Tenet (THC) Q2 2025 Earnings Call Transcript

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DATE

Tuesday, July 22, 2025 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: $5.3 billion in net operating revenues for Q2 2025, reflecting 19% growth in consolidated adjusted EBITDA over Q2 2024 and supported by strong same-store trends and payer mix.

Consolidated Adjusted EBITDA: Adjusted EBITDA was $1.121 billion for Q2 2025, representing a 19% year-over-year increase with an adjusted EBITDA margin of 21.3%, up 280 basis points.

Hospital Segment EBITDA: $623 million in adjusted EBITDA for the hospital segment in Q2 2025, a 25% increase in adjusted EBITDA with adjusted EBITDA margin rising 300 basis points to 15.6%, driven by higher acuity and cost controls.

USPI Segment EBITDA: $498 million in adjusted EBITDA for Q2 2025, up 11% year-over-year (adjusted EBITDA, non-GAAP) with a segment margin of 39.2%; same-facility revenues rose 7.7% aided by an 8.3% increase in net revenue per case and a 12.6% growth in ASC total joint procedures.

Hospital Admissions: Same-store inpatient admissions were up 1.6% in Q2 2025, and revenue per adjusted admission was up 5.2%.

Labor Costs: Consolidated salary, wages, and benefits were 41% of net revenues for Q2 2025, a 140 basis point year-over-year improvement.

Free Cash Flow: $743 million of free cash flow generated in Q2 2025; $2.6 billion cash on hand; no borrowings on $1.5 billion line of credit; no significant debt maturities until 2027.

Share Repurchases: 4.6 million shares repurchased for $747 million in Q2 2025; 7.2 million shares for $1.1 billion year-to-date through June 30, 2025; share repurchase authorization increased by $1.5 billion as announced in Q2 2025.

2025 Guidance Raised: Adjusted EBITDA outlook increased to $4.4-$4.54 billion (12% year-over-year growth at midpoint) for full-year 2025; net operating revenue outlook increased by $300 million to $20.95-$21.25 billion for FY2025.

Segment Guidance Updated: USPI 2025 adjusted EBITDA guidance raised by $70 million to $1.99-$2.05 billion (non-GAAP); hospital segment adjusted EBITDA guidance raised by $325 million to $2.41-$2.49 billion for 2025.

USPI M&A: Added eight new ASC centers in Q2 2025; The company expects to exceed its $250 million baseline M&A spend for 2025.

Medicaid Supplemental Payments: $79 million favorable pre-tax impact in Q2 2025; year-to-date run rate at $1.1-$1.2 billion (normalized for one-time items) for the first half of 2025.

Free Cash Flow Guidance: Full-year 2025 free cash flow after non-controlling interest raised by $195 million to $1.245-$1.445 billion.

ACA Exchange Admissions: 23% increase in admissions for Q2 2025 and 28% increase in revenues year over year; Exchange accounts for 8% of admissions in Q2 2025, and 7% of consolidated revenue for Q2 2025.

Operational Initiatives: Executives highlighted advanced analytical tools and automation for revenue cycle, enhanced labor management, and sustained improvement in case mix index, with the hospital segment up 1% in Q2 2025.

SUMMARY

Management highlighted that both USPI and hospital segments outperformed internal expectations in Q2 2025 which supported the company's decision to raise full-year 2025 revenue and adjusted EBITDA guidance. Executives confirmed that payer contract negotiations and denial dispute processes remain in line with expectations and are not driving any changes in financial outlook. The board authorized a $1.5 billion increase in share repurchase capacity as part of a disciplined capital allocation strategy emphasizing USPI M&A, hospital investment, deleveraging, and return of capital. The call included updates showing that effective labor management and automation have contributed to lower salary and wage expenses as a percent of revenues, with consolidated salary, wages, and benefits at 41% of net revenues for Q2 2025. Medicaid supplemental payments provided a favorable but non-recurring impact in Q2 2025, normalizing to previously guided run-rate levels of approximately $1.1 to $1.2 billion for the year. No unexpected changes in ACA exchange mix, length of stay, or payer mix trends emerged beyond the previously stated growth in exchange volumes and revenues.

