Tenet (THC) Q1 2026 Earnings Call Transcript

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Date

Thursday, April 30, 2026 at 10 a.m. ET

Call participants

• Chief Executive Officer — Saumya Sutaria
• Chief Financial Officer — Sun Park

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Takeaways

• Net Operating Revenues -- $5.4 billion reported for the quarter.
• Consolidated Adjusted EBITDA -- $1.16 billion, reflecting a 21.6% margin.
• USPI Adjusted EBITDA -- $484 million, representing 6% growth with a 36.7% margin, and 22% of full-year 2026 adjusted EBITDA guidance.
• Hospital Segment Adjusted EBITDA -- $678 million, corresponding to 27.5% of full-year 2026 guidance and a 16.7% margin.
• USPI Same-Facility Revenue Growth -- 5.3%, led by double-digit volume increases in total joint replacements at ASCs.
• USPI Net Revenue Per Case -- Up 5.6% year over year; same-facility case volumes decreased by 0.3% due to winter storms.
• Hospital Same-Hospital Inpatient Adjusted Admissions -- Increased 0.6%, though impacted by a 41% decline in respiratory admissions (a 90-basis-point reduction in admissions growth).
• Revenue Per Adjusted Admission -- Declined 1.5% year over year, attributed to reduced exchange volumes and the absence of 2025’s $40 million out-of-period Medicaid revenue.
• Exchange Revenues -- Accounted for about 6% of consolidated revenues, down 9%-10% from the prior year, capturing roughly half of the expected full-year reduction.
• Free Cash Flow -- $978 million of adjusted free cash flow generated in the quarter.
• Cash and Leverage -- Cash on hand of $2.97 billion and a leverage ratio of 2.24x EBITDA (2.83x EBITDA less NCI) as of March 31, 2026; no borrowings on the revolver and no significant maturities until late 2027.
• Share Repurchases -- 1.35 million shares repurchased for $318 million during the quarter; management expects continued repurchases.
• USPI Growth Investments -- $125 million deployed to acquire seven ASCs and launch three de novo centers in the quarter, half the targeted annual M&A spend.
• Conifer Transaction Impact -- $40 million one-time favorable revenue adjustment recognized, included in original guidance but excluded from revenue per adjusted admission calculations.
• Supplemental Medicaid Revenues -- In line with guidance; no benefit from out-of-period Medicaid revenue in the quarter.
• Consolidated Salary, Wages, and Benefits -- 40.5% of net revenues, consistent with prior-year levels despite revenue headwinds.
• AI and Automation Initiatives -- Technology investments, including AI for process automation and clinician support, doubled productivity for Conifer analytics and contributed to expense efficiencies.
• 2026 Guidance Reaffirmed -- Full-year adjusted EBITDA expected to grow 10% at the midpoint, with no upward revision after Q1 outperformance; Q2 adjusted EBITDA projected at 24%-25% of full-year total at the midpoint.
• Free Cash Flow Guidance -- Full-year range reaffirmed at $1.6 billion to $1.83 billion after NCI; excludes $150 million Conifer tax payment for midpoint of $1.865 billion.

Summary

Tenet Healthcare (NYSE:THC) delivered a quarter highlighted by data-driven operational execution, strategic capital deployment, and disciplined expense management, as evidenced by margin achievements across its major business segments. Substantial investment in automation and AI-driven initiatives materially improved productivity and administrative efficiency, especially within the Conifer segment. Shareholder value initiatives accelerated, with significant capital returned via share repurchases and a strong cash position maintained to support ongoing M&A and organic growth. Management identified material growth in higher-acuity service lines at USPI, with robust demand for outpatient joint replacements and expanding robotics programs. Acts of governance and systematic cost discipline enabled outperformance despite adverse impacts from severe weather, payer mix shifts, and a measured decline in exchange revenues.

