Tenet Healthcare Corporation (THC) Earnings

Management highlights

Good morning, net operating revenues were $5.4 billion and consolidated adjusted EBITDA was $1.16 billion with 21.6% margin. USPI had 5.3% growth in same-facility system-wide revenues. Hospital segment had 0.6% increase in same hospital inpatient adjusted admissions but was impacted by respiratory admissions decline. Executing on expense initiatives like engagement tools, process automation, etc. USPI invested $125 million in Q1 to acquire seven ASCs and commenced patient care at three de novo centers.

Guidance

Reaffirming full-year 2026 guidance. Expect second quarter 2026 consolidated adjusted EBITDA to be 24 to 25% of full-year 2026 consolidated adjusted EBITDA at midpoint. Expect adjusted free cash flow after NCI in range of $1.6 to $1.83 billion, including about $150 million tax payments for Conifer transaction this year.

Segment performance

In the first quarter, USPI generated $484 million in adjusted EBITDA, representing 6% growth over Q1 2025 and 22% of 2026 full-year adjusted EBITDA guidance. Hospital segment had first quarter 2026 adjusted EBITDA of $678 million, representing 27.5% of 2026 full-year adjusted EBITDA guidance. USPI's adjusted EBITDA margin was 36.7%, while hospital segment had 16.7% EBITDA margin.

Risks & headwinds

Operating environment is dynamic with payer mix shifts, seasonal effects, and insurance enrollment uncertainty in exchanges and Medicaid impacting demand. Payer denials are high. Some populations in border communities show hesitation in consuming care.

Analyst Q&A

• Q: Payer denials this year appear to be broadly accelerating across the industry. Are you seeing this activity increase in your business, and maybe is it more MA versus commercial? And is the rise in uninsured or uncompensated care you're seeing primarily related to the exchange subsidy expiration, or is there anything else you'd call out there?

  A: Payer disputes are high, no meaningful trend change this quarter. Slight increase in uncompensated care may have to do with exchange subsidy expiration.

• Q: If I look at the last number of quarters, there's been consistency of outperformance in the hospital segment overall. I wonder if you could talk maybe broadly, because we haven't talked about the markets in a general sense. Are there some markets where you've implemented strategies that you'd call out that have been particularly successful? And as you look across the portfolio, maybe discuss some markets that still have an opportunity for significant improvement as you deploy new strategies to improve their performance?

  A: Focused on increasing acuity, transfer centers, adding surgical programs. Strategies implemented in every market, opportunities in all markets with enrollment differences per state.

• Q: You wanted to go back to your prepared remarks around your efforts around length of stay and throughput improvements. You're clearly seeing the benefits there given length of stay has been down about 3% in each of the past six quarters by our math. But that improvement is coming despite your high acuity service line focus, which would naturally carry a higher length of stay. I guess, could you just delve a little bit more on the length of stay opportunity for you and what that run rate looks like as you move through the rest of the year and beyond?

  A: Length of stay and throughput management linked. High acuity strategy requires good throughput and capacity management. New tools help with length of stay management while creating capacity in hospitals.

• Q: On the back of the $125 million invested in USPI and Q1, really strong start to the year. Sam, can you just talk about the M&A engine, what's working, and also just context of why a tenant might be a preferred acquirer of choice out there in the marketplace?

  A: USPI has multi-year track record of acquiring assets, adding value clinically, supply chain and purchase services agenda. Business development team helps improve facilities, physicians and MSOs know USPI's expertise, creating virtuous cycle of reputation enhancement.

• Q: Just a couple of numbers questions for me. First, your guidance assumed $250 million of exchange impact for the year. Apologize if I missed it, but do you have a number for the quarter, maybe relative to what we would have thought maybe is a $60, $65 million run rate? And then on DPP, In your slides, you talked about 22 million, the DPP down 22 million for the year. I'm curious, does this include the $40 million decline because of out of period so that you were actually up 18 million except?

  A: Exchange revenues in Q1 was about 6% of consolidated revenues, down 9% from Q1 2025. DPP includes the 40 million, normalizing for that would be a slight increase.

• Q: I guess two questions. One, maybe you've fallen up on that one. So the Q1 impact is lower. Is it lower but in line with what you thought Q1 would be because you always assumed it would ramp, or was that a potential area of the outperformance? And then you talked a little bit earlier about flu. I know one of your competitors – had a pretty high margin, incremental, decremental margin on loss volume in Q1. It sounds like you did a better job flexing costs. Any way to kind of size what you think the EBITDA impact was to both USPI and the hospitals from the flu and the weather disruption?

  A: Q1 exchange impact likely less than simple linear assumption. Hospital segment outperformance is combination of cost management and efficiencies and Q1 exchange impact less than expected.

• Q: Maybe we can shift to the Washington outlook. Is there anything that you're paying attention to on the regulatory and legislative outlook, especially on the regulatory with the upcoming outpatient rule? Is there anything that is on your radar screen that we should be aware of?

  A: Keenly awaiting outpatient rule, CMS supporting care in lower cost settings. USPI well positioned as looking ahead.

• Q: Looking back to hospitals, looking at the first quarter, I understand that there's $22 million less of loan payments, offset by recoveries of $40 million this quarter. But when we normalize sort of the margins, we sort of get to, I guess, the 15% range is generally where your guidance is. And if I think about margins for hospitals generally, you know, the year is better than just the first quarter because of the strong fourth quarter. So, I guess, can you just walk me through how would you think about the hospital margins with 1Q, excluding the $40 million, as a bridge into the rest of the year?

  A: Confident on track to 10% normalized year-over-year growth in hospital segment. Expense management initiatives benefit margins. Respiratory volume impact in Q1 is headwind but expected to support margin growth in rest of year.

• Q: I just wanted to hear more about the reserving and revenue recognition for the exchange patients, what the underlying estimates are for attrition and maybe what the exit rate on the decline in volumes was within March.

  A: Pay close attention to patient HICS coverage status, etc. Reserved appropriately on patient population. Volumes improved through Q1 coming into March.

• Q: I wanted to ask about the same store revenue per adjusted admission decline of a point and a half in the first quarter. I guess we do have a lot of moving parts with some of the Medicaid changes you discussed and also the exchanges, but on the other hand, you also have you know, less flu, which I think would trend to push up some of those metrics. So I'd hope to just get a better sense of some of the moving parts that impacted that metric. And then, you know, maybe a direct comment on what you're seeing on commercial and whether that's a headwind in the quarter that you might assume gets better through the balance of the year.

  A: NRAA down 1.5% in hospital segment, impacted by out-of-payer Medicaid and reduction in HICS. Normalizing, it's 50 bps to 1%. Commercial coverage may pick up as people come off exchanges.

• Q: You mentioned that ACA volumes were down 10% and you had expected, you know, unfavorable payer mix. But when I look at the managed care mix disclosure, it actually looks relatively stable year over year. So can you help us understand what you saw in payer mix inside of that, including the moving parts on the government side?

  A: Managed care includes managed Medicaid and managed Medicare, with reasonable strength. Some enrollees off exchanges pick up commercial coverage, and there's strength in Medicare, mitigating exchange impact trends.