DaVita - Earnings Call - Q3 2025

Executive Summary

• Q3 2025 tracked internal plans but missed Street on adjusted EPS while revenue was roughly in line: revenue $3.42B (+4.8% YoY; +1.2% QoQ), adjusted EPS $2.51; GAAP EPS $2.04. Street EPS was $3.17* and revenue $3.43B*, implying a material EPS miss and slight revenue miss (details below).
• Management narrowed FY25 guidance: adjusted OI $2.035–$2.135B (midpoint reaffirmed), adjusted EPS $10.35–$11.15 (midpoint reaffirmed) and FCF $1.0–$1.25B. CFO outlined a Q4 uplift of ~+$60M OI driven by day‑mix tailwind, IKC timing and higher RPT, partly offset by seasonal costs.
• U.S. dialysis RPT rose sequentially by ~$6 to $410.59, supported by rate increases and phosphate binders; PCC per treatment rose ~$5 to $273.54; normalized non‑acquired growth remained slightly negative (‑0.6% YoY).
• Strategic/investment narrative: continued IT modernization and adoption of AI across systems; ongoing research push around middle‑molecule clearance (MODEL/MEMOIRS) to improve outcomes.
• Capital allocation remains active: $465M repurchases (3.3M shares) in Q3 and 0.4M more post‑quarter; leverage 3.37x LTM “Consolidated EBITDA,” within 3.0–3.5x target range.

What Went Well and What Went Wrong

What Went Well

• Sequential revenue and RPT improvement: revenue up to $3.420B; RPT increased to $410.59 (+$6 QoQ) on higher reimbursement and phosphate binders, partially offset by payer mix.
• Cost management and productivity: despite a $5 sequential increase in PCC per treatment to $273.54, management highlighted cost discipline and productivity as continuing supports to profitability and outlook.
• Guidance discipline and Q4 bridge: FY25 midpoint reaffirmed with narrower ranges; CFO detailed a clear Q4 OI bridge: +$50M RPT (vaccines, rate increases, claim resolutions), +$25M IKC timing, +$15M day‑mix tailwind, offset by ~‑$30M seasonal costs.
• Quote: “Our third quarter performance was in line with our expectations and keeps us on track to achieve our full‑year guidance” — CEO Javier Rodriguez.

What Went Wrong

• Street miss on EPS and EBITDA: adjusted EPS $2.51 vs $3.17* and EBITDA ~$685M vs ~$751M*, driven by quarterly phasing, day‑mix headwind and IKC timing (phased revenues earlier in Q2), plus cyber‑related effects earlier in the year.
• Volume softness and mistreatments: U.S. treatments per day declined 1.5% YoY; normalized non‑acquired growth was ‑0.6%; management cited lingering mistreatment rates and earlier flu/cyber disruptions; Q3 average treatments/day 91,680 (down vs Q2).
• G&A pressure from IT/cyber: G&A $322M; Q3 included ~$11.7M in cyber remediation costs (excluded from adjusted metrics) and broader IT investments; these weigh on margins near term.

Transcript

Speaker 3

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 third quarter 2025 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, please press star then the number two. Thank you. Mr. Eliason, you may begin your conference, sir.

Speaker 6

Thank you, and welcome to our third 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 J. 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 third 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 J. Rodriguez.

Speaker 0

Thank you, Nic. Good afternoon, everyone, and thank you for joining the call today. We are accustomed to operating in a dynamic healthcare environment, and today is no different. The government shutdown is on its 29th day, and key healthcare policy decisions remain in flux. While these developments have real implications, we remain focused on what matters most: providing excellent care. This focus is not only in the best interests of our patients but continues to generate consistent financial results. Our third quarter performance was in line with our expectations and keeps us on track to achieve our full-year guidance. These results also enable continued investment to improve the lives of our patients and enhance the experience of our teammates and physicians. Today, I will share the highlights of our third quarter performance, update our guidance for the full year, and walk through a few swing factors for 2026.

