DVA

Good evening. My name is Michelle, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the DaVita first quarter 2026 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer period. If you would like to ask a question during this time, simply press star and then the number one on your telephone keypad. If you would like to withdraw your question, press star, then the number two. Thank you. Mr. Eliason, you may begin your conference.

Thank you. Welcome to our first quarter conference call. We appreciate your continued interest in our company. I'm Nic Eliason, Group Vice President of Investor Relations, and joining me today are Javier Rodriguez, our CEO, and Joel Ackerman, our CFO. Please note that during this call, we may make forward-looking statements within the meaning of the federal securities laws. All of these statements are subject to known and unknown risks and uncertainties that could cause the actual results to differ materially from those described in the forward-looking statements. For further details concerning these risks and uncertainties, please refer to our first quarter earnings press release and our SEC filings, including our most recent annual report on Form 10-K, all subsequent quarterly reports on Form 10-Q, and other subsequent filings that we make with the SEC.

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 except as may be required by law. 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 furnished to the SEC and available on our website. I will now turn the call over to Javier Rodriguez.

Thank you, Nic. Good afternoon, everyone, and thank you for joining the call today. DaVita's foundation is clinical excellence, driven by operating rigor that produces durable results. We have consistently delivered exceptional clinical outcomes and strong financial performance, and this quarter is no exception. To ensure we sustain and build upon this foundation, we're actively investing in our future capabilities. In a rapidly evolving landscape, we're taking a pragmatic approach to expanding our IT systems and digital infrastructure. These targeted technology investments are designed to empower our clinical teams and serve as a backbone for our next chapter of clinical and operational excellence. Today, I'll walk through our first quarter performance, share how technology is enhancing our operations, provide an update on ACA plans, and finish with our outlook for the remaining of the year. First, I'll start, as we always do, with a clinical highlight.

This quarter, we're highlighting the continued momentum of Integrated Kidney Care, or IKC, our value-based care business. In the latest results from CMS's Comprehensive Kidney Care Contracting Program, or CKCC, we delivered year-over-year improvements across all three key measurements, which are gross savings rates, total quality score, and high-performing status. Clinically, this means our IKC care model, together with our physician partners, is improving the health and wellbeing of our patients. Economically, we generated the highest total aggregate savings of any participant, driven by our 4.5% improvement in gross saving rate since the beginning of the program. This is a clear example of how IKC clinical rigor paired with data-driven insights is delivering better outcomes for our patients and more sustainable model for the future of kidney care.

Turning to the first quarter, we delivered a strong financial result ahead of our expectations with outperformance from each element of our U.S. dialysis trilogy: treatment volume, revenue per treatment, and cost per treatment. This balanced outperformance reflects the strength of our team and our focus on consistent execution. I'll touch on a couple of key metrics that contribute to the quarter and will help shape the remainder of the year. Starting with volume. In the first quarter, our treatment volume was slightly ahead of forecast. Quarter end census was ahead of plan as a result of better than forecasted mortality, partially offset by lower than forecasted admits. Census also benefited from patient transfers in related to ongoing clinic closures by Fresenius. Although negligible in the first quarter volume, we anticipate that these transfers will contribute to positive treatment growth over the remainder of the year.

As a result, we're raising our volume growth expectations for the full year from flat to a range of 25-50 basis point increase. Approximately half of the increase is from better underlying performance, half is related to transfer in from Fresenius. Switching to labor. Q1 was ahead of plan, primarily from better productivity, which we expect to sustain over the balance of the year. Let me turn to our technology strategy and the investments we're making to strengthen our operations and ultimately our clinical outcomes. We're taking a disciplined approach to AI that we've been building towards for years, we're seeing that groundwork translate into real impact. Our strategy has two parts. First, we've modernized our data infrastructure. This means standardizing and integrating high-quality data across the enterprise through systems like our proprietary EMR platform.

