michael as well. So any context on whether that $7 million materialized or what the impact of the hurricanes this year may have been on either volumes or expenses or both and how that's affecting the guidance?

Yeah. The impact on OI is not significant, I think the net impact on NAG is maybe 10 basis points which is an uptick from Q3 2017, offset by some hurricane impact in this quarter, but nothing significant. Stephen Tanal - Goldman Sachs & Co. LLC: Got it. Understood. And maybe just the last one before I jump back, Prop. 8 kind of at this point, it's behind you. Sounds like you're looking at $95 million of advocacy costs for the year and color today suggests there's about $25 million in 2Q, $45 million obviously in 3Q is stated, so is it safe to assume you know you're looking at something around $25 million in Q4?

Yeah, it's in the right range. Stephen Tanal - Goldman Sachs & Co. LLC: Perfect. Thank you.

Thank you.

We have our next question coming from Gary Taylor from JPMorgan. Your line is now open.

Hi Good morning. Good morning. Gosh. Good evening actually. Just a few quick ones. Just on the charge related to DMG and part of it was tax related, the $118 million. Will that impact your net cash proceeds from the transaction or this is all just the accounting?

It won't have an impact on the proceeds.

And I want to make sure given all the adjustments I'm correct, it looks like you know if we – I think it's $1.143 billion of adjusted OI through nine months which would be comparable to your new guidance. So it implies 4Q of $357 million to $382 million do I have that correct?

I'm sorry, Gary. You're running a little quick there.

Yeah. I was taking your new guidance of $1.5 billion to $1.525 billion on OI and I believe the nine-month adjusted OI number in the press release was $1.143 billion. If I had that correct and comparable. So I think it implies $357 million to $382 million of OI for 4Q?

Yeah. That's right.

Which looks like – it looks like it implies a larger year-over-year decline. The advocacy costs are easing sequentially, but maybe the pharma losses are increasing sequentially is there an obvious answer as to why 4Q would be down more than 3Q?

I don't – I'm just stumbling on the math a little here, Gary, and I apologize for that. My recollection was after you adjusted Q3 and Q4, OI are about flat.

Okay. Maybe I'm not doing it right. My last question...

Gary, we're going to do a little math here, while it keeps going and I'll just clarify that for you.

Okay. I may have been incorrect. My last question will be for Kent. Given you've talked about the necessity of advocacy ongoing, I guess particularly I'm thinking about the charitable premium assistance issue where it's not just the SEIU that's been involved, but the insurance lobby to some degree believes they have some skin in the game. Is there – do you think there's a need to sort of readdress this issue with the insurance industry in any way or do you think the right approach is just to advocate in the state legislatures?

Yeah, very fair question. First, with respect to the CPA legislation that the SEIU was involved with, there was only one plan that worked with them. Now that's not to say that there aren't a lot of other plans that don't like charitable premium assistance period for dialysis or anything else. But since our patients are so much more identifiable and so much more expensive, it's an easy poster child. So, while it is true that the insurance industry as a group doesn't like it, with respect to that one piece or sort of predatory legislation, there was only one plan that really worked on that pretty much at all which was actually rather interesting. Now moving on to the question beyond establishing the context, I think, it's a fair idea to take another run at trying to sort things out. Historically each time we have and said let's try to work out our own compromise and our own code of conduct that both providers and payers will agree to. We just haven't gotten much take-up, and so I think it's a fair idea. But the most likely outcome is that everybody is going to wait for the regulators decide. And as you know, it's been quite a long period of time now and there's a reason for that, it's pretty complicated and you could hurt a lot of patients pretty quickly. And so folks are appropriately hesitant as they try to sort out the truth. So we're still in that state where they could make a decision of some sort in the next month. They might not make a decision for the next year. And we'll take under consideration this notion of once again trying to see if there can be an industry compromise.

Thank you. Appreciate it.

Hey, Gary, let me just clarify on your question before on Q4 over Q3. So if you take Q3 add back the advocacy and the retirement in the quarter, you'd come up with an adjusted number. And then if you'd compare that to Q4 and add back advocacy in Q4 as well you'd show Q4 being about $30 million ahead of Q3.

Got you. And is – I guess, I was – okay, I'll rework that. Appreciate it.

We have our next question coming from John Ransom from Raymond James. Your line is now open. John W. Ransom - Raymond James & Associates, Inc.: Hi. Just a couple from me. If we look at 2019, and in your commercial contracts, what percent of your commercial revenue is currently contracted?

We haven't...

JR?

Yeah, thanks Kent. We haven't disclosed the number, but it is the great majority. John W. Ransom - Raymond James & Associates, Inc.: I would like to point out that I'm also JR, just for the record...

