Good evening. My name is Jordan, and I will be your conference facilitator today. At this time, I would like to welcome everyone to DaVita's Third Quarter 2023 Earnings Call. Today's conference is being recorded. If you have any objections you may disconnect at this time. Thank you. Mr. Eliason, you may begin your conference.

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 Rodriguez, our CEO; Joel Ackerman, our CFO; and Dr. Jeff Giullian, our Chief Medical Officer. Please note that during this call, we will 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 Rodriguez.

Thank you, Nic. And thank you all for your interest in DaVita. We delivered another strong quarter. We began the year by making progress earlier than expected across many of our key operating priorities and that momentum has continued into the third quarter. We have balanced a strong focus on near-term operating discipline while continuing to invest for future growth. At the same time, we're creating a differentiated experience for our teammates, and of course, delivering the highest standard of care for our patients. Today, I will address our outperformance in the third quarter, share a perspective on the potential impact of GLP-1 drugs, provide an update on 2023 guidance, and then wrap up with some thoughts on next year. Before we get into third quarter details, I'd like to start as I always do with a clinical highlight. This time, I will highlight our international business, which provides care for more than 40,000 patients across 11 countries. Each country is unique in terms of health status, local methods of practice, and regulation. Over the past 5 years, we have developed universal protocols to combine our kidney care experience with local practices within each country. Since launching this proprietary framework, we have seen consistent and meaningful improvement in clinical outcomes. We now outperform the clinical benchmarks of every international market in which we operate. At the aggregate level, all-cause patient mortality across our international countries has dropped by 20% since 2020. These results energize the soul of our company, which is to extend life and improve the quality of life of our patients. Transitioning to our financial performance, we had a strong third quarter, delivering adjusted operating income of $525 million and adjusted earnings per share of $2.85. This was ahead of our expectations for the quarter. We continue to perform well across our key operating metrics, and also had additional benefit related to seasonality and timing. Now, let me go to the next level of detail and highlight three drivers including patient census, patient care costs, and integrated kidney care or IKC. First, our patient census has remained steady following the growth we saw in the first half of the year. And we expect to end the year with a census of 1,500 to 2,000 patients higher than the end of 2022. Mortality continues to decline in 2023 in line with our expectations. Assuming these trends continue, we expect to return to positive volume growth in 2024 and beyond. Second, patient care costs continue to decrease during the third quarter. Outside of the seasonal items, the conversion to Mircera for anemia management was the key driver of the decrease. That said, wage growth remains above historical trends and exceeds growth in revenue per treatment, but was below our expectations for the quarter. Our experience on labor is consistent with recent macroeconomic trends. The tight labor market and low unemployment have continued to put pressure on retention and training, offset by slight easing in the wage environment. Finally, our IKC business had a strong quarter and is tracking ahead of our forecast for the year. We are improving patient health outcomes and reducing the total cost of care, which generates savings that are shared between DaVita and our partners. We also realized revenue associated with these savings earlier in the year than anticipated. We continue to invest in growth while carefully managing our model of care costs and we remain on track with our multiyear plan to achieve breakeven by 2026. Transitioning to a topic of recent focus, there's been a lot of discussion on GLP-1 drugs, including speculation on their potential impact on the dialysis growth rate. We are excited by the evidence that these drugs could improve the health of many people worldwide. That said, despite the evolving body of evidence about the positive impact these drugs will have on obesity, diabetes, and cardiac disease, we continue to believe that the