Operator: 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 Second Quarter 2026 Earnings Call. [Operator Instructions] Thank you. Mr. Eliason, you may begin your conference.

Nic Eliason: Thank you, and welcome to our second 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 second 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 may 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.

Javier Rodriguez: Thank you, Nic. Good afternoon, everyone, and thank you for joining the call today. It's been a busy and exciting summer. One exception is that I have to wait another 4 years to root for Mexico to win the World Cup. Moving on to more important topics. Our strategy is coming together, thanks to the amazing work of our teammates and caregivers. Their effort has led to another positive quarter for our patient outcomes and financial results. On today's call, in addition to our second quarter performance, I will focus on recent innovation in the dialysis industry, specifically the clearance of middle molecules and the steps we're taking to elevate the standard of care for our patients. I'll also share our perspective on the recent ESRD proposed rule and close with our guidance for the remaining of the year. But first, as always, I will begin with the clinical highlights. Today, I'd like to reflect on the successful transition of phosphate binders into the Medicare dialysis bundle. With advance notice from CMS, this process began more than 2 years ago with the goal of expanding access to a wide range of therapies for a broader group of patients, and that goal has been achieved. With DaVita's broad formulary, our physician partners now have greater flexibility to prescribe the therapy that's best suited for each patient's needs. This has reduced by more than 50% the number of patients relying on less effective over-the-counter options such as TUMS and instead now are benefiting from clinically preferred therapies. That means more patients are receiving treatments that better manage phosphate levels and help reduce the risk of cardiovascular complications and bone fractures. It's a powerful example of how the right policy, combined with strong clinical execution can expand access to better care and improve long-term patient health. Transitioning to the second quarter performance. Our results were broadly in line with our expectations. Beneath this headline, I'll highlight 2 primary dynamics. First, year-over-year volume growth continued to accelerate, slightly faster than expected, driven by continued improvements in mortality. Second, compared to the first quarter, revenue per treatment declined as we expected, reflecting lower commercial mix from declining ACA enrollment and lower sequential revenue contribution from phosphate binders. Joel will provide more detail on these dynamics and other moving pieces within the quarter. Turning to policy. In late June, as is customary, CMS released the proposed rule for 2027 prospective payment system for ESRD. The proposal includes an update to Medicare base rates and the addition of phosphate binders to the bundled dialysis payment beginning next year. Starting with the base rate. The proposed payment update is more complex than in prior years with methodology changes in various TDAPA-related dynamics. The net result is a rate increase that once again tracks below the cost trends for the industry. We're providing feedback during the rule-making process and remain hopeful the final rule will better reflect the cost of delivering high-quality care. On phosphate binders, we continue to support CMS' approach to moving these medications into the dialysis bundle. In addition to the clinical benefits, the policy is lowering projected government spending. Since the initial transition of these medications, CMS has reduced their estimate for phosphate binder spend by nearly $500 million. We also support concluding the TDAPA period after 2 years. And while the proposed post-TDAPA rate adjustment is appropriate, our ultimate financial impact for 2027 will depend on the bundle update within the final rule later this year. Let me turn to middle molecule clearance and the recent results from the MOTheR clinical trial. As a reminder, the primary objective of dialysis is to remove harmful toxins from the body. Newer therapies can remove a broader range of these toxins known as middle molecules. The goal is to reduce inflammation, cardiovascular complications and mortality while enhancing the patient's quality of life. Achieving these outcomes is a key building block in our expectation of returning to treatment volume growth of at least 2% by 2029. Two approaches, which have been used for many years internationally and are now emerging in the United States, hemodiafiltration, or HDF, which utilizes a specialized dialysis machine and expanded hemodialysis or expanded HD, which is performed with an advanced dialyzer. I will cover 3 things: what the study showed, why it matters and what it means for DaVita going forward. First, the MOTheR trial compared these 2 dialysis therapies head-to-head and demonstrated that expanded HD using medium cutoff dialyzer is non-inferior to HDF on a composite endpoint of all-cause mortality and major cardiovascular events. Why does this matter? First and foremost, it is a great news for our patient. It gives physicians another evidence-based option for middle molecule clearance, allowing them to tailor treatment to the need of individual patients. expanded HD also offers meaningful operational advantages because it can be delivered on our existing dialysis machines, making it faster to expand access without significant capital investment. This brings us to our path forward. We continue to support both HDF and expanded HD and believe physicians should have the flexibility to choose the right therapy for each patient. That said, the recent FDA approval of new expanded HD dialyzer from NIPRO represents an important milestone that should materially improve both market supply and economics. To capture this clinical opportunity, we have secured supply to these expanded HD dialyzers, which are fully compatible with our existing machines and provide highly effective clearance of middle molecules. As a result, we expect to begin deploying expanded HD broadly across our network in the coming quarters. This will allow us to expand access quickly and deliver this option to our patients and physician partners. As we move forward, we'll continue evaluating how both approaches perform across different care settings and patient populations in the real-world practice. I'll wrap up my prepared remarks with our financial outlook for the remaining of the year. With the benefit of another quarter, 3 trends are coming into better focus. First, continued momentum in volume growth; second, greater confidence in our estimate of the impact of effectuation rates for exchange plans; and third, our efforts to provide broad access to middle molecule clearance for our patients. With consideration of these factors, we're reconfirming our full year 2026 guidance ranges. This reflects a midpoint of $2.2 billion for adjusted operating income and a midpoint of $14.65 for adjusted earnings per share. We look forward to continuing our clinical, operational and financial momentum in the back half of the year. I will now turn the call over to Joel to discuss our financial performance in more detail.

