DaVita Inc. 3rd Quarter 2026 Investor Conference Call - DAVITA INC

Financial Performance:

• Third Quarter 2026 Adjusted Operating Income: $561 million; Adjusted EPS: $3.82; Free Cash Flow: $276 million.
• Full Year 2026 Guidance (narrowed): Adjusted Operating Income range of $2.175 billion to $2.25 billion; Adjusted EPS range of $14.30 to $15.20.
• U.S. Dialysis Volume: +1.2% year-over-year growth in treatments; Treatments per normalized day (TPND) up ~65 basis points; Patient census growth driven by mortality improvements.
• Revenue per Treatment: +1.1% year-over-year, driven by rate increases offset by lower commercial mix and phosphate binder reimbursement.
• Cost Trends: Patient care costs per treatment up 2.4% (labor growth offset by lower binder costs); G&A costs up <2% (excluding cyber expenses); Technology spend grew >20% YoY.
• Integrated Kidney Care (IKC): Projected to deliver at least $65 million in adjusted operating income for 2026 (up $45M YoY); Full-year international adjusted operating outcome expected at ~$135 million (up $20M YoY).
• Capital Allocation: Repurchased ~600,000 shares in Q3 + 500,000 post-quarter; Leverage ratio 3.38x EBITDA; Debt expense $150 million; Interest rate caps maintained on ~80% of floating debt.

Guidance and Future Outlook:

• 2027 Outlook: Expect volume growth to exceed 2026 levels; anticipate RPT headwinds from ACA commercial mix decline; pharmaceutical costs expected to decline; Technology spend growth to decelerate but continue.
• Long-Term Goal: Targeting 2% or greater volume growth by 2029.
• IKC Growth: Elevated guidance for 2027 IKC adjusted operating income ($65M+), representing a $25M increase over prior guidance.
• Technology Investment: Full-year 2026 drag noted due to accelerated IT spend; growth in tech investments expected to decelerate in 2027.
• Expanded HD Dialyzer Rollout: Full national rollout to begin November; financial impact on adjusted operating income expected to be neutral for 2026-2027, with positive volume/mortality benefits starting back half of 2028.

Business Segments and Product Lines:

• Expanded HD Dialyzers: Pilots completed in 150 centers (>10,000 patients); 90% adoption among clinically eligible patients; >95% of clinical team trained; Compatible with existing machines.
• Integrated Kidney Care (IKC): Performing above plan; recently announced partnership with Humana to expand upstream care to ~10,000 CKD patients; Savings rate improving due to reduced hospitalizations/readmissions.
• Fluid Management: Achieved 10% improvement in optimal fluid removal treatments, 5% improvement in patient weight gain management, and ~5-pound average weight reduction per patient.
• International: Latin America business showing growth and improved performance; operations in China excluded from results due to a charge.
• Technology: Over $1B invested in platform modernization; delivering benefits in labor productivity, pharmacy costs, and care management.

Market and Competitive Landscape:

• ESRD Final Rule: CMS confirmed permanent inclusion of phosphate binders in the bundle; Large DLO headline rate increase set at 3.5% (up 1.5% from proposed); TDAPA add-on payments subject to quarterly recalculation.
• Net Policy Impact: Estimated net positive impact of 1.5% to 2% for full year 2027 (approx. $45M-$60M), driven by the base rate increase offset by TDAPA adjustments.
• HHS Kidney Care Plan: DaVita supports goals of early intervention and transplant expansion; highlights need to solve for the "economic ecosystem" where 90% of patients are government-insured.
• Competition: Expresses support for increased competition but notes high barriers to entry due to the complex nature of the 90% government-insured market; claims mortality has improved ~25% since 2000.
• Fresenius Site Closures: Competitive volume benefits from Fresenius closures primarily realized in Q1; no incremental change observed Q2 to Q3.

Risks and Challenges:

• Technology Spend Drag: Accelerated IT investments in 2026 negatively impacted full-year financial performance.
• ACA Exchange Headwinds: Continued impact from expired premium tax credits driving a mix shift; anticipated $40M YoY headwind for 2026.
• Mistreatments: Q3 experienced a 20 basis point uptick in mistreatments vs. expectations; assumed to revert to normal levels in Q4.
• TDAPA Volatility: Quarterly recalculation of TDAPA add-on payments creates uncertainty for Q2-Q4 2027 reimbursement rates.
• AKF Premium Assistance (CPA): Potential policy scrutiny on patient grants; DaVita warns dilution could shift patients entirely to government pay, reducing capital attraction.

Management Commentary and Tone:

• Tone: Optimistic, confident, and passionate regarding clinical innovation and care quality.
• Clinical Focus: Emphasis on fluid management and expanded HD dialyzers as key drivers for mortality improvement and patient quality of life.
• Strategic Shift: Transitioning from "cost containment" to "scale and innovation" with confidence that IKC is now a scalable, profitable growth engine.
• Policy Stance: Firmly defends the dialysis industry's value proposition against HHS narrative, arguing that current models are essential for high-needs patients and that competition requires better government reimbursement rates.

Analyst Questions and Answers:

• UBS (A.J. Rice): Asked about ESRD rate adequacy and IKC growth. Management confirmed net 1.5-2% positive impact for 2027; expressed readiness to scale IKC with healthy, aligned contracts.
• Barclays (Andrew Mock): Inquired about Q4 treatment guidance and HHS plan. Management expects Q4 TPND acceleration due to mistreatment reversion and census growth; highlighted need to address the 90% government mix in the HHS plan.
• Deutsche Bank (Peter Chickering): Asked for 2027 modeling and HD dialyzer impact. Confirmed 2027 volume growth >2026, binder cost declines, and IT spend deceleration; noted it is too early to quantify mortality/volume impact of new dialyzers on profitability mix.
• Bank of America (Kevin Fischbeck): Asked about Fresenius closures and mortality profitability. Confirmed closure benefits peaked in Q1; stated mortality gains likely extend younger patients, not purely adding Medicare treatments.
• TD Cowan (Ryan Langston): Asked about clinic capacity and depreciation. Management plans to increase utilization via census growth rather than closing clinics; depreciation expected to stabilize.
• Wolf Research (Justin Lake/William Westerfield): Asked about TDAPA payment details. Management clarified TDAPA growth is largely driven by FE/CA drugs and will decline significantly after Q1 2027; no visibility on industry utilization trends.

Other Key Points:

• Clinical Evidence: Expanded HD dialyzers show >20% potential mortality improvement and >90% patient/physician adoption in pilots.
• Operational Readiness: Supply chain and training systems are prepared for immediate national rollout of expanded HD.
• Shareholder Alignment: Quarterly repurchases from Berkshire Hathaway continue to maintain ~45% ownership stake.
• Rural Access: 92% of rural patients are within 10 miles of a DaVita center.
• Disclaimer: Standard forward-looking statements warning provided; non-GAAP reconciliations available in SEC filings.