• Management stated, "We are reaffirming our full-year guidance and will address our expectations for the full year in the future."
• Sun Park highlighted a "very reasonable situation" regarding exchange patient reserves, referencing close monitoring of attrition and payment status.
• CEO Sutaria emphasized, "our diversified asset mix with a focus on ambulatory care gives us a significant strategic advantage in the market as we look ahead."
• Margin pressures from respiratory case volume decline were mitigated by cost controls and process improvements, allowing the hospital segment to outperform initial expectations.
• Recent acquired and opened ambulatory centers support USPI’s focus on high-acuity and specialty services, creating a pipeline that aligns with targeted growth algorithms.
• Guidance for supplemental Medicaid revenues excludes potential program expansions not yet finalized by regulators, reflecting a conservative and data-based outlook.
• Management continues to emphasize evaluation of capital allocation priorities, including debt retirement and opportunistic investments in both organic and inorganic growth.

Industry glossary

• USPI: United Surgical Partners International, Tenet's ambulatory care platform comprising surgical centers and related facilities.
• ASC: Ambulatory Surgery Center, a facility offering same-day surgical care including advanced procedures performed outside traditional hospital settings.
• Conifer: Tenet's healthcare business process services subsidiary focused on revenue cycle management and patient engagement solutions.
• CMI: Case Mix Index, a measure of patient complexity and resource utilization within a hospital or health system.
• DPP: Directed Payment Program, a supplemental Medicaid reimbursement mechanism often varying by state.
• NCI: Noncontrolling Interest, the portion of subsidiary equity not attributable to Tenet shareholders, relevant for certain adjusted metrics.
• IPPS: Inpatient Prospective Payment System, the system through which Medicare pays hospitals for inpatient stays.
• FQHC: Federally Qualified Health Center, community-based clinics providing comprehensive healthcare to underserved populations.
• AmbientScribe: An AI-enabled tool piloted at Tenet to facilitate automated clinical note-taking and documentation.

Full Conference Call Transcript

Saumya Sutaria: Thank you, Will, and good morning, everyone. In the first quarter, we reported net operating revenues of $5.4 billion and consolidated adjusted EBITDA of $1.16 billion, which represents an adjusted EBITDA margin of 21.6%. We are pleased with the start to the year, performing above our previously provided expectations. As anticipated towards the end of last year, the operating environment is dynamic. There are payer mix shifts, seasonal effects, and insurance enrollment uncertainty in the exchanges and Medicaid that impact demand. Despite these challenges, we delivered a clean quarter characterized by disciplined operations, benefits from execution on our previously described expense opportunities, stable volumes despite headwinds, and, as a result, significant free cash flow generation.

USPI generated $484 million in adjusted EBITDA, which represents 6% growth over 2025 and a robust 22% of our full-year 2026 adjusted EBITDA guidance. We are pleased with USPI’s start to the year as we set an aggressive EBITDA target as a percent of the full year for the first quarter that we were able to exceed. We have seen a pattern over the last few years with a modest shift towards an increased distribution of cases and therefore earnings into the first quarter. Given our focus on acuity, same-facility revenues grew 5.3% at USPI, highlighted by double-digit same-store volume growth in total joint replacements in the ASCs over prior year.

Our operations in the first quarter were somewhat impacted by two major winter storms and uncertainty from vendor cyberattacks; however, our operating teams managed through them and were able to reschedule many of the procedures, lessening the overall impact in the quarter. We have a robust pipeline of assets interested in joining USPI this year. As such, we have had a particularly strong start to the year, investing $125 million in the first quarter to acquire seven ASCs. Additionally, we have commenced patient care at three de novo centers. This represents half of our targeted full-year spend already completed in the first quarter.

Turning to our Hospital segment, first quarter 2026 adjusted EBITDA was $678 million, which was nicely above our expectations and represented 27.5% of our full-year 2026 adjusted EBITDA guidance. We reported 16.7% EBITDA margins in the quarter, which were driven by disciplined expense management and growth initiatives that offset the expected impacts of unfavorable payer mix and reductions in exchange enrollment. The results in the quarter reflect no significant changes in supplemental Medicaid program revenues compared to our original expectations. We have seen declines in exchange coverage, with same-store exchange admissions down about 10% compared to first quarter 2025, but not yet at the level we assumed as the average for the full year.

