TENET HEALTHCARE CORP Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Strong Performance: Third quarter 2025 net operating revenues were $5.3 billion, and consolidated adjusted EBITDA grew 12% over the third quarter 2024 to $1.1 billion, with an adjusted EBITDA margin of 20.8%.
• USPI Activity: The USPI segment had robust M&A and de novo activity, acquiring 11 centers and opening 2 de novo centers in the quarter. It spent nearly $300 million on M&A year-to-date and expects additional centers in the fourth quarter. Same-facility revenues grew by 8.3%, with total joint replacements in ASCs up 11%.
• Hospital Activity: The hospital segment's adjusted EBITDA grew 13%, with same-store hospital admissions up 1.4% and revenue per adjusted admission up 5.9%. A new hospital was opened in Port St. Lucie, Florida in September.
• Full Year Guidance: Raised full year 2025 adjusted EBITDA guidance to a range of $4.47 billion to $4.57 billion, increased capital expenditures guidance to $875 million to $975 million, and raised full year 2025 free cash flow minus NCI to a range of $1.495 billion to $1.695 billion.
• 2026 Outlook: Uncertainty exists regarding enhanced premium tax subsidies and state directed payment programs. The hospital segment expects healthy patient demand and disciplined cost controls, while USPI expects same-store revenue growth, focus on high acuity cases, and contributions from M&A and de novo development.

Segment Performance

• USPI Segment: Third quarter 2025 adjusted EBITDA was $492 million, representing 12% year-over-year growth. Same-facility revenues grew by 8.3%, with 11% growth in total joint replacements in ASCs over the prior year. The segment acquired 11 centers and opened 2 de novo centers in the quarter, with $300 million spent on M&A year-to-date and expects more in the fourth quarter. Adjusted EBITDA margin was 38.6%.
• Hospital Segment: Third quarter 2025 adjusted EBITDA was $607 million, up 13% year-over-year. Same-store hospital admissions increased 1.4%, and revenue per adjusted admission was up 5.9% over the prior year. The segment opened a new hospital facility in Port St. Lucie, Florida in September.

Guidance

• Raised full year 2025 adjusted EBITDA guidance to $4.47 billion to $4.57 billion, an increase of $445 million at the midpoint from initial guidance.
• Increased 2025 capital expenditures guidance to $875 million to $975 million, a $150 million increase at the midpoint from prior expectations.
• Raised full year 2025 free cash flow minus NCI to $1.495 billion to $1.695 billion, an increase of $250 million at the midpoint from previous guidance.
• 2026 expects healthy patient demand and disciplined cost controls in the hospital segment, with USPI expecting same-store revenue growth and contributions from M&A/de novo development.

Risks

• Uncertainty about enhanced premium tax subsidies and their impact on reimbursement and enrollment in exchanges.
• Pending approvals for various increases in state directed payment programs for 2026.
• Potential impact of CMS Wiser model on prior authorization and administrative work for USPI.
• Tariff dynamics and their impact on supplies, though managed well in 2025, need to remain nimble in the future.

Question and Answer

Q: About Q4 guidance and utilization, exchange exposure in USPI A: There's no rush to the office due to exchange subsidies. USPI plans for typical late-year demand. Exchange exposure in USPI is less than in the hospital segment; Q3 exchange was 8.4% of admissions and 7% of revenues.

Q: CapEx inputs, allocation A: Increased CapEx for program/infrastructure, service line support, and hospital growth opportunities, focusing on high acuity services.

Q: Free cash flow, sustainability A: Driven by EBITDA growth, Conifer's cash collections, working capital management, and deleveraging improving interest expenses.

Q: USPI 4Q guidance, deceleration A: No change in business demand, math of lapping larger assets, typical Q4 ramp-up.

Q: Labor, inflation in 2026 A: Labor environment stable, no meaningful changes expected, managed tariffs well in 2025, need to remain nimble in the future.

Q: Conifer's contribution, exchange enrollment A: Conifer performing well, invested in capacity for potential exchange enrollment changes.

Q: ASC volumes, hospital service lines A: USPI growth driven by higher acuity services, GI recovery in Q3; hospital side respiratory/infectious disease volumes lower than expected.

Q: DPP, Medicaid benefits A: Q3 DPP $346 million, year-to-date ~$1.02 billion, $148 million prior year out-of-period, normalizing for 2026.

Q: Capital allocation, M&A, buyback A: M&A spend updated based on opportunities, active share repurchasing, focused on M&A/de novo strategy.

Q: ASC M&A, valuations, physician evaluation A: USPI is partner of choice, physicians seek consistent track record, growth, multi-specialty support; Q3 exchange admissions 8.4%, revenues 7%.

Q: CMS Wiser model impact on USPI A: Prepared for documentation, compliance, and operational scheduling for Wiser model, focusing on revenue cycle function.

Q: Hospital outpatient rule, inpatient-only list A: Uncertainty around inpatient-only list removal, potential impact on USPI, but prepared to adjust mix and work with physicians