impact on dialysis volumes will be limited. We believe this is true even if results from near-term clinical trials prove to be positive in regards to the progression of chronic kidney disease. To explain our perspective, it is important to segment the population based on disease state. In the group that is upstream from CKD Stage 3, it is intuitive that lower obesity should lead to lower incidence of diabetes and hypertension, lower incidence of chronic kidney disease, and ultimately fewer people on dialysis. This thesis is built on many uncertainties within a progressive disease, but the one area where we can have clarity is in regards to timing. In this population, the progression to end-stage renal disease is typically 15 to 20 years or longer. Suffice to say, this scenario is beyond the horizon of our strategic plan. Now, turning to the late-stage CKD population. We believe that there are four key factors. First, the GLP-1 adoption rate in the CKD population. Second, the impact on CKD progression. Third, the offset impact of cardiac mortality benefit, and finally, the impact on payer mix due to any changes in the average patient age. For the purpose of building a conservative forecast, we assume robust adoption and long-term adherence, supported in part by the possibility of strong uptake by those who may take GLP-1s for obesity rather than for the CKD benefit. We also looked at a wide range of possible clinical impacts from current and future clinical trials. Stimulating across these assumptions, the midpoint of our model reflects a neutral impact on 10-year dialysis growth rates with a small, but immaterial impact on payer mix. We recognize this may not sound intuitive, which is why we must consider several misunderstood characteristics about kidney disease. If we look at the approximately 16 million people in the U.S. today with CKD Stage 3 and beyond, over the next 10 years, approximately 75% will pass away before reaching end-stage kidney disease. This compares to less than 10% of those individuals who will ultimately progress to dialysis. Since major adverse cardiac events are the single largest cause of this mortality, the positive impact of reduced cardiac events has a much larger population to influence than the effect of timing from slower disease progression. To better quantify the downside case on dialysis growth, we also modeled the scenario in which efficacy is found across all kidney endpoints in each of the flow and select trials with zero offsetting cardiac mortality benefits. This scenario, which should be clear is not something we expect, reflects a 0.5% annual growth headwind over the same 10-year period based on our model. This would equate to approximately $25 million of operating income headwind per year. Let me wrap up by acknowledging the disconnect between our view and what we believe is the market's perspective. To be clear, the disconnect is not related to the popularity of GLP-1 or their numerous health benefits, but specific to the impact on kidney care. Because of this, we have pressure-tested our analytics with external epidemiologists and consultants with extensive review available research, and across a wide band of assumptions. We are focused not on the midpoint, but on the downside scenario on volume, and incorporated possible financial headwinds from lower commercial mix. In the end, our conclusion, based on what we know today, is that strong adoption of these drugs will not prevent us from achieving our long-term operating income growth targets in the next 10 years. This is a complicated topic, and we're happy to elaborate or answer any questions on our assumptions. Transitioning topics. Looking forward to our fourth quarter, we are revising our 2023 adjusted operating income guidance range of $1.565 billion to $1.675 billion to a new range of $1.65 billion to $1.725 billion. We are also updating our adjusted earnings per share range from $7 to $7.80 per share to a new range of $7.80 to $8.30 per share. It's too early to give guidance for next year, but we expect 2024 to be a year of positive growth in volume and adjusted operating income. Despite continued cost pressures and our ongoing commitment to invest in our teammates, we expect the midpoint of our 2024 adjusted operating income guidance to fall within our long-term target growth rate of 3% to 7%, driven by continued progress on our operating initiatives. We will provide more detail during our fourth quarter call. With that, I will now turn it over to Joel to discuss our financial performance and outlook in more detail.

