UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended ~~September 30, 2022~~March 31, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

Commission File Number: 1-14106

DAVITA INC.


Delaware						51-0354549
(State of incorporation)						(I.R.S. Employer Identification No.)


2000 16th Street
Denver,	CO	80202

Telephone number (720) 631-2100

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:

Trading symbol(s):

Name of each exchange on which registered:

Common Stock, $0.001 par value

DVA

NYSE

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ☒

As of ~~October 27, 2022,~~May 5, 2023, the number of shares of the registrant’s common stock outstanding was approximately ~~90.1~~90.7 million shares.

DAVITA INC.

INDEX

Page No.

PART I. FINANCIAL INFORMATION

Item 1.

Condensed Consolidated Financial Statements:

Consolidated Statements of Income for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 and

~~September 30, 2021~~March 31, 2022

Consolidated Statements of Comprehensive Income for the three ~~and nine~~ months ended

~~September 30,~~March 31, 2023 and March 31, 2022 ~~and September 30, 2021~~

Consolidated Balance Sheets as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022

Consolidated Statements of Cash Flow for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 and

~~September 30, 2021~~March 31, 2022

Consolidated Statements of Equity for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 and

~~September 30, 2021~~March 31, 2022

Notes to Condensed Consolidated Financial Statements

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

2119

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

3935

Item 4.

Controls and Procedures

3935

PART II. OTHER INFORMATION

Item 1.

Item 1A.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Item 6.

Note: Items 3, 4 and 5 of Part II are omitted because they are not applicable.

DAVITA INC.

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

(dollars and shares in thousands, except per share data)


		Three months ended September 30,				Nine months ended September 30,					Three months ended March 31,
		2022		2021		2022		2021			2023		2022
Dialysis patient service revenues	Dialysis patient service revenues	$	2,846,494	$	2,837,940	$	8,372,874	$	8,370,484	Dialysis patient service revenues	$	2,760,034	$	2,716,281
Other revenues	Other revenues	102,200		100,379		320,132		304,346		Other revenues	112,665		101,274
Total revenues	Total revenues	2,948,694		2,938,319		8,693,006		8,674,830		Total revenues	2,872,699		2,817,555
Operating expenses:	Operating expenses:									Operating expenses:
Patient care costs	Patient care costs	2,085,555		2,008,589		6,120,872		5,912,196		Patient care costs	2,058,189		2,018,529
General and administrative	General and administrative	365,447		293,095		975,486		872,612		General and administrative	331,614		294,820
Depreciation and amortization	Depreciation and amortization	194,414		170,462		538,534		505,852		Depreciation and amortization	178,071		172,944
Equity investment income, net	Equity investment income, net	(8,509)		(8,704)		(24,696)		(23,785)		Equity investment income, net	(6,820)		(7,046)

Total operating expenses	Total operating expenses	2,636,907		2,463,442		7,610,196		7,266,875		Total operating expenses	2,561,054		2,479,247
Operating income	Operating income	311,787		474,877		1,082,810		1,407,955		Operating income	311,645		338,308
Debt expense	Debt expense	(99,680)		(72,829)		(256,057)		(213,167)		Debt expense	(100,774)		(73,791)

Other (loss) income, net		(4,898)		(7,590)		(7,968)		8,766
Other income (loss), net										Other income (loss), net	3,752		(1,786)
Income before income taxes	Income before income taxes	207,209		394,458		818,785		1,203,554		Income before income taxes	214,623		262,731
Income tax expense	Income tax expense	42,515		74,704		163,757		241,224		Income tax expense	43,955		57,013

Net income	Net income	164,694		319,754		655,028		962,330		Net income	170,668		205,718
Less: Net income attributable to noncontrolling interests	Less: Net income attributable to noncontrolling interests	(59,328)		(60,000)		(162,731)		(171,353)		Less: Net income attributable to noncontrolling interests	(55,121)		(43,596)
Net income attributable to DaVita Inc.	Net income attributable to DaVita Inc.	$	105,366	$	259,754	$	492,297	$	790,977	Net income attributable to DaVita Inc.	$	115,547	$	162,122

Earnings per share attributable to DaVita Inc.:	Earnings per share attributable to DaVita Inc.:									Earnings per share attributable to DaVita Inc.:

Basic net income	Basic net income	$	1.16	$	2.48	$	5.24	$	7.41	Basic net income	$	1.28	$	1.68

Diluted net income	Diluted net income	$	1.13	$	2.36	$	5.07	$	7.08	Diluted net income	$	1.25	$	1.61

Weighted average shares for earnings per share:	Weighted average shares for earnings per share:									Weighted average shares for earnings per share:
Basic shares	Basic shares	91,160		104,793		93,959		106,685		Basic shares	90,497		96,342
Diluted shares	Diluted shares	93,263		109,838		97,153		111,666		Diluted shares	92,483		100,503

See notes to condensed consolidated financial statements.

DAVITA INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

(dollars in thousands)

Three months ended September 30, Nine months ended September 30,
2022 2021 2022 2021
Net income $ 164,694 $ 319,754 $ 655,028 $ 962,330
Other comprehensive (loss) income, net of tax:
Unrealized gains (losses) on interest rate cap agreements:
Unrealized gains (losses) 41,312 (357) 95,660 2,466
Reclassifications of net realized losses into net income 1,033 1,034 3,100 3,100
Unrealized losses on foreign currency translation: (66,100) (54,528) (95,064) (59,162)
Other comprehensive (loss) income (23,755) (53,851) 3,696 (53,596)
Total comprehensive income 140,939 265,903 658,724 908,734
Less: Comprehensive income attributable to
noncontrolling interests (59,328) (60,000) (162,731) (171,353)
Comprehensive income attributable to DaVita Inc. $ 81,611 $ 205,903 $ 495,993 $ 737,381


	Three months ended March 31,
	2023		2022
Net income	$	170,668	$	205,718
Other comprehensive income, net of tax:
Unrealized (losses) gains on interest rate cap agreements:
Unrealized (losses) gains	(3,539)		41,132
Reclassifications of net realized (gains) losses into net income	(15,742)		1,033
Unrealized gains on foreign currency translation:	33,561		62,212
Other comprehensive income	14,280		104,377
Total comprehensive income	184,948		310,095
Less: Comprehensive income attributable to noncontrolling interests	(55,121)		(43,596)
Comprehensive income attributable to DaVita Inc.	$	129,827	$	266,499

See notes to condensed consolidated financial statements.

DAVITA INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

(dollars and shares in thousands, except per share data)


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
ASSETS	ASSETS					ASSETS
Cash and cash equivalents	Cash and cash equivalents	$	367,510	$	461,900	Cash and cash equivalents	$	317,132	$	244,086
Restricted cash and equivalents	Restricted cash and equivalents	94,704		93,060		Restricted cash and equivalents	94,265		94,903
Short-term investments	Short-term investments	74,305		22,310		Short-term investments	49,965		77,693
Accounts receivable	Accounts receivable	2,089,017		1,957,583		Accounts receivable	2,057,809		2,132,070
Inventories	Inventories	106,845		107,428		Inventories	106,770		109,122
Other receivables	Other receivables	392,851		427,321		Other receivables	324,405		413,976
Prepaid and other current assets	Prepaid and other current assets	65,807		72,517		Prepaid and other current assets	89,393		78,839
Income tax receivable	Income tax receivable	11,403		25,604		Income tax receivable	—		4,603
Total current assets	Total current assets	3,202,442		3,167,723		Total current assets	3,039,739		3,155,292
Property and equipment, net of accumulated depreciation of $5,114,579 and $4,763,135, respectively		3,240,310		3,479,972
Property and equipment, net of accumulated depreciation of $5,395,966 and $5,265,372, respectively						Property and equipment, net of accumulated depreciation of $5,395,966 and $5,265,372, respectively	3,216,373		3,256,397
Operating lease right-of-use assets	Operating lease right-of-use assets	2,721,888		2,824,787		Operating lease right-of-use assets	2,617,018		2,666,242
Intangible assets, net of accumulated amortization of $46,907 and $60,730, respectively		179,715		177,693
Intangible assets, net of accumulated amortization of $40,945 and $49,772, respectively						Intangible assets, net of accumulated amortization of $40,945 and $49,772, respectively	186,758		182,687
Equity method and other investments	Equity method and other investments	243,554		238,881		Equity method and other investments	241,747		231,108
Long-term investments	Long-term investments	43,535		49,514		Long-term investments	44,520		44,329
Other long-term assets	Other long-term assets	307,713		136,677		Other long-term assets	291,321		315,587
Goodwill	Goodwill	7,022,642		7,046,241		Goodwill	7,090,311		7,076,610
		$	16,961,799	$	17,121,488		$	16,727,787	$	16,928,252
LIABILITIES AND EQUITY	LIABILITIES AND EQUITY					LIABILITIES AND EQUITY
Accounts payable	Accounts payable	$	417,139	$	402,049	Accounts payable	$	447,969	$	479,780
Other liabilities	Other liabilities	796,200		709,345		Other liabilities	796,742		802,469
Accrued compensation and benefits	Accrued compensation and benefits	702,877		659,960		Accrued compensation and benefits	618,931		692,654
Current portion of operating lease liabilities	Current portion of operating lease liabilities	396,880		394,357		Current portion of operating lease liabilities	394,607		395,401
Current portion of long-term debt	Current portion of long-term debt	214,254		179,030		Current portion of long-term debt	242,193		231,404
Income tax payable	Income tax payable	10,059		53,792		Income tax payable	64,651		18,039
Total current liabilities	Total current liabilities	2,537,409		2,398,533		Total current liabilities	2,565,093		2,619,747
Long-term operating lease liabilities	Long-term operating lease liabilities	2,558,355		2,672,713		Long-term operating lease liabilities	2,455,144		2,503,068
Long-term debt	Long-term debt	8,867,187		8,729,150		Long-term debt	8,417,532		8,692,617
Other long-term liabilities	Other long-term liabilities	106,895		119,158		Other long-term liabilities	100,229		105,233
Deferred income taxes	Deferred income taxes	819,073		830,954		Deferred income taxes	771,087		782,787
Total liabilities	Total liabilities	14,888,919		14,750,508		Total liabilities	14,309,085		14,703,452
Commitments and contingencies	Commitments and contingencies					Commitments and contingencies
Noncontrolling interests subject to put provisions	Noncontrolling interests subject to put provisions	1,370,753		1,434,832		Noncontrolling interests subject to put provisions	1,398,829		1,348,908
Equity:	Equity:					Equity:
Preferred stock ($0.001 par value, 5,000 shares authorized; none issued)	Preferred stock ($0.001 par value, 5,000 shares authorized; none issued)	—		—		Preferred stock ($0.001 par value, 5,000 shares authorized; none issued)	—		—
Common stock ($0.001 par value, 450,000 shares authorized; 98,199 and 90,104 shares issued and outstanding at September 30, 2022, respectively, and 97,289 shares issued and outstanding at December 31, 2021)		98		97
Common stock ($0.001 par value, 450,000 shares authorized; 90,650 and 90,411 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively)						Common stock ($0.001 par value, 450,000 shares authorized; 90,650 and 90,411 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively)	91		90
Additional paid-in capital	Additional paid-in capital	609,345		540,321		Additional paid-in capital	590,251		606,935
Retained earnings	Retained earnings	846,634		354,337		Retained earnings	290,034		174,487
Treasury stock (8,095 and zero shares, respectively)		(787,854)		—

Accumulated other comprehensive loss	Accumulated other comprehensive loss	(135,551)		(139,247)		Accumulated other comprehensive loss	(54,906)		(69,186)
Total DaVita Inc. shareholders' equity	Total DaVita Inc. shareholders' equity	532,672		755,508		Total DaVita Inc. shareholders' equity	825,470		712,326
Noncontrolling interests not subject to put provisions	Noncontrolling interests not subject to put provisions	169,455		180,640		Noncontrolling interests not subject to put provisions	194,403		163,566
Total equity	Total equity	702,127		936,148		Total equity	1,019,873		875,892
		$	16,961,799	$	17,121,488		$	16,727,787	$	16,928,252

See notes to condensed consolidated financial statements.

DAVITA INC.

CONSOLIDATED STATEMENTS OF CASH FLOW

(unaudited)

(dollars in thousands)


		Nine months ended September 30,					Three months ended March 31,
		2022		2021			2023		2022
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income	Net income	$	655,028	$	962,330	Net income	$	170,668	$	205,718
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	538,534		505,852		Depreciation and amortization	178,071		172,944

Stock-based compensation expense	Stock-based compensation expense	77,904		75,898		Stock-based compensation expense	25,373		24,904
Deferred income taxes	Deferred income taxes	(35,637)		56,724		Deferred income taxes	(3,621)		(41)
Equity investment income, net		(417)		(1,687)
Equity investment loss, net						Equity investment loss, net	3,044		664

Other non-cash charges, net	Other non-cash charges, net	16,035		13,418		Other non-cash charges, net	5,864		4,714
Changes in operating assets and liabilities, net of effect of acquisitions and divestitures:	Changes in operating assets and liabilities, net of effect of acquisitions and divestitures:					Changes in operating assets and liabilities, net of effect of acquisitions and divestitures:
Accounts receivable	Accounts receivable	(135,632)		(205,792)		Accounts receivable	81,850		(66,270)
Inventories	Inventories	347		(2,490)		Inventories	2,758		849
Other receivables and prepaid and other current assets	Other receivables and prepaid and other current assets	43,392		144,967		Other receivables and prepaid and other current assets	66,595		(17,966)
Other long-term assets	Other long-term assets	(49,326)		(19,663)		Other long-term assets	(615)		3,520
Accounts payable	Accounts payable	38,870		(47,412)		Accounts payable	(20,535)		21,402
Accrued compensation and benefits	Accrued compensation and benefits	35,491		(7,176)		Accrued compensation and benefits	(74,144)		(95,927)
Other current liabilities	Other current liabilities	87,248		(87,842)		Other current liabilities	(6,486)		26,912
Income taxes	Income taxes	(37,770)		22,609		Income taxes	39,251		52,473
Other long-term liabilities	Other long-term liabilities	(13,219)		(8,748)		Other long-term liabilities	(5,516)		(11,701)
Net cash provided by operating activities	Net cash provided by operating activities	1,220,848		1,400,988		Net cash provided by operating activities	462,557		322,195
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Additions of property and equipment	Additions of property and equipment	(409,391)		(451,909)		Additions of property and equipment	(147,705)		(123,108)
Acquisitions	Acquisitions	(43,811)		(45,143)		Acquisitions	—		(5,166)
Proceeds from asset and business sales	Proceeds from asset and business sales	116,088		46,578		Proceeds from asset and business sales	13,474		11,353
Purchase of debt investments held-to-maturity	Purchase of debt investments held-to-maturity	(94,602)		(13,274)		Purchase of debt investments held-to-maturity	(25,000)		(5,070)
Purchase of other debt and equity investments	Purchase of other debt and equity investments	(3,322)		(2,609)		Purchase of other debt and equity investments	(4,643)		(2,726)
Proceeds from debt investments held-to-maturity	Proceeds from debt investments held-to-maturity	40,660		13,274		Proceeds from debt investments held-to-maturity	50,258		5,070
Proceeds from sale of other debt and equity investments	Proceeds from sale of other debt and equity investments	3,763		11,976		Proceeds from sale of other debt and equity investments	3,856		3,773
Other		(782)		(745)

Purchase of equity method investments	Purchase of equity method investments	(28,176)		(7,925)		Purchase of equity method investments	(7,904)		(2,962)
Distributions from equity method investments	Distributions from equity method investments	2,490		1,592		Distributions from equity method investments	1,120		470
Net cash used in investing activities	Net cash used in investing activities	(417,083)		(448,185)		Net cash used in investing activities	(116,544)		(118,366)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Borrowings	Borrowings	1,705,913		1,613,036		Borrowings	611,829		354,285
Payments on long-term debt	Payments on long-term debt	(1,557,358)		(812,659)		Payments on long-term debt	(880,552)		(398,990)
Deferred financing and debt redemption costs	Deferred financing and debt redemption costs	—		(9,091)		Deferred financing and debt redemption costs	(7)		—
Purchase of treasury stock	Purchase of treasury stock	(802,228)		(882,411)		Purchase of treasury stock	—		(236,232)
Distributions to noncontrolling interests	Distributions to noncontrolling interests	(188,592)		(177,146)		Distributions to noncontrolling interests	(54,837)		(65,452)
Net payments related to stock purchases and awards	Net payments related to stock purchases and awards	(42,248)		(59,849)		Net payments related to stock purchases and awards	(7,902)		(501)
Contributions from noncontrolling interests	Contributions from noncontrolling interests	11,382		28,295		Contributions from noncontrolling interests	4,725		4,929
Proceeds from sales of additional noncontrolling interests	Proceeds from sales of additional noncontrolling interests	3,673		2,880		Proceeds from sales of additional noncontrolling interests	50,832		3,673
Purchases of noncontrolling interests	Purchases of noncontrolling interests	(20,770)		(11,658)		Purchases of noncontrolling interests	—		(3,283)
Net cash used in financing activities	Net cash used in financing activities	(890,228)		(308,603)		Net cash used in financing activities	(275,912)		(341,571)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	Effect of exchange rate changes on cash, cash equivalents and restricted cash	(6,283)		(7,381)		Effect of exchange rate changes on cash, cash equivalents and restricted cash	2,307		3,363
Net (decrease) increase in cash, cash equivalents and restricted cash		(92,746)		636,819
Net increase (decrease) in cash, cash equivalents and restricted cash						Net increase (decrease) in cash, cash equivalents and restricted cash	72,408		(134,379)
Cash, cash equivalents and restricted cash at beginning of the year	Cash, cash equivalents and restricted cash at beginning of the year	554,960		501,790		Cash, cash equivalents and restricted cash at beginning of the year	338,989		554,960
Cash, cash equivalents and restricted cash at end of the period	Cash, cash equivalents and restricted cash at end of the period	$	462,214	$	1,138,609	Cash, cash equivalents and restricted cash at end of the period	$	411,397	$	420,581

See notes to condensed consolidated financial statements.

DAVITA INC.

CONSOLIDATED STATEMENTS OF EQUITY

(unaudited)

(dollars and shares in thousands)

Three months ended September 30, 2022
Non-
controlling
interests
subject to
put provisions DaVita Inc. Shareholders’ Equity Non-
controlling
interests not
subject to
put provisions
Common stock Additional
paid-in
capital Retained
earnings Treasury stock Accumulated
other
comprehensive
loss
Shares Amount Shares Amount Total
Balance at June 30, 2022 $ 1,385,821 98,179 $ 98 $ 578,272 $ 741,268 (5,973) $ (603,058) $ (111,796) $ 604,784 $ 170,390
Comprehensive income:
Net income 39,205 105,366 105,366 20,123
Other comprehensive loss (23,755) (23,755)
Stock award plan 20 (986) (986)
Stock-settled stock-based
compensation expense 27,619 27,619
Changes in noncontrolling
interest from:
Distributions (48,275) (22,002)
Contributions 1,996 270
Acquisitions and divestitures 867
Partial purchases (215) (3,339) (3,339) (193)
Fair value remeasurements (7,779) 7,779 7,779
Other
Purchase of treasury stock (2,122) (184,796) (184,796)
Balance at September 30, 2022 $ 1,370,753 98,199 $ 98 $ 609,345 $ 846,634 (8,095) $ (787,854) $ (135,551) $ 532,672 $ 169,455


		Nine months ended September 30, 2022																																											Three months ended March 31, 2023
		Non- controlling interests subject to put provisions				DaVita Inc. Shareholders’ Equity																																			Non- controlling interests not subject to put provisions				Non- controlling interests subject to put provisions				DaVita Inc. Shareholders’ Equity																															Non- controlling interests not subject to put provisions

										Common stock									Additional paid-in capital				Retained earnings					Treasury stock										Accumulated other comprehensive loss														Common stock								Additional paid-in capital				Retained earnings				Treasury stock								Accumulated other comprehensive loss
						Shares		Amount									Shares								Amount								Total															Shares			Amount								Shares								Amount					Total
Balance at December 31, 2021				$	1,434,832		97,289				$	97			$	540,321				$	354,337			—					$	—				$	(139,247)				$	755,508						$	180,640
Balance at December 31, 2022																																											Balance at December 31, 2022			$	1,348,908			90,411				$	90		$	606,935				$	174,487			—				$	—			$	(69,186)			$	712,326			$	163,566
Comprehensive income:	Comprehensive income:																																										Comprehensive income:
Net income	Net income	113,157															492,297																				492,297					49,574		Net income		36,692																115,547																115,547			18,429

Other comprehensive income	Other comprehensive income																														3,696					3,696							Other comprehensive income																														14,280				14,280

Stock award plan	Stock award plan					910		1					(55,359)																							(55,358)							Stock award plan						239				1			(9,523)																					(9,522)
Stock-settled stock-based compensation expense	Stock-settled stock-based compensation expense												77,835																							77,835							Stock-settled stock-based compensation expense													24,847																					24,847
Changes in noncontrolling interest from:	Changes in noncontrolling interest from:																																										Changes in noncontrolling interest from:
Distributions	Distributions	(125,534)																																								(63,058)		Distributions		(35,550)																																			(19,287)
Contributions	Contributions	9,300																																							2,082		Contributions		3,748																																			977
Acquisitions and divestitures	Acquisitions and divestitures	2,392											939																							939					867		Acquisitions and divestitures													13,023																					13,023			30,718
Partial purchases		(11,633)											(6,609)																							(6,609)					(193)

Fair value remeasurements	Fair value remeasurements	(52,218)											52,218																							52,218							Fair value remeasurements		45,031											(45,031)																					(45,031)
Other		457																																							(457)
Purchase of treasury stock																						(8,095)				(787,854)										(787,854)
Balance at September 30, 2022		$	1,370,753			98,199		$	98				$	609,345			$	846,634				(8,095)				$	(787,854)				$	(135,551)				$	532,672				$	169,455

Balance at March 31, 2023																																											Balance at March 31, 2023		$	1,398,829			90,650				$	91		$	590,251				$	290,034			—				$	—			$	(54,906)			$	825,470		$	194,403

See notes to condensed consolidated financial statements.