CEO Sutaria said, "We are raising our full-year 2025 adjusted EBITDA guidance to a range of $4.4 to $4.54 billion, which represents an increase of $395 million or roughly 10% at the midpoint of the range of our prior guidance." (non-GAAP, FY2025)

CFO Park noted, "Our leverage ratio as of June 30, 2025, was 2.45x EBITDA or 3.11 times EBITDA less NCI."

Executives confirmed investments "to expand our network to support growth" and see a "robust pipeline for M&A opportunities" in ambulatory care.

Management indicated current state and legislative changes do not affect core strategy or guidance and offered no projections on 2026 impacts from expiring subsidies.

Executives detailed that automated and AI-enabled technologies have compressed days sales outstanding and accelerated cash collection, particularly via Conifer.

INDUSTRY GLOSSARY

USPI: United Surgical Partners International; Tenet's ambulatory surgery center and outpatient care division.

ASC: Ambulatory Surgery Center; outpatient surgical facilities for same-day procedures.

Conifer: Tenet's revenue cycle management division providing billing and collection services for hospitals and healthcare providers.

High Acuity: Refers to patients requiring more complex, resource-intensive medical or surgical care, often associated with higher reimbursement rates.

Medicaid Supplemental Payments: Government payments intended to provide additional funding to hospitals beyond standard Medicaid reimbursements.

Full Conference Call Transcript

Sun Park: The second quarter continues our track record of strong outperformance in each of our businesses. We reported second quarter 2025 net operating revenues of $5.3 billion and consolidated adjusted EBITDA of $1.121 billion, which represents growth of 19% over 2024. Second quarter 2025 adjusted EBITDA margin of 21.3% represents a 280 basis point improvement over the prior year, driven by strong same-store growth and very efficient operating performance. USPI continues to deliver. We generated $498 million in adjusted EBITDA, which represents 11% growth over quarter 2024. Same facility revenues grew 7.7% in the second quarter, highlighted by a 12.6% growth in total joint replacements in the ASCs over the prior year.

We added eight new centers in the quarter, including facilities specializing in high acuity procedures such as spine, orthopedics, and neurosurgery. We continue to see a robust pipeline for M&A opportunities and expect to exceed our baseline intention for $250 million of M&A spend in 2025. Turning to our hospital segment, adjusted EBITDA grew 25% to $623 million in the second quarter of 2025. Same-store hospital admissions were up 1.6% in the quarter. Second quarter 2025 revenue per adjusted admission was up 5.2% over the prior year as payer mix and acuity remained strong.

We are making significant investments to expand our network to support growth in our markets and have confidence that the demographic trends, our high acuity service line priorities, and our efficient operating platform can generate ongoing returns in this segment. We have also reduced overhead given we downsized our hospital portfolio. Our results in both segments exceeded our expectations and extend our track record of consistently strong fundamental execution. We continue to capitalize on our compelling valuation and have deployed $1.1 billion to repurchase 7.2 million shares in the first half of 2025. As we noted in our release, the board of directors has authorized a $1.5 billion increase to our share repurchase program.

Turning to our full-year guidance, at this point in the year, we are raising our full-year 2025 adjusted EBITDA guidance to a range of $4.4 to $4.54 billion, which represents an increase of $395 million or 10% roughly at the midpoint of the range of our prior guidance. The guidance increase is supported by fundamental strength in our businesses and expectations for continued growth. In summary, we continue to deliver on our commitments to a strong balance sheet and significantly improved free cash flow generation. Finally, in closing, we are committed to a culture of quality, transparency, and compliance.

This culture permeates our business and is reflected in the dedication of our colleagues and caregivers that go to work each day to care for our patients and communities that we serve. We are pleased that these are the values that we have instilled into our organization, which continue to drive results and outperformance. And with that, Sun Park will provide a more detailed review of our financial results. Sun, turning it over to you.

