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I will now turn the call over to Javier Rodriguez. Thank you, Nick. And thank you for joining the call today.
As we embark on 2025, we are celebrating the 25th anniversary of DaVita Inc. During this time, we have focused our efforts on improving clinical outcomes, enhancing quality of life for our patients and care teams, and being a force for positive change for the healthcare system. It is an honor to carry on this legacy, and we look forward to pushing these boundaries in 2025 and the years ahead. Today, I will cover highlights of our 2024 performance, provide updates on several components of our growth trajectory, and conclude with guidance for 2025. But first, I will begin as we always do with a clinical highlight.
As I noted, we are celebrating our 25 years, a period encompassing remarkable clinical progress. Together with our physician partners, we have achieved so much for the people who have entrusted us with their care. Among the many highlights, we have worked to dramatically increase the access to care for patients, especially those living in more rural areas of the country. We move beyond in-center care and supported the proliferation of home dialysis with more than four of every five patients living within ten miles of a DaVita home program.
Of the patients now treating at home, more than 80% use connected cyclers, a technology that enables our care teams to remotely monitor and improve patient health outcomes. We have expanded from being a dialysis provider to a comprehensive kidney care company, addressing each step in the kidney care journey. This includes our Kidney Smart program, where we have provided free education on managing chronic kidney disease to more than 300,000 people and integrated kidney care or IKC, where we have pioneered value-based care delivery, successfully partnering with health plans and CMS to provide holistic patient care and addressing rising costs of the healthcare system.
Finally, we have enhanced quality of care in 13 countries outside the United States, where we have consistently outperformed the clinical benchmark in each market. I am energized by the progress we have made to create better outcomes and improve millions of lives. And, of course, we are far from done. Looking at the next chapter, our vision is to continue our unwavering pursuit of a healthier tomorrow.
Transitioning to 2024 performance, we finished the year on a strong note. Reducing full-year adjusted operating income and adjusted EPS in the top half of our guidance range with year-over-year growth of 21% and 26% respectively. In a year with several unique hurdles, including change healthcare outage and hurricane disruption of our supply chain, I am reminded of the resilience of our organization and inspired by the passion of our dedicated care teams. Enhanced collection performance in contracting propelled high revenue per treatment growth, offsetting slower than expected rebound in treatment volume.
Although volume growth was positive for the first year since the pandemic, growth for the full year was below our expectations. Mortality and mistreatment rates remain elevated in the fourth quarter, and new patient starts were negatively impacted by supply constraints of our peritoneal dialysis solutions. On the expense side, we continue our track record of identifying efficiencies and executing on cost-saving initiatives. Beyond the US dialysis, we expanded our international presence and continue to grow IKC.
We have now closed on three of the four acquisitions in Latin America.
Announced last year with Brazil expected to close midyear 2025. With IKC, we continue making progress on our journey of delivering sustainable integrated care. For 2024, results for IKC were in line with our expectations with an adjusted operating loss of $35 million. Our strategy remains focused on improving health outcomes and quality of life for our patients, minimizing avoidable medical expense, tightly managing our G&A costs, and pursuing the right opportunities to achieve scale. As a reminder, last quarter, we highlighted the temporary closure of Baxter's North Cove facility to Hurricane Helene and the related impact on home dialysis.
As a result of these challenges, we incurred approximately $6 million of operating income impact in the fourth quarter due to higher cost of saline, fewer patient starts due to the availability of PD solution, and lower productivity from our home caregivers. The negative impact was lower than we originally expected due to the extraordinary effort of our supply and physician partners along with that of our procurement and operating teams. By year-end 2024, we had resumed admitting new home patients at historical rates. However, our inability to start new patients on PD contributed to lower new admits in the fourth quarter, which will negatively impact volume growth in 2025. This is included in our estimate of approximately $30 million of negative impact to adjusted operating income in 2025. Moving next to Orals in the Bundle.
