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DI

DAVITA INC. (DVA)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 delivered solid execution: revenue rose to $3.380B, adjusted EPS reached $2.95, and operating margin expanded to 16.3% adjusted, despite a cybersecurity event that pressured revenue per treatment and volumes .
  • Versus S&P Global consensus, DVA modestly beat on revenue ($3.380B vs $3.363B*) and delivered a clear beat on adjusted EPS ($2.95 vs $2.75*); EBITDA was roughly in line/slightly below ($705M actual vs $708M*). Bold drivers were cost control and labor productivity even as binders’ dispensing volumes ran below expectations .
  • FY25 guidance was reaffirmed: adjusted operating income $2.01–$2.16B, adjusted EPS $10.20–$11.30, free cash flow $1.0–$1.25B, highlighting resilience despite the cyber incident and elevated mistreatments .
  • Management maintained long-term confidence in 3–7% adjusted OI growth path, pointing to cost efficiencies, systems investments, and steady IKC development (with Q2 IKC OI benefitting from ~$40M timing) .
  • Capital allocation remained active: $1.0B of 6.75% senior notes issued; 3.1M shares repurchased in Q2 at $144.00, and a further 2.7M post-quarter at $141.68, underlining balance sheet flexibility and shareholder return priorities .

What Went Well and What Went Wrong

What Went Well

  • Cost discipline and labor productivity drove patient care costs per treatment down sequentially by ~$3.5, expanding adjusted operating margin to 16.3% despite volume pressure .
  • Adjusted EPS beat consensus and revenue modestly exceeded expectations; management reaffirmed FY25 adjusted OI, EPS, and FCF guidance ranges, signaling confidence in execution amid transient headwinds .
  • Strategic progress and future clinical innovation: CEO emphasized opportunities from AI and next-gen devices (HDF, advanced dialyzers) with potential to improve outcomes—“Breakthrough technologies from advanced IT systems to the transformative power of artificial intelligence are positioned to help us personalize care…” .

What Went Wrong

  • Cybersecurity incident created revenue-cycle frictions (e.g., prior authorizations/data-gathering), elevating mistreatments and lowering RPT versus expectations; CFO sized RPT/cyber impact at ~$40–$50M .
  • Phosphate binders dispensing volumes were below plan, weighing on RPT and PCC mix; adherence challenges and OTC alternatives reduced script counts despite neutral net OI expectations for binders (~$50M for FY25) .
  • Volume trajectory revised: total treatment growth outlook cut from down ~50 bps to down 75–100 bps for FY25, with mistreatments assumed flat YoY in H2; mortality remains elevated relative to pre-COVID levels .

Financial Results

Consolidated Performance (Quarterly)

MetricQ4 2024Q1 2025Q2 2025
Revenue ($USD Millions)$3,294.7 $3,223.5 $3,379.5
GAAP Diluted EPS ($)$3.09 $2.00 $2.58
Adjusted Diluted EPS ($)$2.24 $2.00 $2.95
Operating Income ($USD Millions)$565 $439 $538
Operating Margin (%)17.2% 13.6% 15.9%

Segment Revenues ($USD Millions)

SegmentQ4 2024Q1 2025Q2 2025
U.S. Dialysis$2,888 $2,823 $2,913
Integrated Kidney Care (IKC)$166 $105 $152
Other U.S. Ancillary$6 $7 $8
International$258 $302 $325
Eliminations$(23) $(14) $(20)
Total$3,295 $3,224 $3,380

Segment Operating Income ($USD Millions)

SegmentQ4 2024Q1 2025Q2 2025
U.S. Dialysis$496 $476 $523
IKC$26 $(29) $26
Other U.S. Ancillary$(3) $(4) $(5)
International$76 $30 $36
Corporate Admin$(29) $(34) $(42)
Total$565 $439 $538

KPIs

KPIQ4 2024Q1 2025Q2 2025
Average Treatments/Day91,786 91,793 92,131
Per Day YoY Change (%)(0.8)% (0.4)% (1.1)%
Revenue per Treatment ($)$395.87 $400.14 $404.58
Patient Care Costs/Treatment ($)$264.60 $271.77 $268.36
G&A per Treatment ($)$43.44 $40.15 $43.43
D&A per Treatment ($)$21.62 $22.28 $21.82
U.S. Receivables ($USD Millions)$1,615 $1,722 $1,838
DSO (Days)52 55 58
IKC Risk-Based Patients70,400 62,100 64,400
IKC Annualized Risk-Based Spend ($USD Millions)$5,501 $5,200 $5,300

Q2 2025 vs S&P Global Consensus

MetricActualConsensusDifference
Revenue ($USD Millions)$3,379.5 $3,363.1*Beat by ~$16.4M*
Adjusted Diluted EPS ($)$2.95 $2.75*Beat by ~$0.20*
EBITDA ($USD Millions)$705.2*$707.9*Slight miss (~$2.7M)*

Values retrieved from S&P Global.*

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted Operating Income ($USD Millions)FY 2025$2,010–$2,160 $2,010–$2,160 Maintained
Adjusted Diluted EPS ($)FY 2025$10.20–$11.30 $10.20–$11.30 Maintained
Free Cash Flow ($USD Millions)FY 2025$1,000–$1,250 $1,000–$1,250 Maintained
Effective Tax Rate on Adjusted Income (%)FY 2025Not quantified (framework provided) Not quantified (framework provided) N/A