Sun Park: Thank you, Saumya Sutaria. Good morning, everyone. We delivered strong results in the second quarter of 2025, with adjusted EBITDA well above the high end of our guidance range, driven by strong fundamentals, including same-store revenue growth, continued high patient acuity, favorable payer mix, and effective cost controls. We generated total net operating revenues of $5.3 billion and consolidated adjusted EBITDA of $1.121 billion, a 19% increase over the second quarter of 2024. Second quarter adjusted EBITDA margin was 21.3%, a 280 basis point improvement over the prior year. I would now like to highlight some key items for each of our segments. Beginning with USPI, which again delivered strong operating results.

In the second quarter, USPI's adjusted EBITDA grew 11% over last year, with adjusted EBITDA margin at 39.2%. USPI delivered a 7.7% increase in same system-wide revenues, with net revenue per case up 8.3% and case volumes down 0.6%, reflecting our continued disciplined shift towards higher acuity services. Turning now to our hospital segment, second quarter adjusted EBITDA was $623 million, with margins up 300 basis points over last year at 15.6%. Same hospital inpatient admissions increased 1.6%, and revenue per adjusted admissions grew 5.2%. Our consolidated salary, wages, and benefits were 41% of net revenues, a 140 basis point improvement from the prior year. And our contract labor expense, which was of consolidated SWB expense.

This improvement has been driven by our data-driven approach to capacity and labor management and disciplined operating expense controls. Finally, we recognized a $79 million favorable pre-tax impact for additional Medicaid supplemental revenues related to prior periods in the second quarter of 2025. This includes the recently approved program in Tennessee. As a reminder, our second quarter 2024 results included a $30 million favorable pre-tax impact for additional Medicaid supplemental revenues related to the prior year. Next, we will discuss our cash flow, balance sheet, and capital structures.

We generated $743 million of free cash flow in the second quarter, and as of June 30, 2025, we had $2.6 billion of cash on hand, with no borrowings outstanding under our $1.5 billion line of credit facility. Additionally, we have no significant debt maturities until 2027. And finally, during the second quarter, we repurchased 4.6 million shares of our stock for $747 million, and year-to-date through June 30, we have repurchased 7.2 million shares for $1.1 billion. Our leverage ratio as of June 30, 2025, was 2.45x EBITDA or 3.11 times EBITDA less NCI.

Driven by our outstanding operational performance and continued focus on financial discipline, we are very pleased with our ongoing cash flow generation capabilities and remain committed to a deleveraged balance sheet. We believe we have significant financial flexibility to support our capital allocation priorities and drive shareholder value. Let me now turn to our outlook for 2025. For 2025, we now expect consolidated net operating revenues in the range of $20.95 to $21.25 billion, an increase of $300 million over prior expectations. As Saumya Sutaria mentioned, we are raising our 2025 adjusted EBITDA outlook by $395 million at the midpoint to $4.4 to $4.54 billion, reflecting the strong fundamental performance of our business.

At the midpoint of our range, we now expect our full-year 2025 adjusted EBITDA to grow 12% over 2024. At USPI, we are now expecting 2025 adjusted EBITDA of $1.99 to $2.05 billion, a $70 million increase from prior expectations. In addition, we have increased our assumption for same facility USPI revenue growth by 100 basis points to 4% to 7% for 2025. In hospitals, we are raising our 2025 adjusted EBITDA by $325 million at the midpoint to $2.41 to $2.49 billion. Additionally, we are lowering our assumption for same hospital admissions growth by 50 basis points to 1.5% to 2.5% for 2025.

