DaVita Inc.

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 2025 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, please press star then the number two. Thank you, Mr. Eliason. You may begin your conference.

Thank you, and welcome to our second quarter conference call. We appreciate your continued interest in our company. I'm Nick 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.

Thank you, Nick, and thank you for joining the call today. We are pleased to report another solid quarter where our focus on providing exceptional care for our patients and fostering a positive experience for our caregivers continue to drive results. We delivered on our financial commitments, supported by strong clinical performance and disciplined execution across our businesses. Today, I will share the highlights of our second quarter results, offer insights on key policy developments, discuss the evolving landscape of device innovation, and finish by sharing our outlook for the rest of the year. But first, as always, let's begin with a clinical highlight. While I usually focus on a specific clinical achievement, today I want to take a step back and reflect on the exciting opportunities ahead for DaVita in the kidney care community. To offer some historical perspective, In the two decades leading up to COVID-19 pandemic, the kidney care community made remarkable clinical strides. Advances in technology and pharmaceuticals, combined with the adoption of more standardized care, led to improved outcomes and significant reductions in mortality rates. Then came COVID, a disruption that impacted not only operations, but also the health acuity of our patients. Yet, from where we stand today, I am optimistic about what's ahead, and I believe we're entering a new wave of clinical innovation that holds exciting potential for the patients we serve. Breakthrough technologies from advanced IT systems to the transformative power of artificial intelligence are positioned to help us personalize care in unprecedented ways. Greater adoption of new drug classes like GLP-1s and SGLT-2s, along with the next-generation devices that improve the clearance of middle-sized molecules, offer the potential to extend life and ease recovery from dialysis. Prior with these tools, the kidney care community is positioned to once again improve clinical outcomes. We have the opportunity to lower mortality, enhance the quality of life of our patients, and deliver better care. Of course, this evolution will take time and investment, but we're moving forward with conviction, grounded in our vision of an unwavering pursuit of a healthier tomorrow. Let me transition now to our second quarter performance. Adjusted operating income and adjusted earnings per share came in slightly ahead of our expectation. These results are indicative of two important themes that we highlighted last quarter, and which continue to resonate strongly today. The first theme is our ability to deliver on our commitment of three to seven percent adjusted OI growth despite not yet achieving our volume growth objectives. This was evident during the second quarter where the strong performance in patient care costs more than offset cyber related weakness in revenue per treatment and volume. That said, Improving volume remains a primary focus, and we continue to believe we will return a 2% annual treatment growth over time. While the rebound takes shape, we're executing against other opportunities to achieve our long-term operating income and EPS targets. Our proven track record of managing costs across our operations, coupled with our significant investment in systems and IT in recent years, give us the confidence that we can achieve cost savings that offset current volume weakness. The second theme I want to highlight is the resilience of our business to navigate environmental and unexpected challenges. We're now roughly three months out from our onset of the cyber incident we discussed last quarter, so let me provide more detail on our recovery and associated financial impact. Operationally, we continue to provide uninterrupted patient care The financial impact incurred can be split into two high-level categories. The first is discrete costs associated with the incident, such as outside consultants, technology costs, legal costs, et cetera. In the second quarter, those costs were approximately $13 million and are excluded from second quarter adjusted operating income as non-GAAP expenses. The second and more significant category is the impact on treatment volume and revenue per treatment due to lower patient admissions, increased mistreatments, and lower expected yield on claims for treatment this quarter, among other things. Aside from the continued impact of the lower census from lost admit opportunities, we believe the impact of the cyber event is largely behind this, and there will be limited ongoing effect to adjusted results. Joe will provide more color on these dynamics. I'll now transition to providing a few policy updates. Last quarter, we provided an update on various policy changes, including tariffs, Medicaid cuts, and qualified health plans. Although Congress has passed further legislation and each of these topics remains fluid, our estimates of the impact of these items on DaVita remains unchanged from last quarter. Additionally, In late June, CMS published the 2026 ESRD proposed rule. The approximate 2% increase from dialysis rate was in line with our expectations. Yet, much like recent years, continues to fall short of actual inflation experienced by dialysis providers. As a reminder, the Medicare rate is subject to an incremental update in the final rule later this year. One final topic before I move on to guidance. There's a lot of discussion and energy in the industry regarding new technology to the United States to improve clinical outcomes through better clearance of middle-sized molecules during dialysis. High-volume hemodial filtration, or HDF, is one example of this technology. We actively champion clinical innovation that can improve patient outcomes and quality of life, and these technologies offer promising potential. In terms of where we stand today, we are active with a number of work streams. This includes monitoring existing and future clinical studies to assess the efficacy of various solutions, including not only HCF machines, but advanced dialyzers, which may provide similar clinical outcomes. As more clinical evidence comes to light, we will listen to physicians' preferences. we're assessing the operational implications of each innovation with consideration of clinical outcomes and health economics. So there's a lot to be excited about, but still a lot to learn. We remain committed to staying at the forefront of clinical innovation and we're energized by the opportunity to deliver even better care for the patients we serve. Looking ahead to the remainder of the year, We're reaffirming our guidance range for adjusted operating income of $2.01 billion to $2.16 billion and our adjusted earnings per share range of $10.20 to $11.30, despite the negative impact of the cyber incident. Furthermore, we continue to have confidence in our ability to deliver adjusted operating income and adjusted EPS growth consistent with our long-term guidance. I will now turn it over to Joel to discuss our financial performance and outlook in more detail.