	Three months ended March 31, 2022
	Non- controlling interests subject to put provisions		DaVita Inc. Shareholders’ Equity														Non- controlling interests not subject to put provisions

			Common stock			Additional paid-in capital		Retained earnings		Treasury stock			Accumulated other comprehensive loss
			Shares	Amount						Shares	Amount				Total
Balance at December 31, 2021	$	1,434,832	97,289	$	97	$	540,321	$	354,337	—	$	—	$	(139,247)	$	755,508	$	180,640
Comprehensive income:
Net income	28,381							162,122							162,122		15,215

Other comprehensive income													104,377		104,377

Stock award plan			53			(3,488)									(3,488)
Stock-settled stock-based compensation expense						24,626									24,626
Changes in noncontrolling interest from:
Distributions	(42,881)																(22,571)
Contributions	3,197																1,732
Acquisitions and divestitures	2,421					883									883
Partial purchases	(822)					(1,774)									(1,774)
Fair value remeasurements	(34,835)					34,835									34,835
Other	464																(464)
Purchase of treasury stock										(2,104)	(233,318)				(233,318)

Balance at March 31, 2022	$	1,390,757	97,342	$	97	$	595,403	$	516,459	(2,104)	$	(233,318)	$	(34,870)	$	843,771	$	174,552

~~DAVITA INC.~~

~~CONSOLIDATED STATEMENTS OF EQUITY~~

~~(unaudited)~~

~~(dollars and shares in thousands)~~

Three months ended September 30, 2021
Non-
controlling
interests
subject to
put provisions DaVita Inc. Shareholders’ Equity Non-
controlling
interests not
subject to
put provisions
Common stock Additional
paid-in
capital Retained
earnings Treasury stock Accumulated
other
comprehensive
loss
Shares Amount Shares Amount Total
Balance at June 30, 2021 $ 1,426,211 110,644 $ 111 $ 523,038 $ 1,383,760 (5,019) $ (563,230) $ (65,899) $ 1,277,780 $ 185,046
Comprehensive income:
Net income 41,182 259,754 259,754 18,818
Other comprehensive loss (53,851) (53,851)
Stock award plans 242 (23,584) (23,584)
Stock-settled stock-based
compensation expense 24,055 24,055
Changes in noncontrolling
interest from:
Distributions (49,766) (28,018)
Contributions 9,041 3,329
Acquisitions and divestitures 5,903 (351) (351) 1
Partial purchases (6,803) (6,803) (362)
Fair value remeasurements (8,654) 8,654 8,654
Purchase of treasury stock (2,731) (336,217) (336,217)
Balance at September 30, 2021 $ 1,423,917 110,886 $ 111 $ 525,009 $ 1,643,514 (7,750) $ (899,447) $ (119,750) $ 1,149,437 $ 178,814

Nine months ended September 30, 2021
Non-
controlling
interests
subject to
put provisions DaVita Inc. Shareholders’ Equity Non-
controlling
interests not
subject to
put provisions
Common stock Additional
paid-in
capital Retained
earnings Treasury stock Accumulated
other
comprehensive
loss
Shares Amount Shares Amount Total
Balance at December 31, 2020 $ 1,330,028 109,933 $ 110 $ 597,073 $ 852,537 — $ — $ (66,154) $ 1,383,566 $ 183,186
Comprehensive income:
Net income 121,774 790,977 790,977 49,579
Other comprehensive loss (53,596) (53,596)
Stock award plans 953 1 (74,761) (74,760)
Stock-settled stock-based
compensation expense 74,568 74,568
Changes in noncontrolling interest
from:
Distributions (114,008) (63,138)
Contributions 19,830 8,465
Acquisitions and divestitures 5,903 (351) (351) 1,250
Partial purchases (552) (10,578) (10,578) (528)
Fair value remeasurements 60,942 (60,942) (60,942)
Purchase of treasury stock (7,750) (899,447) (899,447)
Balance at September 30, 2021 $ 1,423,917 110,886 $ 111 $ 525,009 $ 1,643,514 (7,750) $ (899,447) $ (119,750) $ 1,149,437 $ 178,814

See notes to condensed consolidated financial statements.

DAVITA INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(dollars and shares in thousands, except per share data)

Unless otherwise indicated in this Quarterly Report on Form 10-Q, "the Company", "we", "us", "our" and similar terms refer to DaVita Inc. and its consolidated subsidiaries.

1. Condensed consolidated interim financial statements

The unaudited condensed consolidated interim financial statements included in this report are prepared by the Company. In the opinion of management, all adjustments necessary for a fair presentation of the results of operations are reflected in these condensed consolidated interim financial statements. All significant intercompany accounts and transactions have been eliminated. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets, liabilities, contingencies and noncontrolling interests subject to put provisions. The most significant estimates and assumptions underlying these financial statements and accompanying notes generally involve revenue recognition and accounts receivable, certain fair value estimates, accounting for income taxes and loss contingencies. The results of operations reflected in these interim financial statements may not necessarily be indicative of annual operating results. These condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021 (2021~~2022 (2022 10-K). Prior period classifications conform to the current period presentation. The Company has evaluated subsequent events through the date these condensed consolidated interim financial statements were issued and has included all necessary adjustments and disclosures.

2. Revenue recognition

The following tables summarize the Company's segment revenues by primary payor source:


		Three months ended September 30, 2022						Three months ended September 30, 2021							Three months ended March 31, 2023						Three months ended March 31, 2022
		U.S. dialysis		Other — Ancillary services		Consolidated		U.S. dialysis		Other — Ancillary services		Consolidated			U.S. dialysis		Other — Ancillary services		Consolidated		U.S. dialysis		Other — Ancillary services		Consolidated
Dialysis patient service revenues:	Dialysis patient service revenues:													Dialysis patient service revenues:
Medicare and Medicare Advantage	Medicare and Medicare Advantage	$	1,535,680	$		$	1,535,680	$	1,543,819	$		$	1,543,819	Medicare and Medicare Advantage	$	1,482,767	$		$	1,482,767	$	1,464,086	$		$	1,464,086
Medicaid and Managed Medicaid	Medicaid and Managed Medicaid	193,853				193,853		203,169				203,169		Medicaid and Managed Medicaid	205,776				205,776		189,655				189,655
Other government	Other government	86,852		116,084		202,936		82,624		113,260		195,884		Other government	82,044		121,585		203,629		80,800		116,895		197,695
Commercial	Commercial	880,812		56,170		936,982		862,218		54,857		917,075		Commercial	835,393		54,516		889,909		834,579		52,425		887,004
Other revenues:	Other revenues:													Other revenues:
Medicare and Medicare Advantage	Medicare and Medicare Advantage			78,345		78,345				77,277		77,277		Medicare and Medicare Advantage			93,238		93,238				83,596		83,596
Medicaid and Managed Medicaid	Medicaid and Managed Medicaid			412		412				377		377		Medicaid and Managed Medicaid			570		570				538		538
Commercial	Commercial			6,484		6,484				7,164		7,164		Commercial			1,206		1,206				1,338		1,338
Other(1)	Other(1)	6,056		10,903		16,959		6,216		9,442		15,658		Other(1)	6,180		12,839		19,019		5,976		9,836		15,812
Eliminations of intersegment revenues	Eliminations of intersegment revenues	(22,957)				(22,957)		(22,104)				(22,104)		Eliminations of intersegment revenues	(22,047)		(1,368)		(23,415)		(22,169)				(22,169)
Total	Total	$	2,680,296	$	268,398	$	2,948,694	$	2,675,942	$	262,377	$	2,938,319	Total	$	2,590,113	$	282,586	$	2,872,699	$	2,552,927	$	264,628	$	2,817,555

~~(1)~~Other primarily consists of management service fees earned in the respective Company line of business as well as other non-patient service revenue from the Company's U.S. ancillary services and international operations.

~~DAVITA INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)~~

~~(unaudited)~~

~~(dollars and shares in thousands, except per share data)~~

Nine months ended September 30, 2022 Nine months ended September 30, 2021
U.S. dialysis Other - Ancillary services Consolidated U.S. dialysis Other - Ancillary services Consolidated
Dialysis patient service revenues:
Medicare and Medicare Advantage $ 4,529,300 $ $ 4,529,300 $ 4,586,278 $ $ 4,586,278
Medicaid and Managed Medicaid 570,380 570,380 585,053 585,053
Other government 253,731 349,633 603,364 245,125 338,553 583,678
Commercial 2,570,054 164,302 2,734,356 2,528,499 157,172 2,685,671
Other revenues:
Medicare and Medicare Advantage 255,204 255,204 243,085 243,085
Medicaid and Managed Medicaid 1,181 1,181 981 981
Commercial 16,029 16,029 14,387 14,387
Other(1)
18,124 29,584 47,708 19,308 31,107 50,415
Eliminations of intersegment revenues (64,516) (64,516) (70,424) (4,294) (74,718)
Total $ 7,877,073 $ 815,933 $ 8,693,006 $ 7,893,839 $ 780,991 $ 8,674,830

(1) Other primarily consists of management service fees earned in the respective Company line of business as well as other non-patient service revenue from the Company's U.S. integrated kidney care (IKC) and other ancillary services and international operations.

There are significant uncertainties associated with estimating revenue, many of which ~~generally~~ take several years to resolve. These estimates are subject to ongoing insurance coverage changes, geographic coverage differences, differing interpretations of contract coverage and other payor issues, as well as patient issues, including determination of applicable primary and secondary coverage, changes in patient insurance coverage and coordination of benefits. As these estimates are refined over time, both positive and negative adjustments to revenue are recognized in the current period.

Dialysis patient service revenues. Revenues are recognized based on the Company’s estimate of the transaction price the Company expects to collect as a result of satisfying its performance obligations. Dialysis patient service revenues are recognized in the period services are provided based on these estimates. Revenues consist primarily of payments from government and commercial health plans for dialysis services provided to patients. The Company maintains a usual and customary fee schedule for its dialysis treatments and related lab services; however, actual collectible revenue is normally recognized at a discount from the fee schedule.

DAVITA INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(unaudited)

(dollars and shares in thousands, except per share data)

Other revenues. Other revenues consist of revenues earned by the Company's non-dialysis ancillary services as well as fees for management and administrative services to outpatient dialysis businesses that the Company does not consolidate. Other revenues are estimated in the period services are provided. The Company's ~~U.S. ancillary service~~integrated kidney care (IKC) revenues include revenues earned under risk-based arrangements, ~~in the Company's integrated kidney care (IKC) business,~~ including value-based care (VBC) arrangements. Under its VBC arrangements, the Company assumes full or shared financial risk for the total medical cost of care for patients below or above a benchmark. The benchmarks against which the Company incurs profit or loss on these contracts are typically based on the underlying premiums paid to the insuring entity (the Company's counterparty), with adjustments where applicable, or on trended or adjusted medical cost targets.

3. Earnings per share

Basic earnings per share is calculated by dividing net income attributable to the Company by the weighted average number of common shares outstanding. Weighted average common shares outstanding include restricted stock unit awards that are no longer subject to forfeiture because the recipients have satisfied either the explicit vesting terms or retirement eligibility requirements.

Diluted earnings per share includes the dilutive effect of outstanding stock-settled stock appreciation rights and unvested stock units as computed under the treasury stock method.

~~DAVITA INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)~~

~~(unaudited)~~

~~(dollars and shares in thousands, except per share data)~~

The reconciliations of the numerators and denominators used to calculate basic and diluted earnings per share were as follows:


		Three months ended September 30,				Nine months ended September 30,					Three months ended March 31,
		2022		2021		2022		2021			2023		2022

Net income attributable to DaVita Inc.	Net income attributable to DaVita Inc.	$	105,366	$	259,754	$	492,297	$	790,977	Net income attributable to DaVita Inc.	$	115,547	$	162,122

Weighted average shares outstanding:	Weighted average shares outstanding:									Weighted average shares outstanding:
Basic shares	Basic shares	91,160		104,793		93,959		106,685		Basic shares	90,497		96,342
Assumed incremental from stock plans	Assumed incremental from stock plans	2,103		5,045		3,194		4,981		Assumed incremental from stock plans	1,986		4,161
Diluted shares	Diluted shares	93,263		109,838		97,153		111,666		Diluted shares	92,483		100,503

Basic net income per share attributable to DaVita Inc.	Basic net income per share attributable to DaVita Inc.	$	1.16	$	2.48	$	5.24	$	7.41	Basic net income per share attributable to DaVita Inc.	$	1.28	$	1.68

Diluted net income per share attributable to DaVita Inc.	Diluted net income per share attributable to DaVita Inc.	$	1.13	$	2.36	$	5.07	$	7.08	Diluted net income per share attributable to DaVita Inc.	$	1.25	$	1.61

Anti-dilutive stock-settled awards excluded from calculation(1)	Anti-dilutive stock-settled awards excluded from calculation(1)	1,260		141		878		103		Anti-dilutive stock-settled awards excluded from calculation(1)	1,295		171

(1)Shares associated with stock awards excluded from the diluted denominator calculation because they were anti-dilutive under the treasury stock method.

4. Short-term and long-term investments

The Company’s short-term and long-term debt and equity investments, consisting of debt instruments classified as held-to-maturity and equity investments with readily determinable fair values or redemption values, were as follows:


		September 30, 2022						December 31, 2021							March 31, 2023						December 31, 2022
		Debt securities		Equity securities		Total		Debt securities		Equity securities		Total			Debt securities		Equity securities		Total		Debt securities		Equity securities		Total
Certificates of deposit and other time deposits	Certificates of deposit and other time deposits	$	77,843	$	—	$	77,843	$	23,226	$	—	$	23,226	Certificates of deposit and other time deposits	$	58,341	$	—	$	58,341	$	82,879	$	—	$	82,879
Investments in mutual funds and common stocks	Investments in mutual funds and common stocks	—		39,997		39,997		—		48,598		48,598		Investments in mutual funds and common stocks	—		36,144		36,144		—		39,143		39,143
		$	77,843	$	39,997	$	117,840	$	23,226	$	48,598	$	71,824		$	58,341	$	36,144	$	94,485	$	82,879	$	39,143	$	122,022
Short-term investments	Short-term investments	$	62,832	$	11,473	$	74,305	$	8,227	$	14,083	$	22,310	Short-term investments	$	43,338	$	6,627	$	49,965	$	67,872	$	9,821	$	77,693
Long-term investments	Long-term investments	15,011		28,524		43,535		14,999		34,515		49,514		Long-term investments	15,003		29,517		44,520		15,007		29,322		44,329
		$	77,843	$	39,997	$	117,840	$	23,226	$	48,598	$	71,824		$	58,341	$	36,144	$	94,485	$	82,879	$	39,143	$	122,022

Debt ~~securities:~~securities. The Company's short-term debt investments are principally bank certificates of deposit with contractual maturities longer than three months but shorter than one year. The Company's long-term debt investments are bank time

DAVITA INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(unaudited)

(dollars and shares in thousands, except per share data)

deposits with contractual maturities longer than one year. These debt securities are accounted for as held-to-maturity and recorded at amortized cost, which approximated their fair values at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021.~~2022.

Equity securities:s. The Company holds certain equity investments that have readily determinable fair values from public markets. The Company's remaining short-term and long-term equity investments are held within a trust to fund existing obligations associated with the Company’s non-qualified deferred compensation plans.

~~DAVITA INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)~~

~~(unaudited)~~

~~(dollars and shares in thousands, except per share data)~~

5. Goodwill

Changes in the carrying value of goodwill by reportable ~~segments~~segment were as follows:


		U.S. dialysis		Other — Ancillary services		Consolidated			U.S. dialysis		Other — Ancillary services		Consolidated
Balance at December 31, 2020		$	6,309,928	$	609,181	$	6,919,109
Acquisitions		91,979		81,265		173,244
Divestitures		(1,745)		—		(1,745)
Foreign currency and other adjustments		—		(44,367)		(44,367)
Balance at December 31, 2021	Balance at December 31, 2021	$	6,400,162	$	646,079	$	7,046,241	Balance at December 31, 2021	$	6,400,162	$	646,079	$	7,046,241
Acquisitions	Acquisitions	16,750		18,019		34,769		Acquisitions	16,750		32,297		49,047
Divestitures	Divestitures	(87)		(3,126)		(3,213)		Divestitures	(87)		(3,263)		(3,350)
Foreign currency and other adjustments	Foreign currency and other adjustments	—		(55,155)		(55,155)		Foreign currency and other adjustments	—		(15,328)		(15,328)
Balance at September 30, 2022		$	6,416,825	$	605,817	$	7,022,642
Balance at December 31, 2022								Balance at December 31, 2022	$	6,416,825	$	659,785	$	7,076,610

Balance at September 30, 2022:

Foreign currency and other adjustments								Foreign currency and other adjustments	—		13,701		13,701
Balance at March 31, 2023								Balance at March 31, 2023	$	6,416,825	$	673,486	$	7,090,311

Balance at March 31, 2023:								Balance at March 31, 2023:
Goodwill	Goodwill	$	6,416,825	$	715,147	$	7,131,972	Goodwill	$	6,416,825	$	794,391	$	7,211,216
Accumulated impairment charges	Accumulated impairment charges	—		(109,330)		(109,330)		Accumulated impairment charges	—		(120,905)		(120,905)
		$	6,416,825	$	605,817	$	7,022,642		$	6,416,825	$	673,486	$	7,090,311

The Company did not recognize any goodwill impairment charges during the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 and ~~2021.~~2022.

~~As dialysis treatments are an essential, life-sustaining service for patients who depend on them, the~~The Company's operations ~~have continued and are currently expected~~continue to ~~continue throughout~~be impacted by the ~~novel~~effects of the coronavirus (COVID-19) pandemic. However, the ultimate impact of this COVID-19 pandemic on the Company will depend on future developments that are highly uncertain and difficult to predict, including among others the ultimate severity and duration of the pandemic; further spread or resurgence of the virus, including as a result of the emergence of new strains of the virus such as the Omicron variant and its subvariants; COVID-19's impact on the chronic kidney disease (CKD) patient population and the Company's patient population, including on the mortality of these patients; the availability, acceptance, impact and efficacy of COVID-19 vaccines, treatments, and therapies; the pandemic's continuing impact on the Company's revenue and non-acquired growth due to lower treatment volumes, the U.S. and global economies, labor market conditions, interest rates, inflation and monetary policies; the Company's ability to successfully implement cost savings initiatives; the potential negative impact on the Company's commercial mix or the number of patients covered by commercial insurance plans; continued increased COVID-19-related costs; supply chain challenges and disruptions; the responses of the Company's competitors to the pandemic and related changes in the marketplace; the timing, scope and effectiveness of federal, state and local government responses to the pandemic; and any potential changes to the extensive set of federal, state and local laws, regulations and requirements that govern the Company's business. While the Company does not currently expect a material adverse impact to its business as a result of ~~this public health crisis,~~the ongoing COVID-19 pandemic, there can be no assurance that the magnitude of the cumulative impacts of the COVID-19 pandemic, including certain conditions and developments in the U.S. and global economies, labor market conditions, inflation and monetary policies that may have been intensified by the pandemic, will not have a material adverse impact on one or more of the Company's businesses.

Developments, events, changes in operating performance and other changes in key circumstances since the dates of the Company’s last annual goodwill impairment assessments have not caused management to believe it is more likely than not that the fair values of any of the Company's reporting units would be less than their respective carrying amounts as of ~~September 30, 2022.~~March 31, 2023. Except for the Company's Germany kidney care reporting unit as described further in Note 10 to the Company's consolidated financial statements included in the ~~2021~~2022 10-K, none of the Company's various other reporting units were considered at risk of significant goodwill impairment as of ~~September 30, 2022.~~March 31, 2023.

108

DAVITA INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(unaudited)

(dollars and shares in thousands, except per share data)

6. Long-term debt

Long-term debt was comprised of the following:


							As of September 30, 2022										As of March 31, 2023
		September 30, 2022		December 31, 2021		Maturity date	Interest rate		Estimated fair value(1)			March 31, 2023		December 31, 2022		Maturity date	Interest rate		Estimated fair value(1)
Senior Secured Credit Facilities:
Senior Secured Credit Facilities(2):											Senior Secured Credit Facilities(2):
Term Loan A	Term Loan A	$	1,531,250	$	1,596,875	8/12/2024	LIBOR+1.75%		$	1,500,625	Term Loan A	$	1,444,427	$	1,498,438	8/12/2024	LIBOR+1.75%		$	1,433,594
Term Loan B-1	Term Loan B-1	2,667,689		2,688,263		8/12/2026	LIBOR+1.75%		$	2,530,970	Term Loan B-1	2,624,359		2,660,831		8/12/2026	LIBOR+1.75%		$	2,584,994
Revolving line of credit	Revolving line of credit	275,000		—		8/12/2024	LIBOR+1.75%		$	275,000	Revolving line of credit	—		165,000		8/12/2024	LIBOR+1.75%		$	—
Senior Notes:	Senior Notes:										Senior Notes:
4.625% Senior Notes	4.625% Senior Notes	2,750,000		2,750,000		6/1/2030	4.625	%	$	2,124,375	4.625% Senior Notes	2,750,000		2,750,000		6/1/2030	4.625	%	$	2,344,375
3.75% Senior Notes	3.75% Senior Notes	1,500,000		1,500,000		2/15/2031	3.75	%	$	1,068,750	3.75% Senior Notes	1,500,000		1,500,000		2/15/2031	3.75	%	$	1,183,125
Acquisition obligations and other notes payable~~(2)~~(3)	Acquisition obligations and other notes payable~~(2)~~(3)	125,809		130,599		2022-2036	5.82	%	$	125,809	Acquisition obligations and other notes payable~~(2)~~(3)	117,856		120,562		2023-2036	6.82	%	$	117,856
Financing lease obligations~~(3)~~(4)	Financing lease obligations~~(3)~~(4)	279,213		299,128		2023-2038	4.53	%			Financing lease obligations~~(3)~~(4)	264,612		273,688		2024-2039	4.53	%
Total debt principal outstanding	Total debt principal outstanding	9,128,961		8,964,865							Total debt principal outstanding	8,701,254		8,968,519
Discount, premium and deferred financing costs~~(4)~~(5)	Discount, premium and deferred financing costs~~(4)~~(5)	(47,520)		(56,685)							Discount, premium and deferred financing costs~~(4)~~(5)	(41,529)		(44,498)
		9,081,441		8,908,180								8,659,725		8,924,021
Less current portion	Less current portion	(214,254)		(179,030)							Less current portion	(242,193)		(231,404)
		$	8,867,187	$	8,729,150							$	8,417,532	$	8,692,617

(1)For the Company's senior secured credit facilities and senior notes, fair value estimates are based upon bid and ask quotes, typically a level 2 input. For acquisition obligations and other notes payable, the carrying values presented approximate their estimated fair values, based on estimates of their present values using level 2 interest rate inputs.

(2)Term Loan A, Term Loan B-1 and the revolving line of credit have each been amended subsequent to March 31, 2023. See Note 14 for more information on these amendments.

(3)The interest rate presented for acquisition obligations and other notes payable is their weighted average interest rate based on the current fixed and variable interest rate components in effect as of ~~September 30, 2022.~~March 31, 2023.

~~(3)~~(4)Financing lease obligations are measured at their approximate present values at inception. The interest rate presented is the weighted average discount rate embedded in financing leases outstanding.