Effective January first of this year, oral drugs transitioned from Medicare drug benefit over to the dialysis benefit. This policy is clearly positive for dialysis patients. We are excited to expand access for patients and expand options for prescribers. Estimate that up to 20% of patients did not have coverage and are now eligible to receive this therapy.
Our patients will have support from dietitians and access to all major classes of phosphate binders, including both branded and generic options. We expect the 2025 OI contribution to be zero to $50 million.
For our 2025 guidance,
We are back on a more normal adjusted OI growth trajectory. The midpoint of our 2025 guidance for adjusted OI growth is 5.2% and adjusted EPS growth is 11%. The detail ranges of which can be found in our press release. This comes on the heels of a strong 2023 and 2024, years which we exceeded the top end of our original guidance ranges despite weak volume growth, by driving strength in other components of our core and ancillary businesses.
A priority for 2025 will, of course, continue to be an intense focus on volume, as we believe in an eventual return to a 2% growth trend, recognizing timing. Difficult to predict. Despite this uncertainty, we continue to have confidence in delivering adjusted OI growth in our target range of 3% to 7% for the years ahead. We will continue to invest in differentiated capabilities to drive performance across our platform with excess capital returned to shareholders through share repurchases.
We remain committed to our capital allocation strategy as a means to achieve double-digit growth in earnings per share. I will now turn it over to Joel to discuss our financial performance and outlook in more detail. Thank you, Javier. Fourth quarter adjusted operating income was $491 million, bringing full-year 2024 adjusted OI to $1.98 billion.
Q4 adjusted EPS was $2.24, taking full-year adjusted EPS to $9.68. Free cash flow was $281 million in the fourth quarter and $1.16 billion for the full year. I will start today with some detail on the fourth quarter,
Followed by some details on our 2025 guidance. Fourth quarter US treatment volume increased by 30 basis points over the fourth quarter of 2023, while treatments per day declined 80 basis points versus the fourth quarter of 2023. Q4 treatment volume came in below our expectations for two reasons. First, missed treatments were higher than expected, primarily as a result of severe weather events driving a 40 basis point reduction on year-over-year growth in the quarter. And second, new to dialysis admits were below forecast partially as a result of the impact of Hurricane Helene on PV supply.
We estimate the PD supply constraint resulted in the loss of approximately 350 admissions during the quarter. For the full year, treatment growth was 47 basis points, just below the bottom of the range we gave last quarter. Fourth quarter revenue per treatment increased approximately $1 sequentially, primarily due to seasonality, bringing full-year RPT growth to 3.7% versus 2023. Patient care costs per treatment were up $7 sequentially. This was primarily the result of seasonality, including health benefits, and other field costs with additional impact from higher G&A costs increased by $15 million quarter over quarter.
This is in line with expectations as we typically see higher G&A spend in the fourth quarter. Depreciation and amortization declined by $14 million compared to the third quarter. The largest driver of the reduction was lower center closure costs. Adjusted international OI declined by $17 million versus the third quarter.
This was driven by a $19 million reserve recorded against aged accounts receivable in Brazil. Underlying operations in our international business remain otherwise in line with expectations. During the quarter, we closed the third of our 2024 Latin American acquisitions, expanding our presence in Colombia. Our expansion in Brazil remains under government review, and we expect the deal to close midyear.
Integrated Kidney Care, our value-based care business, ended 2024 with a full-year adjusted operating loss of $35 million. We continue to execute against our long-term plan, and while the full year came in approximately $15 million ahead of our 2024 expectations, this is largely due to the timing of revenue from our value-based care contracts and normal variability. Below the OI line, fourth quarter debt expense was relatively flat compared to the third quarter. Our leverage ratio at the end of the year was just over three times EBITDA.
In the fourth quarter, we repurchased 2.3 million shares, and since the start of 2025, we have repurchased. I will turn now to our expectations for 2025. Our 2025 adjusted operating income guidance is $2.01 billion to $2.16 billion. At the midpoint, this represents 5.2% year-over-year growth. Now for some details starting with treatment volume.