Thanks, Javier. I will walk through the strong performance in the quarter, provide some detail about how we are thinking about the fourth quarter, and give an update on capital deployment. Starting with volume, Q3 was in line with our expectations. U.S. dialysis treatments per day and census were approximately flat to the second quarter. For the first time since the pandemic began, we've now experienced three sequential quarters of year-over-year growth in admits. The trailing 12 months mortality rate continues to decline, and we are now approaching pre-pandemic levels of mortality rate as we once again improved quarter-over-quarter. Revenue per treatment was up $3.60 versus Q2. This increase was the result of continued improvements in our revenue cycle performance as well as normal contracted rate increases and an uptick in private pay mix. For the full year, we expect to be near the top end of the 2.5% to 3% year-over-year RPT range that we shared last quarter. Looking ahead to 2024, the Medicare PPS final rate for ESRD was released last week. Despite CMS acknowledging that the 2022 forecast error was larger than originally calculated, the net rate update finalized for 2024 was only 2.1%, which is still below what we believe is appropriate given continued forecasting errors, current inflation, and other rising costs. That said, we continue to find ways to expand margin despite RPT increases below current inflation trends. Non-GAAP patient care cost per treatment was down $2.30 sequentially. As Javier mentioned, this was the result of a number of items, including the conversion to Mircera for anemia management. In IKC, quarter-over-quarter results improved by $50 million due to two factors. First, we recognized approximately $45 million more of shared savings revenue in the third quarter than in the second quarter. It is important to note that this is higher than our forecast, but the difference is primarily timing, as we had anticipated this revenue in the fourth quarter. The second factor is we had $15 million of positive adjustments from reconciliations from our Special Needs Plans in the quarter. These revenue increases were offset by approximately $10 million of higher costs. Because of the concentration of the shared savings revenue in Q3, we are forecasting a decline in IKC operating results in Q4 compared to Q3. As we have said in the past, results in the IKC business are likely to be somewhat volatile from one quarter to the next. So focusing on annual results remains the better way to understand our performance. Our IKC business continues to make progress, and we now expect a full-year 2023 IKC adjusted operating loss of approximately $110 million, which is slightly ahead of our prior 2023 guidance. Turning to Q4, our updated operating income guidance implies fourth quarter adjusted operating income of $380 million, a sequential decline of approximately $145 million. The vast majority of the delta is due to two factors: IKC and seasonality. In IKC, fourth quarter results will be lower due primarily to timing, as previously noted. The fourth quarter will also have typical seasonality driven by several factors including higher mistreatment rates around the holidays, higher spend on health benefits for our teammates, increased G&A, and other year-end costs in the fourth quarter. The magnitude of this seasonality is higher than what we would normally see in the fourth quarter this year. We closed or consolidated 15 clinics in the third quarter, bringing our year-to-date number to 51. We will continue to evaluate our footprint in light of utilization trends. On taxes, we now expect our full-year 2023 tax rate to be approximately 23% to 24%, which is below our previous range for the year. The updated range is reflective of larger benefits recognized for stock-based compensation and forecasted tax credits. Transitioning to the balance sheet, our capital allocation strategy remains focused on capital efficient growth. As we have said in the past, we target maintaining a low leverage ratio of 3 to 3.5x EBITDA over the long-term, and we had paused our share repurchase program one year ago as part of our goal to return to this range. Accordingly, we did not repurchase any shares this past quarter, and we ended the quarter with a leverage ratio near the middle of our target range. As a result, and after considering our typical set of capital allocation principles, including our view of intrinsic value relative to the current market price of our stock, we intend to resume purchasing shares this quarter. We expect to fund share repurchases using a combination of excess cash flow and capacity within our revolving credit facility. As a reminder, we upsized our revolver earlier this year to provide us with more liquidity and flexibility in our capital structure. We continue to manage our exposure to rising interest rates. Approximately half our debt is long-term notes with very attractive fixed rates, while the other half of our debt is floating rate. We have implemented interest rate caps to manage the majority of this exposure through the end of 2025. That concludes my prepared remarks for today. Operator, please open the call for Q&A.