Joel Ackerman: Thank you, Javier. I'll begin with the details on our second quarter results and close with some additional color on the remainder of the year. Second quarter adjusted operating income was $579 million, adjusted earnings per share was $4.02 and free cash flow was $256 million. Beginning with U.S. dialysis. Treatments increased 56 basis points versus Q2 of 2025. Treatments per normalized day also increased 56 basis points as there was no impact from the calendar as compared to the same period last year. Volume growth was slightly higher than expected as a result of lower-than-expected mortality, offset by fewer admits from closed Fresenius clinics and higher-than-expected missed treatments. Our confidence in our treatment volume trajectory for the year continues to grow, and we now expect 2026 growth in total treatments near the top end of our previous guidance range of 25 to 50 basis points. As a reminder, our treatment volume expectations are for nominal treatment growth. This would translate to approximately 50 to 75 basis points of growth when normalizing for year-over-year calendar impacts. The calendar impact in the back half of the year will result in a year-over-year tailwind in Q3 and headwind in Q4. Revenue per treatment decreased by approximately $2 sequentially, primarily the result of favorable revenue timing in Q1, lower sequential revenue from phosphate binders and a decline in commercial mix related to the expired ACA subsidies in line with our guidance from last quarter. These RPT headwinds were partially offset by the typical sequential increase from higher patient responsibility amounts in the first quarter and higher average rates. Although year-to-date revenue per treatment has been 3.6% higher than the first half of 2025, we continue to expect full year 2026 RPT growth of 1% to 2%. The midpoint of that range implies that RPT growth in the second half of 2026 will be slightly negative as compared to the second half of 2025. This is a function of declining commercial mix, lower phosphate binder revenue and the benefit in Q4 2025 from the timing of aged claim resolutions. Patient care cost per treatment declined approximately $3 sequentially as a result of operating leverage on labor and other fixed costs driven by increased treatment volume in Q2 and a decline in phosphate binder costs, offset by higher benefit costs. Year-to-date, PCCs have grown more than 3% versus the first half of 2025, above our expected range for the full year growth. Similar to the dynamic in revenue per treatment, we expect year-over-year growth in patient care costs to decelerate in the back half of the year, driven by decreasing phosphate binder expenses and lower year-over-year growth of facility maintenance spend. In other costs, U.S. dialysis G&A increased $11 million versus the first quarter and U.S. dialysis depreciation and amortization decreased by $9 million sequentially. We continue to expect total cost per treatment to grow between 1.25% and 2.25% for the full year. Turning to our other segments. International adjusted operating income was $25 million in Q2, in line with expectations. IKC delivered positive $40 million of adjusted operating income above our expectations for the quarter as a result of timing of revenue earlier in the year than anticipated. We still expect international and IKC growth to contribute approximately $20 million each to full year enterprise adjusted operating income growth. Regarding capital allocation, in July, we closed on our minority investment in Elara Caring, which provides an exciting opportunity to help bring dialysis-tailored home health services offerings to our patients. As a reminder, we invested $200 million and expect Elara to provide a small benefit to other income in 2026, likely mid-single-digit millions. Additionally, we repurchased 2.2 million shares during Q2, an additional 183,000 shares since the end of the quarter. As a reminder, we buy shares from Berkshire Hathaway each quarter pursuant to our repurchase agreement to maintain their ownership near 45%. Our leverage ratio at the end of the quarter was 3.37x consolidated EBITDA, within our target range of 3 to 3.5x EBITDA. Debt expense in the quarter was $152 million. During the quarter, we issued $500 million of incremental debt with proceeds primarily used to repay revolver borrowings. For the full year, we are reiterating our adjusted operating income guidance range with a midpoint of $2.2 billion and our adjusted earnings per share guidance range with a midpoint of $14.65. To help you model the back half of the year, we anticipate a sequential increase in adjusted operating income of $50 million to $100 million from Q3 to Q4, with timing of IKC being the biggest driver. That concludes my prepared remarks for today. Operator, please open the call for Q&A.