We continue to assess the overall environment for effectuation rates and the impact on future exchange volumes, but we believe we have the tools to manage this impact under a variety of scenarios. We continue to make investments in technology to enable growth and streamline operations. We are executing on the expense initiatives that we discussed on our fourth quarter 2025 earnings call and are recognizing the benefits. These initiatives include engagement tools which are improving recruitment and retention efforts, process automation to address length of stay, and capacity controls which improve our clinical throughput.

Among these things, we are executing on AI-related capabilities in our hospitals, physician practices, and the global business center to drive further efficiencies, most of which have been useful for supporting and extending the productivity metrics of our team. Importantly, we have learned that while all of these tools will not work in a pilot state, setting up governance that either green-lights for rapid scaling up or red-lights for shutdown helps us remain focused. We have included third-party EMR-integrated solutions which will increase our clinician productivity, decrease administrative burden, and improve patient access through programs such as AmbientScribe, automated discharge summaries, and autonomous professional fee coding in various pilot programs.

Additionally, we have increased back-office AI automation, which is improving productivity and consolidating third-party spend to reduce costs. For example, we have almost doubled or more the productivity of our Conifer analytics team. As we look forward, we are actively identifying and piloting agentic workflows to transform further business processes. So far, our work has enabled us to more than offset the expected and unexpected headwinds that arose in the quarter. Regarding full-year 2026 guidance, as in prior years at this time, we are not addressing the underlying outperformance in our business units during the first quarter. We are pleased with our year-to-date performance.

We are reaffirming our full-year guidance and will address our expectations for the full year in the future. As a reminder, after normalizing for the nonrecurring items that were reported in 2025 and 2026, and excluding the headwind from the expiration of the premium tax credits, our 2026 adjusted EBITDA is expected to grow at 10% at the midpoint of our range. And finally, we continue to see significant opportunity to utilize share repurchase at our current valuations. We repurchased 1.35 million shares for $318 million in 2026 and expect to continue to deploy capital for share repurchase over the balance of the year.

In conclusion, we adapt to the environment, focus on strong clinical quality, recommit to helping our doctors have an easier environment to operate in, and focus on delivering reliable earnings in this transitionary period. Our balance sheet is strong and our diversified asset mix with a focus on ambulatory care gives us a significant strategic advantage in the market as we look ahead. And with that, I will turn it over to Sun for more details. Sun?

Sun Park: Thank you, Saumya, and good morning, everyone. We had a nice start to the year in 2026, generating total net operating revenues of $5.4 billion and consolidated adjusted EBITDA of $1.162 billion. First quarter adjusted EBITDA margin was 21.6%, driven by disciplined operating expense management, including good progress on the expense initiatives that we outlined last quarter. I would now like to highlight some key items for both of our segments, beginning with USPI. In the first quarter, USPI’s adjusted EBITDA was $484 million, with adjusted EBITDA margin of 36.7%. USPI delivered a 5.3% increase in same-facility systemwide revenues, with net revenue per case up 5.6% and same-facility case volumes down 0.3%.

As Saumya noted, volumes were impacted by the winter storms early in the quarter, and while we were able to reschedule many of the procedures, there was an overall impact. Turning to our Hospital segment, first quarter 2026 adjusted EBITDA was $678 million, resulting in an adjusted EBITDA margin of 16.7%. This represents 27.5% of our expected full-year 2026 adjusted EBITDA. Same-hospital inpatient adjusted admissions rose 0.6% in the quarter and were impacted by a decline in respiratory admissions of 41% compared to 2025. This driver represented a 90-basis-point reduction in admissions growth in the quarter.

Revenue per adjusted admission declined 1.5% year-over-year in 2026 due to the impact of reduced exchange volumes within our overall payer mix and the year-over-year impact of the $40 million favorable out-of-period supplemental Medicaid revenues that we reported in 2025. Exchange revenues represented about 6% of consolidated revenues in 2026, a 9% decline from 2025. Our consolidated salary, wages and benefits was 40.5% of net revenues in the quarter, consistent with our performance from the prior year despite the net revenue headwinds, demonstrating our ability to flex our operating model. Overall, operating expenses per adjusted admission were also favorable to our expectations, which contributed to our outperformance in the quarter.