Thank you, Javier. Second quarter adjusted operating income was $551 million. Adjusted earnings per share was $2.95, and free cash flow was $157 million. I'll provide detail on the individual components of our results, beginning with U.S. dialysis. Starting with treatment volume. U.S. treatments per day declined 1.1% versus the second quarter of 2024, which was approximately 50 basis points below our expectations for the quarter. The weakness was largely the result of a higher than expected mistreatment rate. We believe that the cyber outage was the primary driver, but it's difficult to differentiate between impacts from cyber and other underlying trends. In light of the higher than expected mistreatment rate in Q2, we've increased our expectations for mistreatment rate for the remainder of the year, thereby lowering our expectations for full-year treatment volume. We now anticipate a year-over-year decline of 75 to 100 basis points as compared to our previous guide of down 50 basis points. I will remind you that this forecast is for the absolute number of treatments and not treatments per day or non-acquired growth. Moving on to revenue per treatment, RPT increased approximately $4.50 versus the first quarter. This typical sequential step-up is due to higher patient responsibility for co-pays and deductibles in Q1. The overall increase was below our expectations, primarily related to the cyber incident in April. RPT for the quarter was also negatively impacted versus our expectations by lower dispensing volumes of binders. As a result of these two dynamics, we now expect full-year RPT growth near the lower end of our original range of 4.5% to 5.5%. Moving on to patient care costs. PCCs per treatment declined by approximately $3.50 sequentially. This was primarily the result of three factors. First is higher treatment count compared to Q1. Second is improved labor productivity in our centers. And third is binders. As I mentioned before, binder dispensing volume was below our expectations and down from Q1. We anticipate the outperformance in patient care costs to continue for the rest of the year, resulting in a full year increase of five to 6% versus 2024, better than our original expectations. Focusing on binders for a moment, as I mentioned, both revenue and patient care costs associated with phosphate binders were lower in Q2 versus Q1 due to lower dispensing volumes. We expect no net impact from this and other small changes in our assumptions for the back half of the year. As a result, our full year adjusted OI expectation from the addition of binders to the bundle remains unchanged at approximately $50 million. International adjusted operating income increased $6 million versus the first quarter, primarily due to a one-time benefit. We are excited that the fourth and final of the Latin American acquisitions related to clinics in Brazil closed last week. Integrated Kidney Care, or IKC, our value-based care business, had adjusted operating income of $26 million in the second quarter. IKC benefited from approximately $40 million of revenue that we expected to recognize later this year. This reflects a timing benefit for the second quarter and has no impact on our full year expectations. Transitioning to capital structure. During the second quarter, we repurchased 3.1 million shares and we repurchased an additional 2.7 million shares since the end of the quarter. We finished the quarter with a leverage ratio of 3.34 times consolidated EBITDA, which is up from Q1, but still comfortably within our target range. In May, we raised a billion dollars of senior unsecured debt. And in July, we repriced our term loan B, reducing the spread by 25 basis points and raised an additional $250 million which we use to pay down a portion of our Term Loan A. These transactions represent our continuous efforts to optimize our interest rates, maturities, and liquidity, all within our existing capital allocation philosophy. Let me now turn to our expectations for full year 2025. As Javier noted, we are reiterating our full year adjusted operating income and adjusted earnings per share guidance ranges as reflected in our press release. We are confident that we can continue to deliver results consistent with our 2025 and long-term guidance while caring intensely for our patients and teammates and investing in our future. That concludes my prepared remarks for today. Operator, please open the call for Q&A.