That work gives us a differentiated foundation to power AI applications at scale. Second, we're actively deploying AI solutions across clinical, operational, and business use cases with a focus on supporting our caregivers, improving how we operate, and drive measurable impact. One example is Schedule Hub, a new tool that dynamically processes changes in each center's patient census, capacity, and teammate availability to recommend optimal patient and staffing schedules in real time. Given the complexity of the center scheduling, we expect this will reduce administrative burden for our facility administrators and enhance teammate experience while supporting patient care. This is one of many examples where our sustain IT investments translate into tangible scale benefits across the enterprise. We're still early in our AI journey, but given the strength of our data foundation and the pace of our deployment, we are well-positioned to outperform both clinically and operationally as technology evolves.

On ACA plan enrollment. Based on what we know today, ACA open enrollment is trending toward a slightly favorable outcome relative to our prior expectations of an approximately $40 million headwind in 2026. This favorability will be partially offset by more patients selecting lower-level bronze plans, which translates to higher out-of-pocket costs and modest RPT headwind. We will gain greater clarity on the enrollment outcome and mix impact as we get deeper into the year. I will conclude my remarks with our financial outlook for the remainder of the year. With our first quarter results, we're off to a strong start for the year. We're raising and narrowing our guidance for adjusted operating income to a range of $2.15 billion-$2.25 billion.

Similarly, we're raising our adjusted EPS guidance to a range of $14.10-$15.20 per share. The increased guidance is primarily the result of our higher volume forecast for the year and lower patient care costs. I will now turn the call over to Joel to discuss our financial performance in more detail.

Thank you, Javier. Today, I'll provide details on our first quarter results, then give you some more context on the update to 2026 guidance that Javier shared. First quarter adjusted operating income was $482 million. Adjusted earnings per share from continuing operations was $2.87, and free cash flow was $140 million. Adjusted operating income came in about $50 million ahead of our forecast. Approximately half was the result of performance ahead of plan and the other half the result of timing. Starting with detail on the U.S. dialysis segment. Treatments declined about 20 basis points versus the first quarter of 2025, and treatments per normalized day increased 40 basis points versus Q1 of 2025, approximately 20 basis points ahead of our expectations.

As Javier mentioned, we are increasing our full year volume forecast to 25-50 basis points. As a reminder, this represents our forecast for treatment growth. This translates to a 50-75 basis points of growth in treatments per normalized day because of the year-over-year treatment per normalized day headwind in 2026 compared to 2025. Revenue per treatment declined approximately $5 sequentially, primarily as a result of the typical first quarter headwind from patient pay responsibility. Year-over-year RPT growth was approximately 4% in the quarter. We still expect full year RPT growth in the range of 1%-2%. Patient care costs per treatment were about flat to the fourth quarter. This was primarily the result of a seasonal decline from high health benefit costs in the fourth quarter, offset by typical increases in wages and other cost growth.

Patient care costs were lower than expected, largely as a result of better than expected productivity improvements. U.S. dialysis G&A costs declined $16 million from the seasonally high fourth quarter, although growth versus the first quarter of 2025 was about $37 million or 13%. This growth is the result of continued investment in technology. Turning to our other segments, in the first quarter, international adjusted operating income was $30 million, and IKC had an adjusted operating loss of $19 million, both in line with our expectations.

Regarding capital allocation, we repurchased 3 million shares during the first quarter, and we repurchased an additional 2 million shares since the end of the quarter, which includes the shares bought from Berkshire Hathaway pursuant to our repurchase agreement. At the end of the first quarter, our leverage ratio was 3.34x consolidated EBITDA, well within our target leverage range of 3x-3.5x. Below the operating income line, other income was $4 million, a sequential increase primarily as the result of no longer recognizing losses from our investment in Mozarc. Debt expense in the first quarter was $145 million.

As an update to our guidance, we now expect quarterly debt expense for the remainder of the year to be similar to Q1 due to higher share repurchases and higher interest rate expectations, resulting in full-year debt expense about flat to last year. For 2026 guidance, as Javier described, we are raising our adjusted operating income guidance range by $40 million at the midpoint. The largest driver of the increase is our expectations for higher treatment volume. The second factor is an expectation for continued labor efficiencies with inpatient care costs. Regarding the phasing of our guidance through the balance of the year, we currently expect adjusted operating income to be about evenly split across each of the three remaining quarters, which assumes Q4 weighted IKC operating income.