Thank you. Our first question comes from Pito Chickering with Deutsche Bank. Your line is open.

Good afternoon, everyone, and thank you for my questions. I have a couple regarding the significant reductions in year-over-year patient care costs, both compared to last year and sequentially. You mentioned some management changes, but could you clarify the key drivers behind these reductions? Also, looking ahead to 2024, you've done an impressive job controlling costs this year; do you expect similar opportunities as we move into next year?

Yes. Thanks for the question, Pito. So if you think about patient care costs, I think the right way to think about it is continued wage rate pressure, which we are seeing. As you think about SWBs that is offset by the lower contract labor. Remember, last year, that was a big pain for us and we've got that under control relatively early in the year. So you're probably seeing the better part of $100 million, maybe a little bit less than that. But of that order of magnitude, in savings year-over-year. In terms of other items, we've done a nice job here controlling our anemia costs, and we've talked about that in terms of the reduction from the switch to Mircera. Additionally, you have savings from us consolidating our footprint as a result of lower patient volumes. So those are the big items year-over-year. If you think about 2024, I think we anticipate continuing to see pressure on the wage rate relative to a pre-COVID number. I don't think we are ready to give guidance on where that will land, but it's certainly not coming back to the pre-COVID level based on what we see now. We would expect some continued savings as the savings from both Mircera and our facility closings annualize. And then as you would expect, we will continue to look for other opportunities to bring the cost down to mitigate what ultimately will be a higher wage rate pressure than we see in our RPT growth.

Okay. And then shifting sort of to the GLP-1s, we tried to do the same thing a few weeks ago, sort of building out a 10-year model. There's definitely a lot of moving parts here. Any chance you guys want to sort of share with us the model that you guys had just so we can play with the assumptions within those variables? And at the same time, can you just sort of talk to us about what you saw with HCL2 inhibitors, what impact did you guys see from CKD patients going to what's now being referred to as heart disease from that drug and just as you think about the impact from GLP-1s?

Well, Pito, this is Javier. And I saw your note. So you've been swimming in all the complexity here. So since there's different levels of familiarity and understanding on the call, and as you know, the variables have interplay with one another. I think it would be good to step back, get a common foundation, so that we can all take off from the same place. So to get that model that you asked for, what I'm going to ask is, first, for our Chief Medical Officer, Dr. Giullian, to provide a high-level overview of the Clinical. Then I'll hand it over to Joel, and he can give us a bit of the financial impact, so we could give you a framework, and then we can talk about assumptions. Is that fair?

Yes. Perfect. Thanks, Pito. Let me just start by saying I acknowledge the energy and society right now all around these medications. And as Javier mentioned at the outset, I'm encouraged, I think we are all encouraged that these drugs can truly change the lives of many people, and we certainly endorse the use of therapies that benefit people living with heart disease and those living with kidney disease. When it comes to the GLP-1 agonist, they've been available since 2005. They've generated dozens of high-quality clinical studies. What I found interesting is that really fewer than half of the studies that even looked at kidney disease demonstrated any efficacy in delaying progression. So that's about 40% of those studies showed no improvement. 40% showed some aspects of improvement, and then about 20% had some mixed results. Of those that demonstrated improvement or impact, the greatest impact was on a subset of patients. So that's where we started with all of this. Now, like you're probably wondering, I think the two biggest questions I get are: a, what percent of people are ultimately or do we ultimately expect are going to be on these medications? And then b, what percent delay in progression of CKD is that going to lead to? So let me kind of walk you through our clinical thinking, and then I'll hand it off to Joel to talk more about the financial impact. On that first question, about 5% to 8% of patients right now with CKD are on these medications. And the published discontinuation rates is as high as 69%. To be very conservative in our model, we've ultimately estimated that about 30% of CKD patients could someday take these medications, and we arrived at that number by triangulating from a number of different data points. We looked at the uptake of other medications, including generic medications, which are known to slow kidney dysfunction. We looked at patient clinical eligibility. Specifically on that one, about 70% of CKD patients who ultimately progress to dialysis are either obese or have diabetes or both, with the other 30% really not being eligible for these drugs. We were assuming about 40% of those that are eligible could potentially receive these medications in the future. That would translate to, at maximum, we believe, around 30% of the total CKD patient population who would be on these medicines of those that ultimately progress to dialysis. So that's the first part of the question. The second part of the question is how to estimate impact. We did that by looking at things that we know of in terms of evaluating slowing disease progression. If there is even a delay with these medicines. Right now, we are estimating a 25% delay in progression. To arrive at that number, we looked at the impact in the subset of clinical trials that did demonstrate renal progression efficacy. As I had mentioned, that's about 40% of those studies. We picked the data points from those smaller subpopulations in those studies where the medications demonstrated benefit. In general, that appeared to be about 25%, and we use that 25% to extrapolate for the broader CKD population. Again, this was to be conservative in our approach. I'll just sort of end by saying no therapy has really demonstrated the halt of progression or reversal of kidney damage over time. So that goes to the second part of your question, which includes the SGLT2s. Right now about 8% of our ESRD population has been on an SGLT2, and that's for a number of reasons, including the fact that about 65% of patients that get prescribed those medications ultimately discontinue them. So that impact, we believe we have considered already in our model, and I'll let Joel share a little bit more on that.

