TENET HEALTHCARE CORP Q2 FY2025 earnings call

• Strong second quarter results with net operating revenues of $5.3 billion and consolidated adjusted EBITDA of $1.121 billion, up 19% over 2024.
• USPI continues to grow with 11% adjusted EBITDA growth, 7.7% same facility revenue growth, and a robust M&A pipeline with intention to exceed $250 million in M&A spend in 2025.
• Hospital segment saw adjusted EBITDA growth, same-store admissions up, and revenue per adjusted admission up, with significant investments in expanding the network and reducing overhead.
• Deployed $1.1 billion to repurchase 7.2 million shares in the first half of 2025, with a $1.5 billion increase to the share repurchase program authorized.
• Committed to a culture of quality, transparency, and compliance, which drives results and outperformance.

USPI Segment: Generated $498 million in adjusted EBITDA, representing 11% growth over Q2 2024. Same facility revenues grew 7.7%, with a 12.6% growth in total joint replacements in ASCs. Added 8 new centers in the quarter. Adjusted EBITDA margin was 39.2% in Q2 2025. Hospital Segment: Adjusted EBITDA grew 25% to $623 million in Q2 2025. Same-store hospital admissions were up 1.6%, and revenue per adjusted admission was up 5.2%. Consolidated salary, wages, and benefits were 41% of net revenues, a 140 basis point improvement from the prior year.

• Raised full-year 2025 adjusted EBITDA guidance to a range of $4.4 to $4.54 billion, an increase of $395 million at the midpoint from prior guidance.
• USPI 2025 adjusted EBITDA expected to be $1.99 to $2.05 billion, a $70 million increase from prior expectations, with same facility USPI revenue growth assumption increased by 100 basis points to 4%-7%.
• Hospital 2025 adjusted EBITDA raised by $325 million at the midpoint to $2.41 to $2.49 billion, with same hospital admissions growth assumption lowered by 50 basis points to 1.5%-2.5%.
• Third quarter 2025 expected to be 22.5%-23.5% of full-year consolidated adjusted EBITDA, with USPI EBITDA at midpoint 23.5%-24.5% of full-year USPI adjusted EBITDA.
• Free cash flows for 2025 expected in the range of $2.025 to $2.275 billion, distributions to non-controlling interest $780-$830 million, resulting in free cash flow after NCI $1.245-$1.445 billion, an increase of $195 million at midpoint from prior outlook.

• Payer contract negotiations with ongoing disputes, documentation requests, and denials activity that have ramped up post-COVID, requiring adaptation with technology and automation.
• Uncertainty around legislative changes affecting healthcare exchanges and subsidies, including potential impacts on 2026 earnings if subsidies are not extended.

Q: Comment on the proposed rule on outpatient hospital care and its impact on hospital and ASC business, and update on exchange volumes.

A: Saumya Sutaria noted enabling additional innovation in ASCs is positive, and Sun Park mentioned exchange volumes saw 23% increase in admissions and 28% increase in revenues y-o-y in Q2 2025, with exchange volume representing about 8% of total admissions and 7% of total revenues.

Q: Specifics on outperformance in core results, especially USPI's incremental $70 million guidance increase and AI/technology use in revenue cycle.

A: Saumya Sutaria mentioned USPI has industry-leading revenue cycle capability with standardization, technology deployment, and advanced analytical tools. Sun Park highlighted high acuity, good case mix, payer mix, and operating expense management in USPI.

Q: Volumes deceleration in inpatient and adjusted admissions, any discrete items driving deceleration.

A: Saumya Sutaria stated guidance reflects math of the year, with focus on the strength of the high acuity strategy continuing to deliver results in the hospital portfolio.

Q: Payer contracting dynamics, denial activity, and negotiation philosophy.

A: Saumya Sutaria discussed commitment to value creation, extended negotiation philosophy, and adaptation to increased denial activity with technology and automation. Sun Park noted consistent themes of high acuity, case mix, and operating expense management in USPI.

Q: Impact of potential subsidy removal on 2026 earnings and provider tax run rate.

A: Saumya Sutaria and Sun Park discussed ongoing efforts to extend subsidies, with Sun Park noting Q2 2025 Medicaid supplemental payments and first half run rate around $1.1-$1.2 billion previously discussed.

Q: Changes in volume guide and impact on year, segment contributions.

A: Saumya Sutaria emphasized the strength of the high acuity strategy continuing to deliver results in the hospital portfolio as the key trend in Q2.

Q: Acuity trends, case mix, and translation to hospital side rates.

A: Saumya Sutaria mentioned strength in cardiovascular, orthopedic, spine, neurosurgery, general surgery, robotics, and trauma surgery contributing to high acuity strategy results.

Q: Cash collections, DSO trends, and capital allocation priorities.

A: Saumya Sutaria and Sun Park discussed focus on collection capabilities with technology and automation, and capital allocation priorities including USPI M&A, hospital CapEx, debt management, and share repurchases.

Q: ACH exchange volumes, procedural mix, and life stay across exchange-based volumes.

A: Saumya Sutaria and Sun Park stated exchange volumes were consistent with prior quarters, with exchange business behaving more like Medicaid with emergency department-driven volumes.

Q: SWB performance, opportunity for improvement, and initiatives.

A: Saumya Sutaria discussed effective labor management, recruiting strategies, and retention efforts contributing to SWB performance.

Q: Legislative and lobbying priorities at DC post-bill passage.

A: Saumya Sutaria highlighted engaging in dialogue to extend exchange subsidies as the most important current priority.

Q: Hospital volumes, payer mix improvement from exchange growth, and underlying demand.

A: Saumya Sutaria noted commercial mix was strong, with exchange growth contributing to payer mix improvement, and underlying demand remaining strong on a macro basis despite quarter-to-quarter trends.