Our expectations are that the seasonal pattern we saw in 2025 are not typical. We expect to see phasing more in line with 2024. Moving to EPS, we are also increasing our adjusted EPS guidance consistent with our updated guidance range for adjusted operating income. That concludes my prepared remarks for today. Operator, please open the call for Q&A.

Thank you, sir. If you would like to ask a question during this time, simply press star and then the number one on your telephone keypad. If you would like to withdraw your question, press star, then the number two. Our first caller is Kevin Fischbeck with Bank of America. Your line is open, sir.

Great. Thanks. I wanted to dig in a little bit to the volume commentary. I guess, is there any way that you can kind of break out whether weather had an impact, how much that was? Then the improved mortality, is there a way to kind of break that into what was maybe just a light flu season year-over-year versus underlying trends? I'm just trying to think about how durable, you know, the better mortality is the rest of the year.

Yeah. Thanks for the question, Kevin. On weather, came in exactly as we expected. As you would imagine, we build weather into our forecast. It can range from year-to-year. It was, as I said, in line with forecast. I'd say call it about 10 basis points better than last year. In terms of flu overall, again, came in line with our forecast. What we had said at the beginning of the year was we were building in a flu season that looked like two years ago. While the pattern was a little different quarter-over-quarter, the impact for us was about what we expected. As we think about flu, we focus on cumulative hospitalizations, which you can find on the CDC website, as the main driver of volume impact for us.

This year is in line with what we saw two years ago. In terms of splitting out the mortality coming in a little better than expected, it was probably not about the flu because flu came in as expected. It was more around the underlying mortality.

Okay, great. Can you just give a little more color on the rate update? Why was the rate so strong in Q1 relative to your guidance for the year?

Rate, RPT was up a little more than 4%. Call it $17.5. I would say 2/3 of that was normal stuff in terms of rate increases and mix shifts. About, call it $6 I would attribute to timing. Part of that was negative timing in Q1 of 2025, and part of it was positive timing this year. We see timing, we call it out frequently around RPT, and for the year, we're sticking with our 1%-2% guide.

Okay. Nothing, nothing unusual there around like drugs or binders or anything like that kind of skewed the number?

No, nothing unusual.

Okay. Maybe just the last question. Can you talk a bit more about the ACA impact and how you're thinking about it? It sounded like you were saying it was coming in better, but it sounds like the guidance hasn't changed yet for the year. Did I get that right? How were you thinking about the timing? Is it that Q1 came in better and now you're assuming it's gonna ramp, or did you always assume Q1 was gonna be a little bit lighter relative to the year? Thoughts there?

Yeah. Kevin, it's a great question. The reality is that it is very early. Just to repeat, Q1 was pretty flattish to Q4, so it is performed better than we expected. That said, the reality is that we haven't seen the effectuation rate and the affordability play out. It's too early. We have to see payments, and we have to see enrollment over time. That's why we're thinking it's a little premature to change our numbers. But the reality is that we will need, the real data point that we wanna see is the mix of our future incidents. That is, of course, too early to tell. We're holding to that 40 number, although right now we would be trending $40 million number. We're trending a little better than that.

All right, great. Thanks.

Thank you.

Thank you. Our next caller is Andrew Mok with Barclays. Your line is open, sir.

Hi, good afternoon. Hoping you could provide more color on what you're doing to position yourself to capture market share and the visibility you have into those share gains at this point to raise guidance, specifically related to the clinic closures.

Look, at the end of the day, we, of course, are in a very competitive market. The centers that are being closed, you can assume are small centers, and you can also assume that Fresenius and anyone that closes a center would work hard to try to keep those patients in their own network and, with their same physicians, et cetera. We are, of course, making sure that the market is aware of our chair availability and our physician access and all the things that one would do. Of course, the patients and the physicians will make their choice.

Great. I just wanted to follow up on the mortality comment. I appreciate that flu wasn't necessarily the driver, but any color on the underlying mortality performance would be helpful, considering that's an important metric for building consensus and volumes for the balance of the year. Thanks.

It is an important metric. You're absolutely right about that, Andrew. I would say the changes are rather small, and we're not ready to call out any significant underlying trend. That said, we did up the volume guidance, and it's captured in there.