Finally, we expect third quarter 2025 to be in the range of 22.5% to 23.5% of our full-year consolidated adjusted EBITDA. At the midpoint, we expect third quarter 2025 USPI EBITDA to be in the range of 23.5% to 24.5% of our full-year USPI adjusted EBITDA at the midpoint. Turning to our cash flows for 2025, we now expect free cash flows in the range of $2.025 to $2.275 billion, distributions to non-controlling interest in the range of $780 to $830 million, resulting in free cash flow after NCI in the range of $1.245 to $1.445 billion, an increase of $195 million at the midpoint of our range from prior outlook.

Turning now to our capital deployment priorities, we are well-positioned to create value for shareholders through the effective deployment of free cash flow, and our priorities have not changed. First, we will continue to prioritize capital investments to grow USPI through 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 evaluate opportunities to retire and/or refinance debt. And finally, we'll continue to have a balanced approach to share repurchases, depending on market conditions and other investment opportunities. As Saumya Sutaria noted, our board of directors has recently authorized a $1.5 billion increase to our share repurchase program.

We continue to deliver consistent growth and have disciplined operations, which has translated into outstanding financial results. We are confident in our ability to deliver on our increased outlook for 2025 as we continue to provide high-quality care for those in the communities we serve. And with that, now ready to begin the Q&A. Operator?

Operator: Thank you. At this time, we'll be conducting a question and answer session. As a reminder, Tenet Healthcare Corporation respectfully asks that analysts limit themselves to one question each. A confirmation tone will indicate your line is in the question queue. Our first question comes from A.J. Rice with UBS. Please proceed with your question.

A.J. Rice: Hi, everybody. I might just ask about two aspects of the backdrop in Washington. The proposed rule on outpatient hospital care as the elimination of potentially of the inpatient-only rule. Can you just comment on what you think that might mean for your hospital and ASC business if that were to go through? And then just any updated figures on the public exchange volumes, how that contributed into the quarter, what you're seeing year to year, and do you have any updated thoughts on what the outlook for next year might be if the enhanced subsidies go away?

Saumya Sutaria: Hey, A.J. Rice. It's Saumya Sutaria. So thanks for the questions. The first one, you know, obviously, enabling additional innovation in the ASCs is positive for the USPI business. You know, I think about it this way, which is one is the reimbursement allowable reimbursement and certainly, you know, this move is positive. At the same time, it takes work and experience in higher acuity ASC procedures to actually be able to successfully move those things from an inpatient setting to an outpatient setting. And as you know, the patient selection criteria and expertise make a big difference there. So that you're doing the right things clinically.

Those are all areas in which we're pretty advanced as an ASC operator and platform. So I think it plays to our advantages. I think it represents an opportunity for the future. For sure, and I also think it gives us a platform to work with physicians to build the right protocols for many of these things to move into that more freestanding setting with the right patient selection. Sun Park, do you want to comment on the update on our exchange volumes? I would say just as a summary statement there, A.J.

Rice, obviously, the efforts to lobby for their extension and importantly, the critical role they play in supporting small businesses and employees of small businesses in America is an added benefit of the exchanges that is obviously part of the discussion today.

Sun Park: Yeah. Thank you, Saumya Sutaria. And just to add, you know, obviously, healthcare exchange remains an important part of our business. For the second quarter of 2025, we saw about a 23% increase in admissions year over year. We saw about a 28% increase in revenues from exchange year over year. In the second quarter, exchange volume now represents about 8% of our total admissions and about 7% of total consolidated Tenet Healthcare Corporation revenues.

Operator: Our next question comes from Josh Raskin with Nephron Research. Please proceed with your question.

Josh Raskin: Hi, thanks. Good morning. I was wondering if you could just give some more specifics on the outperformance in the core results, and I'm specifically looking at the incremental $70 million on the USPI side, the increase in guidance. And then within that, is there anything Tenet Healthcare Corporation has done specifically to improve your ability to sort of document, categorize patients as you submit claims? Are there new systems, new technologies, new vendors or partners? And obviously, anything relating to AI, I'd be curious if there's new things that you're doing within there.