Well, then you answer the question. John W. Ransom - Raymond James & Associates, Inc.: Well, when I say great majority in cell C3 (32:09) it doesn't spell out anything, but that's fine. The second question is, I know I've been a pest about this, but capital efficiency, how should we think about, is run rate CapEx still in that $700 million to $800 million range and if we've done any more work to try to break the link between the spending and growth? It just seems like I know I'm having an opinion, it seems like an awfully high number of high level spending and I wonder if there's any more efforts to become a bit more capital efficient down the road?

Yeah. So no changes to what we've said in the past about capital which is $925 million for the quarter coming down next year. And we anticipate that continuing to happen and looking forward, we are looking for ways both short-term, as well as long-term ways to make the business more capital efficient. That said nothing specific. John W. Ransom - Raymond James & Associates, Inc.: Okay.

Oh! I'm sorry, $925 million for the year, I'm told I've said for the quarter, I apologize. But yeah, we are looking for ways to make the business more capital efficient over the long term, but no specifics to update you on with that. John W. Ransom - Raymond James & Associates, Inc.: Okay. And then just some – I might be the only guy I didn't know this, but to think about next year how much will we pull out in total for the year for pharmacy in terms of avoided losses with your new structure?

Yeah. So JR or Joel?

Yeah. So, what we've said is in the second half of this year, we would lose $20 million to $35 million for pharmacy. We still are looking at that range, so you'd have to back that out as a tailwind for next year. John W. Ransom - Raymond James & Associates, Inc.: Got you. Okay. Thank you.

Our next question comes from Lisa Clive from Bernstein. Your line is now open.

Great. Thanks. First, just wanted to drill down on your comment on the slight decline in commercial mix in the quarter, your large competitor mentioned that there was a big July enrollment that – or a bigger July enrollment period than historically and it sounds like they didn't do a particularly good job attracting new private patients and thus lost some share. Could you maybe just comment on normal quarterly fluctuations that you see with private patient mix and whether your trends seems sort of out of whack with those fluctuations and a related question, have you seen more competition from ARA, now that they have a national contract in place with United Health. You obviously don't run into them in that many markets, but I'm just curious about the dynamics where you may have clinics near theirs? And then final question, just on home dialysis. Could you remind us what proportion of your patients are on PD today and what proportion are on HHD. FMC appears to be making quite a big push into HHD. They've increased their HHD patients from 2% to 4% in the past few quarters, and I'm just wondering how much of a priority it is for you at this point to build out a bigger HHD platform?

Okay. Well, thank you for the questions and let me try and take them one at a time. I'll take them in reverse order since that's the way I remember them. On home, we have 11% of our patients on PD and about 2.5% on HHD, so about 13.5% over both modalities. On the second question on ARA, have we seen any change in the competitive landscape, the answer is no to that. And on the third one is there anything in particular that we should call out on the commercial trend? We don't see anything that's worth calling out.

Okay. Thanks very much.

Thank you.

We have our next question coming from Justin Lake from Wolfe Research. Your line is now open.

Thanks for taking my question, again. So just to follow back up on the commercial mix here. Given it seems I think it's been pretty stable for the last four, six, eight quarters talking about a decline here. Can you give us any more color in terms of the magnitude, what you saw in the quarter, did it get worse through the quarter, any of that?

Yeah. Justin, on that we're trying to be helpful and obviously know that these words are not comforting. It's slight decline and again our negotiations look the same. Seasonally adjusted Q3 always has a little change because Medicare enrollment opens up and so that's going on. But other than that we had that small shift that I already outlined to lower paying plans. There's really nothing else to call out.

Okay. The run rate, tax rate we should think about going forward as we go into 2019, what is the right number to be putting in our models here?

Yeah. So obviously we're not going to give specific guidance here, but I think you can kind of step back to our guidance at the beginning of the year. Think about the increased advocacy spend, which will not all be not tax deductible, but most of it will not be tax deductible and that should help you get to a reasonable estimate.

Could you tell me if the tax rate is higher than what you expected in the year of core, has it gone up or – and if so why?

It's at the high end of the range. You know, the tax code was pretty new when we put out that range. A lot of things got clarified over the course of the year and that's really what drove where we wound up in the range.

Okay. So core ex the advocacy stuff we should think about the high end of the range is a reasonable kind of starting point?

Yes.

Okay. And then, the buy down you bought a bunch of stock in July and then it looks like the buy down slowed down meaningfully versus the first seven months of the year in August and September and that you didn't buy anything in October. So just anything we should think about in terms of the pacing of share repo given that's pretty different than what you did the first seven months?

Yeah. Our leverage wound up at 4.29, which is way above the range we've historically talked about. We've always been comfortable going above or below the range for various reasons, but we are further above than typically feels comfortable. And I think we've tried to communicate that was kind of a pre-buy in anticipation of the DMG deal getting done, and we're – I think it's safe to say we're slowing down as we get to that higher end of our comfort around leverage.