In 2026, we recognized a one-time approximate $40 million favorable revenue adjustment as a result of the completed Conifer transaction. This amount was included in our original guidance, and I would also note that this adjustment is not included in our revenue per adjusted admission calculations. We recorded supplemental Medicaid revenues of $[inaudible] in 2026, consistent with what we assumed in our guidance. Importantly, we did not benefit from out-of-period supplemental Medicaid revenues related to prior years in this quarter. We are pleased with our ability to manage through the various dynamics throughout our first quarter and feel we have the ability to deliver on our commitments over the balance of the year.

Next, we will discuss our cash flow, balance sheet, and capital structure. We generated $978 million of adjusted free cash flow in the first quarter. As of March 31, 2026, we had $2.97 billion of cash on hand with no borrowings outstanding under our line of credit facility. Additionally, we have no significant debt maturities until late 2027. During the first quarter, we repurchased 1.35 million shares of our stock for $318 million. Our leverage ratio as of March 31, 2026, was 2.24 times EBITDA, or 2.83 times EBITDA less NCI, driven by our strong operational performance and financial discipline.

We remain committed to maintaining a deleveraged balance sheet and believe that we have significant financial flexibility to support our capital deployment priorities and drive shareholder value. Let me now turn to our outlook for 2026. As Saumya noted, we are not making any adjustments to our full-year 2026 outlook at this time. While we had strong fundamental outperformance in the first quarter and have continued confidence in our ability to achieve our full-year targets, it is early in the year and we will plan to revisit our full-year guidance as needed in subsequent quarters. As such, we are reaffirming the full-year 2026 guidance that we initially provided in February.

Our outlook continues to exclude any contributions from potential increases in supplemental Medicaid programs that have not yet been approved and finalized by CMS. For Q2, we expect consolidated adjusted EBITDA to be 24% to 25% of our full-year consolidated adjusted EBITDA at the midpoint. We expect that USPI’s EBITDA in the second quarter will also be 24% to 25% of our full-year 2026 USPI EBITDA at the midpoint. Turning to our cash flows for 2026, we continue to expect adjusted free cash flow after NCI in the range of $1.6 billion to $1.83 billion. This range includes the payment of about $150 million in tax payments for the Conifer transaction this year.

Excluding these tax payments, this would represent $1.865 billion of adjusted free cash flow after NCI at the midpoint of our 2026 outlook. We remain focused on strong free cash flow conversion from our EBITDA performance, including the continued outstanding cash collection performance of Conifer, while continuing to invest in high-priority areas of our businesses. Turning towards capital deployment priorities, first, we will continue to prioritize capital investments to grow USPI through M&A. As Saumya noted, we have had a strong start to the year and have a number of future opportunities to support our $250 million annual target for USPI M&A.

Second, we expect to continue investing in key hospital growth opportunities to fuel organic growth, including our focus on higher acuity service offerings. Third, we will continue to be active in share repurchases. We continue to see significant opportunity at our currently compressed valuation multiple. And finally, we will continue to evaluate opportunities to retire and/or refinance debt. We are pleased with our strong start to the year and remain confident in our ability to deliver on our outlook for 2026. We continue to execute our strategy across our transformed portfolio of businesses, resulting in a more predictable, more capital-efficient company that is well positioned to drive value through effective capital deployment.

And with that, we are ready to begin the Q&A. Operator?

Operator: Thank you. We will now open the call for questions. As a reminder, Tenet Healthcare Corporation respectfully asks that analysts limit themselves to one question each. Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from Ryan Langston with TD Cowen. Your line is now live.

Ryan Langston: Great. Thank you. 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 are seeing primarily related to the exchange subsidy expiration? Or is there anything else you would call out there? Thank you.

Saumya Sutaria: Yes, thanks for the question. Payer denials, I would say, disputes—many of which can result in denials and a back and forth—are high. They have been high. As I have said before, they are too high for what is appropriate, especially when comparing back to pre-pandemic periods just as a marker. I do not think that in our business we have seen a net impact of disputes and denials changing in this quarter relative to before, meaning last year. So, they are high, they have been too high, but we do not see a meaningful trend this quarter that is different.