Saumya Sutaria: Hey, Josh Raskin. Well, going, you know, kind of going backwards, we have the USPI has its own significant revenue cycle capability. We think it's an industry-leading capability. It's an environment that mostly serves our own ASCs, but certainly serves ASCs beyond that. We're pretty busy in advancing a lot of those capabilities. I mean, it is not difficult for me to say that some of the improvement in our results over the last few years has been related to real standardization, technology deployment, better reporting, and certain advanced analytical tools that we have deployed into the ASC environment. Not surprising given our focus in revenue cycle as a company.

That we have done that and it's certainly paying dividends in terms of how we work in that environment on the retail collection side. As you can imagine, these are elective procedures but also on the wholesale collection side all the way from authorization back through accurate documentation and more efficient management of the AR, you know, through technology and offshore capabilities. So we're really pleased with the platform that being built for ASC revenue cycle. Within USPI. Sun Park, do you want to comment on the nature of the guide?

Sun Park: Yeah. Sure. So, Josh Raskin, in the first half and the second quarter, I think both consistent themes, you know, we've seen high acuity, good case mix, good payer mix, good growth in some of our key case lines, service lines, including ortho and total joints. So all the trends that we've discussed previously, I think continue in USPI for the second quarter. That's why you saw the strong net revenue overall growth of 7.7% as well as the strong net revenue per case. So and then I think good operating expense management, so we demonstrated a 39.2% EBITDA margin in the second quarter as well.

So I think all those trends apply for both Q1 and Q2, which is all in about a $50 million increase versus our prior guidance. And then, you know, general expectations is for those trends to continue into the second half, which is part of the guidance raised for the remaining full year. I think, you know, we also remain positive on our M&A activity. In terms of contribution. As Saumya Sutaria noted in his opening statement, we expect to exceed our $250 million, you know, baseline assumption for USPI M&A. I think all those things contribute to the guidance raise.

Operator: Thank you. Our next question comes from Andrew Mok with Barclays.

Andrew Mok: Hi, good morning. Just wanted to ask about the volumes. There's a little bit of deceleration there in both the inpatient and adjusted admissions in the quarter. You took down the guidance by, I think, 50 basis points. Volumes impacted by any discrete items in the quarter or anything else to kind of call out driving some of the deceleration for the quarter and the full year? Thanks.

Saumya Sutaria: Hey. Well, first of all, I think the guidance is just simply reflecting the math that would play out for the rest of the year. Now it's a strong quarter. I mean, we had strong volumes, the right acuity, and mix, and very much reflects the focus on our service lines as we have prioritized them. So I don't think there's anything particularly unusual other than seasonality.

Operator: Alright. Thank you. Our next question comes from Matthew Gillmor with KeyBanc Capital Markets. Please proceed with your question.

Matthew Gillmor: Hey. Thanks for the question. Wanted to ask about payer contracting. There's a lot of different dynamics creating pressure on payers. Has there been any discernible shift in terms of your negotiation with payers? Are you still getting the normal updates you'd expect, and is there anything to report with respect to denial activity?

Saumya Sutaria: Yeah. Well, a couple of things. First of all, you know, obviously, different parts of the sector at various times certainly go through their ups and downs. And you know, I think our philosophy most importantly with the health plans, both the national plans and state-based plans, is to work consistently to create value in what we do in our level of pricing and our negotiations, and also to create predictability for both sides over a multiyear period. I mean, I think that's, you know, ultimately what's probably most important on both sides so that each party can then manage their own operations. And we have extended that philosophy over the last few years into the next wave of contracts.

I think most people were aware that there are a number of contracts that are coming up and we're not seeing anything unusual in and certainly no change in our guidance with respect to the way that we have been negotiating our contracts. But again, I think that's because, you know, we're committed to the value that we provide there both from the standpoint of our highly efficient ambulatory business, but also working in an environment with reasonable and predictable rate increases so that we can focus on managing our own operations. The denials activity and it's really not just denial, it's kind of the disputes, documentation requests, denials, etcetera.