~~(4)~~(5)As of ~~September 30, 2022,~~March 31, 2023, the carrying amount of the Company's senior secured credit facilities have been reduced by a discount of ~~$3,740~~$3,254 and deferred financing costs of ~~$20,891,~~$16,797, and the carrying amount of the Company's senior notes have been reduced by deferred financing costs of ~~$37,380~~$35,024 and increased by a debt premium of ~~$14,491.~~$13,546. As of December 31, ~~2021,~~2022, the carrying amount of the Company's senior secured credit facilities were reduced by a discount of ~~$4,473~~$3,497 and deferred financing costs of ~~$27,207,~~$18,816, and the carrying amount of the Company's senior notes were reduced by deferred financing costs of ~~$40,914~~$36,203 and increased by a debt premium of ~~$15,909.~~$14,018.

During the first ~~nine~~three months of ~~2022,~~2023, the Company made regularly scheduled ~~mandatory~~and other principal payments under its senior secured credit facilities totaling ~~$65,625~~$54,011 on Term Loan A and ~~$20,574~~$36,472 on Term Loan B-1.

As of ~~September 30, 2022,~~March 31, 2023, the Company's 2019 interest rate cap agreements ~~have~~described below had the economic effect of capping the Company's maximum exposure to LIBOR variable interest rate changes on equivalent amounts of the Company's floating rate debt, including all of Term Loan B-1 and a portion of Term Loan A. The remaining ~~$698,939~~$568,786 outstanding principal balance of Term Loan A ~~and the $275,000 balance outstanding on the revolving line of credit are~~is subject to LIBOR-based interest rate volatility. These cap agreements are designated as cash flow hedges and, as a result, changes in their fair values are reported in other comprehensive income. The original premiums paid for the caps are amortized to debt expense on a straight-line basis over the term of each cap agreement starting from its effective date. These cap agreements do not contain credit risk-contingent features.

119

DAVITA INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(unaudited)

(dollars and shares in thousands, except per share data)

The following table summarizes the Company’s interest rate cap agreements outstanding as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, which are classified in ~~"Other~~other long-term ~~assets"~~assets on its consolidated balance sheet:

Nine months ended
September 30, 2022 Fair value
Notional amount LIBOR maximum rate Effective date Expiration date Debt expense Recorded OCI gain September 30,
2022 December 31, 2021
2019 cap agreements $ 3,500,000 2.00% 6/30/2020 6/30/2024 $ 1,497 $ 127,460 $ 139,663 $ 12,203


						Three months ended March 31, 2023				Fair value
	Notional amount		LIBOR maximum rate	Effective date	Expiration date	Debt expense (offset)		Recorded OCI loss		March 31, 2023		December 31, 2022
2019 cap agreements	$	3,500,000	2.00%	6/30/2020	6/30/2024	$	(20,975)	$	4,716	$	112,687	$	139,755

See Note 9 for further details on amounts reclassified from accumulated other comprehensive loss and recorded as debt expense related to the Company’s interest rate cap agreements for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 and ~~2021.~~2022.

As a result of the LIBOR cap from ~~our~~the Company's 2019 interest rate cap agreements, the Company’s weighted average effective interest rate on its senior secured credit facilities at the end of the ~~third~~first quarter of ~~2022~~2023 was ~~4.34%~~4.60%, based on the current margins in effect for its senior secured credit facilities as of ~~September 30, 2022,~~March 31, 2023, as detailed in the table above.

The Company’s ~~overall~~ weighted average effective interest rate on all debt, including the effect of interest rate caps and amortization of debt discount, was 4.55% for the three ~~and nine~~ months ended ~~September 30, 2022 was 4.28%~~March 31, 2023 and ~~3.78%, and~~4.53% as of ~~September 30, 2022 was 4.39%.~~March 31, 2023.

As of ~~September 30, 2022,~~March 31, 2023, the Company’s interest rates were fixed and economically fixed on approximately ~~50%~~53% and ~~89%~~93% of its total debt, respectively.

As of ~~September 30, 2022,~~March 31, 2023, the Company had ~~$725,000 available and $275,000 drawn on its~~an undrawn $1,000,000 revolving line of credit under its senior secured credit facilities. Credit available under this ~~facility~~revolving line of credit is reduced by the amount of any letters of credit outstanding under ~~this~~the facility, of which there were none as of ~~September 30, 2022.~~March 31, 2023. The Company also had ~~approximately $108,002 in~~ letters of credit of approximately $151,358 outstanding under a separate bilateral secured letter of credit facility as of ~~September~~March 31, 2023.

Subsequent to March 31, 2023, the Company amended its senior secured credit facilities and entered into several forward interest rate cap agreements that become effective June 28, 2024 and June 30, ~~2022.~~2024. For additional information see Note 14.

7. Commitments and contingencies

The majority of the Company’s revenues are from government programs and may be subject to adjustment as a result of: (i) examination by government agencies or contractors, for which the resolution of any matters raised may take extended periods of time to finalize; (ii) differing interpretations of government regulations by different Medicare contractors or regulatory authorities; (iii) differing opinions regarding a patient’s medical diagnosis or the medical necessity of services provided; and (iv) retroactive applications or interpretations of governmental requirements. In addition, the Company’s revenues from commercial payors may be subject to adjustment as a result of potential claims for refunds, as a result of government actions or as a result of other claims by commercial payors.

The Company operates in a highly regulated industry and is a party to various lawsuits, demands, claims, qui tam suits, governmental investigations (which frequently arise from qui tam suits) and audits (including, without limitation, investigations or other actions resulting from its obligation to self-report suspected violations of law) and other legal proceedings, including, without limitation, those described below. The Company records accruals for certain legal proceedings and regulatory matters to the extent that the Company determines an unfavorable outcome is probable and the amount of the loss can be reasonably estimated. As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the Company’s total recorded accruals with respect to legal proceedings and regulatory matters, net of anticipated third party recoveries, were immaterial. While these accruals reflect the Company’s best estimate of the probable loss for those matters as of the dates of those accruals, the recorded amounts may differ materially from the actual amount of the losses for those matters, and any anticipated third party recoveries for any such losses may not ultimately be recoverable. Additionally, in some cases, no estimate of the possible loss or range of loss in excess of amounts accrued, if any, can be made because of the inherently unpredictable nature of legal proceedings and regulatory matters, which also may be impacted by various factors, including, without limitation, that they may involve indeterminate claims for monetary damages or may involve fines, penalties or non-monetary remedies; present novel legal theories or legal uncertainties; involve disputed facts; represent a shift in regulatory policy; are in the early stages of the proceedings; or may result in a change of business practices. Further, there may be various levels of judicial review available to the Company in connection with any such proceeding.

~~The following is a description of certain lawsuits, claims, governmental investigations and audits and other legal proceedings to which the Company is subject.~~

1210

DAVITA INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(unaudited)

(dollars and shares in thousands, except per share data)

The following is a description of certain lawsuits, claims, governmental investigations and audits and other legal proceedings to which the Company is subject.

Certain Governmental Inquiries and Related Proceedings

2016 U.S. Attorney Texas Investigation: In February 2016, DaVita Rx, LLC (DaVita Rx), a wholly-owned subsidiary of the Company, received a Civil Investigative Demand (CID) from the U.S. Attorney’s Office, Northern District of Texas. The government ~~is conducting~~conducted a federal False Claims Act (FCA) investigation concerning allegations that DaVita Rx presented or caused to be presented false claims for payment to the government for prescription medications, as well as an investigation into the Company’s relationships with pharmaceutical manufacturers. ~~The government’s~~After its investigation, ~~covers~~ the ~~period from January 1, 2006 through December 31, 2018. In December 2017,~~government and the ~~Company finalized and executed a settlement agreement that resolved certain of the issues~~named states declined to intervene in the ~~government’s investigation~~matter, and that included total monetary consideration of $63,700, as previously disclosed, of which $41,500 was an incremental cash payment and $22,200 was for amounts previously refunded, and all of which was previously accrued. The government’s investigation is ongoing with respect to issues related to DaVita Rx’s historic relationships with certain pharmaceutical manufacturers, and in July 2018 the Office of Inspector General (OIG) served the Company with a subpoena seeking additional documents and information relating to those relationships. On September 15, 2021, the U.S. Attorney’s Office notifiedon April 5, 2023, the U.S. District Court, Northern District of Texas, ~~of its decision and~~entered an order unsealing the ~~decision of 31 states not to elect to intervene at this time~~complaint in the matter of U.S. ex rel. ~~Doe~~Grenon v. DaVita ~~Inc.,~~Rx, LLC et al. The ~~court then unsealed the~~ complaint ~~which alleges violations of the FCA, by order dated September 17, 2021. The complaint was~~has not been served on the Company. In December 2021, the private party relator filed a notice of voluntary dismissal of all claims and the court entered an order dismissing the claims without prejudice. The Company is continuing to cooperate with the government in this investigation.

2017 U.S. Attorney Colorado Investigation: In November 2017, the U.S. Attorney’s Office, District of Colorado informed the Company of an investigation it was conducting into possible federal healthcare offenses involving DaVita Kidney Care, as well as several of the Company’s wholly-owned subsidiaries. In addition to DaVita Kidney Care, the matter currently includes an investigation into DaVita Rx, DaVita Laboratory Services, Inc. (DaVita Labs), and RMS Lifeline Inc. (Lifeline). In each of August 2018, May 2019, and July 2021, the Company received a CID pursuant to the FCA from the U.S. Attorney's Office relating to this investigation. In May 2020, the Company sold its interest in Lifeline, but the Company retained certain liabilities of the Lifeline business, including those related to this investigation. The Company is continuing to cooperate with the government in this investigation.

2020 U.S. Attorney New Jersey Investigation: In March 2020, the U.S. Attorney’s Office, District of New Jersey served the Company with a subpoena and a CID relating to an investigation being conducted by that office and the U.S. Attorney’s Office, Eastern District of Pennsylvania. The subpoena and CID request information on several topics, including certain of the Company’s joint venture arrangements with physicians and physician groups, medical director agreements, and compliance with its five-year Corporate Integrity Agreement, the term of which expired October 22, 2019. In November 2022, the Company learned that, on April 1, 2022, the U.S. Attorney’s Office for the District of New Jersey notified the U.S. District Court for the District of New Jersey of its decision not to elect to intervene in the matter of U.S. ex rel. Doe v. DaVita Inc. and filed a Stipulation of Dismissal. On April 13, 2022, the U.S. District Court for the District of New Jersey dismissed the case without prejudice. On October 12, 2022, the U.S. Attorney’s Office for the Eastern District of Pennsylvania notified the U.S. District Court, Eastern District of Pennsylvania, of its decision not to elect to intervene at this time in the matter of U.S. ex rel. Bayne v. DaVita Inc., et al. The court then unsealed aan amended complaint, which alleges violations of federal and state False Claims Acts, by order dated October 14, 2022. In January 2023, the private party relator served the Company with the amended complaint. The Company is continuing to cooperate with the government in this investigation.

2020 California Department of Insurance Investigation: In April 2020, the California Department of Insurance (CDI) sent the Company an Investigative Subpoena relating to an investigation being conducted by that office. CDI issued a superseding subpoena in September 2020 and an additional subpoena in September 2021. Those subpoenas request information on a number of topics, including but not limited to the Company’s communications with patients about insurance plans and financial assistance from the American Kidney Fund (AKF), analyses of the potential impact of patients’ decisions to change insurance providers, and documents relating to donations or contributions to the AKF. The Company is continuing to cooperate with CDI in this investigation.

~~2020 Department~~2023 District of ~~Justice~~Columbia Office of Attorney General Investigation: In ~~October 2020,~~January 2023, the ~~Company received~~Office of the Attorney General for the District of Columbia issued a CID ~~from~~to the ~~Department of Justice pursuant to an FCA investigation concerning allegations that DaVita Medical Group (DMG) may have submitted undocumented or unsupported diagnosis codes~~Company in connection with ~~Medicare Advantage beneficiaries.~~an antitrust investigation into the American Kidney Fund (AKF). The CID covers the period from January 1, ~~2015 through June 19, 2019,~~2016 to the ~~date~~present. The CID requests information on a number of topics, including but not limited to the ~~Company completed~~Company’s communications with AKF, documents relating to donations to the ~~divestiture of DMG to Collaborative Care Holdings, LLC.~~AKF, and communications with patients, providers, and insurers regarding the AKF. The Company is ~~continuing to cooperate~~cooperating with the government in this investigation.

* * *

~~DAVITA INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)~~

~~(unaudited)~~

~~(dollars and shares in thousands, except per share data)~~

Although the Company cannot predict whether or when proceedings might be initiated or when these matters may be resolved (other than as may be described above), it is not unusual for inquiries such as these to continue for a considerable

DAVITA INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(unaudited)

(dollars and shares in thousands, except per share data)

period of time through the various phases of document and witness requests and ongoing discussions with regulators and to develop over the course of time. In addition to the inquiries and proceedings specifically identified above, the Company frequently is subject to other inquiries by state or federal government agencies, many of which relate to qui tam complaints filed by relators. Negative findings or terms and conditions that the Company might agree to accept as part of a negotiated resolution of pending or future government inquiries or relator proceedings could result in, among other things, substantial financial penalties or awards against the Company, substantial payments made by the Company, harm to the Company’s reputation, required changes to the Company’s business practices, an impact on the Company's various relationships and/or contracts related to the Company's business, exclusion from future participation in the Medicare, Medicaid and other federal health care programs and, if criminal proceedings were initiated against the Company, members of its board of directors or management, possible criminal penalties, any of which could have a material adverse effect on the Company.

Other Proceedings

2021 Antitrust Indictment and Putative Class Action Suit: On July 14, 2021, an indictment was returned by a grand jury in the U.S. District Court, District of Colorado against the Company and its former chief executive officer in the matter of U.S. v. DaVita Inc., et al. alleging that purported agreements entered into by DaVita's former chief executive officer not to solicit senior-level employees violated Section 1 of the Sherman Act. On April 15, 2022, a jury returned a verdict in the Company’s favor, acquitting both the Company and its former chief executive officer on all counts. On April 20, 2022, the court entered judgments of acquittal and closed the case. On August 9, 2021, DaVita and its former chief executive officer were added as defendants in a consolidated putative class action complaint in the matter of In re Outpatient Medical Center Employee Antitrust Litigation in the U.S. District Court, Northern District of Illinois. This class action complaint asserts that the defendants violated Section 1 of the Sherman Act and seeks to bring an action on behalf of certain groups of individuals employed by the Company between February 1, 2012 and January 5, 2021. On September 26, 2022, the court denied the Company's motion to dismiss. The Company disputes the allegations in the class action complaint, as well as the asserted violations of the Sherman Act, and intends to defend this action accordingly.

Marietta Memorial Hospital Employee Health Benefit Plan, et al. v. DaVita Inc. et al. No. 20-1641: On November 5, 2021, the United States Supreme Court granted certiorari of an appeal by an employer group health plan, the plan sponsor, and the plan’s advisor of the U.S. Court of Appeals for the Sixth Circuit (Sixth Circuit) decision in the Company's favor. The questions presented involved whether the health plan violates the Medicare Secondary Payor Act (MSPA) by "taking into account" that plan beneficiaries are eligible for Medicare and/or by "differentiating" between the benefits that the plan offers to patients with dialysis versus others. On December 23, 2021, the Solicitor General on behalf of the United States filed an amicus brief supporting the petitioners' request to overturn the Sixth Circuit decision. On January 19, 2022, the Company filed its brief in support of the Sixth Circuit decision. On June 21, 2022, the United States Supreme Court reversed the Sixth Circuit decision and held that the employee health plan for Marietta Memorial Hospital did not violate the MSPA. The case has been remanded back to the lower court for resolution of the outstanding claims.

Additionally, from time to time the Company is subject to other lawsuits, demands, claims, governmental investigations and audits and legal proceedings that arise due to the nature of its business, including, without limitation, contractual disputes, such as with payors, suppliers and others, employee-related matters and professional and general liability claims. From time to time, the Company also initiates litigation or other legal proceedings as a plaintiff arising out of contracts or other matters.

* * *

Other than as may be described above, the Company cannot predict the ultimate outcomes of the various legal proceedings and regulatory matters to which the Company is or may be subject from time to time, including those described in this Note 7, or the timing of their resolution or the ultimate losses or impact of developments in those matters, which could have a material adverse effect on the Company’s revenues, earnings and cash flows. Further, any legal proceedings or regulatory matters involving the Company, whether meritorious or not, are time consuming, and often require management’s attention and result in significant legal expense, and may result in the diversion of significant operational resources, may impact the Company's various relationships and/or contracts related to the Company's business or otherwise harm the Company’s business, results of operations, financial condition, cash flows or reputation.

~~* * *~~

1412

DAVITA INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(unaudited)

(dollars and shares in thousands, except per share data)

Resolved Matters

2020 Department of Justice Investigation: In October 2020, the Company received a CID from the Department of Justice pursuant to an FCA investigation concerning allegations that DaVita Medical Group (DMG) may have submitted undocumented or unsupported diagnosis codes in connection with Medicare Advantage beneficiaries. The CID covered the period from January 1, 2015 through June 19, 2019, the date the Company completed the divestiture of DMG to Collaborative Care Holdings, LLC. In February 2023, the Department of Justice notified the Company that it had closed its investigation.

* * *

Other Commitments

The Company also has certain potential commitments to provide working capital funding, if necessary, to certain nonconsolidated ~~outpatient~~ dialysis businesses that the Company manages and in which the Company owns a noncontrolling equity interest or which are wholly-owned by third parties of approximately ~~$9,431.~~

In addition, on May 25, 2022, the Company entered into an agreement with Medtronic, Inc. and one of its subsidiaries (collectively, Medtronic) to form a new, independent kidney care-focused medical device company (NewCo). The transaction is expected to close in 2023, subject to customary closing conditions and regulatory approvals. At close, the Company will make a cash payment to Medtronic of approximately $75,000, subject to certain customary adjustments prior to the closing, and will contribute certain other non-cash assets to NewCo valued at approximately $25,000. Additionally, at close, the Company and Medtronic each will contribute approximately $200,000 in cash to launch NewCo. The Company also agreed to pay Medtronic additional consideration of up to $300,000 if certain regulatory and commercial milestones are achieved between 2024 and 2028.$10,099.

8. Shareholders' equity

Stock-based compensation

During the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, the Company granted ~~1,129~~1,322 stock-settled restricted and performance stock units with an aggregate grant-date fair value of ~~$122,356~~$101,467 and a weighted-average expected life of approximately ~~3.5 years and 130 stock-settled stock appreciation rights with an aggregate grant-date fair value of $4,573 and a weighted-average expected life of approximately 4.5~~3.4 years.

As of ~~September 30, 2022,~~March 31, 2023, the Company had ~~$182,083~~$204,451 in total estimated but unrecognized stock-based compensation expense under the Company's equity compensation and employee stock purchase plans. The Company expects to recognize this expense over a weighted average remaining period of ~~1.3~~1.4 years.

Share repurchases

The ~~following table summarizes the Company's common stock repurchases during the three and nine months ended September 30, 2022 and 2021:~~

Three months ended September 30, Nine months ended September 30,
2022 2021 2022 2021
Open market repurchases:
Shares repurchased 2,122 2,731 8,095 7,750
Amount paid $ 184,797 $ 336,217 $ 787,854 $ 899,447
Average paid per share $ 87.10 $ 123.14 $ 97.33 $ 116.06

~~The~~ Company ~~did~~has not ~~repurchase~~repurchased any shares subsequent to ~~September 30, 2022 through October 27,~~December 31, 2022.

The Company is authorized to make purchases from time to time in the open market or in privately negotiated transactions, including without limitation, through accelerated share repurchase transactions, derivative transactions, tender offers, Rule 10b5-1 plans or any combination of the foregoing, depending upon market conditions and other considerations.

As of October 27, 2022, the Company had a total of $1,596,085 available under the current authorization for additional share repurchases. Although this share repurchase authorization does not have an expiration date, the Company remains subject to share repurchase limitations including under the terms of its current senior secured credit facilities.

~~DAVITA INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)~~

~~(unaudited)~~

~~(dollars and shares in thousands, except per share data)~~

9. Accumulated other comprehensive loss

Three months ended September 30, 2022 Nine months ended September 30, 2022
Interest
rate cap
agreements Foreign
currency
translation
adjustments Accumulated
other
comprehensive
loss Interest
rate cap
agreements Foreign
currency
translation
adjustments Accumulated
other
comprehensive
loss
Beginning balance $ 55,237 $ (167,033) $ (111,796) $ (1,178) $ (138,069) $ (139,247)
Unrealized gains (losses) 55,045 (66,100) (11,055) 127,460 (95,064) 32,396
Related income tax (13,733) — (13,733) (31,800) — (31,800)
41,312 (66,100) (24,788) 95,660 (95,064) 596
Reclassification into net income 1,377 — 1,377 4,132 — 4,132
Related income tax (344) — (344) (1,032) — (1,032)
1,033 — 1,033 3,100 — 3,100
Ending balance $ 97,582 $ (233,133) $ (135,551) $ 97,582 $ (233,133) $ (135,551)


		Three months ended September 30, 2021						Nine months ended September 30, 2021							Three months ended March 31, 2023						Three months ended March 31, 2022
		Interest rate cap agreements		Foreign currency translation adjustments		Accumulated other comprehensive loss		Interest rate cap agreements		Foreign currency translation adjustments		Accumulated other comprehensive loss			Interest rate cap agreements		Foreign currency translation adjustments		Accumulated other comprehensive loss		Interest rate cap agreements		Foreign currency translation adjustments		Accumulated other comprehensive loss
Beginning balance	Beginning balance	$	(7,577)	$	(58,322)	$	(65,899)	$	(12,466)	$	(53,688)	$	(66,154)	Beginning balance	$	98,685	$	(167,871)	$	(69,186)	$	(1,178)	$	(138,069)	$	(139,247)
Unrealized (losses) gains	Unrealized (losses) gains	(477)		(54,528)		(55,005)		3,284		(59,162)		(55,878)		Unrealized (losses) gains	(4,716)		33,561		28,845		54,806		62,212		117,018
Related income tax	Related income tax	120		—		120		(818)		—		(818)		Related income tax	1,177		—		1,177		(13,674)		—		(13,674)
		(357)		(54,528)		(54,885)		2,466		(59,162)		(56,696)			(3,539)		33,561		30,022		41,132		62,212		103,344
Reclassification into net income	Reclassification into net income	1,378		—		1,378		4,132		—		4,132		Reclassification into net income	(20,975)		—		(20,975)		1,377		—		1,377
Related income tax	Related income tax	(344)		—		(344)		(1,032)		—		(1,032)		Related income tax	5,233		—		5,233		(344)		—		(344)
		1,034		—		1,034		3,100		—		3,100			(15,742)		—		(15,742)		1,033		—		1,033
Ending balance	Ending balance	$	(6,900)	$	(112,850)	$	(119,750)	$	(6,900)	$	(112,850)	$	(119,750)	Ending balance	$	79,404	$	(134,310)	$	(54,906)	$	40,987	$	(75,857)	$	(34,870)

The interest rate cap agreement net realized losses reclassified into net income are recorded as debt expense in the corresponding consolidated statements of income. See Note 6 for further details.