The middle of our adjusted OI guidance range assumes treatment volume growth is flat in 2025 compared to 2024. For the key underlying drivers of treatment volume, namely admissions, mortality, and mistreatment rate, our guidance assumes no significant changes to the trends we saw in 2023 and 2024. Embedded in this forecast is approximately 50 basis points of headwinds specific to 2025 associated with the number of treatment days and the headwind associated with the disruption in PD admissions in Q4. Moving now to revenue per treatment. We anticipate 4.5% to 5.5% revenue per treatment growth year over year.
Around 40% of this expected growth is the result of new oral phosphate binder reimbursement. The remaining 60% is driven by rate increases, collections improvements, and changes in mix. On patient care cost per treatment, we anticipate growth of 6% to 7% year over year. Again, oral phosphate binders are a key driver, accounting for approximately 40% of the expected growth year over year.
We anticipate the remaining 60% of the growth to be driven by inflationary increases in labor and other costs, with some offset from declining center closure costs as compared to 2024. We expect US dialysis G&A to increase by approximately 4%, which is driven by investments in our teams, capabilities, and processes, offset by a decline in center closure costs versus 2024. We anticipate US dialysis depreciation and amortization to decline by approximately $25 million to $30 million, driven by declining center closure costs and lower levels of CapEx in recent years.
In our IKC business, we expect relatively flat
Year over year adjusted operating income compared to 2024. This is consistent with our prior expectations except for the acceleration of $10 million to $15 million of value-based care revenue from 2025 to 2024. For international, we expect approximately $50 million of year-over-year adjusted OI growth. This is the combination of the impact of the Latin America acquisitions we signed in 2024, the reserve against aged accounts receivable in Brazil impacting 2024's results, and continued growth in our existing markets. Shifting to EPS. Our guidance for 2025 adjusted earnings per share is $10.20 to $11.30. The midpoint of this range represents 11% adjusted EPS growth versus 2024, primarily driven by adjusted operating income growth and share count reduction due to share repurchases offset by the full run rate of higher debt expenses.
We anticipate other losses below the operating income line of approximately $75 million, roughly flat to 2024. We expect interest expense of $525 to $555 million, which is a continuation of approximately $135 million per quarter. We anticipate an adjusted effective income tax rate of 24% to 26%, consistent with 2024. Free cash flow guidance for 2025 is $1 billion to $1.25 billion. Our capital allocation philosophy remains consistent with prior years. We will prioritize capital-efficient growth opportunities, target leverage between three and 3.5 times EBITDA, and otherwise, return capital to shareholders in the form of share repurchases.
That concludes my prepared remarks for today. Operator, please open the call for Q&A.
Thank you. If you would like to ask a question during this, our first caller is Joanna Gajuk from Bank of America. You may go ahead. Please, hi. Thanks so much for taking the question. So I guess first on the volume outlook
For 2025. So you said flat at the midpoint. Is there a range associated with your OI range?
Hi, Joanna. It is Joel here. Thanks for the question. So, yes, there is certainly a range associated with volume. There is a fair bit of natural variability in all three of the inputs of
Admissions,
Mortality, and mistreatment rate, and that would be one of the factors that would drive the range we gave for OI.
Giving us, like, a range of I guess you know, call it minus one to plus one or anything narrower like that, or how should we think about that? Like, what is the, I guess, the main draw of outcomes here?
Yeah. We decided not to quantify
I do not know that the variability
We would see would differ a whole lot than the variability we would have thought about going into last year. But we missed our going into the year forecast in 2024 by a bit, so we were a little hesitant to give a range here.
On the comparable metric, right, the volumes were roughly flat in 2024. Right? Just to make sure. So you are kinda assuming a similar dynamic for the full year 2025.
So the comparable number for 2024 was plus roughly 50 basis points. I think it is 47 basis points exactly. And just to be clear for everyone, when we give a volume forecast here, we are forecasting treatment volumes. We give a number of volume metrics like NAG and others that you can calculate, but we are really forecasting total treatment volumes. So the 2024 number was up 50 basis points.