Great. Thank you, Dr. Giullian. So I have had the benefit of weeks and weeks of being steeped in the clinical aspects of this with Dr. Giullian, other nephrologists, and epidemiologists, both internal as well as external. So let me try and sum up what Dr. Giullian said and then I'll talk about our modeling. I would say three things. First, our assumptions are not pulled out of the air. These GLP-1 drugs have been used for at least 7 or 8 years for the management of diabetes. So there are a number of robust studies to build some assumptions on. That said, there's a lot of uncertainty still, and we wanted to be conservative. So we landed on two assumptions that are incorporated in our modeling. First, that 30% of the CKD population will be on these drugs. It's not going to happen overnight. It will play out over time. That's one of the things that makes the modeling complex. So that's assumption one, a 30% utilization or penetration rate among our population. Again, we think that is a conservative number. Second, a 25% efficacy rate. What that means is for the patients who take this drug, their progression in CKD will be slowed down by 25%. To put numbers on that, if you think of a typical CKD patient progressing from a later stage of CKD to ESRD over 10 years, that would convert that 10-year progression to 12.5 years. Those are the clinical inputs we are using for our modeling. Now let me turn to how we modeled two different numbers. The first, I'm going to talk about is, commercial mix impact. This is a little bit easier to understand, and the financial implications could be serious, but they're not. Here's why. As you would expect, we've got a very robust model around this that we've used to simulate the impact in a number of scenarios. We use this also to create a much simplified framework that we can use to explain to you how we are thinking about this. So let me start that framework with some known inputs. First, we have approximately 22,000 commercial patients today that we know. Second, again, most of our patients who are 65 and over are not commercially insured. For modeling purposes, it is safe to assume that the population above 65 has a commercial mix of almost 0. For the commercial mix of our incident patients below 65, it is pretty constant. It doesn't matter if they're 40, or 50, or 60, it's a pretty constant number. The number drops when they hit 65. The result of that shape of the curve is that when we think about modeling the impact of a delay in progression from GLP-1s on commercial mix, all that really matters is the cohort of patients just below the age of 65, who without GLP-1s would have been incident to dialysis with commercial insurance, but because of GLP-1s, their incidents will be delayed. With that framework, let me tell you our assumptions. First, we are talking about a 25% delay in progression. We talked about that already. That translates, as I said, into a 2.5-year window of incident patients that we care about. Here's an important fact: about 10% of our commercial population is incident in that 2.5-year window, before 65. Said another way, 10% of our commercial population is aged 62.5 through 64. Here's the math. You take 22,000 patients assume 10% of them are in that incident window that we care about of 62.5 to 64 and say 30% of them will be on the GLP-1 drug, and that gets you 22,000 x 10% x 30%, that's 660 patients. That's the number of commercial patients we would expect to lose, as a result of GLP-1 penetration getting to 30%. That 660 patients divided by our 200,000 patients is 33 basis points of commercial mix. So again, let me be clear what that 33 basis points of commercial mix means: it means the cumulative impact of the growth of GLP-1s, however long it takes us to get to that 30% and to see that flow through our CKD population, will be a reduction of 33 basis points in total. If that happens over 10 years, that's about 3 basis points a year. It is a negligible amount. To put it in perspective, our commercial mix went up 18 basis points this quarter alone; you would never find this in our numbers. That's why we believe the commercial mix effectively will not change as a result of a delay in progression.