10. ~~Acquisitions and divestitures~~

~~Routine acquisitions~~

During the nine months ended September 30, 2022, the Company acquired dialysis businesses consisting of five dialysis centers located in the U.S. and eight dialysis centers located outside the U.S. for total net cash of $43,811, contingent earn-out obligations of $2,171 and deferred purchase price and liabilities assumed of $11,726. The assets and liabilities for these acquisitions were recorded at their estimated fair values at the dates of the acquisitions and are included in the Company’s condensed consolidated financial statements, as are their operating results, from the designated effective dates of the acquisitions.

The initial purchase price allocations have been recorded at estimated fair values based on information available to management and will be finalized when certain information arranged to be obtained has been received. In particular, certain income tax amounts are pending final evaluation and quantification of any pre-acquisition tax contingencies. In addition, valuation of intangibles, contingent earn-outs, leases, and certain other working capital items relating to these acquisitions are pending final quantification.

~~The amount of goodwill recognized or adjusted during the nine months ended September 30, 2022 that is deductible for tax purposes was $34,769.~~

~~DAVITA INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)~~

~~(unaudited)~~

~~(dollars and shares in thousands, except per share data)~~

~~Contingent earn-out obligations~~

The Company has several contingent earn-out obligations associated with acquisitions that could result in the Company paying the former owners of acquired businesses a total of up to approximately $56,815 if certain performance targets or quality margins are met over the next one year to five years.

Contingent earn-out obligations are remeasured to fair value at each reporting date until the contingencies are resolved with changes in the liability due to the remeasurement recognized in earnings. As of September 30, 2022, the Company estimated the fair value of these contingent earn-out obligations to be $25,771, of which $9,461 is included in other current liabilities and the remaining $16,310 is included in other long-term liabilities in the Company’s consolidated balance sheet.

~~The following is a reconciliation of changes in contingent earn-out obligations:~~

Three months ended
September 30, 2022 Nine months ended
September 30, 2022
Beginning balance $ 29,299 $ 33,600
Acquisitions 1,648 2,171
Foreign currency translation (741) 403
Fair value remeasurements (350) (3,129)
Payments (4,085) (7,274)
Ending balance $ 25,771 $ 25,771

~~11.~~ Variable interest entities (VIEs)

At ~~September 30, 2022,~~March 31, 2023, these condensed consolidated financial statements include total assets of ~~consolidated~~ VIEs of ~~$298,477~~$308,455 and total liabilities and noncontrolling interests of ~~consolidated~~ VIEs to third parties of ~~$196,159.~~$178,382. There have been no material changes in the nature of the Company's arrangements with VIEs or its judgments concerning them from those described in Note 23 to the Company's consolidated financial statements included in the ~~2021~~2022 10-K.

~~12.~~

DAVITA INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(unaudited)

(dollars and shares in thousands, except per share data)

11. Fair values of financial instruments

The Company measures the fair value of certain assets, liabilities and noncontrolling interests subject to put provisions (redeemable equity interests classified as temporary equity) based upon certain valuation techniques that include observable or unobservable inputs and assumptions that market participants would use in pricing these assets, liabilities, temporary equity and commitments. The Company has also classified assets, liabilities and temporary equities that are measured at fair value on a recurring basis into the appropriate fair value hierarchy levels as defined by the Financial Accounting Standards Board (FASB).

The following table summarizes the Company’s assets, liabilities and temporary equities measured at fair value on a recurring basis as of ~~September 30, 2022:~~March 31, 2023:

Total Quoted prices in
active markets
for identical assets
(Level 1) Significant other
observable inputs
(Level 2) Significant
unobservable
inputs
(Level 3)
Assets
Investments in equity securities $ 39,997 $ 39,997 $ — $ —
Interest rate cap agreements $ 139,663 $ — $ 139,663 $ —
Liabilities
Contingent earn-out obligations $ 25,771 $ — $ — $ 25,771
Temporary equity
Noncontrolling interests subject to put provisions $ 1,370,753 $ — $ — $ 1,370,753


	Total		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Assets
Investments in equity securities	$	36,144	$	36,144	$	—	$	—
Interest rate cap agreements	$	112,687	$	—	$	112,687	$	—
Liabilities
Contingent earn-out obligations	$	25,098	$	—	$	—	$	25,098
Temporary equity
Noncontrolling interests subject to put provisions	$	1,398,829	$	—	$	—	$	1,398,829

For ~~reconciliations~~a reconciliation of changes in ~~contingent earn-out obligations and~~ noncontrolling interests subject to put provisions during the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, see ~~Note 10 and~~ the consolidated statement of ~~equity, respectively.~~

~~DAVITA INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)~~

~~(unaudited)~~

~~(dollars and shares in thousands, except per share data)~~

equity.

Investments in equity securities represent investments in various open-ended registered investment companies (mutual funds) and common stocks and are recorded at fair value estimated based on reported market prices or redemption prices, as applicable. See Note 4 for further discussion.

Interest rate cap agreements are recorded at fair value estimated from valuation models utilizing the income approach and commonly accepted valuation techniques that use inputs from closing prices for similar assets and liabilities in active markets as well as other relevant observable market inputs at quoted intervals such as current interest rates, forward yield curves, implied volatility and credit default swap pricing. The Company does not believe the ultimate amount that could be realized upon settlement of these interest rate cap agreements would be materially different from the fair value estimates currently reported. See Note 6 for further discussion.

As of March 31, 2023, the Company had contingent earn-out obligations associated with acquisitions that could result in the Company paying the former owners of acquired businesses a total of up to approximately $59,351 if certain performance targets or quality margins are met over the next one year to five years. The estimated fair value measurements of contingent earn-out obligations are primarily based on unobservable inputs, including projected earnings before interest, taxes, depreciation, and amortization (EBITDA), revenue and ~~certain operating metrics.~~key performance indicators. The estimated fair values of these contingent earn-out obligations are remeasured as of each reporting date and could fluctuate based upon any significant changes in key assumptions, such as changes in the Company's credit risk adjusted rate that is used to discount obligations to present value. ~~See Note 10 for further discussion.~~

The estimated fair value of noncontrolling interests subject to put provisions is based principally on the higher of either estimated liquidation value of net assets or a multiple of earnings for each subject dialysis partnership, based on historical earnings, revenue mix, and other performance indicators that can affect future results. The multiples used for these valuations are derived from observed ownership transactions for dialysis businesses between unrelated parties in the U.S. in recent years, and the specific valuation multiple applied to each dialysis partnership is principally determined by its recent and expected revenue mix and contribution margin. As of ~~September 30, 2022,~~March 31, 2023, an increase or decrease in the weighted average multiple used in these valuations of one times EBITDA would change the estimated fair value of these noncontrolling interests by approximately ~~$170,000.~~$175,000. See Notes 17 and 24 to the Company's consolidated financial statements included in the ~~2021~~2022 10-K for further discussion of the Company’s methodology for estimating the fair value of noncontrolling interests subject to put obligations.

DAVITA INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(unaudited)

(dollars and shares in thousands, except per share data)

The Company's fair value estimates for its senior secured credit facilities and senior notes are based upon quoted bid and ask ~~quotes~~prices for these instruments, typically a level 2 input. See Note 6 for further discussion of the Company's debt.

Other financial instruments consist primarily of cash and cash equivalents, restricted cash and cash equivalents, accounts receivable, accounts payable, other accrued liabilities, lease liabilities and debt. The balances of financial instruments other than debt and lease liabilities are presented in these condensed consolidated financial statements at ~~September 30, 2022~~March 31, 2023 at their approximate fair values due to the short-term nature of their settlements.

~~13.~~12. Segment reporting

The Company’s operating divisions are comprised of its U.S. dialysis and related lab services business (its U.S. dialysis business), its U.S. ~~integrated kidney care~~IKC business, its U.S. other ancillary services and its international operations (collectively, its ancillary services), as well as its corporate administrative support.

The Company’s separate operating segments include its U.S. dialysis and related lab services business, its U.S. ~~integrated kidney care~~IKC business, its U.S. other ancillary services, its kidney care operations in each foreign sovereign jurisdiction, and its equity method investment in the Asia Pacific joint venture (APAC JV). The U.S. dialysis and related lab services business qualifies as a separately reportable segment, and all other operating segments have been combined and disclosed in the other segments category. See Note 25 to the Company's consolidated financial statements included in the ~~2021~~2022 10-K for further description of how the Company determines and measures results for its operating segments.

1815

DAVITA INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(unaudited)

(dollars and shares in thousands, except per share data)

The following is a summary of segment ~~net~~ revenues, segment operating margin (loss), and a reconciliation of segment operating margin to consolidated income before income taxes:


		Three months ended September 30,				Nine months ended September 30,					Three months ended March 31,
		2022		2021		2022		2021			2023		2022
Segment revenues:	Segment revenues:									Segment revenues:
U.S. dialysis	U.S. dialysis									U.S. dialysis
Dialysis patient service revenues:	Dialysis patient service revenues:									Dialysis patient service revenues:
External sources	External sources	$	2,674,240	$	2,669,823	$	7,858,939	$	7,874,759	External sources	$	2,583,933	$	2,546,961
Intersegment revenues	Intersegment revenues	22,957		22,007		64,526		70,196		Intersegment revenues	22,047		22,159

U.S. dialysis patient service revenues	U.S. dialysis patient service revenues	2,697,197		2,691,830		7,923,465		7,944,955		U.S. dialysis patient service revenues	2,605,980		2,569,120
Other revenues:	Other revenues:									Other revenues:
External sources	External sources	6,056		6,119		18,134		19,080		External sources	6,180		5,966
Intersegment revenues	Intersegment revenues	—		97		(10)		228		Intersegment revenues	—		10
Total U.S. dialysis revenues	Total U.S. dialysis revenues	2,703,253		2,698,046		7,941,589		7,964,263		Total U.S. dialysis revenues	2,612,160		2,575,096
Other—Ancillary services	Other—Ancillary services									Other—Ancillary services
Dialysis patient service revenues	Dialysis patient service revenues	172,254		168,117		513,935		495,725		Dialysis patient service revenues	176,101		169,320
Other external sources	Other external sources	96,144		94,260		301,998		285,266		Other external sources	106,485		95,308
Intersegment revenues	Intersegment revenues	—		—		—		4,294		Intersegment revenues	1,368		—
Total ancillary services revenues	Total ancillary services revenues	268,398		262,377		815,933		785,285		Total ancillary services revenues	283,954		264,628
Total net segment revenues	Total net segment revenues	2,971,651		2,960,423		8,757,522		8,749,548		Total net segment revenues	2,896,114		2,839,724
Elimination of intersegment revenues	Elimination of intersegment revenues	(22,957)		(22,104)		(64,516)		(74,718)		Elimination of intersegment revenues	(23,415)		(22,169)
Consolidated revenues	Consolidated revenues	$	2,948,694	$	2,938,319	$	8,693,006	$	8,674,830	Consolidated revenues	$	2,872,699	$	2,817,555
Segment operating margin (loss):	Segment operating margin (loss):									Segment operating margin (loss):
U.S. dialysis	U.S. dialysis	$	351,474	$	509,939	$	1,230,715	$	1,523,625	U.S. dialysis	$	361,098	$	406,440
Other—Ancillary services	Other—Ancillary services	(15,271)		(6,909)		(56,689)		(36,577)		Other—Ancillary services	(24,865)		(32,305)
Total segment operating margin	Total segment operating margin	336,203		503,030		1,174,026		1,487,048		Total segment operating margin	336,233		374,135
Reconciliation of segment operating income to consolidated income before income taxes:	Reconciliation of segment operating income to consolidated income before income taxes:									Reconciliation of segment operating income to consolidated income before income taxes:
Corporate administrative support	Corporate administrative support	(24,417)		(28,153)		(91,217)		(79,093)		Corporate administrative support	(24,588)		(35,827)
Consolidated operating income	Consolidated operating income	311,787		474,877		1,082,810		1,407,955		Consolidated operating income	311,645		338,308
Debt expense	Debt expense	(99,680)		(72,829)		(256,057)		(213,167)		Debt expense	(100,774)		(73,791)

Other (loss) income, net		(4,898)		(7,590)		(7,968)		8,766
Other income (loss), net										Other income (loss), net	3,752		(1,786)
Consolidated income before income taxes	Consolidated income before income taxes	$	207,209	$	394,458	$	818,785	$	1,203,554	Consolidated income before income taxes	$	214,623	$	262,731

1916

DAVITA INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(unaudited)

(dollars and shares in thousands, except per share data)

Depreciation and amortization expense by reportable segment was as follows:


		Three months ended September 30,				Nine months ended September 30,					Three months ended March 31,
		2022		2021		2022		2021			2023		2022
U.S. dialysis	U.S. dialysis	$	184,688	$	161,252	$	507,320	$	477,054	U.S. dialysis	$	166,961	$	162,019
Other—Ancillary services	Other—Ancillary services	9,726		9,210		31,214		28,798		Other—Ancillary services	11,110		10,925
		$	194,414	$	170,462	$	538,534	$	505,852		$	178,071	$	172,944

Expenditures for property and equipment by reportable segment were as follows:


		Nine months ended September 30,			Three months ended March 31,
			2022			2021			2023		2022
U.S. dialysis	U.S. dialysis		$	363,046		$	415,994	U.S. dialysis	$	130,966	$	107,513
Other—Ancillary services	Other—Ancillary services		46,345			35,915		Other—Ancillary services	16,739		15,595
			$	409,391		$	451,909		$	147,705	$	123,108

A summary of assets by reportable segment were as follows:


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
U.S. dialysis	U.S. dialysis	$	15,223,532	$	15,375,000	U.S. dialysis	$	14,789,095	$	15,084,454
Other—Ancillary services	Other—Ancillary services	1,738,267		1,746,488		Other—Ancillary services	1,938,692		1,843,798
Consolidated assets	Consolidated assets	$	16,961,799	$	17,121,488	Consolidated assets	$	16,727,787	$	16,928,252

~~14.~~13. New accounting standards

New standards not yet adopted

In March 2020, the FASB issued ~~ASU~~Accounting Standards Update (ASU) No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU No. 2020-04 provides optional expedients and exceptions for applying U.S. ~~generally accepted accounting principles~~GAAP to contract modifications and hedging relationships, subject to certain criteria, that reference LIBOR or another rate that is expected to be discontinued. The amendments in this ASU were effective beginning on March 12, 2020, and the Company ~~may~~could elect to apply the amendments prospectively through December 31, 2022. In December 2022, the FASB issued ASU No. 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, which extended the election date to December 31, 2024. Effective January 1, 2022 certain LIBOR tenors that do not affect the Company, including the one-week and two-month U.S. dollar LIBOR rate, ceased or became non-representative. The remaining U.S. dollar LIBOR tenors will cease or become non-representative effective July 1, 2023. This change will have no impact on the Company's ability to borrow. The Company ~~is currently assessing the other effects~~does not expect application of this ~~guidance may~~ASU to have a material impact on its consolidated financial statements.

~~In October 2021,~~

14. Subsequent events

Launch of Mozarc Medical

On May 25, 2022, the ~~FASB issued ASU No. 2021-08,~~ ~~Business Combinations (Topic 805): Accounting for Acquired Contract Assets~~Company entered into an agreement with Medtronic, Inc. and ~~Contract Liabilities. ASU 2021-08 requires application~~one of ~~ASC 606,~~ ~~Revenue~~its subsidiaries (collectively, Medtronic) to form a new, independent kidney care-focused medical device company (Mozarc Medical) via a deconsolidating partial interest sale from ~~Contracts with Customers, to recognize and measure assets and liabilities from contracts with customers acquired in a business combination. This ASU creates an exception~~Medtronic to the ~~general recognition~~Company, which closed effective April 1, 2023. At the closing, the Company made a cash payment to Medtronic of $44,651, subject to certain customary post-closing adjustments, and ~~measurement principle~~contributed certain other non-cash assets to Mozarc Medical. Additionally, at close, the Company and Medtronic each contributed $224,415 in ~~ASC 805~~cash to launch Mozarc Medical. Pursuant to its agreement with Medtronic, the Company has also agreed to pay Medtronic additional consideration of up to $300,000 if certain regulatory and commercial milestones are achieved between 2024 and 2028.

Forward Interest Rate Cap Agreements

On April 21, 2023, the Company entered into several forward interest rate cap agreements with an aggregate notional amount of $1,000,000 that have the economic effect of capping the Company's exposure to Secured Overnight Financing Rate (SOFR) variable interest rate changes on specific portions of the Company's floating rate debt (2023 cap agreements). These

DAVITA INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(unaudited)

(dollars and shares in thousands, except per share data)

2023 cap agreements are designated as cash flow hedges and, as a result, changes in their fair values will ~~result~~be reported in ~~recognition~~other comprehensive income. These 2023 cap agreements do not contain credit-risk contingent features, and become effective on June 28, 2024 and June 30, 2024 and expire on December 31, 2025.

Second and Third Amendments to Credit Agreement

On April 3, 2023, the Company entered into the Second Amendment (the Second Amendment) to the Credit Agreement. The Second Amendment modifies the Credit Agreement to, among other things, transition the interest pricing on Term Loan B-1 from LIBOR+1.75% to a forward-looking term rate based on SOFR (Term SOFR) +1.75% and an additional credit spread adjustment (CSA), as well as to update the successor interest rate provisions in the Credit Agreement with respect to Term Loan B-1.

On April 28, 2023 (“Effective Date”), the Company entered into the Third Amendment (the Third Amendment) to the Credit Agreement. The Third Amendment modifies the Credit Agreement to, among other things, refinance its Term Loan A and revolving line of ~~contract assets~~credit with a secured Term Loan A-1 facility in the aggregate principal amount of $1,250,000 and ~~contract liabilities consistent with those recorded by~~a secured revolving line of credit in the ~~acquiree immediately before the acquisition date. ASU 2021-08 is effective~~aggregate principal amount of up to $1,500,000. The facilities bear interest at a rate equal to one-month Term SOFR plus an interest rate percentage (initially 2.00%) and an additional CSA. The Credit Agreement, as amended, continues to include customary affirmative and negative covenants and events of default for ~~fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.~~ ~~Early adoption is permitted for all entities. The Company does not expect the adoption~~financings of this ~~standard to have~~type.

The Term Loan A-1 facility amortizes on a ~~material impact~~quarterly basis beginning September 30, 2023 at a rate of (i) 2.5% per annum during the first year following the Effective Date of the Third Amendment, (ii) 5.0% per annum during the second, third and fourth years following the Effective Date of the Third Amendment and (iii) 7.5% per annum during the fifth year following the Effective Date of the Third Amendment, with the balance due on ~~the Company's consolidated financial statements.~~April 28, 2028. The new secured revolving line of credit has a five-year term.

2018

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-looking statements

This Quarterly Report on Form 10-Q, including this Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains statements that are forward-looking statements within the meaning of the federal securities laws and as such are intended to be covered by the safe harbor for "forward-looking statements" provided by the Private Securities Litigation Reform Act of 1995. These forward-looking statements could include, among other things, DaVita's response to and the expected future impacts of the coronavirus (COVID-19), including statements about our balance sheet and liquidity, our expenses and expense offsets, revenues, billings and collections, availability or cost of supplies, treatment volumes, mix expectation, such as the percentage or number of patients under commercial insurance, the availability, acceptance, impact, administration and efficacy of COVID-19 vaccines, treatments and therapies, the continuing impact on the U.S. and global economies, labor market conditions, and overall impact on our patients and teammates, as well as other statements regarding our future operations, financial condition and prospects, expenses, strategic initiatives, government and commercial payment rates, expectations related to value-based care, integrated kidney care and Medicare Advantage (MA) plan enrollment, and our ongoing stock repurchase program. All statements in this report, other than statements of historical fact, are forward-looking statements. Without limiting the foregoing, statements including the words "expect," "intend," "will," “could,” "plan," "anticipate," "believe" and similar expressions are intended to identify forward-looking statements. These forward-looking statements are based on DaVita's current expectations and are based solely on information available as of the date of this report. DaVita undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of changed circumstances, new information, future events or otherwise, except as may be required by law. Actual future events and results could differ materially from any forward-looking statements due to numerous factors that involve substantial known and unknown risks and uncertainties. These risks and uncertainties include, among other things:

•the continuing impact of the ~~dynamic and evolving~~ COVID-19 pandemic, ~~including,~~current macroeconomic and marketplace conditions, and global events, many of which are interrelated and which relate to, among other things, the impact of the COVID-19 pandemic on our patients, teammates, physician partners, suppliers, business, operations, reputation, financial condition and results of operations; the government’s response to the ~~COVID-19 pandemic, including, among other things, federal, state and local vaccine mandates or surveillance testing requirements and~~ongoing pandemic; the ~~extent to which they may ultimately be applicable to us; the~~ pandemic's ~~continuing~~ impact on the U.S. and global economies, labor market conditions, interest rates, inflation and evolving monetary policies; the availability, acceptance, impact and efficacy of COVID-19 vaccines, treatments and therapies; further spread or resurgence of the virus, including as a result of the emergence of new strains of the virus; the continuing impact of the pandemic on our revenues and non-acquired growth due to lower treatment volumes; COVID-19's impact on the chronic kidney disease (CKD) population and our patient population including on the mortality of these ~~patients, among other things;~~patients; any potential negative impact on our commercial mix or the number of our patients covered by commercial insurance plans; continued increased COVID-19-related costs; our ability to successfully implement cost savings initiatives; supply chain challenges and disruptions; and elevated teammate turnover and training costs and higher salary and wage expense. including, among other things, increased contract wages, driven in part by persisting labor market conditions and a high demand for our clinical personnel, any of which may also have the effect of heightening many of the other risks and uncertainties discussed below, and in many cases, the impact of the pandemic and the aforementioned global economic conditions on our business may persist even after the pandemic subsides;

•the extent to which the ongoing implementation of healthcare reform, or changes in or new legislation, regulations or guidance, enforcement thereof or related litigation result in a reduction in coverage or reimbursement rates for our services, a reduction in the number of patients enrolled in or that select higher-paying commercial plans, including for example Medicare Advantage plans; or other material impacts to our business or operations; or our making incorrect assumptions about how our patients will respond to any such developments;

•risks arising from potential changes in laws, regulations or requirements applicable to us, such as potential and proposed federal and/or state legislation, regulation, ballot, executive action or other initiatives, including, without limitation, those related to healthcare and/or labor matters, such as the Dialysis Clinic Requirements Initiative in California, which is scheduled to be voted on in November 2022 and AB 290 in California;

•the concentration of profits generated by higher-paying commercial payor plans for which there is continued downward pressure on average realized payment rates; a reduction in the number or percentage of our patients under such plans, including, without limitation, as a result of restrictions or prohibitions on the use and/or availability of charitable premium assistance, which may result in the loss of revenues or patients, or as a result of our making incorrect assumptions about how our patients will respond to any change in financial assistance from charitable organizations; or as a result of payors' implementing restrictive plan designs, including, without limitation, actions taken in response to the U.S. Supreme Court’s decision in Marietta Memorial Hospital Employee Health Benefit Plan, et al. v. DaVita Inc. et al. (Marietta); how and whether regulators and legislators will respond to the Marietta decision including, without limitation, whether they will issue regulatory guidance or adopt new legislation; how courts will interpret other anti-discriminatory provisions that may apply to restrictive plan designs; whether there could be other potential negative impacts of the Marietta decision; and the timing of each of these items;