First, as always, we will begin with our clinical highlights. Today, I will feature our research team, known as DaVita Clinical Research, or DCR. Powered by a dedicated team of medical directors and data scientists, and backed by one of the largest patient data sources in the country, DCR has been instrumental in advancing kidney care research. A few metrics that put this team's contributions in perspective. DCR maintains more than 250 research sites in the United States and has conducted more than 500 clinical trials. This team of researchers has helped achieve FDA approval for dozens of ESKD drugs, and DCR research and data have fueled more than 700 clinical publications. With a drive toward innovation and patient safety, DCR has helped to develop new therapies, improve outcomes, and generate benefits to patients and physicians across the kidney care community.

This longstanding commitment underscores our position as a leader in clinical research. Most recently, DCR is evaluating outcomes of middle molecule clearance using middle cutoff dialyzers, which will provide critical U.S.-specific data and has the potential to represent a significant step in advancing patient outcomes. This is just the latest example of how DaVita is advancing the development of new therapies and actively shaping the future of kidney care. Transitioning now to our financial performance, we delivered the third quarter adjusted operating income of $517 million in adjusted earnings per share of $2.51. These results were consistent with our internal expectations. Joel will provide detail on the quarter, but at the highest level, we continue to manage patient care costs effectively while the U.S. treatment volume was down approximately 1.5% year over year.

Before I cover full-year guidance, let me provide a bit of detail on one of the ongoing strategic priorities: investing in technology infrastructure. As a reminder, last year we completed the rollout of our next-generation clinical platform. We continue to enhance that system and are making other long-term investments to replace our scheduling system and further upgrade our revenue operations technology. Simultaneously, we're adopting AI solutions across our platform. This includes internally developed use cases, opportunities with commercially viable applications, and working with external providers. While these projects result in higher G&A growth, we believe that these investments are critical to advancing clinical care, improving the experience of our patients and teammates, and driving long-term cost efficiencies. Let me now transition to our full-year outlook. We're reaffirming the midpoint of our guidance ranges for adjusted operating income and adjusted earnings per share while narrowing each range.

We now anticipate full-year adjusted operating income between $2.035 billion and $2.135 billion and adjusted earnings per share of $10.35 to $11.15. I recognize that many of you are already looking ahead to 2026. While it's too early to provide formal guidance, let me walk through several key variables that will influence our perspective on next year. First is volume. We face several headwinds in 2025 that we don't expect to recur, including Hurricane Helene, the severe flu season, and the cyber incident. Beyond those discrete events, and as I talked about last quarter, we will continue our efforts to drive clinical progress to improve mortality and support treatment growth. Second is payer mix, where there's active policy debate right now. We're among the many who are closely monitoring the impact of enhanced premium tax credits on commercial mix.

We'll also be assessing the ongoing recalibration of the Medicare Advantage landscape, as evolving market dynamics from government policy and payer behavior affect Medicare Advantage enrollment and insurance mix. Third is Integrated Kidney Care, or IKC. We're awaiting the release of final 2024 performance year results from the government CKCC program. The timing of the release and the recognition of the associated operating income could shift between 2025 versus 2026. We feel good about our progress in 2025, and it's an important reminder that the timing of operating income remains difficult to predict. In short, there remains a range of potential outcomes for 2026, and we expect to learn more about each of these factors over the coming months. As customary, we'll provide formal guidance during our fourth quarter earnings call in February. To wrap up my comments, we remain on track to achieve our full-year goals.

Meanwhile, our long-term investment in IT and clinical innovation strengthens our ability to deliver superior patient care and create sustainable value. As we look to 2026, we're monitoring a number of variables that will shape the coming year, and we remain confident in our ability to navigate them effectively. I will now turn it over to Joel to discuss our financial performance in more detail.