Alright. Pito, we said a mouthful just to set it up; there's, of course, the second part which is just an overall volume, but we wanted to start off with commercial patients first and the impact on that, which is, as Joel said, not financially important. So any questions on that?

So to take all that and sort of reapply the models, but that was a very detailed answer. I will jump back in the queue for some more questions in a bit. Thank you so much.

Our next question comes from Justin Lake with Wolfe Research. Your line is open.

Thanks for the detailed information. It was impressive. I want to follow up on one point regarding the 30%. Specifically, in the CKD population that is aware of their progression to ESRD and dialysis, what is the basis for that percentage? I had expected it to be higher considering the advanced stage of kidney disease.

Yes. Thanks, Justin. This is Jeff Giullian. We've looked at a number of things. We know for the past two decades or longer that we've had generic medications, ACE inhibitors and ARBs on the market, that have good impact on potentially slowing progression of renal disease. When you look at the uptake of those medications, even in patients who you just described, know that they're progressing through CKD, even that ranges between only 17.8% and about 30% to 35% of the population. Those medications tend to have a slightly lower discontinuation rate than the GLP-1s. And so looking at that, we have a pretty strong baseline of what to expect for the uptake of these medications.

And remember, Justin, it's better to think of it as 40% because 30% are neither diabetic nor obese. So it's 30% overall, but 40% of the applicable population. And we are assuming a 100% adherence which is not a normal assumption. We are just trying to be as conservative as we can be because, as Dr. G said, many, many people get off the medicine; actually more than 50% after year 1 is a stat that's useful.

Doc, can you explain why that number is so low among people nearing kidney failure? Why is the take-up rate only 18% to 30%? Don’t you think it could increase with the new studies showing the benefits? Or have those benefits always been known, and there are reasons that the rate remains low?

Yes. It takes a lot of speculation to understand why patients do or don't do what they ultimately choose. Some of this has to do with access to physicians and access to medications and social determinants of health. Some of it has to do with discontinuation rates for any number of reasons, such as side effects and things along those lines. Quite frankly, our clinical research team has done research in the population of patients that ultimately progresses from CKD to end-stage renal disease. There are a number of social and other reasons, including behavioral health, education, et cetera, that limits the full uptake like we might expect on paper.

Got it. Appreciate it. And then just two quick numbers questions, I'll jump out. The first, can you tell us your run rate in terms of patient care costs that are now coming from drugs? Just trying to understand the totality of where drug spending is at the moment? And then secondly, Joel, if we look back, it's exciting to hear you're kind of going to get back to buying back the stock. I think the last time you were buying it in 2022, I think you averaged around $200 million a quarter. Could investors think about that as a reasonable jumping point in terms of how to think about your pace of buybacks? Thanks.

Yes. Let me take the buyback one first. In terms of pace, it is hard to put a number out there. I'd say, look, we've always been comfortable using excess cash flow as well as available leverage to buy back. What I would point out is, we have a bigger revolver than we've had historically. We used to have a $1 billion revolver. We upsized that to $1.5 billion. So if you think about the limitation of liquidity on our share buybacks, we would probably be more comfortable tapping into the revolver for buybacks now that we've got a bigger revolver than we did before.

And the second part of the question was, what percentage or what's the cost of treatment on drugs?

Yes. I assume what you're really interested in is anemia. That has been the source of the biggest savings. That number has come down dramatically to a point where I think it's hard to bake in a lot of major savings from that going forward.