Have ramped up over the past few years post-COVID to levels that are, I would argue, not acceptable in some cases. And we have adapted. Obviously, this is part of Conifer's job is to adapt and learn to respond to those things. In the early days, the responses, you know, were driving up expenditures. You know, today, as we have evolved and realized this is a new normal, we have of course deployed more technology, more automation, trained up more offshore staff and other things to be able to respond to those types of requests and activities in a more efficient and, I would argue, more effective manner.

We track things like our yield relative to the volume or dollars that we're disputed or denied, and you know, I think Conifer is doing well there for both ourselves and for our clients. Relative to the overall industry. You can see it in our results and I think that translates across the board. And so you know, this is a constant battle with respect to what's appropriate there and obviously, we welcome, you know, both regulation and other things that would support a reduction of some of that what we consider inappropriate activity.

Operator: Got it. Thank you. Our next question comes from Justin Lake with Wolfe Research. Please proceed with your question.

Justin Lake: Thanks. Good morning. First, I just want to follow-up on A.J. Rice's question. I do understand that the industry is lobbying for an extension of these subsidies and how important that could be to a lot of folks. But is there a framework that the company can share with us in terms of how to think about the potential impact to 2026 earnings if those subsidies do go away and then sticking with that DC stuff. Maybe you can give us an update on the provider tax run rate you're seeing in 2025? Versus, I think, the previous guidance was about $1.1 billion.

And have you analyzed and have anything to share with us in terms of the impact of if that, you know, the bill that just passed does get rolled out with the impact to DPP could be over time. Those provider taxes tax.

Saumya Sutaria: Yeah. Hey, Justin Lake. So we don't have any comments about 2026 at this stage, and certainly all of the work and effort is focused on helping stakeholders realize again how important the exchanges are for families who utilize them, including, you know, those that came off of Medicaid from a Medicaid redetermination standpoint over the last few years.

It's very much my belief that because of the existence of the exchanges and the subsidies for the people who don't have very high income levels as Medicaid redetermination proceeded, the exchanges were a critical safety net for the individuals who needed health care insurance to have a landing spot and it created what I consider a pretty smooth Medicaid redetermination process because of the availability of those insurance options for individuals and families that needed it.

And so that in addition to the fact that, you know, the exchanges represent critical support for small businesses that are unable to provide broad-based insurance coverage options to their employees, which supports obviously a very large part of the economy, represents two of the most important prongs of the conversation around why it's important to extend these subsidies, not the least of which is that it affects red states more than blue states. Given the nature of the administration and congress today, that's also an important fact. So to more than just look, I think the work is ongoing in that area. I think it's important and I think it's important for our industry.

It affects other parts of our sector, but it also affects the macro economy through the support for small businesses, which helps to make them more competitive in the US economy at large. The current situation and bill that passed a lot of the impacts as you know, have been pushed out pretty far, you know, into the very, very end of 2027 or really 2028. From that standpoint. And we really don't have any insight into how this will be implemented.

There are new legislative proposals that have already come up attempting to rescind some parts of the OBBB, which are in play in congress, and I think it just, you know, it remains an area of significant uncertainty and we don't have any sort of projections to provide from that standpoint, especially because we're talking about, again, as I said, out to 2028. Sun Park, do you want to cover there was a question in there about the DPP programs?

Sun Park: Yeah. Let me just clarify that, Justin Lake. So for Q2 of 2025, we recorded about $350 million of total Medicaid supplemental payments. So for the first half of this year, we're at about the $675 million range. Now we have pointed out some one-timers. So once you normalize for that, in the first half of the year, our run rate for the full year is right around the $1.1, $1.2 billion range that we previously discussed.

Justin Lake: Thanks.

Operator: Our next question comes from Sarah James with Cantor Fitzgerald. Please proceed with your question.

Sarah James: Thank you. I just wanted to circle back to what went on with the volume guide down. I understand seasonality and just the math of the quarter impact on the year, but what actually changed in this quarter or in your view of the year? Are there certain like segments or...