•the extent to which the ongoing implementation of healthcare reform, or changes in or new legislation, regulations or guidance, enforcement thereof or related litigation result in a reduction in coverage or reimbursement rates for our services, a reduction in the number of patients enrolled in or that select higher-paying commercial plans, including for example MA plans; or other material impacts to our business or operations; or our making incorrect assumptions about how our patients will respond to any such developments;

•our ability to attract, retain and motivate teammates and our ability to manage operating cost increases or productivity decreases whether due to union organizing activities, legislative or other changes, demand for labor, volatility and uncertainty in the labor market, the current challenging and highly competitive labor market conditions, or other reasons;

•U.S. and global economic and marketplace conditions, interest rates, inflation, unemployment, labor market conditions, and evolving monetary policies, and our ability to respond to these ~~changing~~challenging conditions, including among other things our ability to successfully identify cost savings opportunities and to implement cost savings initiatives such as ongoing initiatives that increase our use of ~~third party~~third-party service providers to perform certain activities, initiatives that relate to clinic optimization and capacity utilization improvement, and procurement opportunities, among other things;

•our ability to successfully implement our strategies with respect to integrated kidney care and value-based care initiatives and home based dialysis in the desired time frame and in a complex, dynamic and highly regulated environment, including, among other things, maintaining our existing business; meeting growth expectations; recovering our investments; entering into agreements with payors, third party vendors and others on terms that are competitive and, as appropriate, prove actuarially sound; structuring operations, agreements and arrangements to comply with evolving rules and regulations; finding, training and retaining appropriate staff; and further developing our integrated care and other capabilities to provide competitive programs at scale;

•a reduction in government payment rates under the Medicare End Stage Renal Disease program, state Medicaid or other government-based programs and the impact of the ~~Medicare Advantage~~MA benchmark structure;

•noncompliance by us or our business associates with any privacy or security laws or any security breach by us or a third party involving the misappropriation, loss or other unauthorized use or disclosure of confidential information;

•legal and compliance risks, such as our continued compliance with complex, and at times, evolving government regulations and requirements;

•the impact of the political environment and related developments on the current healthcare marketplace and on our business, including with respect to the Affordable Care Act, the exchanges and many other core aspects of the current healthcare marketplace, as well as the composition of the U.S. Supreme Court and the current presidential administration and congressional majority;

•changes in pharmaceutical practice patterns, reimbursement and payment policies and processes, or pharmaceutical pricing, including with respect to hypoxia inducible factors, among other things;

•our ability to develop and maintain relationships with physicians and hospitals, changing affiliation models for physicians, and the emergence of new models of care or other initiatives introduced by the government or private sector that, among other things, may erode our patient base and impact reimbursement rates;

•our ability to complete acquisitions, mergers, dispositions, joint ventures or other strategic transactions that we might announce or be considering, on terms favorable to us or at all, or to successfully integrate any acquired businesses, or to successfully operate any acquired businesses, joint ventures or other strategic transactions, or to successfully expand our operations and services in markets outside the United States, or to businesses or products outside of dialysis services;

•continued increased competition from dialysis providers and others, and other potential marketplace changes, including without limitation increased investment in and availability of funding to new entrants in the dialysis and pre-dialysis marketplace;

•the variability of our cash flows, including without limitation any extended billing or collections cycles; the risk that we may not be able to generate or access sufficient cash in the future to service our indebtedness or to fund our other liquidity needs; and the risk that we may not be able to refinance our indebtedness as it becomes due, on terms favorable to us or at all;

•factors that may impact our ability to repurchase stock under our stock repurchase program and the timing of any such stock repurchases, as well as our use of a considerable amount of available funds to repurchase stock;

•risks arising from the use of accounting estimates, judgments and interpretations in our financial statements;

•impairment of our goodwill, investments or other assets;

•our aspirations, goals and disclosures related to environmental, social and governance (ESG) matters, including, among other things, evolving regulatory requirements affecting ESG standards, measurements and reporting requirements; the availability of suppliers that can meet our sustainability standards; and our ability to recruit, develop and retain diverse talent in our labor markets; and

•the other risk factors, trends and uncertainties set forth in our Annual Report on Form 10-K for the year ended December 31, ~~2021 (2021~~2022 (2022 10-K), ~~our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2022 and June 30, 2022 and this Quarterly Report on Form 10-Q,~~ and the risks and uncertainties discussed in any subsequent reports that we file or furnish with the Securities and Exchange Commission (SEC) from time to time.

The following should be read in conjunction with our condensed consolidated financial statements.

2220

Company Overview

Our principal business is to provide dialysis and related lab services to patients in the United States, which we refer to as our U.S. dialysis business. We also operate our U.S. integrated kidney care (IKC) business, our U.S. other ancillary services, and our international operations, which we collectively refer to as our ancillary services, as well as our corporate administrative support. Our U.S. dialysis business is a leading provider of kidney dialysis services in the U.S. for patients suffering from chronic kidney failure, also known as end stage renal disease (ESRD) or end stage kidney disease (ESKD).

~~COVID-19,~~ General Economic and Marketplace Conditions

Developments in general economic and ~~Legal~~market conditions could have a material adverse impact on our patients, teammates, physician partners, suppliers, business, operations, reputation, financial condition, results of operations, cash flows and/or liquidity. Many of these external factors and ~~Regulatory Developments~~

~~The~~conditions are interrelated, including, among other things, the continuing impact of COVID-19 ~~pandemic continues to impact~~on the mortality rates of our ~~business~~patients and ~~operations. In addition, we continue to be impacted by general conditions in the global economy, including~~other ESRD or CKD patients, supply chain challenges, ~~with respect to supply chains,~~ inflation, rising interest rates, labor market conditions and wage ~~pressure, among other things.~~pressure. Certain of these impacts could be further intensified by concurrent global events such as ~~COVID-19 lockdowns and protocols in portions of China or~~ the ongoing conflict between Russia and Ukraine, ~~the latter of~~ which has continued to drive sociopolitical and economic uncertainty ~~and volatility~~ in Europe and across the globe. Legal and regulatory developments may also impact our business and operations, such as the June 2022 U.S. Supreme Court ruling related to the Medicare Secondary Payer Act (MSPA), as well as the commencement of price transparency regulation enforcement in July 2022.

Operational and Financial Impacts

In the ~~third~~first quarter of 2023, we saw an increase in treatment ~~volumes continued~~volume compared to ~~reflect~~ the ~~ongoing~~prior quarter due primarily to a higher patient census. However, we continue to experience a negative impact on revenue and treatment volume on a full year over full year basis due to the cumulative negative impact of COVID-19 on the mortality rates ~~missed treatments and admissions~~ of ~~new dialysis~~our patients, which ~~among other things,~~ has in turn had ~~a negative~~an adverse impact on our patient ~~census. While~~census over time. As the ~~mortality rates associated with the Omicron and subvariants surges in 2022 preliminarily appear~~pandemic continues to be lower than in prior surges, the magnitude of the COVID-19 case increases has resulted in an increased level of excess patient mortalities, that we expect to persist into 2023, the magnitude of which will depend on the severity of any future COVID-19 surges, among other things. The decline in patient admissions and elevated rates of missed treatments related to the Omicron and subvariant surge earlier this year have persisted through the third quarter as the surge has subsided. There is significant uncertainty, and these volume trends may continue through 2023. In addition,subside, we expect that the impact of COVID-19 iswill likely to continue to negatively impact our revenue and non-acquired growth for a period of time ~~even as the pandemic subsides~~ due to the compounding impact of mortalities, among other things. New admission rates, future revenues and non-acquired growth could also continue to be negatively impacted over time to the extent that the CKD population experiences elevated mortality levels due to the pandemic. There remains significant uncertainty as to the ultimate impact of COVID-19 on our treatment volumes, in part due to, among other things, the indeterminate severity and duration of the pandemic and the complexity of factors that may drive new admissions and missed treatment rates over time. Depending on the ultimate severity and duration of the pandemic, the magnitude of these cumulative impacts could have a material adverse impact on our results of operations, financial condition and cash flows.

As part of our continued focus on the health, safety and well-being of our patients, teammates and physician partners, we have continued to dedicate substantial resources in response to COVID-19, including the implementation of additional protocols and initiatives to help safely maintain continuity of care for our patients and help protect our caregivers. We continue to implement dedicated care shifts for patients with confirmed or suspected COVID-19 and other enhanced clinical practices, including procuring additional equipment and clinical supplies,Ongoing global economic conditions, such as ~~personal protective equipment (PPE).~~

During the third quarter of 2022, COVID-19 has continued to strain staffing in an already challenging labor market. Additionally, as a result of these ongoing COVID-19-related clinical measures, in combination with general labor, supply chain and inflationary pressures, combined with the impact of COVID-19, have also increased, and will continue to increase, our expenses, including, among others, staffing and labor costs. While we continued to experience elevated levels of compensation and training expenses during the first quarter, we have ~~incurred higher incentive pay, increased~~experienced improvement in labor costs, primarily due to decreased utilization of contract labor ~~and inefficient productivity. In addition, during 2022, we have experienced and~~in the first quarter. We expect certain of these increased costs to continue, ~~to experience increased labor costs due to higher wage rates~~ and ~~increased investment in training expenses, and elevated levels of contract labor utilization. The~~the cumulative impact of ~~the foregoing will continue to put additional pressure on our cost structure, some of which is expected to abate with the decline of the impact of COVID-19. Potential~~these costs could be material. In addition, potential staffing shortages or disruptions, if material, could ultimately lead to the unplanned closures of certain centers or adversely impact clinical operations, and may otherwise have a material adverse impact on our ability to provide dialysis services or the cost of providing those services, among other things. ~~Prolonged~~In the first quarter, we also saw a continued elevated level of effort and cost needed to procure certain of our equipment and clinical supplies, including dialysis supplies.

The staffing and labor cost inflation described above, in addition to higher equipment and clinical supply costs, have put pressure on our existing cost structure, and as noted above, we expect that certain of those increased costs will persist as global supply chains continue to experience volatility ~~uncertainty, labor supply shortages~~ and ~~other~~disruptions and as inflationary pressures and challenging labor market conditions ~~including, among other things, due to inflationary pressures or evolving monetary policies, each of which may be independent of~~continue. During the ~~COVID-19 pandemic, could also have an adverse impact on our growth and ability to execute on our other strategic initiatives and a material adverse impact on our labor costs.~~

These inflationary pressures and evolving monetary policies, as well as ongoing global supply chain challenges, also have more broadly impacted our supply and other costs, and may continue to drive certain increased expenses, including, among other things, with respect to medical and other supplies and interest expense.

~~We continue~~first quarter, we continued to implement cost savings opportunities to help mitigate these cost and volume pressures. These include, among other things, anticipated cost savings related to ~~G&A~~certain general and administrative cost efficiencies, such as ongoing initiatives that increase our use of

third party service providers to perform certain ~~activities;~~activities, including, among others, finance and accounting functions as well as related information technology functions; initiatives relating to clinic optimization and initiatives for capacity utilization improvement; and procurement opportunities. We have incurred, and expect to continue to incur, charges in connection with the continued implementation of certain of these initiatives, and there can be no assurance that we will be able to successfully execute these initiatives or that they will achieve expectations or succeed in helping offset the impact of these challenging conditions. Any failure on our part to adjust our business and operations in this manner, to adjust to other marketplace developments or dynamics or to appropriately implement these initiatives in accordance with applicable legal, regulatory or compliance requirements could adversely impact our ability to provide dialysis services or the cost of providing those services, among other things, and ultimately could have a material adverse effect on our business, reputation, results of operations, financial condition and cash flows. ~~Our COVID-19 response has reduced certain expenses though it remains uncertain how much of these reductions, if any, will persist as pandemic protocols continue to change over time.~~

~~Federal, State and Local Government COVID-19 Response~~

Federal COVID-19 relief legislation suspended the 2% Medicare sequestration from May 1, 2020 through December 31, 2021. The Protecting Medicare and American Farmers from Sequester Cuts Act, signed into law on December 10, 2021, extended the suspension of the 2% Medicare sequestration from December 31, 2021 through March 31, 2022, with 1% Medicare sequestration in effect from April 1, 2022 through June 30, 2022 and 2% Medicare sequestration in effect beginning July 1, 2022. While in effect, the suspension of sequestration significantly increased our revenues.

We believe the ultimate impact of the COVID-19 ~~public health crisis~~pandemic and the aforementioned general economic and marketplace conditions on the Company over time will depend on future developments that are highly uncertain and difficult to predict, including among others the ultimate severity and duration of the pandemic; further spread or resurgence of the virus, including as a result of the emergence of new strains of the virus; COVID-19'spredict. We expect that these conditions will continue to impact on the chronic kidney disease (CKD) patient population and our patient population, including on the growth rate of these populations and mortality of these patients; the availability, acceptance, impact and efficacy of COVID-19 vaccines, treatments and therapies; the pandemic’s continuing impact on our revenue and non-acquired growth due to lower treatment volumes, the U.S. and global economies, labor market conditions, interest rates, inflation and evolving monetary policies; our ability to successfully implement cost-savings initiatives; the potential negative impact on our commercial mix or the number of patients covered by commercial insurance plans; continued increased COVID-19-related costs; supply chain challenges and disruptions; the responses of our competitors to the pandemic and related changes in the marketplace; the timing, scope and effectiveness of federal, state and local government responses to the continuing pandemic; and any potential changes to the extensive set of federal, state and local laws, regulations and requirements that govern our business. In many cases, the impact of the pandemic and the aforementioned global economic and marketplace conditions on our business ~~may persist after the pandemic subsidies.~~

~~For additional discussion of the COVID-19 pandemic and our response, including its impact on us and related risks and uncertainties, please see the discussion~~ in ~~Part I Item 1. Business of the 2021 10-K under the headings, "COVID-19 and its impact on our business" and "Human Capital Management," as well as the risk factor in Part I Item 1A. Risk Factors of the 2021 10-K under the heading "We face various risks related to the dynamic and evolving novel coronavirus pandemic, many of which may have a material adverse impact on us.~~"2023.

Financial Results

The discussion below includes analysis of our financial condition and results of operations for the three months ended ~~September 30, 2022~~March 31, 2023 compared to the three months ended ~~June 30,~~December 31, 2022, and the year to date periods for ~~nine~~the three months ended ~~September 30, 2022~~March 31, 2023 compared to the ~~nine~~three months ended September 30, 2021. The SEC amended its guidance on Management's Discussion and Analysis of Financial Condition and Results of Operations to permit companies to compare their most recently completed quarter to either the corresponding quarter of the prior year or to the immediately preceding sequential quarter to allow for flexibility in comparison of interim periods reported to help companies provide a more tailored and meaningful analysis relevant to their business cycles. Beginning with the first quarter of 2022, our Management’s Discussion and Analysis of Financial Condition and Results of Operations present our results of operations for the most recently completed fiscal year to date period compared to the corresponding year to date period of the prior year, as well as the most recently completed quarter compared to the immediately preceding sequential quarter, and otherwise exclude comparisons of the most recently completed quarter to the corresponding quarter of the prior year.

March 31, 2022.

Consolidated results of operations

The following tables summarize our revenues, operating income and adjusted operating income by line of business. See the discussion of our results for each line of business following the tables. When multiple drivers are identified in the following discussion of results, they are listed in order of magnitude:

Three months ended Q3 2022 vs. Q2 2022
September 30,
2022 June 30,
2022 Amount Percent
(dollars in millions)
Revenues:
U.S. dialysis $ 2,703 $ 2,663 $ 40 1.5 %
Other — Ancillary services 268 283 (15) (5.3) %
Elimination of intersegment revenues (23) (19) (4) (21.1) %
Total consolidated revenues $ 2,949 $ 2,927 $ 22 0.8 %
Operating income (loss):
U.S. dialysis $ 351 $ 473 $ (122) (25.8) %
Other — Ancillary services (15) (9) (6) (66.7) %
Corporate administrative support (24) (31) 7 22.6 %
Operating income $ 312 $ 433 $ (121) (27.9) %
Adjusted operating income (loss)(1):
U.S. dialysis $ 391 $ 479 $ (88) (18.4) %
Other — Ancillary services (15) (9) (6) (66.7) %
Corporate administrative support (24) (31) 7 22.6 %
Adjusted operating income $ 351 $ 439 $ (88) (20.0) %

~~Certain columns, rows or percentages may not sum due to the presentation of rounded numbers.~~

~~(1)For a reconciliation of adjusted operating income by reportable segment, see "Reconciliations of Non-GAAP measures" section below.~~


		Nine months ended				YTD Q3 2022 vs. YTD Q3 2021					Three months ended				Q1 2023 vs. Q4 2022
		September 30, 2022		September 30, 2021		Amount		Percent			March 31, 2023		December 31, 2022		Amount		Percent
		(dollars in millions)									(dollars in millions)
Revenues:	Revenues:									Revenues:
U.S. dialysis	U.S. dialysis	$	7,942	$	7,964	$	(22)	(0.3)	%	U.S. dialysis	$	2,612	$	2,658	$	(46)	(1.7)	%
Other — Ancillary services	Other — Ancillary services	816		785		31		3.9	%	Other — Ancillary services	284		285		(1)		(0.4)	%
Elimination of intersegment revenues	Elimination of intersegment revenues	(65)		(75)		10		13.3	%	Elimination of intersegment revenues	(23)		(27)		4		14.8	%
Total consolidated revenues	Total consolidated revenues	$	8,693	$	8,675	$	18	0.2	%	Total consolidated revenues	$	2,873	$	2,917	$	(44)	(1.5)	%

Operating income (loss):	Operating income (loss):									Operating income (loss):
U.S. dialysis	U.S. dialysis	$	1,231	$	1,524	$	(293)	(19.2)	%	U.S. dialysis	$	361	$	335	$	26	7.8	%
Other — Ancillary services	Other — Ancillary services	(57)		(37)		(20)		(54.1)	%	Other — Ancillary services	(25)		(40)		15		37.5	%
Corporate administrative support	Corporate administrative support	(91)		(79)		(12)		(15.2)	%	Corporate administrative support	(25)		(38)		13		34.2	%
Operating income	Operating income	$	1,083	$	1,408	$	(325)	(23.1)	%	Operating income	$	312	$	256	$	56	21.9	%

Adjusted operating income (loss)(1):	Adjusted operating income (loss)(1):									Adjusted operating income (loss)(1):
U.S. dialysis	U.S. dialysis	$	1,281	$	1,536	$	(255)	(16.6)	%	U.S. dialysis	$	400	$	387	$	13	3.4	%
Other — Ancillary services	Other — Ancillary services	(57)		(37)		(20)		(54.1)	%	Other — Ancillary services	(24)		(32)		8		25.0	%
Corporate administrative support	Corporate administrative support	(91)		(79)		(12)		(15.2)	%	Corporate administrative support	(24)		(38)		14		36.8	%
Adjusted operating income	Adjusted operating income	$	1,133	$	1,420	$	(287)	(20.2)	%	Adjusted operating income	$	352	$	317	$	35	11.0	%

Certain columns, rows or percentages may not sum due to the presentation of rounded numbers.

(1)For a reconciliation of adjusted operating income by reportable segment, see "Reconciliations of Non-GAAP measures" section below.

2522


	Three months ended				YTD Q1 2023 vs. YTD Q1 2022
	March 31, 2023		March 31, 2022		Amount		Percent
	(dollars in millions)
Revenues:
U.S. dialysis	$	2,612	$	2,575	$	37	1.4	%
Other — Ancillary services	284		265		19		7.2	%
Elimination of intersegment revenues	(23)		(22)		(1)		(4.5)	%
Total consolidated revenues	$	2,873	$	2,818	$	55	2.0	%

Operating income (loss):
U.S. dialysis	$	361	$	406	$	(45)	(11.1)	%
Other — Ancillary services	(25)		(32)		7		21.9	%
Corporate administrative support	(25)		(36)		11		30.6	%
Operating income	$	312	$	338	$	(26)	(7.7)	%

Adjusted operating income (loss)(1):
U.S. dialysis	$	400	$	411	$	(11)	(2.7)	%
Other — Ancillary services	(24)		(32)		8		25.0	%
Corporate administrative support	(24)		(36)		12		33.3	%
Adjusted operating income	$	352	$	343	$	9	2.6	%

Certain columns, rows or percentages may not sum due to the presentation of rounded numbers.

(1)For a reconciliation of adjusted operating income by reportable segment, see "Reconciliations of Non-GAAP measures" section below.

U.S. dialysis results of operations

Treatment ~~Volume:~~volume:


		Three months ended				Q3 2022 vs. Q2 2022				Three months ended				Q1 2023 vs. Q4 2022
		September 30, 2022		June 30, 2022		Amount	Percent			March 31, 2023		December 31, 2022		Amount	Percent
Dialysis treatments	Dialysis treatments	7,335,825		7,269,160		66,665	0.9	%	Dialysis treatments	7,117,427		7,239,660		(122,233)	(1.7)	%
Average treatments per day	Average treatments per day	92,859		93,194		(335)	(0.4)	%	Average treatments per day	92,434		91,641		793	0.9	%
Treatment days	Treatment days	79.0		78.0		1.0	1.3	%	Treatment days	77.0		79.0		(2.0)	(2.5)	%
Normalized non-acquired treatment growth(1)	Normalized non-acquired treatment growth(1)	(2.1)	%	(1.9)	%		(0.2)	%	Normalized non-acquired treatment growth(1)	—	%	(2.1)	%

Certain columns, rows or percentages may not sum due to the presentation of rounded numbers.

(1)Normalized non-acquired treatment growth reflects year over year growth in treatment volume, adjusted to exclude acquisitions and other similar transactions, and further adjusted to normalize for the number and mix of treatment days in a given quarter versus the prior year quarter.


		Nine months ended		YTD Q3 2022 vs. YTD Q3 2021				Three months ended		YTD Q1 2023 vs. YTD Q1 2022
		September 30, 2022	September 30, 2021	Amount	Percent			March 31, 2023	March 31, 2022	Amount	Percent
Dialysis treatments	Dialysis treatments	21,714,773	22,166,628	(451,855)	(2.0)	%	Dialysis treatments	7,117,427	7,109,788	7,639	0.1	%
Average treatments per day	Average treatments per day	92,798	94,729	(1,931)	(2.0)	%	Average treatments per day	92,434	92,335	99	0.1	%
Treatment days	Treatment days	234.0	234.0	—	—	%	Treatment days	77.0	77.0	—	—	%

Certain columns, rows or percentages may not sum due to the presentation of rounded numbers.