That
The midpoint of the range for 2025 is flat. There are really two things driving the decline. One is treatment days. Remember, 2024 was a leap year.
And that is worth about 20 basis points of extra growth in 2024 that will not happen in 2025. And then we mentioned the disruption of PD supply from the hurricane. And the result of that was in Q4 we were unable to admit new peritoneal dialysis patients for some period of time. Some of those patients wound up in the center, but we believe we lost roughly 350 patients who otherwise would have come to DaVita Inc. who we think decided to pursue peritoneal dialysis with another provider. And because we lost those 350 patients, in Q4, it did not have much of an impact on Q4 volume.
Will have a much bigger impact on 2025 volume, and that is where somewhere on the order of 15 to 20 basis points of growth in 2025. So you take that and the days, and that is really what accounts for the 50 basis point decline in terms of the core metrics of MIS rate, mortality, and admissions, we are viewing those in our guide as being roughly similar to what we saw in 2024.
Alright. Yeah.
Appreciate it. And if I may, on that number when you quantified the benefit to OI from the inclusion of the oral drug into the bundle zero to fifty. So I am a little bit surprised that there is actually a zero. So can you give us a little bit more color, like, why there is such a wide range? And also, you know, what scenario is it a zero versus a sixty? Thank you.
Hi, Joanna. This is Javier. Let me grab that one. And for the people that have not been tracking the oils in the bundle.
This is in a class of drugs that the largest is phosphate binders. Is a medication to reduce the absorption of dietary phosphate and it was in part D and is moving into part B as in boy. And there are three variables to consider. One is mix, what kind of phosphate binder, and there are some generic, and there are some branded.
Two is volume. And then three is adherence. This has a heavy pill burden. You have to take it at meals and snacks, etcetera.
And so many people for different reasons low adherence.
And so this is
Very new to us. And so with those three variables, we are being I think, prudent in giving you a wide range. And once we get a bit of experience, we will see how that plays out. But the midpoint of the range feels the most likely spot with what we are seeing now.
And then I will add one last point. On the volume side, which is it is hard to see volume up to now. Because in many instances, people pick up the prescriptions for 90 days. And since we are now only in February if you picked up your prescription in December, or November, you might not we do not have visibility to what kind of medication you are right.
So that is why you have such a wide range right now.
Alright. Appreciate it. I guess I will go back to the queue. Thank you. Our next caller is AJ Rice with UBS. You may go ahead.
Thanks. Hi, everybody. I think if I got
I heard you right, you said patient treatment cost would be up about 67%. And that is largely due to the phosphate binder inclusion. Can you comment on putting that aside? Is there any change in significant change in the way you are looking at the growth in patient treatment costs versus what you saw in 2024?
Sure. So
The way I think about it and there are ranges around this, but I will use the midpoints here. The midpoint of growth in the patient care cost would be 6.5%.
That would be 3.75%
From our historical costs and 2.75% from including the orals in the bundle. So if you are comparing it to what you have seen in prior years, that 3.75% would be the right number. And as we break that down, we typically think of it as
Labor and everything else. And
We see them both moving at about the same pace of growth for next year. Labor continuing to anticipate some higher pressure than we saw pre-COVID and everything else growing at about that same 3.75% range as well.
Okay. Thanks for that. And maybe follow-up question. On the comments around capital deployment, do you have a figure for what you think you will do on share repurchases? Any comments on the deal pipeline, either international or in the domestic market and what you are seeing out there?
So I am sharing purchases
I will stick with what we have said in the past, which is our philosophy
We will look for capital-efficient growth, either investing in the business or through M&A. And we will keep our leverage or we will target our leverage in the three to three and a half range, which it is in right now. And everything else will go back to share repurchases. So we are not going to give a number, but I would not anything different than what we have seen in the past.
In terms of M&A, we are looking at a few things. And I could certainly see a scenario in which we invest hundreds of millions of dollars, but as I have said in the past, I do not think we are going to do anything I do not see anything on the horizon now that would be that would significantly change the share repurchase program.