Thank you, sir. If you would like to ask a question during this time, simply press star and then the number one on your telephone keypad. If you would like to withdraw your question, press star, then the number two. Our first caller is Andrew Mock with Barclays. You may go ahead, sir.

Hi, good afternoon. I appreciate all the color on guidance. Can you Give us a sense for how census and treatments track following the cyber attack and how you're thinking about volumes in the back half. Because on the one hand, you signaled there wouldn't be an ongoing impact, but then you assumed, I think, elevated mistreatments persist for the back half of the year and revise the treatment growth outlook. So maybe just help us understand how you're thinking about that. Thanks.

Thanks, Andrew. This is Javier. Before Joel gets into explaining, that's very important because there's a lot of dynamics going on. in treatment volume. I think on the simpler side, so we can start at 10,000 feet, the year is going as expected with the exception of two significant items, which is a severe flu season and the cyber incident. And that, of course, puts all those dynamics that you highlighted in play. But sometimes it's just easier to start with a high level before you get into the detail. So now, Joel, if you can bridge all those questions.

Sure. So, Andrew, let me try and unpack this for you. So during the call last quarter, we anticipated challenges on the admit side associated with the cyber attack of a few hundred, 500, 600 admits. And that has played out largely as we expected. We saw the challenges for a few weeks, but everything has normalized since then. What we did not anticipate was a spike in mistreatment rates, which is a number that tends to follow a regular seasonal pattern high in Q1, down in Q2 and Q3, and then back up in Q4. Q1 was higher than normal associated with the flu, and we expected it to come down along a typical curve in Q2, and that's not what we saw. It was elevated in April and actually even worse in May. and then came back down in June, although not as far as we would normally expect. So we saw a big jump in mistreatment rates in Q2 year over year, which we attribute to the cyber incident. And as a result of that dynamic, we decided to change our view on mistreatment rate for the back half of the year. where previously we had thought it would come down a bit relative to 2024. Given the challenges we've seen in the first half of the year due to both flu and cyber, we updated our assumptions and assumed this treatment rate is roughly flat relative to last year for the back half of the year. So that's the math. I'll remind you, we're talking about 0.1% delta, roughly. So we're really focusing in on numbers, and the tighter you get, the harder it is to really call out the precision. But that's the dynamic. So if you think about the change in guide on volume growth from negative 50 bps to negative 75 to negative 100 bps, it's pretty much all about a higher mistreatment rate, partially in Q2, partially in the back half of the year.

Great. And maybe just a few follow-ups on phosphate binders. First, can you give us the phosphate binder contribution to RPT and CPT in the quarter? And why was the dispensing volumes lower in the quarter? Is that due to the lower treatments, or did the mix of patients on binders go down? Thanks.

Yeah, so on the volume side, it's about a reduction in the number of scripts. It's not a mix issue. What we believe is happening is adherence is not what we expected. Some patients are getting their binders through other means outside of DaVita, and some are just relying on over-the-counter solutions. Volume is lower than expected. In terms of contribution to RPT and CPT, the RPT number was somewhere in the low eights, and CPT was in the high sixes.

Great, thank you.

