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01/10 20:10
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call reveals several negative indicators: a decline in treatment volume, increased patient care costs, and a significant operating income shortfall. The reaffirmed EPS guidance is overshadowed by weak guidance on treatment volumes and RPT growth. The Q&A session highlights concerns over mortality rates, unpredictable IKC revenue timing, and the impact of a cyber incident. Despite some positive aspects like technology investments and debt management, the overall sentiment is negative, particularly with the lack of clear guidance and the market's reaction to these uncertainties.
Adjusted Operating Income (Q3 2025) $517 million, consistent with internal expectations. U.S. treatment volume was down approximately 1.5% year-over-year due to factors like Hurricane Helene, severe flu season, and a cyber incident.
Adjusted Earnings Per Share (Q3 2025) $2.51, consistent with internal expectations.
Free Cash Flow (Q3 2025) $604 million, no year-over-year change or reasons mentioned.
U.S. Treatment Volume (Q3 2025) Declined 1.5% year-over-year. Reasons include higher mortality from a severe flu season, lost admissions opportunities due to Hurricane Helene, and a cyber incident.
Revenue Per Treatment (Q3 2025) Increased approximately $6 sequentially, driven by rate increases, higher revenue from phosphate binders, and recovery from the cyber incident in Q2. Offset by a slight decline in payer mix and normal variability.
Patient Care Costs Per Treatment (Q3 2025) Increased by approximately $5 sequentially due to typical wage increases and higher pharmaceutical expenses from increased dispensing of phosphate binders.
International Adjusted Operating Income (Q3 2025) $27 million, down $9 million sequentially due to a one-time benefit in the previous quarter.
Integrated Kidney Care (IKC) Adjusted Operating Loss (Q3 2025) $21 million, with quarterly phasing hard to forecast. Expected to achieve flat or better results for 2025 compared to 2024.
DaVita Clinical Research (DCR): DCR has over 250 research sites in the U.S., conducted 500+ clinical trials, contributed to FDA approval of dozens of ESKD drugs, and fueled 700+ clinical publications. It is currently evaluating middle molecule clearance using middle cut-off dialyzers, which could significantly advance patient outcomes.
U.S. Dialysis Treatment Volume: Treatment volume declined 1.5% year-over-year due to factors like Hurricane Helene, a severe flu season, and a cyber incident. Revenue per treatment increased by $6 sequentially, driven by rate increases and higher revenue from phosphate binders.
Technology Investments: Investments in IT infrastructure include enhancing the next-generation clinical platform, replacing the scheduling system, upgrading revenue operations technology, and adopting AI solutions to improve clinical care and cost efficiencies.
Cost Management: Patient care costs per treatment increased by $5 sequentially, mainly due to wage increases and higher pharmaceutical expenses. However, costs continue to outperform expectations.
Integrated Kidney Care (IKC): Awaiting final 2024 performance year results from the CKCC program. Timing of operating income recognition could shift between 2025 and 2026. Efforts are ongoing to achieve flat or better IKC adjusted operating results in 2025.
Government Shutdown and Policy Uncertainty: The ongoing government shutdown and key healthcare policy decisions in flux could have real implications for the company, potentially affecting operations and financial performance.
Decline in U.S. Treatment Volume: U.S. treatment volume was down approximately 1.5% year-over-year, attributed to factors such as Hurricane Helene, a severe flu season, and a cyber incident, which negatively impacted patient admissions and census trends.
Payer Mix and Policy Changes: Active policy debates and recalibration of the Medicare Advantage landscape, including the impact of enhanced premium tax credits and evolving government policies, could affect the company's insurance mix and financial outcomes.
Cyber Incident: A cyber incident earlier in the year disrupted operations, leading to lost admissions opportunities and impacting revenue per treatment in the second quarter.
Higher General and Administrative (G&A) Costs: Investments in technology infrastructure, including AI solutions and upgrades to clinical and revenue operations systems, are driving higher G&A growth, which could pressure margins in the short term.
Integrated Kidney Care (IKC) Revenue Timing: The timing of operating income recognition from the government CKCC program remains uncertain, creating variability in financial results for 2025 and 2026.
Patient Care Costs: Patient care costs per treatment increased by approximately 5% to 6% year-over-year, driven by wage increases and higher pharmaceutical expenses, which could impact profitability.
Full Year 2025 Guidance: Reaffirmed midpoint of guidance ranges for adjusted operating income ($2.035 billion to $2.135 billion) and adjusted earnings per share ($10.35 to $11.15).
2026 Key Variables: Several factors will influence 2026 performance, including treatment volume recovery from 2025 headwinds (Hurricane Helene, severe flu season, cyber incident), payer mix changes due to policy debates, and timing of Integrated Kidney Care (IKC) program results.
Revenue Per Treatment (RPT) Growth: Expected to be at the low end of the original 4.5% to 5.5% guidance for 2025, with anticipated acceleration in Q4 driven by vaccines, rate increases, and resolution of aged claim balances.
Patient Care Costs (PCCs) Per Treatment: Projected to increase between 5% and 6% for 2025 compared to 2024.
Integrated Kidney Care (IKC) Business: Anticipates flat or better adjusted operating results in 2025 compared to 2024, with timing of revenue recognition potentially shifting between 2025 and 2026.
Fourth Quarter 2025 Outlook: Sequential improvement expected, driven by higher treatment volume, increased revenue per treatment, and timing of IKC revenue, offset by seasonal increases in patient care costs and G&A.
Share Repurchase Program: During the third quarter, DaVita repurchased 3.3 million shares and an additional 400,000 shares since the end of the quarter. Year-to-date, approximately 10 million shares have been repurchased, representing approximately $1.5 billion. The 400,000 shares repurchased in October were pursuant to a publicly filed repurchase agreement with Berkshire Hathaway, which is contractual and formulaic, ensuring Berkshire's ownership remains at 45%.
The earnings call reveals several negative indicators: a decline in treatment volume, increased patient care costs, and a significant operating income shortfall. The reaffirmed EPS guidance is overshadowed by weak guidance on treatment volumes and RPT growth. The Q&A session highlights concerns over mortality rates, unpredictable IKC revenue timing, and the impact of a cyber incident. Despite some positive aspects like technology investments and debt management, the overall sentiment is negative, particularly with the lack of clear guidance and the market's reaction to these uncertainties.
The earnings call reveals several negative factors: a cybersecurity incident impacting revenue, elevated mortality rates, and missed treatments persisting post-COVID. Additionally, revenue per treatment guidance has been reduced, and operating income for IKC is expected to be negative in the second half. Despite some positive initiatives, the overall sentiment is negative due to these challenges and uncertainties.
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