Great. Thanks. Maybe just to circle back to your buyback comment. Is it safe to say that the $3 million to $3.5 million is still the gating factor then to that? Or now that you feel more comfortable about your base EBITDA, the ability to grow that you'd be okay over some period of time going above the $3.5 million that you would get back to that $3 million to $3.5 million?

Yes, Kevin, I wouldn't view it as a gating factor, but rather we committed to getting back to that place. Now we are there, and we feel comfortable being there. We will revert back and forth as we see appropriate. Right now, we see a disconnect between how we are feeling about our business and how the market is interpreting our results. So we might be very aggressive. That is, of course, term of art because if I use that and I buy $300 million, you're going to think it was $400 million. From my perspective, the right way to think about it is, we want to give our money back to our shareholders, and we want to be capital efficient, and we want to pounce if there's an opportunity or a window, and that's probably the best way to think about it.

Okay, that's helpful. One thing I was curious about as you explained your model is regarding the slowdown in disease progression. You started with an advanced CKD population. Is there a chance that administering the drug earlier could trigger this effect sooner and potentially extend the 25% slowdown? Or is this a process that mainly occurs later within that 10-year timeframe? Initially, you mentioned observing a volume impact for around 15 years, but then you indicated how the drug has been utilized over the past 7 years. I'm trying to understand when the volume impact actually begins.

Sure. Thanks, Kevin. This is Jeff Giullian again. A couple of things. Number one, for chronic kidney disease in general, the time frame can be variable, but moving from early CKD Stage 3 all the way to end-stage kidney disease is often 15 to 20 years. I think the average is about 18 years. Even for people living with diabetes, that time frame is 11, 12 years or even longer in some cases.

Sorry, let me correct you said 3. You meant to say pre from CKD Stage 3?

Yes, exactly. Thank you. As we look at this and have modeled it out and thought about it, we don't believe that we are going to see a major impact in the next 10 years. To take that one step further, as we've looked at the clinical studies, even the subset of clinical studies that have demonstrated any kidney impact at all, that impact is significantly lower in the patient population that is pre-CKD Stage 3.

Kevin, it's Joel here. Let me add one more point because we are probably not talking enough about the potential offset from a reduction in cardiac mortality. That plays into this question of what impact are we seeing and when are we seeing it? One of the reasons we think we are seeing so little impact now is because the uptake in the drug has been so low. Jeff, correct me if I'm wrong, but GLP-1 uptake in CKD is low single digits today, right? You wouldn't expect to see it at such a low uptake. The other important thing is both for GLP-1s and for SGLT2 inhibitors, there has been clear demonstration of a reduction in cardiac mortality. The way we think about that playing through our population is so many more CKD patients are likely to die of cardiac disease than progress to ESKD. If you can reduce that number of those who are passing away from cardiac disease, it creates a larger population that could ultimately be incident on ESRD, and that would offset some of the impact of incident delay. If we are seeing the negative impact of SGLT2 inhibitors or GLP-1s today, even though the uptake of those drugs is so small, there is a good chance that we are also seeing the mitigating effect on cardiac death.

Okay. That's helpful. I guess maybe then a question would be in the quarter, you talked about mortality improving. Are the new starts back to where you would expect them to be? Or does that also have to improve?

Our new starts are back to where we would have expected them to be. We felt that pressure intensely last year, but we are now seeing year-over-year starts back to what we would have expected.

Okay. So you're looking at it and saying 2% volume growth is the right number. Longer term, the new starts back to where it should be, it's really just the mortality that's the difference between where we are now at 2%?

I think that's a reasonable summation of where we are.

Yes. If you were to be a little more refined or sharpen your pencil, our mistreatments are slightly higher than before, and we are working on that as well. But your point is bigger.

Okay. So regarding your comment about the potential adoption of this drug and the expected cardiology benefits, would we then see an increase in new starts? Would that be evident before we observe any progression, and how would that actually unfold?