Saumya Sutaria: Well, the most important thing that you know, we would be focused on that happened in the second quarter was, as I said earlier, the strength and success of our high acuity strategy that has been in place for multiple years continuing to demonstrate in this market the ability to generate revenue and earnings across our hospital portfolio. I mean, that's really at the end of the day, that's the most notable and important trend in the second quarter, which is that strategy continues to deliver results.

Operator: Thank you. Please proceed with your question. Our next question comes from Stephen Baxter with Wells Fargo.

Stephen Baxter: Yeah. Hi. Thanks. Just to follow-up on Justin Lake's questions. I wanted to ask about the jump-off point for EBITDA this year. Is it as simple as, you know, removing the out-of-period Medicaid supplemental EBITDA? I think it's $79 million this quarter and $40 million with the first quarter. Or are there any other meaningful areas to consider whether they're Medicaid supplemental payments or other sort of one-time contributors to the year that you should think about as we're bridging to 2026? Thank you.

Saumya Sutaria: We're not making any comments about 2026 nor are we commenting on headwinds and tailwinds yet. For the following year.

Operator: Our next question comes from Ben Hendrix with RBC Capital Markets. Please proceed with your question.

Ben Hendrix: Thank you very much. Just a quick follow-up on the acuity trends that you're seeing. Appreciate that the revenue per show is stronger acuity trends there, and that's consistent with your strategy. But, also, just wanted to square that with the hospital inpatient surgeries being down. Just a little more detail on where you're seeing that stronger case mix and how that's kind of translating into the stronger rates on the hospital side? Thanks.

Saumya Sutaria: Yeah. I mean, our strength in cardiovascular, orthopedic, spine, neurosurgery, broad-based general surgery, robotics. I mean, those are all the areas that, you know, we continue to focus on in terms of our work. Now I would add to that emergency-driven trauma and trauma surgery as you know, we have a lot of very large urban emergency departments that have built trauma capabilities in order to service patients in need of trauma. And finally, you know, as we have indicated over the past few years, our transfer strategy always being willing to accept any patient from any outlying hospital, you know, as long as we have the services available to help them, we have been committed to providing that help.

And, obviously, many of those patients tend to be sicker and may require more complex surgery. So all of those things have been contributors to the results from what we describe as a high acuity strategy. Of course.

Operator: Our next question comes from Whit Mayo with Laurent Partners. Please proceed with your question.

Whit Mayo: Thanks. Just one quick clarification. I was wondering if you could comment briefly on how much your medical case mix did increase in the quarter and if it changed much from prior trends. But my real question is, looking at the EBITDA growth at USPI. Is there any way to quantify the contract covenant, just wondering if those are contributing to any of the growth still. Thanks.

Saumya Sutaria: Well, case mix acuity was up. I'm not sure exactly what you're asking. Sun Park, you may want to comment more specifically on that question. I mean, but consistent with what we're saying about acuity, case mix index was up. That's referring to the hospital segment. On the USPI side, you know, the revenue growth that we see obviously in a very dynamic business comes from all sorts of things including same-store growth, volume growth, our payer contract annual escalators, rostering of new facilities onto our managed care contracts as part of our network strategy of having an alliance of high quality, reliable centers, all of that contributes to the revenue growth.

But that's why we provide the total revenue growth and also the same-store revenue growth so that one can differentiate between those. And I think all of that data is consistent with, you know, both with the success of the high acuity strategy, but also, you know, we're consistently performing in revenue growth above our long-term trend, which has been very positive for USPI.

Sun Park: Yeah. And so just your, I'm sorry, Whit Mayo, your question on the case mix, we're up about 1%. And obviously, if you look at a longer period of time, that growth would be more significant based on acuity.

Whit Mayo: Good. Thanks.

Operator: Our next question comes from Pito Chickering with Deutsche Bank. Please proceed with your question.