Speaker 5

Thank you, Javier. Third quarter adjusted operating income was $517 million. Adjusted earnings per share was $2.51, and free cash flow was $604 million. I'll provide detail on the individual components of our results, beginning with U.S. dialysis. First, on treatment volume, U.S. treatments per day declined 1.5% versus the third quarter of 2024, in line with our expectations. The decline is primarily the result of two factors. First, the mix of days, as this quarter was slightly skewed towards Tuesdays, Thursdays, and Saturdays as compared to Q3 last year. Second was the negative impact of the census trends from higher mortality from a severe flu season and lost admissions opportunities as the result of Hurricane Helene and the cyber incident. Next, revenue per treatment increased approximately $6 versus the second quarter.

This was primarily driven by rate increases, higher revenue from phosphate binders, and the negative impact of the cyber incident on Q2 RPT. These improvements were offset by a slight decline in payer mix and normal variability. We continue to expect full-year RPT growth will be at the low end of our original 4.5% to 5.5% guidance. Achieving this will require some acceleration of RPT in Q4, which we expect from vaccines, normal rate increases, and higher than typical impact from the resolution of aged claim balances. Now moving to patient care costs, PCCs per treatment increased by approximately $5 sequentially. The majority of the change was the result of typical increases in wages and higher pharmaceutical expense due to higher dispensing volumes of phosphate binders relative to the second quarter.

Excluding the impact of phosphate binders, patient care costs continue to outperform our expectations from the beginning of the year. We continue to expect full-year PCCs per treatment to increase between 5% and 6% versus 2024. International adjusted operating income was $27 million. This was down $9 million versus the second quarter, primarily due to the one-time benefit that we called out last quarter. In IKC, our value-based care business, our Q3 adjusted operating loss was $21 million. As I have mentioned in the past, the quarterly phasing of IKC is hard to forecast. That said, we feel good about achieving flat or better IKC adjusted operating results in 2025 as compared to last year, consistent with our guidance from the beginning of the year. In aggregate, third quarter operating results were in line with our expectations.

At the midpoint of our tightened adjusted operating income range, the implied guidance for the fourth quarter represents an approximately $60 million sequential increase. We expect this fourth quarter improvement to be primarily driven by higher treatment volume due to better treatment day mix, sequentially higher revenue per treatment, and timing of IKC revenue offset by typical seasonal increases in patient care costs and G&A. Switching to capital allocation, during the third quarter, we repurchased 3.3 million shares, and we have repurchased an additional 400,000 shares since the end of the quarter. Year to date, through today's earnings call, we have repurchased approximately 10 million shares, representing approximately $1.5 billion. As a reminder, the 400,000 shares we repurchased in October were pursuant to our publicly filed repurchase agreement with Berkshire Hathaway.

According to that agreement, just prior to each DaVita earnings call, we buy from Berkshire the number of shares necessary to return its ownership to 45%. This transaction is contractual and formulaic. We finished the quarter with leverage at 3.37 times consolidated EBITDA within our target leverage ratio of 3 to 3.5 times. As we look to the remainder of 2025, as Javier mentioned, we are reaffirming our guidance for full-year adjusted operating income with a midpoint of $2.85 billion and adjusted earnings per share with a midpoint of $10.75, while narrowing the band of each range. We look forward to sharing full-year results and providing 2026 guidance when we speak again in February. That concludes my prepared remarks for today. Operator, please open the call for Q&A.

Speaker 3

Thank you, sir. If you would like to ask a question during this time, simply press star, 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.

Great, thanks. I guess a couple of things came out from your prepared remarks. The first thing, you talked about the volume number for next year. I understand the one-time items that you highlighted this year. How do you think volumes would have played out this year excluding those three, I guess it was four items that you or three items that you mentioned, the hurricane, the cyber, and flu? What would that number look like this year?

Speaker 5

Yeah, Kevin, I'll take that. I think the number is probably about a 75 to 100 basis point headwind on 2025 volume from those three things combined. That's a combination of census and mistreatment rate.