Okay. Alright. Thanks a lot.
Thank you. Our next caller is Pito Chickering with Deutsche Bank. You may go ahead, sir.
Hey, guys. Good afternoon. The US already data is showing sort of flat incidents for, you know, end-stage renal disease in 2024 and your treatments have been pretty flat this year. There is definitely a pretty big debate now about the impact of SGLT2 inhibitors on treatment volumes.
Can you help quantify us the new starts that you guys saw in 2024 versus 2023? Just to help, sir, if the pair contrast what DaVita Inc. is seeing versus what USRD data is showing us.
Let me grab a bit of that question, and then Joel can give you the specific answer you asked. Because we have gotten several people assuming that the medication is having an impact. And the reality is that our physicians have looked at this very carefully. And the odds that this is impacting our patient population are quite low.
At this juncture. And let me tell you why. Number one, the information that we have from CMS puts the prevalence of CKD patients, advanced CKD in the low teens. And the adherence in the mid-sixties.
And so the ability to have an impact is unlikely. If it were to have an impact, you would also see the offset in mortality. So the MAC would hopefully be a positive, meaning it is stretching people's longevity. And so when we talk to our medical professionals, and they are reviewing all this data, they are very confident that that is unlikely to be the impact.
Now the second part of your question is a bit more specific. Job? Yeah. So in terms of the date of Pido, our admission growth has been running ahead of what you see
In the US RDS Data. It was stronger in the first part of the year, and it actually weakened significantly for Q4. Our new to dialysis admin growth was flattish in Q4, which is the first time it has not been running positive since for, I think, eight quarters.
So
We have been looking hard at that.
And
I would say two things about this. First, if you look at USRDS,
Year over year, new to dialysis or incidents growth
And we looked carefully at the ten years leading into there was a lot of noise in the data during COVID, but if you look at the ten years before COVID, it is noisy data. There were two out of the ten years where incidents growth was negative those years did not indicate any sort of secular trend. The data bounced back. It would move back and forth, it could move up to 3% year over year, and I think there was a 6% total swing though during those ten years.
So we do not see
Negative date one year of negative data in USRDS as has
The start of a trend necessarily, and we are basing that based on history. So that is point one. Second, picking up on what Javier said, if there is
Negative
Admit impact in the industry today
We think the much more likely result is from
Mortality in CKD four patients as a result of COVID than it is related to SGLT2 inhibitors or GLP ones for the reason Javier
Ted. So
Again, two points. One, a negative year of incidents growth is not a new thing. We have seen it before. It has not necessarily been the start of a trend. And second of all, if there really is a signal in that noise, we think it is much more likely the result of COVID than these new drugs.
Okay. And then going on the PD I guess, when did your PD supply stabilize from Baxter? And then queues are quantify, you know, how those move starts, at this point return to normalized levels. You know, I understand the leap year impact I understand the quantification from sort of the drag from know, the fifteen, twenty basis points of losing those 350 patients.
But can you can you actually quantify, you know, how the new starts should return to normal levels now that PD supplies have normalized?
Yeah. So we are back online, back to normal.
And so you should see that number pick back up or mixed pre-hurricane was in the mid-fifteens. Right below that, about fifteen four. So we are right around fourteen nine. So we should we should see that get back in line. It will take a bit of time. Maybe a year or so as the year plays out, but we are back to normal.
And just to clarify two things. Pido. We are back to normal, but those 350 admits that we lost they are lost for all of 2025. They are not going to come back to us. Hence, the impact even though we are back to admitting at a normal level. And second, I will remind everyone, even though PD patients treat every day, when we were
Report our volumes, we normalize that to
In-center equivalents. So we do not pick up volume or lose volume in our volume count if a patient goes from PD to in-center or vice versa.