We can only guess, obviously, with the slight increase in uncompensated care, that some of it has to do with the expiration of the exchange subsidies.

Ryan Langston: Alright. Thank you.

Operator: Our next question comes from A.J. Rice with UBS. Your line is now live.

A.J. Rice: Thanks. Hi, everybody. If I look at the last number of quarters, there has been consistency of outperformance in the hospital segment overall. I wonder if you could talk maybe broadly, because we have not talked about markets in a general sense. Are there some markets where you have implemented strategies that you would 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.

Saumya Sutaria: Yes, thanks, A.J., and I appreciate your calling out the strength of the hospital business over the last few years. We have been focused on a broad strategy of increasing acuity, focusing on our ability to succeed with our transfer centers, adding new surgical programs, and increasing our emergency-related services, especially trauma programs. In a combined sense, that is a global strategy implemented locally, but we have opportunities and are implementing in every market that we have. As you are aware, based upon the portfolio shifts that we made, we remained in markets in which we thought the execution of our overall strategy would be successful.

There are things like, for example, enrollment that differ state to state and what the impact will be. So there are some differences there in terms of what is happening in terms of throughput and other things that may impact even the uninsured piece. If you step back—and with my commentary today, which is that we are in this transitionary period where there are some coverage changes that are occurring—we will see how all that settles out. When you look at the opportunity to find efficiencies, you look at the support services for the hospitals, and you look at some of the automation opportunities that I described—once again, these are available in each market.

Of course, some markets are bigger than other markets, so at a dollar level, you might get more impact in one market than another, but they are scaled appropriately and are available in each of the markets. If you look at our earnings in the first quarter this year, they were driven by consistency across our markets in terms of the efficiency opportunities. The other thing I would point out is just good old-fashioned discipline around flexing our cost structure.

We knew early in the year—by the time we had given guidance—that one of the winter storms had already come through, and we were able to maintain our SWB as a percentage of our top line by flexing even though the revenues were going to be a little bit more challenged. Some of this is just continuing to maintain the old-fashioned discipline, the discipline of anticipating and flexing intra-quarter, which, of course, is also an opportunity available in all markets. I hope that helps.

A.J. Rice: Yeah. No. Thanks a lot.

Operator: Our next question comes from Jason Cassorla with Guggenheim Partners. Your line is now live.

Jason Cassorla: Great. Thanks. Good morning. I wanted to go back to your prepared remarks around your efforts on length of stay and throughput improvements. You are 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. Could you 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? Thanks.

Saumya Sutaria: Yes, I appreciate the question. You are right that the two are actually coupled in an interesting way, which is in order to maintain available capacity to always service the high-acuity needs that arise in the community—whether from direct arrival at our hospitals or for outlying hospitals that might need help or support, which we always try to say yes to—you have to make sure that your throughput and capacity management are good enough to have the availability of beds to be able to say yes for those things. We see the two being very intricately linked in terms of a requirement to succeed in the high-acuity strategy.

As the acuity goes up, there is a length of stay headwind that does come with it because the cases are more complex and longer. We are pleased with the fact that we are managing the overall length of stay to something better than even breakeven in terms of our reported length of stay, because that is creating capacity in our hospitals. I would remind everybody that part of the strategy, of course, is capital avoidance on additional capacity that is really not necessary when you can improve productivity that way.

For us, all these things are intricately linked, and we are pleased that some of the new tools we are trying out are helping to add to our more traditional length of stay management that we have talked about over the last four or five years.

Jason Cassorla: Great. Thank you.

Operator: Our next question comes from Brian Tanquilut with Jefferies. Your line is now live.

Brian Tanquilut: Hey, good morning. This is a tough quarter, so congrats on beating that EBITDA line. Maybe just on the Medicaid side, a lot of your peers have spoken about Medicaid trends, whether that is immigrants not able to land paperwork. What are you seeing in the Medicaid book? And as we have seen uncompensated care step up here, which was also across the space, how much of that is Medicaid versus maybe exchange members versus other dynamics? Thanks.