Operator: [Operator Instructions] Our first caller is Andrew Mok with Barclays.

Andrew Mok: Despite the growth in treatments, U.S. dialysis OI was relatively flat year-over-year, while lapping a $45 million cyber headwind. So can you help us understand why we didn't see better leverage from the treatment growth and comment on the elevated CPT in the quarter?

Joel Ackerman: Yes, I'll take that, Andrew. So OI for the quarter at the enterprise level was up about 5%. You're right on the RPT dynamic. I think there are a bunch of other moving pieces on the cost per treatment side. So cost per treatment growth is elevated in the first half of the year, similar to RPT. So I think there's a bit of an offset there. And G&A growth continues to grow. It was roughly 10% for the quarter. So those would be the big items that I'd point out in the U.S. dialysis side.

Andrew Mok: Got it. Okay. And maybe on the volume side, there's a lot going on that's impacting volume trends. You spoke to an acceleration in volumes, continued improvement in mortality and the high end of treatment growth for the full year. But when I look at the 2 LDOs reporting together, it looks like same-store treatment growth was negative in the quarter. Is it your sense that industry volumes were negative? Or did smaller chains take market share?

Javier Rodriguez: No. We can't comment on the combined because we obviously don't have visibility to everyone else. But what we can tell you is that our growth is mainly performance clinical -- clinically that expands life, and therefore, you get the volume treatment. And so I can't speak to what's going on in the rest of the industry, but we are gaining that through clinical outcomes.

Joel Ackerman: Yes. And just to build on that, if you think about our performance for the quarter, as Javier said, it's clinically driven, also that's mortality, and admits was largely in line with our expectations.

Andrew Mok: Great. And maybe just last one. On the RPT side, you noted that declined sequentially due to commercial mix and phosphate binders. Can you give us a sequential change in mix and RPT from phosphate binders?

Joel Ackerman: Yes. So mix was complicated this quarter because we saw some coverage updates. Remember, in Q1, the impact of the ACA was lower than we expected, although we were waiting to see what happened with effectuation rates and how that would play through with coverage updates in Q2. Turned out it played out largely as we expected. So if you look at the average mix for the first half of the year, it's in the high 10s and really tracking as we expected, in line with the $40 million headwind that we'd expect for the full year.

Operator: Our next caller is A.J. Rice with UBS.

Albert Rice: Maybe just first question, if you deploy the expanded HD capability, I just want to make sure I understand the way that would impact the economics of the company would be if it results in improved mortality. Is there any other economic implication for you more near term over deploying that?

Javier Rodriguez: Thanks, A.J. I think when you think of the deployment of this new technology, we divide it into sort of 3 categories. The first is clinical, and you know the results of that, and we talked about the studies being encouraging, and you talked about the improvement in mortality. Of course, you also have to put physician preference and what they choose. Then you have to kind of move on to operational. And the experience on this is we've switched dialyzer before. It's simple, and we can do it quickly. And then you have to kind of shift into the supply, and we are now confident that we could get supply. And that leads you to sort of the third one, the financial. And what I would say is that in 2026, it's included in our guidance. When you think of the future for 2027 and beyond, there's several puts and takes. But at the end of the day, it will not be significant.

Albert Rice: Okay. All right. And maybe just a follow-up.