I guess, how were you able to isolate that it was mortality versus, you know, some of the other dynamics in the market with flu and clinic closures?

Clinic closures are a separate issue because they're about admissions, and we've got a lot of visibility on patients coming in and patients leaving. In terms of mortality, as we've said before, it can be a hard variable to know in real time, but we feel pretty good about what we saw from Q1 now that we're sitting here in May.

Andrew, I think, let me try and be helpful with this, because you're asking the right question. There are several inputs that go into treatments. As you can imagine, you've got seasonality, you've got mortality, you've got admissions, you've got missed treatments, you've got transfers, but they're all pretty small. What we're trying to do is, instead of getting you into a world of small numbers, give you a range that handicaps all of those variables.

Great. Thank you.

Thank you.

Our next caller is Pito Chickering with Deutsche Bank. Your line is open, sir.

Hey, guys. Thanks for taking my question. Just to follow up on the treatment commentary, can you just talk about the new starts to dialysis in first quarter? As you think about Fresenius scaling in, you know, from their closures, is this an immediate ramp in sort of 1Q, 2Q, and then normalizing the back half of the year? Just wanna make sure that as you're increasing your treatment growth guidance here, that we're also modeling, you know, where you guys go from 2Q and then where you guys finish the year in fourth quarter?

On the admit side, I don't think we've got a lot of color to go in. You know, we're talking about basis points of change and then to go to the next level and bifurcate that among all the inputs that Javier mentioned, I think gets us to a point of false precision. In terms of timing on the new starts, we saw what I would guess is about half the new starts from Fresenius that we would see by the end of the first quarter. We would guess the other half will come in Q2. If you're thinking about how to model them, I would say we'll get probably 2/3 of a year worth of those new starts.

Just, you know, when you pull it together with the new starts, you know, the mortality and the Fresenius, kinda where should we be ending the, you know, fourth quarter from a treatment, organic treatment growth perspective?

Yeah. I think the way we're thinking about it is treatments per normalized day, which we think takes out the quarter-to-quarter and year-to-year noise associated with the different number of days in a quarter and the different mix of Monday, Wednesday, Friday, Tuesday, Thursday, Saturday. What we would expect is the normalized treatment per day count to grow over the course of the year. It's sitting today at about 40 basis points positive, and we would expect that to grow over the course of the year. Just to make sure everyone's following how we're thinking about this, our new guide for treatment volume is +25-50 basis points. Because there's a 25-day headwind in the year on normalized treatment days, our guide for the year would be +50-75 basis points of normalized treatments per day.

That's 40 basis points now getting to that average of 50-75 basis points for the year, ending somewhere higher than that.

Okay, great. Then a follow-up here on the revenue per treatment. If you pull out the $6 you're talking about from a timing perspective, you know, it gets us to $411 or $412. Typically, two key ramps, you know, $4 or $5 as you burn through the deductibles, then we see continued ramp in the third quarter. Then obviously fourth quarter, we get the update with the new Medicare rates. I guess I'm trying to figure out how we're still getting to 1%-2% revenue per treatment guidance growth, even pulling out the $6 from the first quarter because of the normal seasonality you guys see in revenue treatment.

I think there are two dynamics. One is normal variability. The quarter was a little higher, and you take that out. The second dynamic is around mix and the enhanced premium tax credits. What we would expect is commercial mix to decline over the course of the year, that'll put pressure on RPT, which would help you bridge from a higher number in Q1 to the 1%-2% for the year.

Okay. At this point, through April, you haven't seen that negative hits that you're guiding to, you're just sort of just assuming it comes until you get later on the year?

That's correct.

Okay. Last question. Your G&A per treatment, you know, you talked about was up, you know, 13% due to tech investments. You know, where does it end the year in, kind of should we think about this, you know, declining linear throughout the year as those investments are made or just any color around how we should be modeling G&A cost per treatment throughout the year as the tech investments begin to decline? Thank you.

Appreciate the question on G&A. I want to reassure you that we are looking at this incredibly diligently. If one looks at G&A independently, that line is growing at a faster rate than revenue. I think it's worthwhile to let you know our philosophy on it, which is we look at G&A as a piece of the total cost. In other words, we're not trying to optimize G&A, but rather not worry about the geography of the expense as long as the sum of the parts add up to a good number. If you look at the last five years CAGR on our total cost, which includes patient care costs, depreciation, amortization, and G&A, that CAGR is 2.6%.