Saumya Sutaria: I appreciate it. Obviously, it is somewhat speculation, but we speculate based on our markets, so I will be a little bit careful about how sure I am in my answers. Medicaid is down a little bit, and we see a little bit more of that in places like California. That suggests that some of what has happened is either disenrollment or lack of renewal of enrollment with populations that may not have been qualified to begin with based upon at least federal regulations. That is one fact point we see.

The second question that has been out there, especially because we are in a lot of important border communities where we do a lot of work for the broader communities that are there, is we do see a little bit of hesitation at times with those populations. We partner a lot with the important FQHCs in those markets, and there is just kind of this tone of hesitation. The impact at the end of the day on the hospitals has been minimal because we are there taking care of people who are sick and have needs.

But on the outpatient side, for people who are doing more primary care and other things in the community, we are hearing about a little bit more impact and certainly hesitation from coming in to consume care.

Operator: Our next question comes from Scott Fidel with Goldman Sachs. Your line is now live.

Scott Fidel: I think my question probably ties in to the last two, but I wanted to ask it from the acuity and case mix perspective overall for both the hospital and USPI. How do those rates look year-over-year? Maybe you could layer in, on the tailwind side, the proactive service line expansions and investments that you have made on higher acuity, and then on the headwind side, some of the dynamics relating to the dynamic environment that we saw in some of the markets in the first quarter. Thanks.

Saumya Sutaria: Sure. Let us start with USPI. There is no question about the increase in acuity. We are on the outpatient side probably the largest single provider of outpatient joint replacements when you collectively look at almost 570 assets at USPI, many of which do orthopedics, and we are still posting double-digit growth in total joint replacement surgeries within the ASCs off of a pretty high base. That suggests that demand is out there. If you create the right operating environment for these surgeons and give them an efficient, safe way to do the work, the demand is out there. We continue pushing in our high-acuity strategy. You can see it in the revenues.

When you add to that, as you asked, other service lines—the types of things we are doing in urology, the types of things we are doing in robotics—we are probably up to over 150 robotic surgery programs in the ASCs that are general-surgery based. Those types of things are growing quickly. The only services that are declining are the high-volume, low-acuity areas, which, as we have said, we are less focused on in this diversification path. In summary on the USPI side, the acuity is growing, the case mix is improving in the direction we want, and we have a good number of service line starts and physician additions.

The assets that we are acquiring are also supportive of the service line strategies that we are interested in, and our de novos that we open will also have the opportunity to do this type of higher-acuity work. On the hospital side, the journey that we have been on—starting in the very early part of the pandemic, five years pushing this high-acuity strategy—you see it in the CMI, the margins, the revenue per case. This quarter obviously has some differences that Sun can go into in terms of the comp to the first quarter last year with a bunch of one-time items. The CMI, for the first time, was down a little bit, but this is temporary.

We had some weather-related issues and a decline in the intensity and volume of the respiratory business. As I said, we made up for that significantly by flexing and also by focusing more on some of our other types of work in the hospitals, and I think the quarter ended up fine. I do not think anything changes going forward just because there was one quarter with significant respiratory impact.

Operator: Our next question comes from Craig Hettenbach with Morgan Stanley. Your line is now live.

Craig Hettenbach: Thank you. On the back of the $125 million invested in USPI in Q1—really strong start to the year—can you talk about the M&A engine? What is working, and why might Tenet Healthcare Corporation be the acquirer of choice out there in the marketplace?

Saumya Sutaria: What is working fundamentally is that USPI has a multiyear track record of acquiring assets and adding value to them, both clinically and operationally. Our quality performance is consistent. Our ability to bring these facilities in-network and do well is consistent. Our broad-based and ongoing supply chain and purchased services agenda helps to reduce costs and create efficiencies. Our business development team is terrific at helping these centers, oftentimes, go from single specialty to multispecialty or helping them design their OR operations—if they are already multispecialty—to be able to do those more efficiently.

As I have always talked about, the ability to do “dirty” and “clean” surgery in the same center with the right protocols and the right scheduling—these are things that we work on consistently, and we are ahead in the market when it comes to executing on them. Physicians know that. Many of the MSOs we partner with know that. Health systems that we partner with not only know that, but because of the expertise of some of these health systems, they contribute actively to our quality improvement agenda and other things—Baylor, Memorial Hermann—these organizations are experts in many of these areas and contribute actively to the partnership in USPI to make those improvements.

