DAVITA INC. (DVA)·Q1 2025 Earnings Summary

Executive Summary

• Q1 2025 delivered a revenue beat and slight EPS miss vs consensus: revenue $3.224B vs $3.207B estimate, EPS $2.00 vs $2.02 estimate; management reaffirmed FY25 guidance for adjusted operating income, adjusted EPS, and free cash flow . Values marked with * are from S&P Global estimates.
  Revenue: $3.224B ; EPS: $2.00 ; Guidance: AOI $2,010–$2,160MM, adj. EPS $10.20–$11.30, FCF $1,000–$1,250MM .
  Consensus: Revenue $3,206.9MM*, EPS $2.019*.
• Operating income of $439MM and margin 13.6% compressed sequentially on higher patient care costs per treatment ($271.77) while U.S. revenue per treatment improved to $400.14, supported by the inclusion of oral phosphate binders in the ESRD PPS bundle .
  OI $439MM; OI margin 13.6% ; RPT $400.14; Patient care costs/treatment $271.77 .
• Management flagged short‑term volume headwinds (severe flu season, January/February storms, and a brief April admissions impact from a cybersecurity incident) but reiterated FY25 guidance as phosphate binders profitability and international performance offset headwinds .
  Volume decline expectations (~50bps for FY25) and offsets noted .
• Capital allocation remained aggressive: DaVita repurchased 3.7M shares in Q1 ($550MM) and 1.7M more post‑quarter through May 12; leverage ratio rose to 3.27x. On May 20, the company upsized a new $1.0B 6.750% senior notes due 2033 to refinance revolver borrowings and for general corporate purposes (including buybacks) .
  Repurchases: 3.7M ($550MM) in Q1; 1.7M ($259MM) post‑quarter . Leverage ratio 3.27x . $1.0B notes at 6.750% .
• Potential stock reaction drivers: reaffirmed FY25 guidance despite temporary cyber/flu headwinds, RPT tailwinds from binders (upper end of +$0–$50MM OI), and front‑loaded buybacks; risks include IKC volatility (Q1 OI loss of $29MM) and ongoing policy uncertainty around premium tax credits ($75–$120MM cumulative OI impact over three years) .
  IKC OI $(29)MM ; premium tax credits cumulative impact range .

What Went Well and What Went Wrong

What Went Well

• Revenue beat on strong U.S. revenue per treatment and initial profitability from phosphate binders; management now expects binder contribution toward the upper end of the prior $0–$50MM operating income range: “we now expect the full year operating income contribution from phosphate binders to be at the upper end of our previous guidance range” .
• International segment outperformed sequentially with OI of $30MM vs $76MM in Q4 that included a Brazil reserve; management indicated an additional ~$10MM year‑over‑year uplift and positive momentum from recent Latin America acquisition .
• Capital returns and liquidity management: $550MM Q1 repurchases at ~$148.94/share plus $259MM post‑quarter; leverage ratio at 3.27x within target; subsequent $1.0B notes issuance supports refinancing and buybacks .

What Went Wrong

• U.S. treatment volume softness: treatments per day declined 40bps YoY; management revised FY25 treatment expectations down ~50bps due to severe flu season, storms, and a brief admissions impact from the April cyber incident .
• Margin compression: operating margin fell to 13.6% (from 17.2% in Q4) as patient care cost per treatment rose $7 sequentially (largely binders), partially offset by RPT up $4 sequentially (binders added ~$10; co‑pays/deductibles seasonality −$5) .
• IKC loss and lower IKC lives: IKC OI loss of $29MM, with risk‑based lives down to ~62,100 (from 70,400 in Q4) due to attribution mechanics and discipline amid aggressive competitor pricing; management still targets longer‑term profitability trajectory .

Financial Results

Quarterly Consolidated Metrics

Revenue and EPS vs Wall Street Consensus (S&P Global)

Values marked with * are from S&P Global.

Year-over-Year Comparison (Q1 2024 vs Q1 2025)

Segment Operating Income

KPIs

Guidance Changes

Management reiterated that cyber incident costs will be split between non‑GAAP‑excluded direct costs (largely insurance‑covered) and indirect costs included in guidance .

Earnings Call Themes & Trends

Management Commentary

• “Our strong first quarter performance demonstrates the stability and consistency of our operating model” — Javier Rodriguez, CEO .
• “We now expect the full year operating income contribution from phosphate binders to be at the upper end of our previous guidance range of 0 to positive $50 million” — Javier Rodriguez .
• “We are reiterating our full year adjusted operating income and earnings per share guidance… the increase in our forecast for profitability of orals in the bundle give us confidence” — Joel Ackerman, CFO .
• On the cyber incident: “We provided uninterrupted dialysis care… all of our major systems… are up and running. We expect the majority of the costs… will be onetime items recognized in the second quarter” — Javier Rodriguez .

Q&A Highlights

• Volume guidance cut (~50bps) breakdown: >50% due to Q1 flu‑driven census decline; remainder split between Q1 mistreatment rate and ~500 admissions lost during two weeks in April from cyber incident .
• Cyber costs treatment: direct costs will be excluded from non‑GAAP and largely insurance‑covered; indirect costs flow through P&L and are included in guidance .
• Phosphate binders mix: greater‑than‑expected prescriptions of iron‑based binders; mix likely stable per physician feedback; binder impact lifts RPT and costs per treatment .
• Revenue per treatment (RPT) outlook: FY25 guide unchanged (4.5%–5.5%); roughly half from core increases and half from orals .
• IKC lives and profitability: decline in lives largely due to better prediction of retroactive attribution rules; disciplined approach amid aggressive competitor pricing; breakeven trajectory intact .
• International: continued strength and favorable performance across markets; ~+$10MM YoY incremental in Q1 .

Estimates Context

• Q1 2025 results vs consensus: revenue beat and EPS slight miss.
  Revenue: Actual $3,223.5MM vs $3,206.9MM estimate*; EPS: Actual $2.00 vs $2.019 estimate*; number of covering estimates: 4 for revenue and EPS*.
• Implications: modest EPS miss likely driven by higher patient care costs per treatment and seasonality, while revenue benefited from binders; reaffirmed FY25 guidance suggests limited need for near‑term estimate cuts, with binders and international supporting offset to volume/cyber headwinds .

Values marked with * are from S&P Global.

Key Takeaways for Investors

• Revenue beat with RPT tailwinds from phosphate binders; EPS slight miss as costs per treatment rose; guidance reaffirmed for AOI, adj. EPS, and FCF — constructive set‑up despite temporary headwinds .
• Near‑term volume softness (flu/storms/cyber admissions) is transitory; management expects a return to ~2% volume growth over time, though timing is uncertain .
• Binders now expected at upper end of +$0–$50MM OI contribution for FY25; RPT guidance 4.5%–5.5% intact — a meaningful lever for margins as mix stabilizes .
• International momentum and LATAM acquisition execution add diversification; sequential OI strength plus ~$10MM YoY uplift in Q1 .
• Aggressive, front‑loaded buybacks and $1.0B 6.750% notes enhance capital deployment flexibility; leverage at 3.27x remains manageable within covenants .
• IKC remains strategically important but volatile intra‑year; losses in Q1 were expected seasonally, with attribution mechanics affecting reported lives; disciplined contracting should support long‑term breakeven goals .
• Policy watch: premium tax credits represent a manageable multi‑year headwind ($75–$120MM cumulative OI), while tariffs/Medicaid not expected to be material near term; monitor regulatory updates (KCC model extension supportive for VBC) .