Okay. The other thing that jumped out on volumes was that you just mentioned working to improve mortality. Is there anything that you can provide color on there? I assume that's not something that necessarily shows up in a given quarter, but maybe there's optimism that that can improve next year, or is that a slow, steady improvement over time?

Speaker 0

Yeah, Kevin, as you called it out, it's a steady over time. We are looking at all our clinical protocols, looking at time on therapy, fluid, other protocols, GLP-1s, and other medications to try and see what the best way to go after this is because we really have to lower our mortality. Of course, over time, we will talk about the middle molecule clearance. That will take time.

Okay. This last question for me, on the MA enrollment point about that being, it sounds like it's a bigger swing factor than I might have thought it would have been for 2026. I understand that it is in flux. Are you, when you say swing factor, are you talking about just shifts in membership between payers that could have a meaningful impact, as in your rate with different payers are significant enough to move the needle, or are you worried about declines in MA enrollment, broadly speaking, back into traditional Medicare or Medicare Plus supplemental?

At the end of the day, you highlighted two variables, which is mix, and within that mix, there's a different revenue within each payer. We're agnostic on that because we don't know which way it's going to go. On the other hand, you do have different enrollment, and you're seeing a lot of payers talk about their volatility in their enrollment. We're just highlighting that we don't have any particular insight, but rather, it feels like the marketplace is more dynamic at this juncture.

Okay, that is a potentially big enough swing factor that you felt that's fair to call out. I guess in my mind, I don't think about it as being that big of a variable, but it is.

Significance, obviously, is an eyewitness of the beholder, but at the end of the day, there's enough dynamics and enough membership in there that you could see a scenario where it could swing in one direction or another. We wanted to call it out. If you were going to talk about revenue per treatment next year, you have that dynamic, and then, of course, you have open enrollment, which has the dynamic of the premium tax credits that's being discussed right now with the federal government. Those two are just a little more in the air as we speak than in normal years.

All right, that was fair. Thank you.

Speaker 5

That said, Kevin, I think I agree with Javier. We're trying to highlight where there might be variability. That said, I think it is safe to say that commercial mix is a more significant financial swing factor than MA mix.

Okay. Perfect. Thanks.

Speaker 0

Thank you.

Speaker 3

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

Hi. Good afternoon. Appreciate all the color on 2026. Maybe just back on the volume side, you called out the 75 to 100 basis points of discrete items that are not going to recur next year. I guess, you know, is it fair to think of that as a reasonable starting point as we contemplate potential growth for next year? Javier, I think you noted investments in technology, infrastructure, scheduling systems. Are any of those items expected to have a meaningful impact on treatment growth, or is there anything else that you can do in your control to influence the volume environment? Thanks.

Speaker 5

Yeah, Andrew. I'll take the first one. If you were to translate that 75 to 100 bps from 2024 to 2025, I think 2026 over 2025, again, if you're comparing year-over-year growth rates, you're probably looking at a 50 to 75 bps structural improvement in 2026 growth relative to 2025 growth. That comes largely from the flu and the cyber incident. The hurricane is kind of annualizing out and the benefits of that are offset by the fact that there's a small headwind in 2026 over 2025 from day mix. Just as a reminder, 2025 over 2024 had a 20 bps day mix headwind, and 2026 over 2025 has an additional 10 bps headwind. 2027 will be a tailwind.

Speaker 0

When you do all that math and you net it all out?

Speaker 5

When you do all that math and you net it out, if you start with 2025, where we've guided to 75 to 100 basis point decline in volume, I would say from where I'm sitting now, that probably looks like it's going to be closer to 100 basis points. Mistreatment rate is really the culprit around that. Let me use negative 100 basis points as the math for 2025 growth. You would say structurally, you would adjust that to say before all the other dynamics. I'm not giving guidance here. I'm just trying to bridge how to think about the starting point for building 2026. You'd improve that negative 100 basis points in 2025 by 50 to 75. You'd start with kind of an adjusted growth in 2025 of negative 25 to negative 50, off of which to build a 2026 number.