Okay. So maybe it's fair to say that you kind of take a pause and wait until the DMG deal closes before there is meaningful share repurchase going on here, is that the right read?

Look, there are always things that could impact that, but I think you're in the right general ballpark.

Okay. And then just circling back to the DMG deal, is there anything in particular that you would point to that's lengthening this or complicating it versus a typical deal. I mean, I think we're five-plus months post the second request.

Yeah, as we said, look, the regulatory process is ongoing, it's extensive, it's live and unfortunately, we just can't discuss the details of the process.

Okay. So, maybe I'll ask a different question on this. Just – go ahead. Sorry.

Justin, I'd just add, it has proven to be a more difficult process than we contemplated and perhaps that's obvious given the length of time it's taken. But just to eliminate any ambiguity that has been the case.

And can you tell us whether the difficulty in the process is coming from the DOJ or is it coming from maybe Optum is not wanting to divest what a lot of people would have expected they would need to divest to close the deal. Is there a resistance of divestitures or?

We're not comfortable I think sharing any of the details. So, sorry about that, but it's hard to see that thing constructive to the process, and I think everybody's working hard. Everybody, the government, Optum, we are all working hard. And it's just taking every bit of that work and more.

Okay. Let me come at it one other way and I'll jump back in the queue. If we get to a point where the DOJ says, this is what you need to close the deal, and let's just say that's a package of divestitures, and United doesn't think that that's reasonable. Is there a possibility here, this goes to – the FTC sues and we go to court. And if that's the case, what happens if Optum loses, does the deal just break and we go back and run an auction?

Yeah. Justin, look, we are working hard to get this deal closed in 2018. It is a complex process. And with that, I just don't think we want to speculate about the hypotheticals. We're trying to get this done in 2018.

All right. Thanks guys.

Thanks, Justin.

We have our next question coming from ...

Operator?

I'm sorry – from John Ransom from Raymond James. Your line is now open. John W. Ransom - Raymond James & Associates, Inc.: Hi. Just one more from me. And I think this is for Kent. I mean, just kind of stepping back from the picky and (43:27) sort of near term stuff, the company appears to be a little bit at odds with the unions and also with the payers. Strategically, what do we think about over time to kind of bring you back in line where everybody around you kind of feels good about the value proposition because it just seems like you guys are fighting, fighting, fighting and is there something that you could think about doing differently to make everybody think that we're all on the same page? I know this is a squishy question, but you guys seem to be a little bit more at odds than some of the other companies that I'm familiar with?

Yeah, I think it's a very fair question. And let me take a good shot at and feel free to continue probing that, with the payers, I think the visibility of charitable premium assistance, which is not that big a chunk of our profit, the visibility has overshadowed the fact that we're doing lots of great highly aligned work with a lot of payers, including some who have very strong feelings on charitable premium assistance from a policy point of view, but it's not preventing we and they from making big strides on implementing aligned value based care propositions. And so, I think there the visible activity is pretty inconsistent with a lot of the invisible activity in ways that would make you feel much better. And then I would also point out that in Congress, we've probably never been as well-situated and aligned and in a positive spot. And with CMS, I'd say we're in pretty much as good a spot as we've been for much of the last 15 years. And so, the sense which I think I would perhaps have too if I just looked at the newspaper headlines that a bunch of things have trended negative is misleading once you are more on the inside. With respect to the unions, which is the one group where I can't point to any sort of silver lining, it's pretty difficult to have a constructive relationship with a group that starts out day one, doing the things that they have done, it's pretty difficult. And we talked to an awful lot of people who have had dealings with them and emerged quite negative on a whole bunch of levels and for reasons that were consistent with what we experienced, and so that one unfortunately got kicked off in a very zero sum way by them. So, I think it's a very reasonable concern. I think the non-visible data would make you feel a lot better. And with respect to CPA, I would repeat that the person who spoke earlier, I think they were right that it's us taking another run at some sort of reasonable compromise is a good idea. John W. Ransom - Raymond James & Associates, Inc.: Okay. I mean, I guess from my perspective, it's surprising that 2018, 2019, we're not further along with you guys having executed some – let's take care of your 10,000 dialysis patients in these four states for x dollars a patient, we will be on the hook for the quality and the outcomes, you pay us one number. Why has that proven such a – and I know you're at the mercy of the payers, but why isn't there been more vertical traction with some of these risk-sharing things? It's just not clear to me also looking in why we're still kind of in a fee-for-service world and we're fighting over 2%, 3% or 4% revenue per treatment increases and not any further than we were – it doesn't look to me any further than we were 10 years ago.