Andrea, one other thing that you might not be familiar with or other people on the call is for these binders, the pill burden is pretty heavy. And so there's also some adherence issue around that because you have to take the pills with a meal. I think that there's some leakage in that dynamic.

Great. Thanks for all the callers.

Thank you. Thank you. Our next caller is Peter Chickering with Deutsche Bank.

Hey, good afternoon, guys. I guess starting on operating income guidance, Can you sort of bridge this how you're maintaining the guidance from last quarter with treatment growth getting worse due to mistreatments and revenue for treatment at the lower end of the guidance? Can you sort of walk us through how you're sort of getting there? Is it from cost on core kidney? Is it from Better International or IQC? Just how you bridge to me sort of those two negative moving parts and how we're maintaining operating income guidance.

Yeah, generally it's two components. By far the biggest one is cost per treatment, and that's largely a labor dynamic in U.S. dialysis. And the other is on international, which was roughly $10 million ahead of plan for the quarter, largely non-recurring, so I wouldn't annualize that in the back half of the year.

Okay, and then, you know, with the updated treatment growth of, you know, down 75 basis points, 100 basis points, the first half of the year was down 70. So to get to the midpoint of the range, we're now down 1 to 1.1% in the back half of the year. Can you just talk to us about incidence, mortality, and transplants? And then on the mistreatment side, you know, why would they be structural? Because, you know, I get the flu in the first quarter, and I get cybersecurity in the second quarter. But generally, these patients need treatments, otherwise they die. So how can mistreatments become a structural headwind?

Yeah. So let me start with the mistreatment rate. Mistreatment rate is a number that varies. It has been elevated since COVID. Roughly, it peaked at about a 1% worse than the pre-COVID levels. in 2022, and we had expected it to come down since then, and it did. It was down in 23 and 24. It's back up again this year, and I think your point is a very reasonable one, but again, we're talking about one-tenth, maybe, of 1%, maybe 15 bps. So, I think we're comfortable with just keeping it flat relative to 2014. I wouldn't say it's a structural issue, but just our anticipation for the next couple of quarters, we brought it down a bit. In terms of, let me fill out some of the other dynamics, which is really about admits and mortality. So admits in Q2 was negatively impacted. by cyber roughly in line with what we expected. Excluding that, it would have been a normal admit month showing year-over-year growth similar to what we've seen most quarters over the last few years. Mortality, again, mortality remains elevated, but consistent with what we saw in Q2 of last year, So the excess mortality we saw in Q1 from flu has come back down, but the overall mortality level remains higher than pre-COVID, but consistent with last year.

Okay, great. Thanks. I'll jump back in the queue.

Peter, one of the things that's really important, because sometimes in the interest of being simple, People talk about the CKD population and GLP-1s and the impact upstream. We are not seeing it in the admits. And so it's really important what you ask because it's this mortality and mistreatment dynamic that really needs to be rectified. As you mentioned, mistreatments are a little trickier. But mortality, we have a three-pronged plan to work on it. It will take some time to get there. But at the end of the day, you've heard it in the opening remarks, we need better clearance of metal molecules is the first step. Number two, on pharma, we need more patients on GLP-1s. There's barely any patients on them. And then number three is we're working on a whole bunch of protocols in IT to make sure that we can predict hospitalization and other things like that. But at the end of the day, we need to lower mortality.

Great, thanks so much.

Thank you.

Thank you. Our next caller is AJ Rice with UBS.

Hi, everybody. Just maybe ask about the comment on IKC, 40 million more in the Q2. And it sounds like you obviously believe that's a pull forward. I wonder, can you maybe give us a little more of what happened and why do you think that's a pull forward versus potentially a better trend in the underlying business than might carry over in the back half of the year?

Yeah, so the reason we feel comfortable that it's a pull forward, it is all revenue associated with 2024 plan years. And the dynamic is as the data comes in and our actuarial and accounting teams gain confidence in that we have actually earned shared savings, then we will recognize revenue. And our expectation was that we would get that level of clarity in Q3 and Q4, but we were able to get some of the clarity earlier in the year, and as a result, we recognized the revenue early. but we didn't recognize more revenue than we had expected during the year, which is why it's a timing thing rather than a net positive for the year.

