WOLFE RESEARCH HEALTHCARE CONFERENCE 2026 - DAVITA INC

Explicit Guidance:

• No specific FY2026 or FY2027 financial guidance (revenue, EPS, margins, capex) was provided; management explicitly stated it is "too early to give a full view" on 2027 earnings and that they have not issued 2027 guidance yet.
• FY2026 Outlook: Management expects Q4 Operating Income (OI) to increase sequentially by approximately $30 million relative to Q3, driven primarily by International Kidney Centers (IKC) and a rise in Revenue Per Treatment (RPT), while dialysis volumes are expected to decline sequentially due to calendar headwinds.

Business-Segment Outlook:

• Core Dialysis: Volume is expected to face a sequential headwind in Q4 (approx. 100 basis points lower treatment days vs. Q3) due to calendar factors, though Q4 is anticipated to see a sequential step-up in RPT and RPT-driven OI. For FY2027, adjusted volume growth is projected to remain in the ~75 basis points range, with calendar impacts expected to be a 25 basis point tailwind next year.
• International: Margins are expected to hold near mid-8% for 2026; management views the business as a portfolio of varying markets with continued runway to deliver 1% of enterprise OI growth through capital deployment and shared savings, with no identified margin cap.
• IKC (Integrated Care): Expected to contribute a "big step up" in Q4 OI, following a strong 2026 performance; management continues to target 1% annual enterprise OI growth contribution from this segment in FY2027, though acknowledges potential "choppiness" due to the lag in revenue recognition for new loss-making contracts before shared savings are realized.

Market and Competitive Outlook:

• Pricing/Reimbursement: Medicare fee-for-service rate increases are estimated at 1.5% to 2.0% for the upcoming year; this range incorporates expectations for the Tdapa (Targeted Dialysis Product Add-on Payment) swing factor, which is expected to drive the majority of variability beyond the base rate.
• Demand Trends: Mortality improvement initiatives, specifically the rollout of new dialyzers capable of clearing "middle molecules," are expected to drive volume improvements over the next few years as these technologies become available to the vast majority of eligible patients by November.
• Competitive Landscape: Management notes that the growth of Medicare Advantage (MA) reduces the relative importance of the Medicare fee-for-service rate; MA rates are negotiated directly with payers with no direct tie to CMS inflation adjustments, potentially allowing for reimbursement escalators linked to new technology adoption.

Macro / Industry Outlook:

• Exchanges/Regulatory: A projected $70 million revenue headwind is anticipated for next year due to new patient starts entering at a lower commercial mix; management expects Qualified Health Plan (QHP) participation rates to eventually normalize to broader population levels, though with a longer transition time.
• Cost Structure: Pharma costs are identified as a key lever to offset exchange headwinds; management expects cost per treatment to decline year-over-year in Q4, contributing to operating strength despite potential RPT declines.
• Economic Sensitivity: Management notes that a 50 basis point swing in the fee-for-service rate is now worth approximately $30 million in operating income, though its impact is less significant than in prior years due to the shift toward MA.

Strategic Initiatives:

• Technology Rollout: New dialyzers designed to clear middle molecules are being rolled out to all clinics, with availability expected for the vast majority of eligible patients by November; this initiative is the "biggest opportunity" for mortality improvement and subsequent volume growth.
• Capital Deployment: Management confirms continued willingness to deploy capital in new international markets and existing markets with lower share penetration, citing the "big world" and lack of saturation compared to the U.S. market.
• Contracting: New IKC contracts are currently loss-making in Year 1 as the company incurs full expense without revenue until shared savings visibility is established, though management expects a long-term smooth path to profitability.

Risks and Headwinds to Outlook:

• Seasonality/Calendar: Q4 faces a material sequential headwind of nearly 100 basis points compared to Q3 due to calendar treatment days; Q4 mistreatment rates are expected to rise seasonally (flu impact) but should normalize year-over-year compared to Q4 2025.
• Regulatory/Reimbursement Variability: The rollout of Tdapa add-on payments introduces significant variability; management cannot quantify the specific basis point impact of these add-ons yet, noting the complexity of reverse-engineering CMS data.
• Exchange Membership: Continued decline in commercial mix for new patients on the exchanges presents a recurring revenue headwind of $70 million next year.
• IKC Volatility: New contracts introduce financial choppiness due to the timing mismatch between upfront costs and revenue recognition based on shared savings.
• Volume Pressures: Achieving the desired >2% volume growth rate remains challenging, with recent growth (75 bps) driven partly by market share gains from competitors (Fresenius).

Management Tone on the Future:

• Confidence Level: Cautiously optimistic regarding long-term volume drivers (mortality tech) and IKC margins, but acknowledges the "complicated dynamic" of near-term volume and exchange headwinds.
• Hedges: Management emphasizes a focus on "Year-Over-Year" metrics over sequential quarterly comparisons to filter out noise from seasonality and calendar anomalies.
• Changes vs. Prior Guidance: Management indicates that 2026 IKC performance has exceeded prior "choppy" and "1% growth" expectations, though they maintain the 1% annual contribution target for FY2027 as the baseline structural expectation.