Yeah, I'll go first and then JR may want to add. Number one, we are getting new deals done that have more aligned economics every year. We don't announce each of them because none of them in isolation are significant enough to warrant it. And so the progress has been steady and the quality and quantity of conversations has grown. Why has it moved so slowly, however, is largely because it's – for a lot of payers, they don't have – while they have a lot of patients nationally, they're spread all over the country and a lot of plans have grown by acquisition and other ways. And so, their ability to be a good dancing partner to isolate and discretely track all of those patients has been limited. Now that's changing a lot right now. But historically, a lot of them administratively simply couldn't really get there without having to allocate an amount of administrative resources that they were legitimately uncomfortable with. So, that's really the primary reason it's moved so slowly. On the government side you saw that they really wanted to try to get ESCOs to work because they believed in it. And while they were testing ESCOs, they just didn't have much of an appetite for other stuff. Now we're three, four years into that, what's happened is exactly what we said would happen is that the program has not scaled and has plateaued, but we lost four years when the PATIENTS Act was sort of put aside by them for a while because they hoped their idea would work. And so that's just the way it goes sometimes with the government that you get a binary fork in the road and this one cost us a few years. JR, do you want to join in?

Sure. I'll just add one point, John, and that is that we agree with you and that our DNA is very partner-oriented that we want to be leaning in to take as much responsibility of the patient as possible. We believe that our clinics are the natural place to be because we have essential care for 12 hours with a diverse set of caregivers. That said, back to Kent's dancing partner, the payers have a unique dynamic in dialysis in that they really only have about 1 in 10 patients. And so therefore, they fail to see that we are one of the most, if not the most, efficient caregiving model out there. So if you look at our revenue per treatment weighted average across all of it at $300 and change for four hours of life-sustaining therapy, it is incredibly, incredibly efficient and a gift to the system. But the constraint is because of MSP limits the timeframe on commercial, that puts all kinds of restraints on doing these bundled deals, and if we had normal mix 70-30 like everyone else, it would allow for a lot more of this. And instead the payer wonders how long they're going to have a dialysis patient, and we get a little of the sort of the noise around the fact that our patients are chronic and therefore expensive. So those are some of the dynamics, but to your point, our DNA is all around partnering and trying to put a solution to this. John W. Ransom - Raymond James & Associates, Inc.: Those were great answers. I really appreciate the expansive commentary. Thanks so much.

Thank you.

We have another question coming from Lisa Clive from Bernstein. Your line is now open.

Great. Thanks. Just two follow-ups; one on the PATIENTS Act, how many supporters are you losing with the new Congress coming in. I'm just trying to understand how much ground may need to be covered a second time if this doesn't pass by yearend, and instead becomes a 2019 initiative? And then interestingly for your further comments just about the private payers and the fact that they only have the patients for 33 months, what do you think the chances are for an MSP extension, obviously there was a small three month went in the opioid build, but then Congress decided they didn't actually need to fund it so it got pulled out. But it was interesting that that should have made it back onto the table seemingly without much involvement from the dialysis industry. I'm just curious as to whether that could focus payers on integrated care in a more substantial way?

LeAnne, you want to take the first one or both?

I can do either. I'll take the first one. As it relates to the PATIENTS Act, we are still very well positioned in the house, all four of our sponsors are returning and they are well-positioned with their leadership. So although we have a new Congress you have to build support from the broad base. We think this policy will continue to have the merits it did and it will continue to have the leadership it has. So we feel good about building the same kind of support that we have to go into the next Congress.

And perhaps LeAnne – Lisa if you want to call tomorrow or something we can provide the exact number of sponsors that may have lost, but given we're up at about 195 with an almost perfect half D and half R split in that we did retain the leaders, and we do have relationships with some of the senior house folks. You'll see that the net answer is supported by the numbers that we're still in very good shape. Although the bad news is that there's always just a lot of things going on and a lot of noise in the system when there's a change in power because they've got a pent-up agenda, so that's bad. On the other hand, the other side of that sword, the other edge of that sword is that they typically are absolutely hyper to get some stuff done, and that's good for us because we are such a bipartisan idea that's sitting on the shelf. So you can kind of argue that one either way. Then on MSP, the way we look at it, is we were thrilled that we've kept that one in play enough so that it made it into the house version of the opioid bill. Unfortunately the Senate bill didn't need any savings, didn't need any pay fors, and so it lost the tailwind and the impetus that comes from that. So the right way to interpret what happened there is that, it's good news that it still has a place on the shelf and a lot of people know about it, that it's sound policy that actually generates savings. At the same time, we never say that we're optimistic that it's going to happen anytime soon because we know that business and private insurance companies always oppose it. So it's never going to be a lay-up.

Okay. Thanks for that.

Thank you, Lisa.

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Okay. Well, thank you all for your interest in DaVita, and we will work hard for you for the next three months until we talk again. Thank you.

That concludes today's conference. Thank you for your participation. You may now disconnect.