But then let me sort of
You know, ask her one more different way is, you know, there was a sort of sixty-day time period when Baxter could not supply sort of this PD supplies. You know, I get your losses 350 patients, but now that that is normalized, why is the midpoint of the range flat? Why is not midpoint range not sort of fifty or a hundred basis points, you know, minus the twenty bips from BP or minus the twenty bips from PD kinda why it is flat. You know, the new level if patient trends are already normalized at this point.
Because those patients are in-center, they are just going to switch modality, but the treatments are the same.
Yeah. I would think of it as it is the same fifty basis point dynamic we had last year driven by mortality admissions and mistreatment rate and then you have got to subtract off
For these
Two dynamics, which are specific to 2025, and we are in the we are not the case in 2024.
Great. Thanks so much.
Thank you. Our next caller is Justin Lake with Wolfe Research. You may go ahead, sir.
Thanks. I appreciate the question. First, the Noncontrolling interest look a little bigger than what I would have expected given the OI in the quarter. Am I missing something there? Is there like, what which drives that number and was that, you know, larger than you expected?
Yeah. Thanks for the question, Justin. It was a little larger than
I think modeling
NCI as a percent of US dialysis operating income for the year is the right way to model it, and I do not think anything has changed there overall. There were some collection dynamics associated with Change Healthcare that moved things from one quarter to the next. But overall, there is no underlying trend there that I would call out.
So you are saying the percentage of operating earnings is not increasing? It might be flipping between quarters, but overall, the 2025 should be in line with the 2024. Exactly. Okay. And it will be I was hoping you could I mean, you ran most of the below the line numbers.
And yet EPS looks a little bit light versus what I would have thought. The only thing I could think of is the is the share count. You want to run that? You want to give us an idea what your share count expectation is?
I would rather not. I think I am trying to think what might not be in there. It depends on how you are modeling it. If you are modeling it by business segment. I think the corporate segment is probably going to be $25 million worse in 2025 than in 2024. And that is just about the timing of some equity compensation. Other than that,
I think if you are you know, we gave the other in
Interest expense. We gave the tax rate.
So
I think got it. Got it. Got it. Got it.
Got it. Will be ultimately the question. And look. That will depend on a bunch of things.
How much capital we deploy to buy back shares, obviously, what the share price is, it is impacted by when we buy the shares during the year as well because it is a weight average count over the course of the year. Maybe we will take it offline, Justin. We can make sure. There is not some arithmetic difference.
I appreciate that. The other question I have is on revenue
For treatment. Couple of things you said. One, the you know, that there is still some kinda juice to squeeze from collections. Which I had the impression, listen to your last quarter, that you thought that was petering out of bed.
So I was curious how much of improving you expect there. You also mentioned payer mix. Would be great to know kind of where you ended the year and what you are assuming next year while you are talking about payer mix, can you can you give us your your you know, maybe the percentage of it of treatments coming from the exchanges or, you know, members with exchange coverage. Thanks.
Sure. So so
Starting on the collections question, what you are seeing in here, I think, is what we have called out over the course of 2024, which is the annualization of collections improvement that is that kind of hit midyear of 2024. And that is probably worth on the order of $50 million, call it. On the mix, there is really nothing interesting to call out about MA mix. We will move with the industry. There is really not a lot there.
On commercial mix, we are at about 11% now, and we think we will pick up a few tens of basis points on that. In terms of the exchanges, we are at about 3% of our population are on the exchanges today.
And where was that number pre-COVID?
Joel? I exchange Exchange is
If you go back pre-COVID
I will give you the number from before the enhanced premium tax credits came in place. Sure. And it was right around 2%.
Appreciate it. Thanks for the detail.
Thank you. Our next caller is
Andrew Mok with Barclays. You may go ahead, sir.
Hi. Good afternoon.
Appreciate the comment that 40% of Rev per treatment growth is from phosphate binders. It looks like that is worth about $25 per treatment from Medicare patients. Do I have that math right? And if so, like, that feels a little bit light versus what CMS quantified today in the final rate. So just trying to understand the absolute dollars on the Medicare patients specifically.