We spend a lot of time trying to make sure that we optimize the cost, and we worry less about the geography on the P&L. I think that our guide will stand on our cost, which is that 1.25%-2.25% we gave at the beginning of the year.

All right. Great. Thanks so much and great quarter, guys. Appreciate it.

Thank you.

Thank you. As a reminder, if you would like to ask a question, you may press star one. Our next caller is Justin Lake with Wolfe Research. Your line is open, sir.

Hi, this is Dillon on for Justin. Just a couple quick questions. What did commercial mix do in the quarter? Also curious on the Medicare Advantage side, can you speak a little bit about what the growth in share was as well? Thanks.

Yeah. Thanks, Dillon, for the question. The answer is pretty much the same on both. They were pretty flat relative to last quarter.

Would you like to go to the next question?

Please, Michelle.

A.J. Rice from UBS, your line is open, sir.

Hi, everybody. Maybe just ask on a couple of items that are mentioned in the press release, whether there's anything significant to call out. You talk about a decrease year-to-year in health benefit expense, pharmaceutical cost, and then on the G&A line, professional fees. Was this sort of as expected, or was there anything unusually positive that happened there? Just asking.

A.J., it was as expected. We'll often see the decline sequentially from Q4 to Q1, especially in health benefits. nothing unusual there.

Okay. I appreciate the comments about the technology investments and some of the use cases you're looking at. Is there any way, realizing even if you get savings, you may choose to reinvest it in other ways, but is there any way to sort of size some of the opportunities you see? Are those being reflected now in operating results? What is your thought about how long it may take for the sum of this to impact operating performance?

Yeah, appreciate the question. I think the way we look at it is the long-term view that we again are trying to ensure that we are putting our clinicians in the best position and that we're making the trade-off on efficiency for the long term to make sure that we sustain our 3%-7% OI growth over time. As you know, right now, technology is moving at a very quick pace, and some of these will be a lot of user experience, i.e., we're just enhancing the experience. Some of these will be helpful toward the bottom line. It's a little early, and I don't think we wanna get into the timing of it, but rather the sustainability and the outperformance of it.

Okay. Thanks a lot.

Thank you.

Our next caller is Ryan Langston with TD Cowen. Your line is open, sir.

Thanks. Good afternoon. Nice to see the operating income guide up, EPS guide up as well. I noticed the free cash flow guide did not change. I think this was a similar dynamic last year. Just wanted to confirm that's normal course and nothing specific to read into.

Yeah. Ryan, you're thinking about it the right way. There's just more variability and a wider range with free cash flow, so we didn't move the number despite the increase in OI.

Okay. This administration is really focused on fraud, waste, and abuse. It seems to me dialysis might be a little better insulated versus other types of providers. Just any general thoughts on, you know, this administration's focus on that, FWA, and what this could mean potentially for DaVita or maybe not mean for DaVita or even just more broadly for dialysis in general?

Yeah. Thanks for the question. It's tough for us to comment on the broader environment, but what I can say is we take compliance incredibly seriously. Number two, what we do have a little help in is that dialysis is not a controversial diagnosis. There's not like, oh, should I go get this treatment or not controversy. That makes it easier. The fact that it is a bundle in a single DRG, in essence, simplifies some of the compliance issues. Again, we are internally focused on making sure we do right by the government.

Great. Thank you.

Thank you. At this time, I'm showing no further questions. Speakers, I'll turn the call back over to you for closing comments.

Okay. Thank you, Michelle, and thank you all for joining the call today. I would wrap up with three takeaways. First, our most recent clinical initiatives are beginning to gain traction, and we're seeing early signs of the benefits for our patients. Second, our business is performing well. As we continue to achieve our clinical goals, this drives our strong financial results. Finally, we maintain a long-term view on our business, and we'll continue to invest in our future. Thank you all for joining this quarter. Be well, and we look forward to seeing you next time. Happy Cinco de Mayo, everyone.

Thank you. This concludes today's conference call. You may go ahead and disconnect at this time.