Got it. Do you want to comment on that?

Speaker 0

Thank you, Andrew. For your second question, we are investing in a lot of things. You asked specifically, will it impact volume? The short answer is we don't know specifically a volume, but if you were to expand that question to the P&L, I would say that we are optimistic and we're working hard. Some of the models that we're working on could impact volume. For example, we are working on something that would risk stratify hospitalization. If we can make an intervention that changes hospitalization, that would, of course, impact volume. On the other side, we're doing models to affect the cost structure, things like administrative things in the call centers and revenue operations that can do authorizations in a much more rapid way and more reliable way that would likely get you a higher collection.

Those are a couple of the examples of the things that I highlighted in the opening.

Great. On the premium tax credits, I think the last estimate of the headwind you gave was $120 million over three years. Is that still a good number to think about? Can you comment on your growth in the exchanges and how that's played out throughout the year? Thanks.

Sure. I think that number is still a good number. The reality is, as you know, you have to think about what happens with these extended premium tax credits. The way that we have it thought out is that if they go away, we would lose that $120 million roughly over a three-year period, but it's not evenly spread out. We would have something, our estimates are somewhere like $40 million in year one, $70 million in year two, and $10 million in year three. The reason why it's a little lumpy is because our models divide the population. We assume that our existing patients, because they are in high need of insurance and understand the need for coverage, would be more likely to retain that coverage. Also, in many cases, it is the most affordable option.

That math changes when you grab the second group, which is those patients that yet don't know that their kidneys are going to fail. They're CKD patients, and they might let their insurance lapse. In that case, when their kidneys fail, they would become Medicare patients. Of course, there's a spectrum in there because some of these people in CKD 4 are already pretty ill, and they might opt up for an exchange. When you do all that math, and as you can see, it's full of assumptions, you get into that sort of lumpy 2026, 2027, and 2028. Of course, we're watching with Congress because there's a lot of conversations going on, conversations about some kind of off-ramp, meaning that they change the enhanced tax credits over time. There's also talk about lowering the poverty level to different levels. Of course, there's conversations about doing nothing.

All these assumptions will change depending on what happens.

Speaker 5

Andrew, just on your question on private pay mix, mix is down about 15 bps in the quarter, which I would call normal variability, and year over year, it's flat.

Great. Thanks for all the color.

Speaker 3

Thank you. Once again, if you would like to ask a question, you may press star one. Our next caller is A.J. Rice with UBS. Your line is open, sir.

Thanks. Hi, everybody. Maybe there's an obvious answer to this, but the headline number looks like your operating income for the quarter was about $50 million below the consensus. I know you're saying it was in line with your expectation, and you've not changed the midpoint for the year as to where you think. Is it just a matter of people were mismodeling given the day counts you're referencing for the third and fourth quarter relative to what you were internally thinking, or what is going on there if you have any view?

Speaker 5

Yeah. We don't give quarterly guidance, and we appreciate this can lead to a little bit of a mismatch with the street. I think the best way to explain it is how we're thinking about it, which is if you look at Q4 over Q3, to hit the midpoint of our guide, we'd need about a $60 million uplift in OI. The way we think we get there, and these numbers are all approximate. First, there's the typical headwind from seasonal costs, and we see that both in patient care costs and G&A. I'll call that out as roughly a $30 million headwind. That's offset by three things. First is volume, which is really about a day mix issue. Q3 had a 60 bps headwind on day mix year over year. Q4 has a 60 bps tailwind on day mix, and that's worth about $15 million.

Second is IKC, which is, call it, plus $25 million from Q3 to Q4 to hit the IKC guide we gave at the beginning of the year. The last would be revenue per treatment of, call it, a $50 million pickup. There's some seasonality in that from vaccines and normal rate increases. There's also, I'd say, more than typical variability from resolution of older claims with payers. These happen virtually every quarter. They're hard to predict, both in terms of size and timing. They, I'd say, more often than not are weighted towards Q4, although not every year. For Q4 of 2025, we just expect these to be more favorable than usual.