Okay, thanks. Maybe I'll also just ask, I think in the prepared remarks you said the cyber attack also had an impact on revenue for treatment. I really wasn't... maybe I'm missing something that's obvious, but it wasn't clear to me why that would occur. What's the dynamic there? And is that something that you think is going to impact the back half as well?

Yeah. So you heard it right, AJ. We do think the cyber incident had an impact on RPT. We don't think it'll impact the second half of the year. There are really two components to this. The larger one is, is impact on revenue for treatments done in Q2. So think about as we're working our way through the cyber incident, some processes have gone manual, some things are, other processes are either delayed or not being done. If I had to give you a couple of examples here, it would be something like prior authorizations or data gathering of certain elements that you'd want on a claim. And as we're working either manually or in a delayed fashion, we expect some of the claims that would normally get approved will not get approved for Q2. So that's the bigger chunk. The smaller chunk relates to Older claims that were in the queue that had been previously denied and were now working to get them re-approved, either gathering information that wasn't on the claim or updating coverage that had changed. And just as time moves on, it gets harder and harder to collect on those claims. And so we think the impact of the cyber incident on systems and other processes will lower our ultimate yield and basically increase bad debt on some of those older claims.

Okay.

All right. Thanks a lot.

Thank you. Our next caller is Justin Lake with Wolf Research. You may go ahead, sir.

Thanks. Appreciate it. Just a few numbers questions for me. Joel, I think you said last quarter you expected revenue per treatment X binders at about 3% for the year. Just curious if you've got an updated assumption on that number.

Yeah, we would peg the number now at around 2.25% for the year. And the big difference really is the RPT impact of the cyber incident.

Even though that was you're saying you think contained to the quarter, how much was that of an impact to the revenue for treatment in the quarter? Do you have a number there? I'd call it 40 to 50 million. Great. Then you talked about the mistreatment in the first half of the year. And then I think you talked about the second half as being flat year over year, where before you had expected it to be down. Is that right? That's right. And what was the growth year over year in mistreatments in the first half?

Trying to get a comparison. It was a little worse in Q1 than in Q2, but it averaged about 50 bps for the first half of the year.

Okay, got it. Then last one for me is just you're giving a treatment growth number of down 75 to 100 bps, and that's total treatment growth. What do you think that equates to?

That's total, yes, U.S.

treatment. Right, that's total U.S. treatment growth, right? But I think most people, including myself, focus on same store, not acquired. What do you think that equates to there?

I would say the same stored non-acquired number would be roughly down 50 bps.

Okay. So on a non-acquired basis, you're expecting things to get a little bit better than the second quarter, look more like the first quarter, and that's because you think the second quarter cyber attack kind of filters through and is done? Why do you expect it to get better than the first half?

Yeah, I don't think NAG is a great number for modeling, so I'm a little reluctant to answer your question. Remember, year-over-year growth also depends on the shape of the census trend from the prior year, so you can't just rely on quarter-over-quarter numbers. But I would say volume growth in the back half of the year, you'd expect it to be worse in Q3 and then better in Q4.

Got it. Thanks.

Thank you. Once again, if you would like to ask a question, you may press star 1. Our next caller is Kevin Fishbeck with Bank of America. You may go ahead, sir.

Great. Thanks. I wanted to ask another question about the volumes. the increased mortality. I appreciate the comments about some of the things that you guys are planning to do to address it, but it's still not clear to me why we have a higher mortality issue to begin with, because I guess higher mortality implies something that is above where it was pre-COVID. So the issue that you singled out kind of sound like newer options to potentially address the issue rather than something went backwards and we're going to get it back to where it was it's more that it's elevated and now you have new tools to potentially bring it down. So just trying to figure out why mortality, in your view, is persistently elevated versus where it was historically.