So no, Andrew. The number is more in the $10 to $15 for a Medicare patient. And just to get everyone the math. So if you use the middle of that range and recognizing not all of our patients
Are eligible for
Orals in through the bundle. Right? If you are on commercial or managed Medicaid, there are payer classes that are not getting this. And even for those who are, those on Medicare and Medicare Advantage, not every patient takes it. So that is why the 40% of our number, which is somewhere around $7.80 in our RPT is lower than the $10 to $15 because it does not apply to all patients.
Got it. Okay. And then on G&A per treatment, I think that was up 6% sequentially and 11% year over year. That looks like a big acceleration and maybe stronger than typical seasonality. Any additional color on what is driving that?
Yeah. Thanks, Andrew. I think the best way to think of G&A is in two parts. One is the let us call it the traditional, which is just the sort of thinking of it as a cost basis. The second part is now an investment portfolio that we have in there. And so the example that comes to mind is, IT where we are getting a lot of benefit on another cost line item,
Four
Our revenue operations where you are picking up the benefit obviously, on RPT, and so the better way to think about that is that about half and half of that split, and so you are just getting the inflationary part of the cost item and we are getting good productivity on the other half.
Got it. Okay. And then on the patient care cost, I think that benefited from a gain on settlement in the quarter. Can you quantify that for us?
Hold on one second. Oh, yeah. It is not something that I that I will want to call out. It is not a big deal and it is
Kind of relatively
Routine and small.
Okay. Thanks for all the color.
Thank you. Thank you.
Thank you. Ryan Langston with TD Cowen. You may go ahead, sir.
Thanks. Appreciate all the guidance details.
Joel. I hope I did not miss it, but did you touch on sort of seasonality, maybe at the consolidated level in IKC? Like, anything
Sorta historically or
Different from historical seasonality or anything that we should be aware of just sort of maybe even first half, second half cadence.
Yeah. Here is the way I would think about it. So from an operating income standpoint, I would call out three things.
First,
Revenue per treatment is always lighter in Q1 and builds over the course of the year. So typically, there is about a $5 seasonality hit on RPT in Q1 as a result of bad debt associated with patient pay and then the RPT tends to build over the course of the year. So that would be one. Second is IKC.
Which is always back half loaded. It is very hard to predict the seasonality of IKC, but I think you can reliably count on it being back half loaded in the Q3, Q4 dynamic can sometimes be complicated. And fourth, expenses tend to go up in Q4, and that can hit both patient care costs as well as G&A. So if you put that in the mix, I would say our Q1 OI will be roughly 20% of full-year OI that grows through Q2 and Q3 and sometimes will drop down a little in Q4. That is at the OI line.
As you are modeling EPS, you have to add to that the fact that share buybacks accumulate as the year progresses and as a result, share count will typically come down. So you will see a little bit more growth in EPS over the course of the year. So Q1 EPS will typically be even lower than that 20% number I talked about for OI.
Got it. And just
One more thing. Any way you can tell us where you started out or where we are going to start out the year sort of an IKC between the snip
Patient. Count and maybe just some of the other IKCC lives, and then just any thoughts on anything changed in terms of potentially hitting breakeven in that business by 2026? Thank you.
Yeah. Thanks for the question. We see the business thing flattish. This year and we had a bit of a timing thing that was called out about $10 million that rolled into 2024. So the OI line will look pretty similar in 2025. And what I would say is that we are still sticking to that breakeven in 2026. Time period.
And
We gave that guidance around 2021. And we have been kind of right on top of our model and so no change in the expectation. Yeah. And
On the SNP thing, I would not call out much change in 2025 relative to 2024.
Okay. Thanks a lot. Thank you. Thank you.
Joanna Gajuk with Bank of America, you may go ahead.
Oh, yes. Hi. Thanks. Thanks for follow-up. You must have been but the last one on my list was the free cash flow guidance implies that free cash flow could be down year over year. Is it because 2024 was that much better or anything to call out?