Okay. That's helpful to explain it, I think. On the cyber attack, and you're taking this charge for the MOZARC relationship, do they have impact on the adjusted earnings? Maybe cyber attack, what was the earnings and volume impact in the quarter that you estimated specifically to that event? The MOZARC charge, it looks like there's some, you were expecting it to be a drag somewhat for next year or two, and now you're taking the charge. Does that eliminate the drag, and is that meaningful in operating earnings?

Let me take these one at a time. First on MOZARC, the answer is the charge will largely eliminate the MOZARC drag on the P&L next year. It doesn't hit the operating income line. It hits the other income line. It's not in our adjusted operating income, but it is in our pre-tax. That's been a significant drag both last year and this year, and it'll get pretty close to zero for next year. In terms of cyber, the big impact was last quarter through both RPT and volume. As we play it forward in Q3 and Q4, the impact goes way down, and it's primarily volume. The cost side of it has been non-GAAP both last quarter and this quarter.

Okay, I'll leave it at that. Thanks a lot.

Speaker 3

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

Good afternoon, guys. One more question on treatment growth. I feel a little bit like a broken record here, I apologize. Can you talk specifically about new patient starts in 3Q and how that changed year over year? Also, in mortality, how is mortality trending in the third quarter versus the first half of the year? Finally, any impact from IOTA on treatment or on new patient starts or treatment growth?

Speaker 5

Peter, the last part of your question, any impact from what? What was I missing there?

It's IOTA, the new bundled system for kidney transplants.

Oh, okay. Yeah. No impact from that. Going back to the original part of your question, I'd say volume for the quarter came in largely as expected, with a little bit more pressure on mistreatments than we expected. Remember, we called mistreatment rate out as elevated in Q2 as a result of the cyber attack. They came down off that peak, but still running higher than in Q3 of 2025. In terms of both admissions and mortality, there's really not a lot new to call out there. Admissions continues to run within the normal band that we've seen post-COVID, and mortality, again, down versus Q1, but that's largely a flu phenomenon. There's really no pattern or trend to call out about mortality either quarter over quarter or year over year.

Okay. Can you talk about the timing of the IKC funds? I think typically they close at the end of the third quarter for the previous calendar year. Is there any changes to the timing of those contracts? Have you already settled some of those funds in October for calendar 2024?

Yeah. The big change on IKC timing for the year was moving some of the revenue from plan year 2024 from what we would have thought would have been the back half of the year, and some of which would have hit in Q3 into Q2. That's why IKC was so strong in Q2, and we called it out as timing. That's really the big thing I would call out. Look, I think timing on IKC will continue to be difficult to predict. A lot of it is a function of when we get information from payers as well as the federal government, and our ability to recognize revenue is really subject to the timing of that, which we don't have control over.

Okay. The implied fourth quarter guidance range is pretty wide. I think it's like $0.80. What would have to happen in order for you to be at the low end versus the high end of guidance? If you're thinking about the midpoint, I think you talked about treatment growth and the tailwind coming from the day mix. What treatment growth should we be modeling to get to the midpoint of the guidance?

In terms of what's driving the range, I would point to both RPT and IKC as the things that probably have the most potential mix there. In terms of treatment volume growth, what you should expect for Q4 is year-over-year volume growth that is positive. Nothing to write home about, you know, 20, 30 bps, somewhere in that range, but positive for the same reason it was so negative this quarter, which is the day mix being a headwind. Next quarter, it's a tailwind, which is why it will drive it positive.

Okay. Last one here, does market share, you know, what do you think the market share has done in 2025 if we exclude the cyber incidents? Thanks.

Yeah. Look, it's a really tough question. The best way to answer that question is U.S. RDS data. You know the latest U.S. RDS data is for Q1 of 2025. It just came out, both Q4 of 2024 and Q1 of 2025. The reality with the quarterly U.S. RDS data is we think the incidents data is more reliable. The prevalence data is less reliable. You put that all together, there's almost no U.S. RDS data to use to really try and predict what's going on with market share.