Yeah, thanks for the question, Kevin. Actually, the actuarial teams are asking that across the country because not just elevated in kidney, but it's elevated in all disease states. The hypothesis is that COVID had an impact on number one, on just the delay of care, and secondly, that comorbid conditions, and in particular, more acutely sick people, are dying faster. And so those are the two, but their hypothesis, there's no real study that can prove that to now. I don't know, Joel, if you've seen anything else you want to add.

Well, first, welcome back, Kevin. Look, Javier said it right. This is We believe a holdover from COVID, and you see it nationally, the mortality rate for all-cause mortality in the U.S. is up roughly similar to what DaVita sees our mortality is up. So it's a national issue. It's not a kidney issue. I think the point we were trying to emphasize here is, We're not passively waiting for the environment to improve, although obviously that would help. But there are things that we and the rest of the industry can do to improve mortality. And this is not a new dynamic. This is really the underpinning of volume growth for the better part of 20 years pre-COVID was mortality improvements, in the dialysis community as a result of things that dialysis providers were able to accomplish.

And then, as that's helpful, I guess as we think about the three things that you outlined as ways to try to mitigate this, I mean, how should we think about the timing of these and when they might expect to impact results?

Yeah, the timing will be gradual. If you look at the better clearance of middle molecules the HDF or the cutoff dialyzer, that will take some time to play out. If you look at pharma and GLP-1s, again, here we are X years into it, and the numbers are in the low teens of patients on the drug, so it's also low. And then on the protocols and systems, again, they're gradual and they're incremental. But it's the cumulative portfolio of things that over time has an impact, but you should think about it in years and not just a couple quarters.

Okay. And then maybe the last question. It sounds like the story for the quarter is you obviously had some headwinds from volume, headwinds from pricing, but you were able to offset it on the cost side of things. Are these cost initiatives things that you can still pull even when volumes come back? I mean, it's been – Impressive to see the cost control the last few years. Does that mean when volumes do start to come back that you should be growing even faster than the 3-7 OI? It seems that if you can maintain this cost control, then there's a lot of opportunity once volumes normalize.

Well, we take a lot of pride in our operational excellence and discipline, and we're always looking for variables that can move the needle and So the short answer is, of course, who knows, because it depends on what volume pickups, et cetera. But our hope and our strategy right now is that we will continue this efficiency. And, of course, as technology advances, we think we can make it happen.

But there's no inherent, you know, roadblock to controlling costs if volumes are growing? No. Okay. All right. Perfect. Thanks. Thank you.

Thank you. Our next caller is Ryan Langston with TD Cowan. You may go ahead, sir.

Thanks. Good evening. Maybe just to Kevin's question a little bit more, I guess, on the patient care cost. Any specifics on what's sort of driving that performance? And I guess, you know, I think it sounds like you're expecting this to continue through the rest of the year. If that's true, is there really any reason why we shouldn't expect this to carry into next year?

The main driver, as Joel said, is productivity. And if you were going to double-click, because as you know, productivity has a lot of variables in there, you would say that our teammates are staying longer, so our retention is a bit better, and our training costs have come down a bit as we are more effective at putting people in their jobs effectively quicker.

Got it. And then just lastly, I guess on the cyber incident, does this have any sort of impact on longer-term spending sort of expectations in terms of hardware, software, anything you might need to invest in just to mitigate the chances of this happening again? Thanks.

It's a marginal cost. Look, at the end of the day, these cyber criminals are quite sophisticated, and they keep reinventing themselves. And so... The corporations and industry has to continue to innovate ourselves. So, we've made some investments that we believe to be appropriate and prudent, but I don't think I would call out anything material.

Would you like to go to the next question? Yes, please. Ryan, are you done?

Yeah, I'm good, thank you. All right, thank you.

Our next caller is Lisa Clive with Bernstein. You may go ahead.

Hi, just a question on the new technologies available in the market, you know, and this focus on removing larger molecules. Baxter's Theranova Dialyzer has been in the market in the U.S. for several years, and obviously FMC is ramping up their HDF rollout for next year. For Theranova, and I guess also for HDF because you run clinics in Europe too, how much have you used these technologies in your clinics thus far? And I suppose how are you going to go about really collecting the clinical data, you know, running sort of effectively, I assume, clinical trials, and how long do you think it will really take to get an idea of how much of an impact these new technologies can make?