Our U.S. dialysis treatment volume is directly correlated with our operating revenues and expenses. The decrease in our U.S. dialysis treatments for the first quarter of 2023 from the fourth quarter of 2022 was primarily driven by two fewer treatment days, partially offset by increased average treatments per day due to increased admits due to growth in our patient population.

The increase in our U.S. dialysis treatments for the three months ended March 31, 2023 from the three months ended March 31, 2022 was primarily driven by increased average treatments per day due to decreased mortality in our patient population.

Revenues:


	Three months ended				Q1 2023 vs. Q4 2022
	March 31, 2023		December 31, 2022		Amount		Percent
	(dollars in millions, except per treatment data)
Total revenues	$	2,612	$	2,658	$	(46)	(1.7)	%
Average patient service revenue per treatment	$	366.14	$	366.30	$	(0.16)	—	%

Certain columns, rows or percentages may not sum due to the presentation of rounded numbers.

Our U.S. dialysis treatment volume is directly correlated with our operating revenues and expenses. The increase in our U.S. dialysis treatments for the third quarter of 2022 from the second quarter of 2022 was primarily driven by one additional treatment day, partially offset by fewer average treatments per day due to increased mortality and higher missed

~~treatment rates.~~

The decrease in our U.S. dialysis treatments for the nine months ended September 30, 2022 from the nine months ended September 30, 2021 was primarily driven by the impact of increased mortality over recent periods on our patient population, slightly offset by acquisition related growth. We believe the increased mortality is largely attributable to the impact of COVID-19 on our patient population.

~~Revenues:~~

Three months ended Q3 2022 vs. Q2 2022
September 30,
2022 June 30,
2022 Amount Percent
(dollars in millions, except per treatment data)
Total revenues $ 2,703 $ 2,663 $ 40 1.5 %
Average patient service revenue per treatment $ 367.67 $ 365.54 $ 2.13 0.6 %

~~Certain columns, rows or percentages may not sum due to the presentation of rounded numbers.~~


		Nine months ended				YTD Q3 2022 vs. YTD Q3 2021					Three months ended				YTD Q1 2023 vs. YTD Q1 2022
		September 30, 2022		September 30, 2021		Amount		Percent			March 31, 2023		March 31, 2022		Amount		Percent
		(dollars in millions, except per treatment data)									(dollars in millions, except per treatment data)
Total revenues	Total revenues	$	7,942	$	7,964	$	(22)	(0.3)	%	Total revenues	$	2,612	$	2,575	$	37	1.4	%
Average patient service revenue per treatment	Average patient service revenue per treatment	$	364.89	$	358.42	$	6.47	1.8	%	Average patient service revenue per treatment	$	366.14	$	361.35	$	4.79	1.3	%

Certain columns, rows or percentages may not sum due to the presentation of rounded numbers.

U.S. dialysis average patient service revenue per treatment for the ~~third~~first quarter of 2023 compared to the fourth quarter of 2022 ~~compared~~decreased, driven by a seasonal decline from co-insurance and deductibles, partially offset by an increase in the Medicare base rate in 2023, favorable changes due to the ~~second quarter of 2022 increased, primarily due~~continued shift to ~~normal revenue fluctuations~~MA plans and a seasonal increase in ~~the third quarter, increased~~ hospital inpatient dialysis revenues and continued migration to Medicare Advantage plans. Our U.S. dialysis average patient service revenue per treatment was negatively impacted by unfavorable changes in government rates due to the reinstatement of 2% Medicare sequestration as of July 1, 2022, as well as a decrease in commercial mix.

treatments.

U.S. dialysis average patient service revenue per treatment for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 increased compared to the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 primarily driven by ~~an increase in commercial mix and rate, an~~a net increase in the Medicare rate due to base rate increase in ~~2022, and the continued shift to Medicare Advantage plans,~~2023 partially offset by the reinstatement of ~~1% Medicare sequestration~~2% sequestration. The increase was also impacted by the continued shift to MA plans and increases in ~~each of the second and third quarters of 2022.~~

~~In June 2022, CMS issued a proposed rule to update the Medicare ESRD Prospective Payment System payment rate and policies. Among other things, the proposed rule would update the Acute Kidney Injury~~hospital inpatient dialysis payment rate for renal dialysis services furnished by ESRD facilities and requirements for the ESRD Quality Incentive Program, as well as refine the ESRD Treatment Choices Model. CMS estimates that the overall impact of the proposed rule will increase ESRD facilities’ average reimbursement by 3.1% in 2023.revenues.

Operating expenses:


		Three months ended				Q3 2022 vs. Q2 2022					Three months ended				Q1 2023 vs. Q4 2022
		September 30, 2022		June 30, 2022		Amount		Percent			March 31, 2023		December 31, 2022		Amount		Percent
		(dollars in millions, except per treatment data)									(dollars in millions, except per treatment data)
Patient care costs	Patient care costs	$	1,877	$	1,796	$	81	4.5	%	Patient care costs	$	1,832	$	1,865	$	(33)	(1.8)	%
General and administrative~~(1)~~	General and administrative~~(1)~~	297		241		56		23.2	%	General and administrative~~(1)~~	259		283		(24)		(8.5)	%
Depreciation and amortization	Depreciation and amortization	185		161		24		14.9	%	Depreciation and amortization	167		184		(17)		(9.2)	%
Equity investment income	Equity investment income	(7)		(7)		—		—	%	Equity investment income	(6)		(8)		2		25.0	%
Total operating expenses and charges	Total operating expenses and charges	$	2,352	$	2,190	$	162	7.4	%	Total operating expenses and charges	$	2,251	$	2,324	$	(73)	(3.1)	%
Patient care costs per treatment	Patient care costs per treatment	$	255.86	$	247.14	$	8.72	3.5	%	Patient care costs per treatment	$	257.34	$	257.60	$	(0.26)	(0.1)	%

Certain columns, rows or percentages may not sum or recalculate due to the presentation of rounded numbers.

~~(1)~~General and administrative expenses for the three months ended September 30, 2022 and June 30, 2022 include advocacy costs of approximately $28 million and $23 million, respectively, to counter union policy efforts, including a California statewide ballot initiative (CA Proposition 29) that is scheduled to be voted on in November.


		Nine months ended				YTD Q3 2022 vs. YTD Q3 2021					Three months ended				YTD Q1 2023 vs. YTD Q1 2022
		September 30, 2022		September 30, 2021		Amount		Percent			March 31, 2023		March 31, 2022		Amount		Percent
		(dollars in millions, except per treatment data)									(dollars in millions, except per treatment data)
Patient care costs	Patient care costs	$	5,469	$	5,303	$	166	3.1	%	Patient care costs	$	1,832	$	1,796	$	36	2.0	%
General and administrative~~(1)~~	General and administrative~~(1)~~	755		684		71		10.4	%	General and administrative~~(1)~~	259		217		42		19.4	%
Depreciation and amortization	Depreciation and amortization	507		477		30		6.3	%	Depreciation and amortization	167		162		5		3.1	%
Equity investment income	Equity investment income	(21)		(23)		2		8.7	%	Equity investment income	(6)		(6)		—		—	%
Total operating expenses and charges	Total operating expenses and charges	$	6,711	$	6,441	$	270	4.2	%	Total operating expenses and charges	$	2,251	$	2,169	$	82	3.8	%
Patient care costs per treatment	Patient care costs per treatment	$	251.88	$	239.24	$	12.64	5.3	%	Patient care costs per treatment	$	257.34	$	252.61	$	4.73	1.9	%

Certain columns, rows or percentages may not sum or recalculate due to the presentation of rounded numbers.

~~(1)General and administrative expenses for the nine months ended September 30, 2022 includes advocacy costs of approximately $51 million to counter union policy efforts, including CA Proposition 29.~~

Charges impacting operating income ~~- closure~~

Closure costs. During the third quarter of 2022, we ~~incurred higher than normal charges for center capacity closures. These closures are the result of~~began a strategic review of our outpatient clinic capacity requirements and utilization, which have been impacted both by declines in our patient census in some markets due to the COVID-19 pandemic, as well as by our initiatives toward, and advances in, increasing the proportion of our home dialysis patients. This review has resulted in higher than normal charges for center capacity closures.

~~Our third~~During the first quarter of 2023, we incurred charges for U.S. dialysis center closures ~~were~~of approximately ~~$40~~$22.2 million, which increased our patient care costs by $7$12.6 million, our general and administrative expenses by ~~$12~~$4.8 million and our depreciation and amortization expense by ~~$21~~$4.8 million. By comparison, during the fourth quarter of 2022, U.S. dialysis center closures were approximately $35.3 million, which increased our patient care costs by $6.0 million, our general and administrative expenses by $5.3 million and our depreciation and amortization expense by $24.0 million. During the first quarter of 2022, U.S. dialysis center closures were approximately $4.5 million, which increased our patient care costs by $2.9 million, our general and administrative expenses by $1.4 million and our depreciation and amortization expense by $0.2 million. These capacity closures costs included net losses on assets retired, lease costs, asset impairments and accelerated depreciation and amortization.

We will continue to optimize our U.S. dialysis center footprint through center mergers and/or closures and expect our center closure rates to remain at elevated levels over the next several quarters.

Severance costs.

During the fourth quarter of 2022, we committed to a plan to increase efficiencies and cost savings in certain general and administrative support functions. As a result of this plan, we recognized expenses related to termination and other benefit commitments in our U.S. dialysis business of $16.9 million and $17.0 million during first quarter of 2023 and the fourth quarter of 2022, respectively.

Patient care costs. U.S. dialysis patient care costs per treatment for the ~~third~~first quarter of ~~2022 increased~~2023 decreased from the ~~second~~fourth quarter of 2022 primarily due to ~~increased compensation expenses from higher wage rates and training~~decreases in pharmaceutical costs, ~~due to an increase in hiring. Other drivers of the increase include increases in~~ health benefit expenses, ~~medical supply costs,~~contract wages and insurance expense. These decreases were partially offset by increases in compensation expenses and fixed other direct operating expenses ~~associated with~~in our dialysis centers due to fewer number of treatments in the first quarter of 2023. In addition, our patient costs ~~related to travel, professional fees and~~per treatment were negatively impacted by increases in center closure costs, as described ~~above. These increases were partially offset by decreases in insurance expense~~above, and ~~pharmaceutical costs.~~costs related to management meetings.

U.S. dialysis patient care costs per treatment for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 increased from the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 primarily due to increased compensation expenses including increased wage rates and ~~contract wages.~~headcount. Other drivers of the increase include increases in other direct operating expenses associated with our dialysis centers ~~including increases in utilities expense partially due to lower expense in the first half of 2021 related to our virtual power purchase arrangements,~~ as well as ~~increases in insurance expenses,~~ center closure costs, as described above, and travel costs, ~~related to travel. In addition, our fixed other direct operating expenses negatively impacted patient care costs per treatment due to decreased treatments in 2022.~~including management meetings. These increases were partially offset by decreased pharmaceutical costs, contract wages and health benefit ~~expenses, and professional fees.~~expenses.

General and administrative expenses. U.S. dialysis general and administrative expenses in the ~~third~~first quarter of ~~2022 increased~~2023 decreased from the ~~second~~fourth quarter of 2022 primarily due to gains recognized in the second quarter of 2022 on the sale of our self-developed properties, closure costs, as described above, and increased compensation expense including increased wage rates, and contract wages due to the deployment of IT projects. Other drivers of the change include increaseddecreased professional fees, ~~and costs~~a refund received related to ~~travel.~~2022 advocacy costs, seasonal decreases in other costs, including IT costs and other purchased services as well as health benefit expenses. These decreases were partially offset by increased long-term incentive compensation expense.

U.S. dialysis general and administrative expenses for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 increased from the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 primarily due to increases in ~~advocacy costs to counter union policy efforts,~~ compensation expenses including increased wage rates and severance costs, as described above. Other drivers of this change include increased costs related to travel ~~costs~~ and management meetings, center closure costs, as described ~~above. This increase in U.S. dialysis general~~above, and ~~administrative expenses was~~higher IT-related costs. These increases were partially offset by ~~gains on sale, as described above, decreases in professional fees and contributions~~a refund received related to ~~our charitable foundation.~~2022 advocacy costs.

Depreciation and amortization. U.S. dialysis depreciation and amortization expenses for the quarter ended ~~September 30, 2022 increased~~March 31, 2023 decreased compared to the quarter ended ~~June 30,~~December 31, 2022 primarily due to less accelerated depreciation related to center closures, as described above.

U.S. dialysis depreciation and amortization expenses for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 increased primarily due to accelerated depreciation related to expected center closures, as described above, as well as a full quarter of depreciation from the rollout of our new clinical system in May ~~2022.~~

~~U.S. dialysis depreciation and amortization expenses for the nine months ended September 30,~~ 2022, compared to the nine months ended September 30, 2021 increased primarily due to increased depreciation and amortization for hardware associated with our new clinical system and other corporate technology projects, as well as accelerated depreciation for expected center closures and the development of newpartially offset by operating fewer centers.

Equity investment income. U.S. dialysis equity investment income ~~remained relatively flat~~decreased for the ~~third~~first quarter of ~~2022~~2023 compared to the ~~second~~fourth quarter of ~~2022.~~

~~U.S. dialysis equity investment income decreased from the nine months ended September 30,~~ 2022 ~~compared to the nine months ended September 30, 2021, primarily~~ due to a decline in profitability at certain ~~joint ventures.~~nonconsolidated dialysis partnerships.

U.S. dialysis equity investment income remained relatively flat for the three months ended March 31, 2023 compared to the three months ended March 31, 2022.

Operating income and adjusted operating income:


		Three months ended				Q3 2022 vs. Q2 2022					Three months ended				Q1 2023 vs. Q4 2022
		September 30, 2022		June 30, 2022		Amount		Percent			March 31, 2023		December 31, 2022		Amount		Percent
		(dollars in millions)									(dollars in millions)
Operating income	Operating income	$	351	$	473	$	(122)	(25.8)	%	Operating income	$	361	$	335	$	26	7.8	%
Adjusted operating income(1)	Adjusted operating income(1)	$	391	$	479	$	(88)	(18.4)	%	Adjusted operating income(1)	$	400	$	387	$	13	3.4	%

(1)For a reconciliation of adjusted operating income by reportable segment, see "Reconciliations of Non-GAAP measures" section below.


		Nine months ended				YTD Q3 2022 vs. YTD Q3 2021					Three months ended				YTD Q1 2023 vs. YTD Q1 2022
		September 30, 2022		September 30, 2021		Amount		Percent			March 31, 2023		March 31, 2022		Amount		Percent
		(dollars in millions)									(dollars in millions)
Operating income	Operating income	$	1,231	$	1,524	$	(293)	(19.2)	%	Operating income	$	361	$	406	$	(45)	(11.1)	%
Adjusted operating income(1)	Adjusted operating income(1)	$	1,281	$	1,536	$	(255)	(16.6)	%	Adjusted operating income(1)	$	400	$	411	$	(11)	(2.7)	%

(1)For a reconciliation of adjusted operating income by reportable segment, see "Reconciliations of Non-GAAP measures" section below.

U.S. dialysis operating income for the ~~third~~first quarter of ~~2022~~2023 compared to the ~~second~~fourth quarter of ~~2022~~2023 and for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 compared to the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, was ~~negatively~~ impacted by center closure and severance costs, as described above.

U.S. dialysis operating income and adjusted operating income for the ~~third~~first quarter of ~~2022 decreased~~2023 increased from the ~~second~~fourth quarter of 2022 primarily due to ~~increased compensation~~decreased pharmaceutical costs, health benefit expenses, ~~gains on sale of self developed properties recognized in the second quarter, and increases in~~contract wages, professional fees, ~~costs~~a refund received related to ~~travel~~2022 advocacy costs and seasonal decreases in other ~~medical supply~~general administrative costs, ~~each~~as described above. Operating income ~~was positively~~and adjusted operating income were negatively impacted by ~~an increase in our average patient service revenue per treatment~~decreased dialysis treatments, as described above. Other impacts include increased compensation expenses, costs related to management meetings and ~~increased dialysis treatments.~~long-term incentive compensation expense.

U.S. dialysis operating income and adjusted operating income for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 decreased from the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 primarily due to ~~a decrease in dialysis treatments and~~ increases in compensation expenses ~~advocacy~~and travel costs including management meetings as well as other direct operating expenses associated with our dialysis centers ~~costs related to travel~~ and ~~depreciation expense related to IT projects, each described above, as well as insurance expense.~~IT-related costs. Operating income ~~was~~and adjusted operating income were positively impacted by ~~an increase~~increases in dialysis treatments and our average patient service revenue per treatment, as described above, as well as decreases in pharmaceutical ~~unit~~ costs, ~~gains on sale of our self-developed properties, as described above,~~contract wages, and ~~decreases in professional fees and medical supply~~a refund received related to 2022 advocacy costs.

Other—Ancillary services

Our other operations include ancillary services that are primarily aligned with our core business of providing dialysis services to our network of patients. As of ~~September 30, 2022,~~March 31, 2023, these consisted principally of our U.S. ~~integrated kidney care (IKC)~~IKC business, certain U.S. other ancillary businesses (including our clinical research programs, transplant software business, and venture investment group), and our international operations.

These ancillary services generated revenues of approximately ~~$268 million and $816~~$284 million in the ~~third~~first quarter of ~~2022 and nine months ended September 30, 2022, respectively,~~2023, representing approximately 9%10% of our consolidated ~~revenues in both periods.~~revenues.

As ~~part~~ of ~~our growth strategy, we have invested, and expect to continue to invest, significant resources in the further development of our~~March 31, 2023, DaVita IKC provided integrated care ~~business~~ and ~~value-based~~disease management services to approximately 67,000 patients in risk-based integrated care ~~initiatives. There can be no assurances that we will be able~~arrangements and to ~~successfully implement our strategies with respect to value-based~~an additional 15,000 patients in other integrated care and integrated kidney care in the desired time frame and in a complex, dynamic and highly regulated environment, and we face risks including, among other things, those related to maintaining our existing business, recovering our investments, entering into agreements with payors, physicians, third party vendors and others on terms that are competitive, and as appropriate, that prove actuarially sound; structuring these agreements and arrangements to comply with evolving rules and regulations, including, among other things, rules and regulations related to the use of protected health information; and further developing our operational, IT and other capabilities to enable us to provide competitive programs at scale. If our value-based care and integrated kidney care programs are unsuccessful, it could result in a loss of our investments and have a material adverse effect on our growth strategy, and could have an adverse impact on our business, results of operations, financial condition and cash flows.

Furthermore, if any of our other ancillary services, such as our international operations, are unsuccessful, this could have a negative impact on our business, results of operations, financial condition and cash flows, and we may determine to exit that line of business, which could result in significant termination costs or loss of investment. In addition, we have in the past and may in the future incur material restructuring, write-off or impairment charges on our investment in one or more of these ancillary services, including goodwill.

arrangements. We also expect to add additional service offerings ~~or product lines~~ to our business and to pursue ~~new business opportunities. While these opportunities~~additional strategic initiatives in the future as circumstances warrant, which could include, among other things, healthcare services not related to ~~dialysis, we have focused~~dialysis.

For a discussion of the risks related to IKC and our ~~ongoing efforts on opportunities with strong strategic links to~~ancillary services, see the discussion in the risk factors in Part I, Item 1A Risk Factors of our 2022 10-K under the headings, "The U.S. integrated kidney care, ~~dialysis~~U.S. other ancillary services and international operations that we operate or invest in now or in the future..." and "If we are not able to successfully implement our strategy with respect to our integrated ~~dialysis~~ kidney ~~care.~~

care and value-based care initiatives..."

As of ~~September 30, 2022,~~March 31, 2023, our international dialysis operations provided dialysis and administrative services through a total of ~~352~~351 outpatient dialysis centers located in 11 countries outside of the United States.

Ancillary services results of operations


		Three months ended				Q3 2022 vs. Q2 2022					Three months ended				Q1 2023 vs. Q4 2022
		September 30, 2022		June 30, 2022		Amount		Percent			March 31, 2023		December 31, 2022		Amount		Percent
		(dollars in millions)									(dollars in millions)
Revenues:	Revenues:									Revenues:
Integrated kidney care		$	87	$	103	$	(16)	(15.5)	%
Other U.S. ancillary		7		5		2		40.0	%
U.S. IKC										U.S. IKC	$	98	$	102	$	(4)	(3.9)	%
U.S. other ancillary										U.S. other ancillary	7		7		—		—	%
International	International	175		175		—		—	%	International	179		177		2		1.1	%
Total ancillary services revenues	Total ancillary services revenues	$	268	$	283	$	(15)	(5.3)	%	Total ancillary services revenues	$	284	$	285	$	(1)	(0.4)	%

Operating (loss) income:	Operating (loss) income:									Operating (loss) income:
Integrated kidney care		$	(32)	$	(21)	$	(11)	(52.4)	%
Other U.S. ancillary		(2)		(2)		—		—	%
U.S. IKC										U.S. IKC	$	(37)	$	(34)	$	(3)	(8.8)	%
U.S. other ancillary										U.S. other ancillary	(3)		(1)		(2)		(200.0)	%
International(1)	International(1)	18		15		3		20.0	%	International(1)	15		(4)		19		475.0	%
Total ancillary services operating loss	Total ancillary services operating loss	$	(15)	$	(9)	$	(6)	(66.7)	%	Total ancillary services operating loss	$	(25)	$	(40)	$	15	37.5	%

Adjusted operating (loss) income(2):										Adjusted operating (loss) income(2):
U.S. IKC										U.S. IKC	$	(37)	$	(34)	$	(3)	(8.8)	%
U.S. other ancillary										U.S. other ancillary	(3)		(1)		(2)		(200.0)	%
International(1)										International(1)	15		3		12		400.0	%
Total ancillary services adjusted operating loss										Total ancillary services adjusted operating loss	$	(24)	$	(32)	$	8	25.0	%

Certain columns, rows or percentages may not sum due to the presentation of rounded numbers.

(1)The reported operating income (loss) and adjusted operating income for the three months ended ~~September 30, 2022~~March 31, 2023 and ~~June 30,~~December 31, 2022 includes foreign currency ~~gains~~losses embedded in equity method income recognized from our APAC JV of approximately ~~$2.3~~$(0.7) million and ~~$2.1~~$(5.0) million, respectively.

Nine months ended YTD Q3 2022 vs. YTD Q3 2021
September 30,
2022 September 30,
2021 Amount Percent
(dollars in millions)
Revenues:
Integrated kidney care $ 276 $ 262 $ 14 5.3 %
Other U.S. ancillary 17 16 1 6.3 %
International 523 507 16 3.2 %
Total ancillary services revenues $ 816 $ 785 $ 31 3.9 %
Operating (loss) income:
Integrated kidney care $ (90) $ (72) $ (18) (25.0) %
Other U.S. ancillary (8) — (8) (100.0) %
International(1)
41 36 5 13.9 %
Total ancillary services operating loss $ (57) $ (37) $ (20) (54.1) %
(2)For a reconciliation of adjusted operating (loss) income by reportable segment, see “Reconciliations of Non-GAAP measures” section below.