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4’24, Q1’25)Current Period (Q2’25)Trend
Cybersecurity IncidentNo material mention Q4’24; Q1’25 noted incident and potential impacts ~$13.5M discrete costs excluded from adjusted OI; elevated mistreatments; RPT below plan; limited ongoing adjusted impact expected Transient operational impact; remediation complete; lingering volume/mistreatment assumption
Phosphate Binders in ESRD PPSBecame effective Jan 1, 2025; boosted RPT YoY Lower-than-expected dispensing volumes; adherence/OTC alternatives noted; net OI effect ~+$50M for FY maintained Initial tailwind moderated by volume/adherence dynamics
Volume/Mortality/MistreatmentsQ4’24: capacity closures; mortality elevated vs pre-COVID FY25 treatment growth cut to down 75–100 bps; mistreatments assumed flat YoY in H2; mortality elevated nationally Volume headwinds persist; cost offsets mitigate
IKC and Value-Based CareIKC OI variable; patient count adjusted Q2 IKC OI $26M; ~$40M revenue timing; FY25 IKC OI ~$(20)M guide reaffirmed Timing variability; steady build
CMS ESRD Proposed RuleRate update normalizes annually 2026 proposed ~2% rate increase; below provider inflation; final later in year Modest rate tailwind; inflation gap remains
Technology/AI & Middle-Molecule ClearanceOngoing OpEx, IT investments CEO highlights AI and HDF/dialyzers; monitoring CONVINCE and Spain “MOTHER” studies; pragmatic adoption path Early-stage; potential multi-year clinical benefit

Management Commentary

  • “Adjusted operating income and adjusted earnings per share came in slightly ahead of our expectation… strong performance in patient care costs more than offset cyber related weakness in revenue per treatment and volume.” — CEO Javier Rodriguez .
  • “Second quarter adjusted operating income was $551,000,000… US treatments per day declined 1.1% versus 2024… RPT increased ~$4.5 sequentially… PCCs per treatment declined by ~$3.5.” — CFO Joel Ackerman .
  • “We’re reaffirming guidance… adjusted operating income of $2,010,000,000 to $2,160,000,000 and adjusted EPS $10.20 to $11.30 despite the negative impact of the cyber incident.” — CEO Javier Rodriguez .
  • “Breakthrough technologies… and AI… plus new drug classes like GLP-1s and SGLT-2s… offer potential to extend life and ease recovery from dialysis.” — CEO Javier Rodriguez .

Q&A Highlights

  • Volume and mistreatments: Cyber elevated mistreatment rates in April–May; assumption updated to flat YoY in H2, lowering total treatment growth to down 75–100 bps for FY25 .
  • RPT impact from cyber: CFO estimates ~$40–$50M reduction due to manual processes/prior authorization/data issues reducing claim yield; expected contained to Q2 .
  • Binders adherence/mix: Lower scripts and adherence; some patients use OTC or external supply; net OI effect for binders unchanged at ~$50M for FY25 .
  • IKC timing: ~$40M revenue recognized earlier for 2024 plan-year shared savings; neutral to full-year; FY25 IKC OI guide ~$(20)M reiterated .
  • FCF catch-up: H2 expected stronger as cyber slowdown reverses and cash taxes improve .

Estimates Context

  • Q2 2025 beat on adjusted EPS ($2.95 vs $2.75*) and revenue ($3,379.5M vs $3,363.1M*), with EBITDA near consensus ($705.2M* actual vs $707.9M*). The beats were driven by improved PCC productivity and labor retention; misses tied to cyber-driven RPT yield and binders volumes .
    Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Cost execution is the near-term alpha: margin resilience from productivity and retention offsets volume/RPT headwinds; watch sustainability into H2/H1’26 .
  • Guidance reaffirmation is a key stock support: adjusted OI/EPS/FCF ranges maintained despite cyber and mistreatments; short-term sentiment positive on operational resilience .
  • Cyber impact looks transient; monitor claim yield normalization and RPT trajectory in Q3 as systems stabilize .
  • Binders tailwind moderated by adherence; operational and patient-engagement levers needed to capture intended bundle economics without diluting OI .
  • Volume outlook reset (down 75–100 bps) and elevated mortality are the medium-term hurdles; clinical innovation (HDF/dialyzers) and GLP-1/SGLT-2 adoption could be multi-year solutions .
  • Balance sheet/capital returns remain robust: $1.0B notes issuance, leverage 3.34x LTM EBITDA, and continued buybacks (5.8M shares Q2+post-quarter) provide flexibility and EPS support .
  • Policy backdrop: CMS 2026 ESRD proposed ~2% update implies ongoing inflation gap; investors should model rate sensitivity and payer mix stability (MA neutrality) .

Additional Context: Press Releases in Q2 2025

  • Debt financing: Upsized/priced $1.0B senior notes at 6.75% in May; proceeds used to repay revolver and for general corporate purposes .
  • KCC model: DaVita supports CMMI’s extension; continued expansion of KCEs and value-based arrangements strengthens IKC positioning .

Non-GAAP and Other Notes

  • Q2 2025 adjusted EPS excludes ~$13.5M of cyber-related charges; free cash flow reconciliation reflects distributions to noncontrolling interests and capex classifications .
  • Effective tax rate on adjusted income was 25.5% in Q2; GAAP effective tax rate on DVA income was 31.9% .
  • Share repurchases: 3.1M shares for $446M in Q2; additional 2.7M for $393M through Aug 1 .