Yeah. I would say probably the biggest thing to
Call out is just working capital changes. You know, there can be big swings at the end of each year, which is why we guide to such a wide range. There is nothing in particular I would call out in the free cash flow.
Okay. And in terms of clinic closures, you willing to give us a range of what you plan for the 2025 in your guidance for closure.
I think we have now hit a pretty normal position. So we will close what I would say pre-pandemic, which is somewhere in the 20 or so centers. On a yearly basis.
Okay. That is helpful. Thank you so much. Thank you.
Thank you. Our last caller is Pito Chickering with Deutsche Bank. You may go ahead, sir.
Hey, guys. I just saw up on Ryan's questions on IKC.
Looks like since last quarter, you know, that you picked up 900 patients on the risk-based integrated care, but lost 2200 patients in the integrated care arrangement. I guess why do you guys lose those patients? And then the second one, if there is, you know, you know, to your point, the IKF is always for back up loaded as you get the true-ups.
From managed care. And, yeah, as you guys get more and more experience, at which point do you move from
More of a cash-based accounting system into more of an accrual system? Just so you get more experience.
So my chief accounting officer is sitting across the table for me glaring about cash accounting. So I will just clarify. We do not do cash accounting. We are careful about when we recognize our revenue and when the information flows in.
That said, I understand the spirit of your question, Pito. And we have evolved. Right? Our value-based care component, which is the work we do with MA has we have been more comfortable estimating revenue a little bit earlier.
So we have made progress there on CKCC, which is the Medicare fee-for-service program. We still take a more prudent approach and wait for more information to come in till we have better experience with that. And when we might change that, I think remains to be seen. In terms of the count on members, I would not read too much into that.
You know, numbers will flow as attribution changes and small changes like this are not indicative of any underlying change in our IKC business.
Okay. So apologies to your chief accounting officer on that one. I guess you know, looking at sort of 2025, you know, I guess, how do the lives evolve this year? Do you see another step up as you have last few years?
Or is this more sort of the run rate you guys will have within IKC?
I would say for 2025 we remain focused on driving margin. I think there are contracts out there that we just see as unattractive and we are not going to pursue
Just for the sake of
Volume growth and revenue growth. So I would say 2025 is likely to look a, like, a much slower growth year from a membership standpoint.
Okay. And then last questions, and apologies if I missed that. In the script, you talked about
A reserve in Brazil, $19 million. Was that an AR write-off that impacted OI or kind of what was the details around that? Thank you so much.
Yeah. So it flowed through OI this
Quarter. It was generally it was not generally. It was all about aged AR generally from 2023 and even before then. So as I think about it and the core earning power of the international business in 2024, this really does not impact the underlying earning power of the business, but it did float through Y from an accounting standpoint.
So your adjusted operating income of $491 million in the quarter that was impacted by the $19 million reserve that you took to Brazil this quarter.
Correct. But it also benefited I mean, if you are thinking about head a headwind, tailwind, quality of earnings, whatever kind of analysis you are thinking, I would also point out it did benefit from that pull forward of IKC revenue from 2025 of about $10 million.
Yeah. So it is $491 million plus ten minus nineteen. Or plus nineteen minus ten. Got it. Thanks so much, guys. That is a reasonable way of looking at it.
Thank you. At this time, I am showing no further questions. Speakers. I will turn the call back over to you for closing comments.
Okay. Thank you, Michelle, and thank you for the questions. In closing, I will go back to where we began the call. By highlighting 25 years of clinical innovation.
We take our responsibility seriously to continue to beat his legacy of improving the lives of our patients and care teams. Regarding the financials, while the components of DaVita Inc. OI and EPS and EPS growth vary from year to year, what remains constant is our commitment to operating excellence and innovation. We will continue to apply that discipline across the VIDUS platform, including our core dialysis metrics as revenue, cost structure, and volume, while returning excess capital to our shareholders.
Thank you all for joining the call, and be well.
Thank you. This concludes today's conference call. You may go ahead and disconnect at this time.