	Three months ended				YTD Q1 2023 vs. YTD Q1 2022
	March 31, 2023		March 31, 2022		Amount		Percent
	(dollars in millions)
Revenues:
U.S. IKC	$	98	$	87	$	11	12.6	%
U.S. other ancillary	7		5		2		40.0	%
International	179		173		6		3.5	%
Total ancillary services revenues	$	284	$	265	$	19	7.2	%

Operating (loss) income:
U.S. IKC	$	(37)	$	(37)	$	—	—	%
U.S. other ancillary	(3)		(3)		—		—	%
International(1)	15		8		7		87.5	%
Total ancillary services operating loss	$	(25)	$	(32)	$	7	21.9	%

Adjusted operating (loss) income(2):
U.S. IKC	$	(37)	$	(37)	$	—	—	%
U.S. other ancillary	(3)		(3)		—		—	%
International(1)	15		8		7		87.5	%
Total ancillary services adjusted operating loss	$	(24)	$	(32)	$	8	25.0	%

Certain columns, rows or percentages may not sum due to the presentation of rounded numbers.

(1)The reported operating income and adjusted operating income for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and March 31, 2022 ~~and September 30, 2021~~ includes foreign currency (losses) gains embedded in equity method income recognized from our ~~APAC JV~~Asia Pacific joint venture (APAC JV) of approximately ~~$4.7~~$(0.7) million and ~~$4.4~~$0.3 million, respectively.

~~Revenues:~~(2)For a reconciliation of adjusted operating (loss) income by reportable segment, see “Reconciliations of Non-GAAP measures” section below.

Revenues

IKC revenues for the ~~third~~first quarter of ~~2022~~2023 decreased compared to the ~~second~~fourth quarter of 2022 due to a net decrease in shared savings, ~~as well as a decrease~~partially offset by an increase in revenues from our special needs plans. Other U.S. ancillary revenues for the ~~third~~first quarter of ~~2022~~2023 remained flat compared to the ~~second~~fourth quarter of ~~2022 increased due to an increase in revenue from our clinical research programs.~~2022. International revenues for the ~~third~~first quarter of 2023 increased compared to the fourth quarter of 2022 ~~remained flat from the second quarter of 2022.~~due to a rate increase in one country and acquisition-related growth.

IKC revenues for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 increased compared to the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 due to an increase in shared ~~savings, including savings from new programs.~~savings. Other U.S. ancillary services revenues for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 increased compared to the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 due

to ~~revenues from our newly acquired transplant software business, offset by decreased~~increased revenues in our clinical research programs. Our international revenues for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 increased from the ~~nine~~three months ended ~~September 30, 2021 primarily~~March 31, 2022 due to acquisition-related ~~growth.~~growth as well as rate increases.

Charges impacting operating income - severance and other costs

During the fourth quarter of 2022, similar to U.S. dialysis, we committed to a plan to increase efficiencies and cost savings in certain general and administrative support functions and other overhead costs. As a result of this plan, we recognized expenses related to termination and other benefit commitments in our IKC business of $0.4 million and $0.5 million during the first quarter of 2023 and the fourth quarter of 2022, respectively. We recognized these expenses and other charges in our international operations of $7.5 million during the fourth quarter of 2022.

Operating ~~loss:~~loss and adjusted operating loss

IKC operating loss and adjusted operating loss for the ~~third~~first quarter of ~~2022~~2023 compared to the ~~second~~fourth quarter of 2022 increased due to ~~the~~a net decrease in shared savings, ~~and decrease~~partially offset by an increase in revenues from our special needs plans. Other U.S. ancillary services operating loss and adjusted operating loss for the ~~third~~first quarter of ~~2022 remained relatively flat~~2023 increased compared to the ~~second~~fourth quarter of 2022, driven by ~~the~~an increase in ~~revenue from~~expenses related to our clinical research ~~programs, partially offset by a benefit received from run-off of a legacy business in the second quarter.~~programs. International operating results and

adjusted operating income for the ~~third~~first quarter of ~~2022~~2023 increased from the ~~second~~fourth quarter of 2022 primarily due to ~~the divestiture of one of~~an acquisition-related expense recognized in fourth quarter 2022, as well as increases in equity income resulting from fluctuations in foreign currency at our ~~international businesses~~APAC JV and increases in ~~the second quarter.~~revenue, as described above.

IKC operating loss and adjusted operating loss for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 compared to the ~~nine~~three months ended ~~September 30, 2021 increased~~March 31, 2022 remained flat, primarily due to increased shared savings, offset by continued investments in our integrated care support ~~functions, partially offset by an increase in shared savings.~~functions. Other U.S. ancillary services operating loss and adjusted operating loss for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 compared to the ~~nine~~three months ended ~~September 30, 2021 increased primarily due to a benefit received from run-off of a legacy business in the prior year~~March 31, 2022 remained flat. International operating income and ~~decreased revenues in our clinical research programs. International~~adjusted operating income for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 increased compared to the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 primarily driven by acquisition-related growth ~~partially offset by the impact of increased mortality over recent periods on our patient population.~~and revenue increases, as well as rate increases.

Corporate administrative support

Three months ended Q3 2022 vs. Q2 2022
September 30, 2022 June 30, 2022 Amount Percent
(dollars in millions)
Corporate administrative support $ (24) $ (31) $ 7 22.6 %


	Three months ended				Q1 2023 vs. Q4 2022
	March 31, 2023		December 31, 2022		Amount		Percent
	(dollars in millions)
Corporate administrative support	$	(25)	$	(38)	$	13	34.2	%

Nine months ended YTD Q3 2022 vs. YTD Q3 2021
September 30, 2022 September 30, 2021 Amount Percent
(dollars in millions)
Corporate administrative support $ (91) $ (79) $ (12) (15.2) %


	Three months ended				YTD Q1 2023 vs. YTD Q1 2022
	March 31, 2023		March 31, 2022		Amount		Percent
	(dollars in millions)
Corporate administrative support	$	(25)	$	(36)	$	11	30.6	%

Corporate administrative support expenses for the quarter ended ~~September 30, 2022~~March 31, 2023 compared to the quarter ended ~~June 30,~~December 31, 2022 decreased primarily due to decreases in legal ~~fees.~~fees, partially offset by an increase in long-term incentive compensation. Corporate administrative support expenses for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 compared to the ~~nine~~three months ended ~~September 30, 2021 increased~~March 31, 2022 decreased primarily due to ~~an increase in~~decreased legal fees.

Corporate-level charges

Three months ended Q3 2022 vs. Q2 2022
September 30,
2022 June 30, 2022 Amount Percent
(dollars in millions)
Debt expense $ 100 $ 83 $ 17 20.5 %
Other (loss) income, net $ (5) $ (1) $ (4) (400.0) %
Effective income tax rate 20.5 % 18.4 % 2.1 %
Effective income tax rate attributable to DaVita Inc.(1)
28.7 % 22.1 % 6.6 %
Net income attributable to noncontrolling interests $ 59 $ 60 $ (1) (1.7) %


	Three months ended						Q1 2023 vs. Q4 2022
	March 31, 2023			December 31, 2022			Amount		Percent
	(dollars in millions)
Debt expense	$	101		$	101		$	—	—	%

Other income (loss), net	$	4		$	(8)		$	12	150.0	%
Effective income tax rate on income from continuing operations	20.5		%	23.3		%			(2.8)	%
Effective income tax rate on income from continuing operations attributable to DaVita Inc.(1)	27.5		%	38.5		%			(11.0)	%
Net income attributable to noncontrolling interests	$	55		$	59		$	(4)	(6.8)	%

(1)For a reconciliation of our effective income tax rate attributable to DaVita Inc., see "Reconciliations of Non-GAAP measures" section below.


	Three months ended						YTD Q1 2023 vs. YTD Q1 2022
	March 31, 2023			March 31, 2022			Amount		Percent
	(dollars in millions)
Debt expense	$	101		$	74		$	27	36.5	%

Other income (loss), net	$	4		$	(2)		$	6	300.0	%
Effective income tax rate	20.5		%	21.7		%			(1.2)	%
Effective income tax rate attributable to DaVita Inc.(1)	27.5		%	26.0		%			1.5	%
Net income attributable to noncontrolling interests	$	55		$	44		$	11	25.0	%

(1)For a reconciliation of our effective income tax rate attributable to DaVita Inc., see "Reconciliations of Non-GAAP measures" section below.

3129

Nine months ended YTD Q3 2022 vs. YTD Q3 2021
September 30,
2022 September 30,
2021 Amount Percent
(dollars in millions)
Debt expense $ 256 $ 213 $ 43 20.2 %
Other (loss) income, net $ (8) $ 9 $ (17) (188.9) %
Effective income tax rate 20.0 % 20.0 % — %
Effective income tax rate attributable to DaVita Inc.(1)
24.9 % 23.3 % 1.6 %
Net income attributable to noncontrolling interests $ 163 $ 171 $ (8) (4.7) %

~~(1)For a reconciliation of our effective income tax rate attributable to DaVita Inc., see "Reconciliations of Non-GAAP measures" section below.~~

Debt expense

Debt expense for the ~~third~~first quarter of 2023 compared to the fourth quarter of 2022 ~~compared to the second quarter of 2022 and the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 increased~~was relatively flat primarily due to an increase in our weighted average effective interest rate, ~~and~~offset by a decrease in our weighted average outstanding credit facility ~~balance, which included draws on~~balance. Debt expense for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 increased due to an increase in our ~~revolving line of credit in the first nine months of 2022.~~weighted average effective interest rate.

Our overall weighted average effective interest rate for the three months ended ~~September 30, 2022~~March 31, 2023 was ~~4.28%~~4.55% compared to ~~3.68%~~4.49% for the three months ended ~~June 30,~~December 31, 2022. See Note 6 to the condensed consolidated financial statements for further information on the components of our debt.

Other income (loss) ~~income,~~, net

Other ~~loss increased~~income for the ~~third~~first quarter of 2023 compared to other loss for the fourth quarter of 2022, ~~from~~was primarily driven by a decrease in losses on investments. Other income for the ~~second quarter of~~three months ended March 31, 2023 compared to other loss for the three months ended March 31, 2022 ~~primarily~~was driven by an increase in ~~losses on investments. Other loss for the nine months ended September 30, 2022 compared to other~~interest income, for the nine months ended September 30, 2021 was driven by losses on investments in 2022 compared to gains on investments in 2021, as well as losses on foreign currency transactions in 2022 compared to gains on foreign currency transactions in 2021, partially offset by ~~an increase in interest income.~~increased losses on investments.

Effective income tax rate

The effective income tax rate and the effective income tax rate attributable to DaVita Inc. ~~increased~~decreased for the ~~third~~first quarter of ~~2022~~2023 compared to the ~~second~~fourth quarter of 2022 primarily due to ~~tax benefits~~expenses recognized in the ~~second~~fourth quarter ~~from both stock-based compensation~~related to finalized tax returns, international tax accruals and ~~a partial settlement reached with federal tax authorities for fiscal years 2014-2015.~~higher non-deductible advocacy spend.

The effective income tax rate for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 decreased compared to the ~~nine~~three months ended ~~September 30, 2021 was relatively flat.~~March 31, 2022 primarily due to an increase in the portion of our earnings attributable to non-controlling interests and a decrease in forecasted non-deductible advocacy spend in 2023, partially offset by a reduction in recognized tax benefits from stock-based compensation and tax credits. The effective income tax rate attributable to DaVita Inc. for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 increased from the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 primarily due to ~~an increase~~a reduction in recognized tax benefits from stock-based compensation and tax credits, partially offset by a decrease in forecasted non-deductible advocacy spend in ~~2022 and a year over year decrease in the tax benefits from stock-based compensation.~~2023.

Net income attributable to noncontrolling interests

The decrease in net income attributable to noncontrolling interests for the ~~third~~first quarter of ~~2022~~2023 from the ~~second~~fourth quarter of 2022 ~~and for the nine months ended September 30, 2022 from the nine months ended September 30, 2021~~ was due to reduced earnings at certain U.S. dialysis partnerships. The increase in net income attributable to noncontrolling interests for the three months ended March 31, 2023 from the three months ended March 31, 2022 was due to increased profitability at certain U.S. dialysis partnerships.

Accounts receivable

Our consolidated accounts receivable balances at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 were ~~$2.089~~$2.058 billion and ~~$1.958~~$2.132 billion, respectively, representing approximately 6665 and 6268 days of revenue outstanding (DSO), respectively. Consolidated DSO ~~increased~~decreased primarily due to ~~temporary~~release of billing holds and ~~timing of collections.~~improved collections from certain payers. Our DSO calculation is based on the current quarter’s average revenues per day. There were no significant changes from the ~~second~~fourth quarter of 2022 to the ~~third~~first quarter of ~~2022~~2023 in the carrying amount of accounts receivable outstanding over one year old.

3230

Liquidity and capital resources

The following table shows the summary of our major sources and uses of cash, cash equivalents and restricted cash:


		Nine months ended September 30,				YTD Q3 2022 vs. YTD Q3 2021					Three months ended March 31,				YTD Q1 2023 vs. YTD Q1 2022
		2022		2021		Amount		Percent			2023		2022		Amount		Percent
		(dollars in millions and shares in thousands)									(dollars in millions and shares in thousands)
Net cash provided by operating activities:	Net cash provided by operating activities:									Net cash provided by operating activities:
Net income	Net income	$	655	$	962	$	(307)	(31.9)	%	Net income	$	171	$	206	$	(35)	(17.0)	%
Non-cash items in net income	Non-cash items in net income	596		650		(54)		(8.3)	%	Non-cash items in net income	209		203		6		3.0	%
Other working capital changes	Other working capital changes	32		(183)		215		(117.5)	%	Other working capital changes	89		(79)		168		(212.7)	%
Other	Other	(63)		(28)		(35)		125.0	%	Other	(6)		(8)		2		(25.0)	%
		$	1,221	$	1,401	$	(180)	(12.8)	%		$	463	$	322	$	141	43.8	%

Net cash used in investing activities:	Net cash used in investing activities:									Net cash used in investing activities:
Capital expenditures:	Capital expenditures:									Capital expenditures:
Routine maintenance/information technology/other	Routine maintenance/information technology/other	$	(284)	$	(289)	$	5	(1.7)	%	Routine maintenance/information technology/other	$	(109)	$	(84)	$	(25)	29.8	%
Development and relocations	Development and relocations	(125)		(163)		38		(23.3)	%	Development and relocations	(39)		(39)		—		—	%
Acquisition expenditures	Acquisition expenditures	(44)		(45)		1		(2.2)	%	Acquisition expenditures	—		(5)		5		(100.0)	%
Proceeds from sale of self-developed properties	Proceeds from sale of self-developed properties	107		43		64		148.8	%	Proceeds from sale of self-developed properties	—		8		(8)		(100.0)	%

Other	Other	(71)		6		(77)		(1,283.3)	%	Other	31		1		30		3,000.0	%
		$	(417)	$	(448)	$	31	(6.9)	%		$	(117)	$	(118)	$	1	(0.8)	%

Net cash used in financing activities:	Net cash used in financing activities:									Net cash used in financing activities:
Debt issuances, net		$	149	$	791	$	(642)	(81.2)	%
Debt payments, net										Debt payments, net	$	(269)	$	(45)	$	(224)	497.8	%
Distributions to noncontrolling interests	Distributions to noncontrolling interests	(189)		(177)		(12)		6.8	%	Distributions to noncontrolling interests	(55)		(65)		10		(15.4)	%
Contributions from noncontrolling interests	Contributions from noncontrolling interests	11		28		(17)		(60.7)	%	Contributions from noncontrolling interests	5		5		—		—	%
Stock award exercises and other share issuances		(42)		(60)		18		(30.0)	%

Share repurchases	Share repurchases	(802)		(882)		80		(9.1)	%	Share repurchases	—		(236)		236		(100.0)	%
Other	Other	(17)		(9)		(8)		88.9	%	Other	43		—		43
		$	(890)	$	(309)	$	(581)	188.0	%		$	(276)	$	(342)	$	66	(19.3)	%

Total number of shares repurchased	Total number of shares repurchased	8,095		7,750		345		4.5	%	Total number of shares repurchased	—		2,104		(2,104)		(100.0)	%

Free cash flow(1)	Free cash flow(1)	742		843		(101)		(12.0)	%	Free cash flow(1)	265		147		118		80.3	%

Certain columns or rows may not sum due to the presentation of rounded numbers.

(1)For a reconciliation of our free cash flow, see "Reconciliations of Non-GAAP measures" section below.

Consolidated cash flows

Consolidated cash flows from operating activities during the ~~nine~~three months ended ~~September 30, 2022 decreased~~March 31, 2023 increased compared to the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 primarily due to a decrease in ~~operating results, timing of income tax payments partially offset by changes in~~ total DSO, which ~~increased~~decreased approximately ~~four~~three days for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 compared to an increase of ~~five~~four days for the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 as well as by changes in other working capital ~~items.~~items partially offset by an increase in interest payments.

Free cash flow during the ~~nine~~three months ended ~~September 30, 2022 decreased~~March 31, 2023 increased from the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 primarily due to a ~~decrease~~increase in net cash provided by operating activities partially offset by an increase in ~~proceeds on self-developed properties.~~capital expenditures.

~~Significant sources of cash from financing activities included a net draw of $275 million on our revolving line of credit in the nine months ended September 30, 2022.~~ Significant uses of cash during the period included net debt payments which consisted of the repayment of $165 million on our revolving line of credit and regularly scheduled and other principal payments under our senior secured credit facilities totaling approximately $54 million on Term Loan A and $36 million on Term Loan B-1, as well as additional required payments under other debt arrangements.

By comparison, the same period in 2022 included draws on our revolving line of credit and subsequent repayment in full as of quarter end. Other net debt payments during the three months ended March 31, 2022 primarily consisted of regularly scheduled mandatory principal payments under our senior secured credit facilities totaling approximately ~~$66~~$22 million on Term

Loan A and ~~$21~~$7 million on Term Loan B-1, as well as additional required payments under other debt

~~arrangements. In addition, during~~ agreements. For the ~~nine~~three months ended ~~September 30,~~March 31, 2022 ~~we used cash to repurchase 8,094,661 shares of our common stock.~~

By comparison, the same period in 2021 included the issuance of $1.0 billion in aggregate principal amount of senior notes as an add-on offering to our 4.625% senior notes due 2030 which were issued at an offering price of 101.750% of the principal amount in February 2021. Other net debt payments during the nine months ended September 30, 2021 primarily consisted of the repayment in full of $75 million of borrowings under our revolving line of credit, net payments of regularly scheduled mandatory principal amounts due under our senior secured credit facilities totaling approximately $66 million on Term Loan A and $21 million on Term Loan B-1 and additional required payments under other debt arrangements. In addition, we incurred bond issuance costs of approximately $9 million in cash. For the nine months ended September 30, 2021 we also used cash to repurchase ~~7,749,637~~2,103,905 shares of our common stock.

Dialysis center footprint ~~and growth~~

The table below shows the ~~growth in~~footprint of our dialysis operations by number of dialysis centers owned or operated:


		U.S.				International					U.S.			International
		Three months ended September 30,		Nine months ended September 30,		Three months ended September 30,		Nine months ended September 30,			Three months ended March 31,		Three months ended March 31,
		2022	2021	2022	2021	2022	2021	2022	2021		2023	2022		2023	2022
Number of centers operated at beginning of period	Number of centers operated at beginning of period	2,810	2,828	2,815	2,816	349	331	339	321	Number of centers operated at beginning of period	2,724	2,815		350	339
Acquired centers	Acquired centers	5	1	5	2	3	3	8	10	Acquired centers	—	—		—	3
Developed centers	Developed centers	6	9	33	40	1	1	3	5	Developed centers	3	9		3	1
Net change in non-owned managed or administered centers(1)	Net change in non-owned managed or administered centers(1)	(1)	(1)	(1)	(1)	2	(2)	5	—	Net change in non-owned managed or administered centers(1)	—	—		—	3
Sold and closed centers(2)	Sold and closed centers(2)	(9)	(3)	(16)	(7)	(2)	—	(2)	(3)	Sold and closed centers(2)	—	(5)		(2)	—
Closed centers(3)	Closed centers(3)	(35)	(12)	(60)	(28)	(1)	—	(1)	—	Closed centers(3)	(20)	(10)		—	—
Number of centers operated at end of period	Number of centers operated at end of period	2,776	2,822	2,776	2,822	352	333	352	333	Number of centers operated at end of period	2,707	2,809		351	346

(1)Represents dialysis centers which we manage or provide administrative services to but in which we own a noncontrolling equity interest or which are wholly-owned by third parties, including our APAC JV centers.

(2)Represents dialysis centers that were sold and/or closed for which the majority of patients were not retained.

(3)Represents dialysis centers that were closed for which the majority of patients were retained and transferred to one of our other existing outpatient dialysis centers.

~~Stock repurchases~~

~~The following table summarizes our common stock repurchases during the three and nine months ended September 30, 2022 and 2021:~~

Three months ended September 30, Nine months ended September 30,
2022 2021 2022 2021
Open market repurchases: (dollars in millions and shares in thousands, except for per share data)
Shares 2,122 2,731 8,095 7,750
Amount paid $ 185 $ 336 $ 788 $ 899
Average paid per share $ 87.10 $ 123.14 $ 97.33 $ 116.06

~~See further discussion of our stock repurchases in Note 8 to the condensed consolidated financial statements.~~

Available liquidity

As of ~~September 30, 2022,~~March 31, 2023, we had ~~$725 million available and $275 million drawn on our~~an undrawn $1.0 billion revolving line of credit under our senior secured credit facilities. Credit available under this revolving line of credit is reduced by the amount of any letters of credit outstanding thereunder, of which there were none as of ~~September 30, 2022.~~March 31, 2023. We separately had approximately ~~$108~~$151 million in letters of credit outstanding under a separate bilateral secured letter of credit facility.

See Note 6 to the condensed consolidated financial statements for components of our long-term debt and their interest ~~rates.~~rates, as well as Note 14 concerning amendments to our senior secured credit facilities entered into subsequent to March 31, 2023. We may from time to time seek to obtain funds or refinance existing debt through additional debt financings or other capital alternatives.

The COVID-19 pandemic ~~efforts to prevent its spread,~~ and ~~other government actions intended to support those efforts~~certain economic and marketplace conditions, including inflationary and labor pressures, have ~~dramatically impacted global economic activity and~~ driven increased ~~volatility in the financial markets. We are also impacted by general conditions in the global economy, such as challenges with respect to supply chains, inflation and wage~~ pressure ~~as well as rising interest rates. We have maintained business process continuity during the COVID-19 pandemic, and as~~on our cash flows. As of the date of this report, we have not experienced a material deterioration in our liquidity position as a result of ~~the~~ COVID-19 ~~crisis~~ or ~~other developments in the general~~those global ~~economy.~~economic and market conditions. The ultimate impact of the pandemic and ~~resultant global~~those economic and market conditions will depend on future developments that ~~remain~~are highly uncertain and difficult to predict.

