DAVITA INC. Q3 FY2024 earnings call

• Clinical Highlight: Highlighted the resilience of patients and teammates in the face of recent hurricanes, with most centers reopening within days of storms and all but one fully operational. • Supply Chain: Hurricane Helene disrupted Baxter's North Cove facility, affecting peritoneal dialysis solutions. Expect to resume new PD starts next month and supply dynamics to normalize in the first quarter. The Q3 financial impact was minimal, with an estimated $10 million to $20 million impact in Q4 due to supply costs, lower PD patient starts, and reduced productivity from home caregivers. • CMS 2025 Final Rule: Focus on market basket update including wage index and base rate, and transition of oral-only drugs into the bundle starting January 1. • Third Quarter Performance: Results were in line with expectations, with adjusted operating income at $535 million and adjusted EPS at $2.59. The business demonstrated resilience with margin expansion despite treatment volume challenges. • Full-Year Guidance: Reaffirmed 2024 adjusted operating income guidance of $1.91 billion to $2.01 billion. 2025 guidance is not formal yet, with key factors like open enrollment, oral drugs in the bundle, etc., to be considered.

Adjusted operating income for the third quarter was $535 million, and adjusted earnings per share was $2.59. International operating income increased slightly during the quarter, offset by $4 million in unfavorable foreign exchange impact. Within the Integrated Kidney Care segment, adjusted operating results increased $32 million sequentially due to lower costs in special needs plans and timing of revenue recognition related to the government value-based care demonstration program.

• 2024: Reaffirmed adjusted operating income guidance of $1.91 billion to $2.01 billion, including the impact of the Baxter supply shortage. • 2025: Currently no formal guidance available. Potential headwinds in 2025 include elevated mortality, continuing impact of the Baxter facility closure, and expiration of 2% interest rate caps. Potential tailwinds include declining center closure costs, positive impact from international business, and potential benefit from oral drugs in the bundle if legislation delaying its inclusion is not passed. RPT and PCC growth are expected to remain elevated relative to pre-COVID levels.

• Supply chain disruption due to hurricanes and Baxter's North Cove facility closure, affecting PD patient starts and productivity. • Uncertainty regarding the CMS 2025 final rule, particularly reimbursement details for oral-only drugs in the bundle. • Interest rate risk from the expiration of 2% interest rate caps, which will impact EPS.

Q: How much of an impact did hurricanes have on 3Q treatment volumes?

A: The impact from hurricanes in Q3 was about 10 basis points, manifesting in the mistreatment rate.

Q: Will hurricanes have a significant impact on Q4 volumes?

A: Less than the 10 basis points seen in Q3 so far, though the quarter is not concluded, and there could be additional challenges but currently less than the 10 basis points.

Q: Can you quantify the financial impact of phosphate binders inclusion in 2025?

A: Not possible to provide a useful number at present due to lack of information on reimbursement, product mix, and volume.

Q: How was the true-up with payers for IKC in 2023 during the third quarter?

A: On track for the year, and IKC is expected to have a full-year operating loss of approximately $50 million.

Q: What are the drivers of the increase in G&A?

A: Major drivers include investment in IT, wage expenses, and reimbursement operations investment related to increasing revenue per treatment.