Speaker 0

If you grab that data as imperfect as it is, and you grab the intelligence that we have in the field, and you make the adjustments for roughly the 1,600 patients that are both impacted by the PD and the cyber outage, we have no reason to see any meaningful shifts in market share.

Great, thanks so much.

Thank you.

Speaker 3

Thank you. Our next caller is Justin Lake with Wolfe Research. Your line is open, sir.

Thanks. Good morning. Joel, good morning. Our growth sounds like it's got to be, you know, about $10 sequentially of improvement. Is that the right ballpark?

Speaker 5

I think it's more like 8.

Okay. How much of that do you think is this collection that we would think of as maybe, you know, non-recurring in the same magnitude? I would.

I called out $50 million of RPT improvement, and that's about $7 of RPT. It is the biggest component of that. I don't want to give an exact size there. This is ranges upon ranges, but it would be more than half, I'd say, is probably a reasonable estimate.

Perfect. You know, the fourth quarter volume assumption, I apologize if I missed it, but did you give a number there in terms of what you're assuming for volume?

Look, you can back into it more or less. On treatment volume, it would be growth of somewhere around 20 or 30 bps. Remember, that's treatment volume. It's not treatments per day. It's not NAG. It would be an absolute year-over-year growth of about 20 or 30 bps.

Okay, thanks, guys.

Speaker 3

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

Thanks. Good afternoon. You mentioned changes in payer mix driving RPT down a bit. Can you give us what the commercial treatment mix was in the quarter, or at least the proportion from or the change from second quarter? Joel, I heard you mention the sequential components in RPT. Appreciate that. Does the 4Q guide assume any sort of positive move in that payer mix?

Speaker 5

I don't think it will be a significant component of it. In terms of where mix is today, it's right around 11%. It was down 15 bps from Q2 to Q3. It went from just above 11% to just below 11%.

Okay. Last thing, I guess over the past year or two, we've seen nice growth in RPT, the binders, of course, but focus on the revenue cycle improvements. I guess where are we at in the lifecycle of those or seeing at least some outsized benefit from those? Javier, I heard you mention some initiatives in your prepared remarks, but just anything on revenue cycle initiatives and improvements would be helpful. Thanks.

Yeah. I would say, you know, some people would ask what inning of the game we're in. I think that's the wrong metaphor. This is a continuous process that I don't think we finish and then we move on. I think there'll be a continuous process for years and years to continue to get better at it. Remember, a 1% improvement in ROPS collections is equal to about $120 million of OI. Even if we can just get 10 or 20 basis points a year, year in, year out, there's real value there. The cyber incident definitely slowed things down there. We're continuing to invest there. As Javier said, AI is an opportunity. Just old-fashioned automation is an opportunity there as well. I would say there's more to be had there.

It's not going to feel like it did in 2023 and 2024, where it was really moving the needle in a big way. I think there will continue to be opportunity there year in and year out.

Okay, thank you.

Speaker 3

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

Speaker 6

Okay. Thank you, Michelle, and thank you for all of your questions. As we wrap up today, I will leave you with four thoughts. First, early in the year, we faced two unexpected challenges with meaningful economic impact. We navigated through those issues, delivered clinical excellence for our patients, and remain on track to achieve our annual guidance. All the while, we continue to invest, creating long-term capabilities. Second, we will continue our disciplined capital allocation strategy, including share repurchases. Third, we provided a few forward-looking thoughts on next year. Although the current dialogue is focused on enhanced premium tax credits, more broadly, we'll be monitoring open enrollment, which is perhaps the biggest variable heading into 2026. Finally, the clinical and operational processes behind middle molecule clearance will take approximately three years to see results. Yet, the potential to enhance patient lives is meaningful and exciting.

Thank you all for joining the call, and be well.

Speaker 3

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