Yeah, so let me unpack it and see if I get to all your questions. Number one, we are experienced on both the HDF and the middle molecule dialyzers. We are using different brands, so I won't get into what brand of dialyzer we are using. Different countries have different beliefs, and so in countries where HDF is there, sometimes you have almost the entire country there, and sometimes you have literally only 20%. So it's got dynamics of clinical practices. It's got dynamics of reimbursement and other things. So as you know, the CONVINCE study had some very encouraging results on mortality. And now there is a study in Spain called the MOTHER study. And that is literally putting both technologies head to head. At the end of the day, what we want is what's best for the patients and what our physicians and patients want. But of course, we're watching the science because it's a lot easier to change a dialyzer than it is to change your fleet of machines and prescriptions and all the other things. But at the end of the day, if that's what the doctors want or that's where the science points us, of course, we will do it. So we are watching like you are and we're conducting a couple of studies ourselves. and we will be moving as appropriate.

Great. And just to follow up on the phosphate binders, there's a lot of generics in the market, and then there's, I guess, two newer alternatives. Are the pill loads on that better? Because I know one of them should be going generic soon. Or do you see this as more of an adherence problem rather than a cost problem?

I would say probably more adherence. The mix that we saw hasn't changed much between Q1 and Q2. That said, look, we're only about six months into this, so we're still learning. That said, I think from an OI standpoint, we feel pretty good about where we are for the year and the number of moving pieces are going down every quarter. So the $50 million of OI feels like a pretty reasonable estimate for the rest of the year.

Great. Thanks for that.

Thank you, Lisa.

Thank you. And our next caller is Pito Chikaring with Deutsche Bank. You may go ahead, sir.

Hey, guys. Thanks for letting me back in the queue. Just free cash flow. I think it's tracking about $112 million for the first half of the year, but guidance has reiterated at $1 billion, $1.25 billion. I guess, can you break us how you get back to that level of free cash flow in the back half of the year?

Yeah. Free cash flow is generally lighter in the first half of the year, and the cyber incident slowed us down a lot in Q2. So catching up on cyber will be the biggest challenge. I think cash taxes is probably the other thing I'd point to in the back half of the year that will be significantly better than the first half.

Okay, great. And then on IKC, this big reversal of operating income and 2Q, patients began growing again. I guess what are you seeing there and what do you assume in the back half of the year from IKC? Is this because you guys unloaded a bunch of patients in the first quarter or just kind of what? which we expect for IKC in the back half of the year?

So, look, IKC was roughly break-even for the first half of the year. We haven't changed our guide for the year of, call it, negative 20 million-ish. So that's what you should expect, negative 20 over the back half of the year. Typically, Q4 should be a better quarter than than Q3, although the phasing of OI and IKC is very variable and tough to predict, as you can see based on what happened in Q2.

Great. Then a few quickies here. What is your MA penetration at this point? Are you still getting positive pricing tailwinds from growth in MA?

There's really not much to call out anymore on MA. We're roughly moving with the market. There's really very little of note there.

Okay. And then on HIC subsidies expiring for 2026, can those patients get enrolled via the American Kidney Fund before they drop into government reimbursement?

Certainly a possibility, yes.

Okay, and then second to last one here, what was the commercial mix this quarter, any changes to home dialysis?

Immaterial, minor, minor variability on both, so nothing to call out.

Okay, and then my last one here, I promise here, that Berkshire sale that came out today, was that just part of the normal, they get to that 45% range, and that's what it is?

That's exactly right, Peter. It was in the normal course. It was pursuing for the Stancil agreement that we have with them.

Great. Thanks so much.

Thank you.

Thank you. At this time, we are showing no further questions. I'll turn the call back over to you.

Okay. Thank you, Michelle, and thank you all for your time this afternoon. As we highlighted today, we're first and foremost committed to providing exceptional care for our patients. As we achieve our clinical objectives, our financial performance will follow. 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.