All of those things have created a nice virtuous cycle of reputation enhancement. As we do these things, we deliver on what we say we are going to do. We are still very selective. Our diligence processes are robust. We still say no to more centers than we say yes to, and that is fine because we still think that the opportunity for high-quality ASCs supports USPI’s growth algorithm.

Craig Hettenbach: Helpful. Thank you.

Operator: Our next question is from Justin Lake with Wolfe Research. Your line is now live.

Justin Lake: Thanks. First, your guidance assumes $250 million of exchange impact for the year. Do you have a number for the quarter, maybe relative to what we would have thought—maybe a $60 million to $65 million run rate? And then on DPP, in your slides, you talked about DPP down $22 million for the year. I am curious, does this include the $40 million decline because of the out-of-period, so that you were actually up $18 million ex that? Thanks.

Saumya Sutaria: Good questions. Sun, do you want to take those, maybe in reverse order?

Sun Park: Yes. Hey, Justin, it is Sun. You are right on the DPP question. That includes the $40 million, so if you normalize for that 2025 out-of-period item, then it would be a slight increase. On the exchanges, we mentioned that exchange revenues in Q1 were about 6% of our consolidated revenues. As a comparator, in 2025 it was about 6.5% of our consolidated revenues. If you do the algebra, it is about a 9% to 10% decrease in revenues versus Q1 last year. I would say it is roughly at about half of the overall one-year, roughly 20% reduction in volumes that we talked about in February.

We do expect, with all the dynamics around the first quarter and the grace period with some of the enrollees or reenrollees, that our guidance range of a 20% reduction and $250 million overall impact is still pretty consistent.

Operator: Our next question comes from Kevin Fischbeck with Bank of America. Your line is now live.

Kevin Fischbeck: Great, thanks. Two questions. One, following up on that one—so the Q1 impact is lower. Is that lower but in line with what you thought Q1 would be because you always assumed it would ramp? Was that a potential area of outperformance? And then you talked a little earlier about flu. I know one of your competitors had a pretty high decremental margin on lost volume in Q1. It sounds like you did a better job flexing costs. Any way to size what you think the EBITDA impact was to both USPI and the hospitals from flu and the weather disruption? Thanks.

Saumya Sutaria: I can take the latter part. I do not know about flu specifically, but we look at respiratory ER traffic, admissions, and other things. Similar to what we have heard, respiratory admissions were down about 40% in the quarter, and it had an earlier effect. Looking at January to February to March, things improved steadily month over month, almost week over week. By the time we were in March, we had a keen sense that revenue and admissions and volume intensity were increasing. Because we had anticipated the impact early in the quarter, we had already done some of our cost flexing.

As we previewed on our fourth quarter call, we had developed a more systematic type of cost agenda in 2025 that we executed and that added to our savings. The anticipation of the need to flex, plus our other cost improvements, plus the month-over-month improvement during the quarter allowed us to outperform in the hospital segment versus our expectations despite some of these headwinds. In terms of what our expectations were, we had made a simple linear assumption.

I would say the outperformance in the quarter in the segment is a combination of two things: cost management and efficiencies, and the first-quarter exchange impact was probably a little bit less than at least a simple linear assumption for the full year.

Operator: Our next question comes from Ann Hynes with Mizuho. Your line is now live.

Ann Hynes: Hi, good morning. Maybe we can shift to the Washington outlook. Is there anything that you are paying attention to on the regulatory and legislative outlook, especially on the regulatory side with the upcoming outpatient rule? Is there anything on your radar screen that we should be aware of? Thanks.

Saumya Sutaria: We are keenly awaiting the outpatient rule, especially given the type of policy commentary that has been coming out of HHS broadly and CMS, supporting care in lower-cost settings. One of the ways to help that, of course, is to provide robust or more robust outpatient rate support relative to what we have seen—sort of as expected but nothing incredibly positive—on the IPPS side. We are looking forward to seeing that. Other than the commentary they are making, I do not have any proprietary insights to share. We have been following all of the discussion and commentary about the various parts of the sector.