Joel Ackerman: Let me be clear on that. The impact is insignificant until the mortality benefit kicks in. And that's when you'd see a positive economic impact. We wouldn't expect the positive mortality impact to start until 2028. There is a delay from when the new dialyzers are put in place until you see it.

Albert Rice: Okay. Interesting. Okay. I think in the prepared remarks, you did mention there was a little bit of elevated missed treatments. You also mentioned you didn't pick up as much as you expected from the Fresenius closures. I don't know whether there's anything to expand on there. It's just normal ebb and flow with respect to the missed treatments, but I wanted to just give you a chance if there was some more color there.

Joel Ackerman: Yes. Look, we're really parsing some pretty small numbers here in trying to bridge 10 or 15 basis point changes. Nothing major on the missed treatment rate side. And in terms of the Fresenius closures, it's probably 5 basis points of less positivity than we were expecting on the year. So again, a pretty small numbers, nothing big that I'd call out.

Operator: Our next caller is Justin Lake with Wolfe Research.

Justin Lake: Appreciate it. Can you -- first, just Joel, I want to make sure I have the numbers right here. For -- you said $75 million or $50 million to $100 million increase in OI from 2Q to 3Q. Is that right?

Joel Ackerman: No, no. That's about the phasing in the back half of the year. So we would expect Q3 to be $50 million to $100 million lower than Q4.

Justin Lake: That makes a lot more sense than what I thought I understood, okay. Great.

Joel Ackerman: Just to explain that, that's largely driven by IKC.

Justin Lake: Got it. And then you talked about mortality being a little better. Can you run us some of the numbers behind what you're seeing there?

Joel Ackerman: Yes. I don't think we're going to call out quarterly mortality fluctuations. What I can say is the improvement is sustained. So we've seen it over a number of quarters now. It fluctuates. It was significantly better in Q1, which is what you'd expect because you have the flu dynamic there, but we continue to see improvements in Q2 as well.

Justin Lake: And what you're saying here is that your new patient starts are relatively flat, and all the growth is coming from mortality improvement. Is that the way to think about it?

Joel Ackerman: I think what we're saying is the benefit in the quarter relative to expectations was all mortality. It was actually mortality and then some because missed treatment rate came in a little worse than expected, and admits was in line with expectations.

Operator: Our next caller is Pito Chickering with Deutsche Bank.

Pito Chickering: So the first one is looking at the revenue per treatment and the commercial mix. You said it was like the high 10s and now you're seeing the impact of the $40 million that you've assumed. Can you walk us through the process of those patients that are transferring from HIX on to government? Are you seeing new patients come in and go on government before they go into HIX? Or are you seeing HIX patients drop coverage? And do you see that mix change throughout the quarter? Did it start the same as the ended? Or did it change through the quarter?

Joel Ackerman: So we're seeing both in terms of patients dropping coverage. We think the more sustained dynamic that we're expecting through the rest of the year and into next year would be the new admits coming in at a lower commercial mix because of a lower QHP mix. So hard to predict exactly how it's going to play out, but we would expect that number to sustain itself through some part of next year. And that's what leads to the $40 million impact and then the $70 million impact next year. The $70 million impact is a combination of the anniversary effect or the annualizing effect of the mix loss in 2026 that happened through the year, plus some additional mix loss in '27. But again, largely the result of the new patient mix coming in lower.

Pito Chickering: Can you remind us what the current occupancy of your centers are sort of where it was pre-COVID, and thinking about the pure variable costs in patients showing up, kind of what is that? I'm just trying to figure out the sort of fixed cost leverage here of the business if you [ SMCs ] keep on increasing treatment growth throughout the year.

Joel Ackerman: Yes. So the capacity utilization is running in the high 50s now. It's been relatively steady for a number of years. If you went back pre-COVID at its peak, it ran about 65%. The question of fixed costs is a hard one because some things are fixed in the short term and less fixed in the long term. Also, the marginal profit of a patient depends on which patient it is. If it's a Medicare patient that has longer mortality, you'll get less marginal economics than adding a new commercial patient. So it's a hard number to pin down. It really depends on the situation you're trying to model.

Pito Chickering: Okay. And then last one here. Can you refresh us on sort of leverage ratios, kind of what -- the stock trading at these levels, kind of what do you think the right leverage ratio is for you guys to be running at?

Javier Rodriguez: Yes. We have not changed our view on that. And so we've given a range, and we are now at 3.37 for the quarter, and we had drawn down $65 million on our revolver.