Well, I think, yes, you would see it in new starts. I mean you'd never be able to pinpoint these patients, but these are patients who, without these drugs would have passed away at late-stage CKD before being incident to ESRD, but that, again, would be offset by the delay in incidence of patients who are taking these drugs and remain in CKD longer.

Okay. Makes sense. And then maybe just last question. The IKC business coming in better, but you're still kind of keeping that 2026 target, is there anything unusual or prior period in that? Or is it just not a big enough change from your projection to kind of say that the trajectory is accelerated?

Yes. So look, the quarter was really strong, but a lot of that was the result of timing. It was shared savings revenue that we expected in Q4 and came in Q3. As we've talked about in the past, the right way to look at IKC is full year; what we see now, we called out a $110 million loss approximately for IKC for the year. That's a bit better than what we were talking about before. But nowhere nearly as big as the beat this quarter. And again, that's largely due to the timing between this quarter and next. IKC is performing slightly better than we expected, but in the range. For that reason, we continue to expect better numbers next year, again in '25 and then breakeven by '26.

Okay, great. Thanks.

Thank you, Kevin.

Hi. Thanks very much. And talking about the late-stage CKD patients, how should we think about the diagnosis of that group? Obviously, even Stage 3 is severely under diagnosed, and there's been a big push to try and improve that. Now that there are a variety of medications that can really potentially have an impact if used early enough, it seems like it's the right thing to do by patients. How are you involved in this? Where do you see the diagnosis rates going?

Thanks, Lisa. This is Jeff again. A couple of thoughts on that. There has been a push to diagnose patients earlier with CKD for a long time, and yet, we are not seeing epidemiologically a large increase in that. There's been a push to get the word out about kidney disease and things along those lines. When it comes to the medications available, medications like ACE inhibitors and ARBs, SGLT2 inhibitors, and the GLP-1s, they've been available for a long time, and the knowledge regarding their kidney impacts have been known to the nephrology community for several years. So for us, this isn't necessarily new news, although I know it's been making headlines recently. We are not seeing a lot of change. We are continuing to work with physicians upstream to educate them about medications that are available.

Okay. And a related question, just looking at the disease prevalence over time. As we've seen the obesity rate go over the last 20 years from sort of 30% to 40% of the adult population, clearly, we've seen a notable increase in diabetes, but at least the estimated prevalence and it's a big estimate because there are so many undiagnosed patients. But the estimated prevalence of CKD has really been pretty flat over that time period. Any thoughts on why that may be the case? I'm just thinking if that obesity rate even potentially pulls back, what the relationship will be with CKD?

Yes. Most of the estimated prevalence comes from physicians coding CKD as a diagnosis through what's called ICD-10 codes. As physicians focus on other things, cardiovascular risk factors and cancer-type risk factors and things like that, CKD in the early stages, especially CKD Stage 1 and 2 and early CKD Stage 3, just isn't top of priority in some cases. We are not seeing at least the documented prevalence of those with CKD Stage 3 rise.

Okay, great. Thanks so much.

And we have no additional questions in the queue.

Okay. Well, I know that was a very dense conversation, unusual in that it was not so much related to the quarter, but something that is really important to have an understanding of what we are looking at and what you're looking at. So let me make a couple of closing comments. First, we had a very strong quarter, and we continue our track record of meeting our commitments. Secondly, hopefully, it became clear we are very happy that these drugs are out there and can improve the lives of many. But on kidney, it is more nuanced to understand the impact it will have on the population. Third, even with a robust adoption, based on what we know today, we believe that this class of drugs will not impact our plan to deliver a 3% to 7% operating income growth for our long-term plan. Lastly, but really importantly, we remain really diligently focused on delivering the best care today for our patients while also building the capabilities and models of care for a healthier tomorrow. It just dawned on me that this is the last time that we're scheduled to speak for the year. So on behalf of our team, I'd like to wish you and your families a happy and healthy holiday. Be well.

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