UBS Global Healthcare Conference - DAVITA INC

Explicit Guidance:

• FY2027 Revenue/Profit Outlook: Management expects a challenging year due to a $70 million headwind from the expiration of enhanced premium tax credits and commercial mix decline; however, they do not provide formal numerical guidance, advising investors not to simply subtract $70M from prior earnings growth estimates.
• FY2027 Volume Growth: Targeting a return to pre-pandemic levels of 2%+ annual volume growth; specific 2027 volume growth is anticipated to be positive, outperforming the 2026 baseline due to calendar tailwinds (net +25 bps vs. 2026 headwinds) and decelerating mistreatment pressures.
• FY2028 Financial Impact: No financial benefit expected from the full rollout of Expanded High-Definition (HD) dialysis until the second half of 2028.
• FY2029 Volume Growth: Long-term target to achieve 2% or better annual volume growth by 2029, driven by middle-molecule clearance and clinical initiatives.
• Technology Opex Growth: IT spending growth rate is expected to decelerate in FY2028 from the >20% annualized rate seen in the prior four years, though absolute spend will remain elevated to support AI and system maturity.

Business-Segment Outlook:

• International: Expected to contribute approximately 1% growth to Operating Income (OI) for the full year, continuing its long-term trajectory with no significant deviations.
• International Kidney Care (IKC): Projected to contribute ~2% growth to OI for the full year (above the standard 1% run rate), hitting its stride with a confirmed path to sustainable profitability.
• IKC Humana Partnership: A new contract for 10,000 CKD patients with Humana is expected to be an economic headwind in the back half of FY2026 and front half of FY2027 due to upfront costs and engagement challenges with non-ESRD patients.
• U.S. Dialysis Commercial Mix: Anticipated decline in commercial mix due to patients moving from the ACA exchanges to Medicare/Medicare Advantage following the expiration of enhanced premium tax credits; the full impact on revenue per treatment (RPT) is expected to materialize gradually over the next 12-18 months as new admissions reflect the lower mix.
• Expanded HD Dialysis: Full national rollout scheduled for November; clinical adoption expected to be high, but financial impact (cost savings/volume growth) is delayed until late FY2028 due to the 18-month lag required to see mortality differences seen in the CONVINCE study.

Market and Competitive Outlook:

• Medicare Reimbursement (FY2027): Effective full-year Medicare rate increase estimated at 1.5%–2.0%, significantly below the headline 3.5% Q1 increase; the variance is driven by the decline in T-End of Treatment Add-on Payments (T-DEPA) and DAPA dynamics.
• T-DEPA Dynamics: Expectation of a decline in ASP and utilization for T-DEPA drugs in Q3 2026, driving lower reimbursement rates in FY2027; this is viewed as a revenue issue with no offsetting cost reduction.
• Binder Payment: The separate $1,285 binder payment is locked in for the current year but will disappear as a distinct line item in FY2028, merging into the general bundle.
• Pharmaceutical Costs: Management views pharma cost reduction as a key differentiator; expects opportunities to exceed normal savings rates in FY2027 via contracting, generic conversion, and AI-driven protocol changes to offset revenue pressure.

Macro / Industry Outlook:

• Congressional Policy: No specific prediction on legislation, but optimism exists for potential reversal of enhanced premium tax credit impacts on payer mix if exchanges stabilize.
• Federal Regulation: Skepticism regarding government proposals to reduce charitable premium assistance; management views this as harmful to patient coverage and potentially costly to the government, and disagrees with the characterization of LDOs as part of the problem.
• National Kidney Care Plan: Shares goals of innovation and quality but disagrees on the solution, emphasizing that LDOs should partner with the government rather than having funds extracted from the system.
• FTC/Competition: Management highlights ongoing FTC scrutiny and subpoena concerns but maintains they are "part of the solution" regarding mortality and cost outcomes.

Strategic Initiatives:

• Expanded HD Rollout: Accelerated full-country rollout in November based on successful scale pilots; physicians are highly supportive, and supply chain is secured.
• AI Investment: Continued heavy investment in AI for drug prescribing protocols and operational efficiency; ROI expected to be realized in FY2028 as initiatives mature.
• Capital Allocation: Adhering to a philosophy of investing in growth (e.g., Latin America, home health, Alara), maintaining leverage at 3.0–3.5x, and prioritizing share buybacks with free cash flow (targeting $1.0–$1.25B annual FCF).
• Volume Growth Drivers: Relying on a combination of Expanded HD implementation, improved fluid management, better vaccination rates, and pharmaceutical cost controls to drive volume and RPT.

Risks and Headwinds to Outlook:

• Commercial Mix Dilution: The $70 million headwind in FY2027 driven by the shift of exchange patients to Medicare/Medicare Advantage is the primary revenue risk.
• Medicare Underfunding: The effective FY2027 Medicare rate increase (1.5–2.0%) is below the company's nominal cost trend, creating a margin pressure gap.
• Cost Inflation: G&A and IT costs remain elevated (IT >20% growth for 4 years); while intentional for strategic value, this is a significant headwind for the current year.
• Regulatory Uncertainty: Potential changes to charitable premium assistance or FTC actions could negatively impact commercial mix and operating environment.
• Clinical Variability: Real-world mortality and volume benefits from Expanded HD may differ from clinical trial (CONVINCE) projections; mistreatment rates remain a variable dependent on broader national acute care admission trends.
• IKC Economics: The new Humana partnership creates near-term economic headwinds due to upfront costs and lower engagement rates in the CKD population.

Management Tone on the Future:

• Confidence Level: Cautiously optimistic regarding the U.S. Dialysis volume trajectory and the sustainability of the IKC business model.
• Strategic Patience: Willing to absorb short-term financial headwinds (IT investment, IKC setup) for long-term structural benefits (volume growth, pharma efficiency, patient outcomes).
• Caveats: Management emphasizes that "real life" clinical results will likely differ from trial data and that the full financial benefits of Expanded HD are not expected until FY2028.
• Guidance Hedges: Explicitly avoids providing a specific FY2027 earnings number, instead framing the outlook as a complex mix of headwinds (mix, rates) and mitigants (volume, pharma savings).

Miscellaneous:

• Mistreatment Rates: Attribute recent quarter increases to broader national acute care admission trends rather than an underlying deterioration in patient acuity or a vicious cycle within their specific population.
• Calendar Effects: FY2028 volume growth will benefit from a +25 bps calendar tailwind, contrasting with the -25 bps headwind faced in FY2026.
• Non-ESRD Focus: The shift to CKD management (via Humana) introduces engagement challenges distinct from the established ESRD care model.