Operator: [Operator Instructions] Our next caller is Kevin Fischbeck with Bank of America.

Kevin Fischbeck: I was wondering the change in the expectation from Fresenius, is that just what you experienced in the quarter? Or have you also changed your expectation for how much you'll pick up from them during the year?

Joel Ackerman: Yes. So that was -- is very specific to the 100 clinics that they called out, I guess, last quarter that they were going to be closing. To the best of our understanding, they are done with that effort. And so the pickup is done. I don't expect that to change at all over the course of the year. This had nothing to do with any of the other volume dynamics that they've been talking about over the last 24 hours. This was purely about the 100 clinics they closed.

Kevin Fischbeck: Okay. And then as far as the HD dialyzers, so just to be clear because I think you just said you've got a supply of that. So you have secured enough to completely transition all of your facilities over to that next year? Or is it just a portion of facilities next year or within the next year?

Javier Rodriguez: We've got enough supply to transition as many as the doctors demand. And so we obviously don't think it will happen in 1 day or 1 week. It will take a little bit of time as the science gets rolled out, but we do have enough capacity to fulfill all the demand.

Kevin Fischbeck: Okay. And then can you talk a little bit about the IKC business? Obviously, you've talked about $20 million improvement this year. Can you just remind us, I guess, based upon where you think the margins in that business can get to, how many more years of adding, call it, 1% to OI growth can -- if that business steadily improves, can that add? Is this something that can happen over the next 2 years, 5 years? How should we think about that?

Joel Ackerman: I don't see any reason it couldn't continue for a while. It's -- again, it isn't purely a margin play. There's also a volume question of increasing the number of lives and the number of dollars under management. And I could see that continuing to grow and that being as important, maybe more important of a driver than margin expansion. So I think we've got a lot of room to run.

Javier Rodriguez: Yes. I think you should think of it as a maturing business that requires a lot of coordination between nephrologists, clinics and our teams. And so as that matures and we evolve our model of care and our health evaluations and all that goes into it, we hope that there's improvement that can be sustained over time.

Kevin Fischbeck: Okay. And maybe just last question then on that. So what has been driving that this year? Is that a function of improved medical expense? Is it growth in G&A leverage? What's driving the growth this year?

Javier Rodriguez: Well, right now, it's just timing on revenue recognition. But as we look out, we're getting a bit more confident in our ability to manage the total care cost. And so we're getting a little more confidence there, coupled with we want to continue to grow the business, as Joel said, which means more contracts with MA.

Operator: Our next question comes from Ryan Langston with TD Cowen.

Ryan Langston: On the share repurchase, I think you've only repurchased about 0.2 million since the end of June. Obviously, nice to see the stock price move this year, but does the move change your capital allocation priority such that we might see a little bit less share repo through the rest of the year?

Javier Rodriguez: No. I think what you want to think about is more -- our capital allocation and our view on buybacks has been absolutely consistent throughout the year. This particular calendar year, we were heavy on the front end. In Q1, we purchased a fair amount. And so we are in a good spot year-to-date at [ $785 million. ] And you saw where our leverage rate was at 3.37. And you have to remember, we knew that Elara Caring was going to close in July, and that was $200 million of cash. So it's very consistent, and there is no change in our view of buyback.

Ryan Langston: Okay. And then any updates on what you're seeing on the M&A side? Is that still primarily focused on international? Or are there more domestic-based assets like maybe IKC that you'd consider taking to market?

Javier Rodriguez: There's still onesies and twosies out there, small clinics, but the reality is that the United States is pretty consolidated now. The growth will come more through de novos as the industry starts to grow. And this year, we've had a couple of acquisitions, and we will continue to look at them, but there's not that many out there.

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

Javier Rodriguez: Okay. Thank you, Michelle, and thanks, everyone, for joining the call today. As we wrap up, I'll leave you with 3 final thoughts. First, the year is tracking in line with our expectations. Second, I hope you heard in our voice, our clinical strategy is gaining traction. This means improved mortality and extending life for more of our patients. And because our clinical and financial objectives are so aligned, this progress directly supports our volume growth. Finally, by delivering new middle molecule technology to our patients and physicians, we're advancing the standard of care to sustain our clinical and financial momentum into the future. Thank you for joining the call today, and we look forward to speaking to you next time.

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