From our perspective, we are trying to stay on the right side of the value equation—having efficient health systems being accessible at all times, efficient in what we are doing, and obviously providing surgical care at scale at, sometimes, half the cost of doing the same work in a hospital with USPI. We feel like we are well positioned as we look ahead. If you really look at USPI—this was asked as a sub-question earlier—USPI had an even cleaner quarter despite the noise, because while the weather impact was there, you do not really see that much of an impact from the exchanges or Medicaid in that business as we have pointed out before.

Operator: Our next question comes from Pito Chickering with Deutsche Bank. Your line is now live.

Pito Chickering: Hey, good morning, and thanks for taking my questions. Looking back to hospitals in the first quarter, I understand that there is $20 million-plus of loan payments offset by recoveries of $40 million this quarter. When we normalize the margins, we get to, I guess, the 15% range, which is generally where your guidance is. If I think about margins for hospitals, generally the year is better than just the first quarter because of the strong fourth quarter. Can you walk me through how we should think about the hospital margins with 1Q—excluding the $40 million—as a bridge into the rest of the year? Thank you.

Saumya Sutaria: I will start, and Sun can add to that. If you step back to our guidance for the year—which, in the hospital segment, is a 10% normalized year-over-year growth—there was obviously some discussion when we put it out there, but we feel very confident that we are on track. Some of that is margin improvement. Some of that is because we had visibility from our work in 2025, which was going to be expense management and execution of expense management initiatives that we were designing and would see benefits from this year, and those are margin enhancing. I do not know that the algorithm is exactly like it would be in a normal year.

The respiratory volume impact in Q1 is a headwind to margins because those tend to be capacity-filling and margin-accretive. We overcame that, and as we return to normal operations, plus have a year where we are executing on a broader efficiency strategy, we think that this year’s performance will support margin growth in the hospital segment. We feel very confident about the balance of the year.

Sun Park: Yes, that is right. The only thing I would add, Pito, is if you look at our Q1 hospital margin of 16.7%, you are right to normalize for the one-time Conifer $40 million. The only other thing I would mention is, like we said, the exchange impact likely grows over the rest of the year from what we had in Q1, so that probably damps down margin a little bit on a run-rate basis. When it is all said and done, as Saumya said, if you look at full-year guidance of roughly 15% implied margins, I think that is right in line with our expectations.

Pito Chickering: On the exchanges impact, the uninsured payer mix declined year-over-year in the first quarter. I thought that would have been increasing. How does that fit within the guidance you have provided?

Saumya Sutaria: I think we should watch and wait. Effectuation rates and other things are important to track. The first quarter often is a relief valve for payment of premiums and other things. We watch and wait. From our perspective, the way we think about this year is to anticipate that the challenge could increase and plan accordingly in a disciplined way to manage to the earnings guidance that we have given. If the impact is less, or if the uninsured impact does not increase as much, those are opportunities for outperformance for us. I would reiterate we are not spending a lot of time thinking about downside risks right now.

We are spending our time thinking about how the strategy in both segments, plus our expense opportunities, plus how this exchange/uninsured/Medicaid market plays out, could create upside opportunities for us. That is where our mindset is right now after this first quarter.

Pito Chickering: Great. Thanks so much.

Operator: Our next question comes from Whit Mayo with Leerink. Your line is now live.

Whit Mayo: Hey, thanks. 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? Thanks.

Sun Park: Hey, Whit. We, through Conifer, pay very close attention patient by patient, if we can, on exchange coverage status, premium payment status, and all those details that you would imagine. We will review this as the year develops and we get more data, but I think we are very appropriately reserved on our overall patient population, including exchanges. That speaks to the numbers that we shared in Q1, where admissions were down, as we said, about 9% if you do the algebra. Revenues from exchanges are down probably 9% to 10% as well, so it is sort of one to one. We are in a very reasonable situation there, and we will continue to observe this as we go.

From a month-over-month trend perspective, our overall volumes—not just exchanges, but overall—improved through the course of Q1, coming into March, which again gives us some confidence in our rest-of-year guidance.

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