We believe that our cash flow from operations and other sources of liquidity, including from amounts available under our senior secured credit facilities and our access to the capital markets, will be sufficient to fund our scheduled debt service under the terms of our debt agreements and other obligations for the foreseeable future, including the next 12 months. Our primary recurrent sources of liquidity are cash from operations and cash from borrowings, which are subject to general, economic, financial, competitive, regulatory and other factors that are beyond our control, as described in Item 1A Risk Factors of our ~~2021~~2022 10-K.

Reconciliations of ~~non-GAAP~~Non-GAAP measures

The following tables provide reconciliations of adjusted operating income (loss) to operating income (loss) as presented on a U.S. generally accepted accounting principles (GAAP) basis for our U.S. dialysis reportable segment as well as for our U.S. IKC business, our U.S. other ancillary services, our international business, and for our total ancillary services which combines them and is disclosed as our other segments ~~category.~~category, in addition to our corporate administrative support. These non-GAAP or “adjusted” measures are presented because management believes these measures are useful adjuncts to, but not alternatives for, our GAAP results. Note that the non-GAAP measures presented for prior periods below have been conformed to the method or calculation of non-GAAP measures presented for the current period.

Specifically, management uses adjusted operating income (loss) to compare and evaluate our performance period over period and relative to competitors, to analyze the underlying trends in our business, to establish operational budgets and forecasts and for incentive compensation purposes. We believe this non-GAAP measure is also useful to investors and analysts in evaluating our performance over time and relative to competitors, as well as in analyzing the underlying trends in our business. We also believe this presentation enhances a user's understanding of our normal operating income by excluding certain items which we do not believe are indicative of our ordinary results of operations.

In addition, our effective income tax rate on income attributable to DaVita Inc. excludes noncontrolling owners' income, which primarily relates to non-tax paying entities. We believe this adjusted effective income tax rate is useful to management, investors and analysts in evaluating our performance and establishing expectations for income taxes incurred on our ordinary results attributable to DaVita Inc.

Finally, our free cash flow represents net cash provided by operating activities less distributions to noncontrolling interests and all capital expenditures (including development capital expenditures, routine maintenance and information technology), plus contributions from noncontrolling interests and proceeds from the sale of self-developed properties. Management uses this measure to assess our ability to fund acquisitions and meet our debt service obligations and we believe this measure is equally useful to investors and analysts as an adjunct to cash flows from operating activities and other measures under GAAP.

It is important to bear in mind that these non-GAAP “adjusted” measures are not measures of financial performance under GAAP and should not be considered in isolation from, nor as substitutes for, their most comparable GAAP measures.

Three months ended September 30, 2022
U.S. dialysis Ancillary services Corporate administration Consolidated
U.S. IKC U.S. Other International Total
(dollars in millions)
Operating income $ 351 $ (32) $ (2) $ 18 $ (15) $ (24) $ 312
Center closure charges 40 40
Adjusted operating income $ 391 $ (32) $ (2) $ 18 $ (15) $ (24) $ 351


	Three months ended March 31, 2023
	U.S. dialysis		Ancillary services								Corporate administration		Consolidated
			U.S. IKC		U.S. Other		International		Total
	(dollars in millions)
Operating income (loss)	$	361	$	(37)	$	(3)	$	15	$	(25)	$	(25)	$	312
Center closure charges	22												22
Severance and other costs	17		—						—		1		18
Adjusted operating income (loss)	$	400	$	(37)	$	(3)	$	15	$	(24)	$	(24)	$	352

Certain columns or rows may not sum or recalculate due to the presentation of rounded numbers.


	Three months ended December 31, 2022
	U.S. dialysis		Ancillary services								Corporate administration		Consolidated
			U.S. IKC		U.S. Other		International		Total
	(dollars in millions)
Operating income (loss)	$	335	$	(34)	$	(1)	$	(4)	$	(40)	$	(38)	$	256
Center closure charges	35						3		3				38
Severance and other costs	17		—				5		5		1		23
Adjusted operating income (loss)	$	387	$	(34)	$	(1)	$	3	$	(32)	$	(38)	$	317

Certain columns or rows may not sum or recalculate due to the presentation of rounded numbers.


	Three months ended March 31, 2022
	U.S. dialysis		Ancillary services								Corporate administration		Consolidated
			U.S. IKC		U.S. Other		International		Total
	(dollars in millions)
Operating income (loss)	$	406	$	(37)	$	(3)	$	8	$	(32)	$	(36)	$	338
Center closure charges	4												4
Adjusted operating income (loss)	$	411	$	(37)	$	(3)	$	8	$	(32)	$	(36)	$	343

Certain columns or rows may not sum or recalculate due to the presentation of rounded numbers.

3533

Three months ended June 30, 2022
U.S. dialysis Ancillary services Corporate administration Consolidated
U.S. IKC U.S. Other International Total
(dollars in millions)
Operating income $ 473 $ (21) $ (2) $ 15 $ (9) $ (31) $ 433
Center closure charges 6 6
Adjusted operating income $ 479 $ (21) $ (2) $ 15 $ (9) $ (31) $ 439


	Three months ended
	March 31, 2023			December 31, 2022			March 31, 2022
	(dollars in millions)
Income from continuing operations before income taxes	$	215		$	147		$	263
Less: Noncontrolling owners' income primarily attributable to non-tax paying entities	(55)			(59)			(44)
Income before income taxes attributable to DaVita Inc.	$	159		$	89		$	219
Income tax expense	$	44		$	34		$	57
Less: Income tax attributable to noncontrolling interests	—			—			—
Income tax expense attributable to DaVita Inc.	$	44		$	34		$	57
Effective income tax rate on income from continuing operations attributable to DaVita Inc.	27.5		%	38.5		%	26.0		%

Certain columns or rows may not sum or recalculate due to the presentation of rounded numbers.

Nine months ended September 30, 2022
U.S. dialysis Ancillary services Corporate administration Consolidated
U.S. IKC U.S. Other International Total
(dollars in millions)
Operating income $ 1,231 $ (90) $ (8) $ 41 $ (57) $ (91) $ 1,083
Center closure charges 50 50
Adjusted operating income $ 1,281 $ (90) $ (8) $ 41 $ (57) $ (91) $ 1,133

~~Certain columns or rows may not sum or recalculate due to the presentation of rounded numbers.~~

Nine months ended September 30, 2021
U.S. dialysis Ancillary services Corporate administration Consolidated
U.S. IKC U.S. Other International Total
(dollars in millions)
Operating income $ 1,524 $ (72) $ — $ 36 $ (37) $ (79) $ 1,408
Center closure charges 12 12
Adjusted operating income $ 1,536 $ (72) $ — $ 36 $ (37) $ (79) $ 1,420

~~Certain columns or rows may not sum or recalculate due to the presentation of rounded numbers.~~

Three months ended Nine months ended
September 30,
2022 June 30,
2022 September 30,
2022 September 30,
2021
(dollars in millions) (dollars in millions)
Income before income taxes $ 207 $ 349 $ 819 $ 1,204
Less: Noncontrolling owners' income primarily attributable to
non-tax paying entities (59) (60) (163) (172)
Income before income taxes attributable to DaVita Inc. $ 148 $ 289 $ 655 $ 1,032
Income tax expense $ 43 $ 64 $ 164 $ 241
Less: Income tax attributable to noncontrolling interests — — (1) (1)
Income tax expense attributable to DaVita Inc. $ 42 $ 64 $ 163 $ 241
Effective income tax rate on income attributable to DaVita Inc. 28.7 % 22.1 % 24.9 % 23.3 %

~~Certain columns or rows may not sum or recalculate due to the presentation of rounded numbers.~~


		Nine months ended					Three months ended
		September 30, 2022		September 30, 2021			March 31, 2023		March 31, 2022
		(dollars in millions)					(dollars in millions)
Net cash provided by operating activities	Net cash provided by operating activities	$	1,221	$	1,401	Net cash provided by operating activities	$	463	$	322
Adjustments to reconcile net cash provided by operating activities to free cash flow:	Adjustments to reconcile net cash provided by operating activities to free cash flow:					Adjustments to reconcile net cash provided by operating activities to free cash flow:
Distributions to noncontrolling interests	Distributions to noncontrolling interests	(189)		(177)		Distributions to noncontrolling interests	(55)		(65)
Contributions from noncontrolling interests	Contributions from noncontrolling interests	11		28		Contributions from noncontrolling interests	5		5
Expenditures for routine maintenance and information technology	Expenditures for routine maintenance and information technology	(284)		(289)		Expenditures for routine maintenance and information technology	(109)		(84)
Expenditures for development and relocations	Expenditures for development and relocations	(125)		(163)		Expenditures for development and relocations	(39)		(39)
Proceeds from sale of self-developed properties	Proceeds from sale of self-developed properties	107		43		Proceeds from sale of self-developed properties	—		8
Free cash flow	Free cash flow	$	742	$	843	Free cash flow	$	265	$	147

Certain columns or rows may not sum due to the presentation of rounded numbers.

Off-balance sheet arrangements and aggregate contractual obligations

In addition to the debt obligations and operating lease liabilities reflected on our balance sheet, we have commitments associated with letters of credit, as well as certain working capital funding obligations associated with our equity investments in nonconsolidated dialysis ventures that we manage and some that we manage which are wholly-owned by third parties. For additional information see Note 7 to the condensed consolidated financial statements.

We also have potential obligations to purchase the noncontrolling interests held by third parties in many of our majority-owned dialysis partnerships and other nonconsolidated entities. These obligations are in the form of put provisions that are exercisable at the third-party owners’ discretion within specified periods as outlined in each specific put provision. For additional information on these obligations and how we measure and report them, see Note 1211 to the condensed consolidated financial statements included in this report and Notes 17 and 24 to the consolidated financial statements included in our ~~2021~~2022 10-K.

For information on the maturities and other terms of our long term debt, see Note 6 to the condensed consolidated financial statements.

As of ~~September 30, 2022,~~March 31, 2023, we have outstanding letters of credit in the aggregate amount of approximately ~~$108~~$151 million under a bilateral secured letter of credit facility separate from our senior secured credit facilities.

In addition to the commitments listed above, in 2017 we entered into a sourcing and supply agreement with Amgen USA Inc. (Amgen) that expires on December 31, 2022, and has been amended and extended until December 31, 2023. Under the terms of this agreement, we will purchase EPOGEN (EPO) from Amgen in amounts necessary to meet no less than 90% of our requirements for erythropoiesis-stimulating agents (ESAs) through December 31, 2022. Under the terms of the amended agreement, beginning January 1, 2023, we will no longer purchase a percentage of our ESA requirements from Amgen, and instead will begin purchasing EPO from Amgen pursuant to the terms set forth in the amended agreement. As a result, in 2023 we will purchase a reduced share of our ESA requirements from Amgen. The actual amount of EPO that we will purchase will depend upon the amount of EPO administered during dialysis as prescribed by physicians and the overall number of patients that we serve.

As of ~~September 30, 2022,~~March 31, 2023, we have outstanding purchase agreements with various suppliers to purchase set amounts of dialysis equipment, parts, pharmaceuticals, and supplies. If we fail to meet the minimum purchase commitments under these contracts during any year, we are required to pay the difference to the supplier, as described further in Note 17 to the Company's consolidated financial statements included in the ~~2021~~2022 10-K.

In addition, we have approximately $56 million of existing income tax liabilities for unrecognized tax benefits, including interest, penalties and other long-term tax liabilities. Income tax liabilities were reduced from $88 million as of December 31, 2021 to $56 million as of September 30, 2022, primarily due to a partial settlement reached with federal tax authorities for years 2014-2015.

Finally, on May 25, 2022, we entered into an agreement with Medtronic, Inc. and one of its subsidiaries (collectively, Medtronic) to form a new, independent kidney care-focused medical device company ~~(NewCo)~~(Mozarc Medical). The transaction is expected to close in 2023, subject to customary closing conditions and regulatory approvals. At close, DaVita will make a cash payment to Medtronic of approximately $75 million, subject to certain customary adjustments prior to the closing, and will contribute certain other non-cash assets to NewCo valued at approximately $25 million. Additionally, at close, each of DaVita andclosed effective April 1, 2023. For additional information see Note 14.

3734

Medtronic will contribute approximately $200 million in cash to launch NewCo. DaVita also agreed to pay Medtronic additional consideration of up to $300 million if certain regulatory and commercial milestones are achieved between 2024 and 2028.

New Accounting Standards

See discussion of new accounting standards in Note 1413 to the condensed consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Interest rate and foreign currency sensitivity

There has been no material change in the nature of the Company's interest rate risks or foreign currency exchange risks from those described in Part II Item 7A of our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

The tables below provide information about our financial instruments that are sensitive to changes in interest rates as of ~~September 30, 2022.~~March 31, 2023. For further information on the components of the Company's long-term debt and their interest rates, see Note 6 to the condensed consolidated interim financial statements included in this Quarterly Report on Form 10-Q at Part I Item 1.


		Expected maturity date																Average interest rate			Fair value(1)			Expected maturity date																	Average interest rate		Fair value(1)
		2022		2023		2024		2025		2026		2027		Thereafter		Total				2023					2024			2025		2026		2027		2028		Thereafter		Total
		(dollars in millions)																						(dollars in millions)
Long term debt:	Long term debt:																									Long term debt:
Fixed rate	Fixed rate	$	10	$	41	$	33	$	33	$	44	$	31	$	4,416	$	4,608	4.43	%		$	3,271	Fixed rate	$	35		$	30	$	33	$	43	$	31	$	28	$	4,389	$	4,589	4.43	%	$	3,602
Variable rate	Variable rate	$	48	$	178	$	1,670	$	37	$	2,584	$	3	$	1	$	4,521	4.35	%		$	4,355	Variable rate	$	147		$	1,370	$	34	$	2,554	$	4	$	2	$	1	$	4,112	4.63	%	$	4,062

(1)Represents the fair value of the Company’s long-term debt excluding financing leases. See Note 6 to the condensed consolidated financial statements for further details.

The scheduled principal payments for all debt that bears a variable rate by its terms, including all of Term Loan B-1 and Term Loan A, have been included on the variable rate line of the schedule of expected maturities above. Additionally, the principal amounts of Term Loan B-1 and Term Loan A have been included in the calculation of the average variable interest rate presented.

However, principal amounts of ~~$2,668~~$2,624 million for Term Loan B-1 and ~~$832~~$876 million of Term Loan A (the capped debt) are subject to LIBOR caps of 2.00% through June 30, 2024. As of ~~September 30, 2022,~~March 31, 2023, applicable LIBOR rates were above this 2.00%, making the interest rates on this capped debt “economically fixed", unless or until applicable LIBOR rates were to fall back below 2.00% during the remaining term of the caps. As a result, as of ~~September 30, 2022,~~March 31, 2023, total fixed and economically fixed debt was ~~$8,108~~$8,089 million, with an average interest rate of 4.28%, while total variable rate debt not subject to caps was ~~$1,021~~$612 million with an average rate of ~~5.24%~~7.74%.

See Note 6 for further details on the Company’s interest rate cap agreements.

Notional amount Contract maturity date Fair
value
2022 2023 2024 2025 2026 2027 Thereafter Receive variable
(dollars in millions)
2019 cap agreements $ 3,500 $ — $ — $ 3,500 $ — $ — $ — $ — LIBOR above 2% $ 139.7


	Notional amount		Contract maturity date															Fair value
			2023		2024		2025		2026		2027		2028		Thereafter		Receive variable
	(dollars in millions)
2019 cap agreements	$	3,500	$	—	$	3,500	$	—	$	—	$	—	$	—	$	—	LIBOR above 2%	$	112.7

Subsequent to March 31, 2023, the Company amended its senior secured credit facilities and entered into several forward interest rate cap agreements that become effective beginning June 28, 2024. For additional information see Note 14.

Item 4. Controls and Procedures

Management has established and maintains disclosure controls and procedures designed to ensure that information required to be disclosed in the reports that it files or submits pursuant to the Securities Exchange Act of 1934 (Exchange Act) as amended is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer (CEO) and Chief Financial Officer (CFO) as appropriate to allow for timely decisions regarding required disclosures.

At the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of the Company’s CEO and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures in accordance with the Exchange Act requirements as of ~~September 30, 2022.~~March 31, 2023. Based upon that evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as required by the Exchange Act as of such date for our Exchange Act reports, including this report. Management recognizes that these controls and procedures can

provide only reasonable assurance of desired outcomes, and that estimates and judgments are still inherent in the process of maintaining effective controls and procedures.

There was no change in the Company's internal control over financial reporting that was identified during the evaluation that occurred during the fiscal quarter covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

4036

PART II.

OTHER INFORMATION

Item 1. Legal Proceedings

The information required by this Part II, Item 1 is incorporated herein by reference to the information set forth under the caption “Commitments and contingencies” in Note 7 to the condensed consolidated financial statements included in this report.

Item 1A. Risk Factors

There have been no material changes to the risk factors previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K ~~(2021~~(2022 10-K) for the year ended December 31, ~~2021~~2022 filed with Securities and Exchange Commission. You should carefully consider the risks included in our ~~2021~~2022 10-K, together with all the other information in ~~the Quarterly Reports on Form 10-Q for the quarters ended March 31, 2022 and June 30, 2022 and~~ this Quarterly Report on Form 10-Q, including the forward-looking statements in Part I, Item 2 of this Quarterly Report on Form 10-Q under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations."

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Share repurchases

The ~~following table summarizes our repurchases of our common stock during the third quarter of 2022:~~

Period Total number
of shares
purchased Average price
paid per share Total number
of shares
purchased as
part of publicly
announced
plans or programs Approximate dollar
value of shares that
may yet be
purchased under the
plans or programs
(dollars and shares in thousands, except per share data)
July 1-31, 2022 901 $ 82.94 901 $ 1,706,120
August 1-31, 2022 336 89.36 336 $ 1,676,111
September 1-30, 2022 885 90.48 885 $ 1,596,085
2,122 $ 87.10 2,122

~~The~~ Company ~~is authorized to make purchases~~did not repurchase any shares from ~~time to time in the open market or in privately negotiated transactions, including without limitation,~~January 1, 2023 through ~~accelerated share repurchase transactions, derivative transactions, tender offers, Rule 10b5-1 plans or any combination of the foregoing, depending upon market conditions and other considerations.~~March 31, 2023.

As of ~~October 27, 2022,~~May 8, 2023, we had ~~a total of~~approximately $1.596 billion available under the current authorization for additional share repurchases. Although this share repurchase authorization does not have an expiration date, we remain subject to share repurchase limitations including under our current senior secured credit facilities.

Items 3, 4 and 5 are not applicable

4237

Item 6. Exhibits


Exhibit
Number

~~3.1~~10.1						~~Amended and Restated Bylaws~~Form of ~~DaVita~~Stock Appreciation Rights Agreement (DaVita Inc.~~, adopted on October 14, 2022. (1)~~ 2020 Incentive Award Plan).ü

~~10.1~~10.2						Form of Performance-Based Restricted Stock Unit Agreement (DaVita Inc. 2020 Incentive Award Plan).ü

10.3						Form of Restricted Stock Unit Agreement (DaVita Inc. 2020 Incentive Award Plan).ü

10.4						Second Amendment, ~~No. 1~~dated as of April 3, 2023, to that certain Credit Agreement, ~~No. 00135085 between Amgen USA Inc.~~dated as of August 12, 2019, by and among DaVita Inc. ~~effective~~, certain subsidiary guarantors party thereto, the lenders party thereto, and Wells Fargo Bank, National Association, as administrative agent, collateral agent and swingline lender.ü

10.5						Third Amendment, dated as of ~~January 1, 2023.~~ April 28, 2023, to that certain Credit Agreement, dated as of August 12, 2019, by and among DaVita Inc., certain subsidiary guarantors party thereto, the lenders party thereto, and Wells Fargo Bank, National Association, as administrative agent, collateral agent and swingline lender.(1)ü*

31.1						Certification of the Chief Executive Officer, dated ~~October 28, 2022,~~May 8, 2023, pursuant to Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. ü

31.2						Certification of the Chief Financial Officer, dated ~~October 28, 2022,~~May 8, 2023, pursuant to Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. ü

32.1						Certification of the Chief Executive Officer, dated ~~October 28, 2022,~~May 8, 2023, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. ü

32.2						Certification of the Chief Financial Officer, dated ~~October 28, 2022,~~May 8, 2023, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. ü

101.INS						XBRL Instance Document - the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. ü

101.SCH						Inline XBRL Taxonomy Extension Schema Document. ü

101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document. ü

101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document. ü

101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document. ü

101.PRE						Inline XBRL Taxonomy Extension Presentation, Linkbase Document. ü

104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). ü


ü			Filed or furnished herewith.
*			~~Portions of this exhibit are subject to a request for confidential treatment and have been redacted and filed separately with the SEC.~~


(1)			Filed on ~~October 18, 2022~~May 1, 2023 as an exhibit to the Company's Current Report on Form 8-K.

4338

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			DAVITA INC.

			BY:						/s/ JOHN D. WINSTEL
									John D. Winstel
									Chief Accounting Officer*

Date: ~~October 28, 2022~~May 8, 2023


*			Mr. Winstel has signed both on behalf of the Registrant as a duly authorized officer and as the Registrant’s principal accounting officer.

4439


						Nine months ended September 30, 2022				Fair value
	Notional amount		LIBOR maximum rate	Effective date	Expiration date	Debt expense		Recorded OCI gain		September 30, 2022		December 31, 2021
2019 cap agreements	$	3,500,000	2.00%	6/30/2020	6/30/2024	$	1,497	$	127,460	$	139,663	$	12,203


	Three months ended September 30, 2022		Nine months ended September 30, 2022
Beginning balance	$	29,299	$	33,600
Acquisitions	1,648		2,171
Foreign currency translation	(741)		403
Fair value remeasurements	(350)		(3,129)
Payments	(4,085)		(7,274)
Ending balance	$	25,771	$	25,771


	Three months ended June 30, 2022
	U.S. dialysis		Ancillary services								Corporate administration		Consolidated
			U.S. IKC		U.S. Other		International		Total
	(dollars in millions)
Operating income	$	473	$	(21)	$	(2)	$	15	$	(9)	$	(31)	$	433
Center closure charges	6												6
Adjusted operating income	$	479	$	(21)	$	(2)	$	15	$	(9)	$	(31)	$	439


Period	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Approximate dollar value of shares that may yet be purchased under the plans or programs
	(dollars and shares in thousands, except per share data)
July 1-31, 2022	901	$	82.94	901	$	1,706,120
August 1-31, 2022	336	89.36		336	$	1,676,111
September 1-30, 2022	885	90.48		885	$	1,596,085
	2,122	$	87.10	2,122