Pito Chickering: Hey, good morning guys. Thanks for taking my question. Nice quarter here. DSOs trended down nicely, even the lowest that I've ever seen with you guys. Can you talk about cash collections, what have you done differently? Or the parents doing something differently and from a cash flow perspective, should we continue with the models for the bulk of the cash flow going into repo with some M&A in there. So you can buy back around ten plus percent of your market cap each year while still delevering. Is that the right way to think about it?

Saumya Sutaria: Yes. Well, okay. Just two separate things. Sun Park, do you want to start with the second one and then go back into the revenue cycle question?

Sun Park: Yeah. Sure. So, Pito Chickering, yeah, we obviously have very strong free cash flow performance, have increased our guidance for free cash flow after NCI, you know, up $195 million. You know, I would say the other notable piece obviously, is the amount of share repurchases we completed in the second quarter of this year, where it was a substantial increase from our normal trends. You know, I would say looking forward, our capital allocation priorities haven't changed. Right? USPI, M&A, hospital CapEx for high acuity strategy, and then, maintaining our deleveraged balance sheet, and a balanced share repurchase approach.

It's hard to predict what our run rate share repurchase activity will be in the next quarter, the second half of this year into 2026. I think that'll depend on, you know, tax and circumstances. But, you know, I do believe our free cash flow and financial performance and balance sheet flexibility will afford us to make the right decisions as those things come.

Saumya Sutaria: Yeah. Look, in summary, on the first part of the question, as the industry has trended up, overall, in terms of denials and also the times to collect given some of the dispute and back and forth on documentation requests and other things. We've remained very focused on trying to keep that as tight as possible using technology automation. I mean, you know, one of the advantages that Conifer has is an incredibly standardized workflow that is really critical to not only collections, but also timely collections. In an environment where those time frames have been increasing for a long period of time.

We're obviously, as we've talked about before, supplementing some of those capabilities that we have today that used to be manual with AI-enabled technologies that allow us to produce more rapid automated responses to various types of disputes, based upon pattern recognition that you would see from various sources that allow us to do that more effectively. That makes what we're doing more reliable, but also as you're pointing out sort of faster.

The other thing I would say about this environment in which, you know, we talk a lot about some of it's highly inappropriate, the dispute denial activity and as I said earlier, I think it's also important that we spend our time being committed to very accurate documentation and coding. And I think one of the things that Conifer does well is produce accurate documentation and coding and that has a tendency to also reduce the dispute activity to some extent from the health plans. Right? I mean, it is a two-way street in the end. And both parties have to perform in that truth. And that speeds up collections to some extent.

So anyway, I said this earlier and I'll let it be. Adapting to the current environment from a collection standpoint is a critical capability that we have developed, and that capability has moved from being manual when it first started to increase to much more technology-driven and workflow automation-driven.

Pito Chickering: Great. Thanks so much.

Operator: Our next question comes from Benjamin Rossi with JPMorgan Chase. Please proceed with your question.

Benjamin Rossi: Good morning. Thanks for the question here. Just as a follow-up on your ACH exchange volumes, with your reported hospital length stay down, call it, 3% year over year and the ACA exchange volumes up 28% during Q2. Is there any additional detail you can provide on procedural mix or life stay across those exchange-based volumes? We've just been getting some comments from prominent payers in recent weeks regarding the elevated trend there across that group. So just curious if there are any particular areas that were contributors to that Q2 growth figure or if it was more broad-based across all specialties for your ACA exchange book, thanks.

Saumya Sutaria: Yeah. I don't think there's been anything unusual in this quarter versus prior quarters with respect to the exchange volumes. I mean, remember the one thing I would say is the exchange business tends to behave similar to the Medicaid business more than the commercial business in the sense that a disproportionately larger amount of it is emergency department driven may still come with higher acuity, but it tends to be more emergency department driven. That's why, you know, the USPI segment. The impact of the exchanges on our business is higher in the hospital segment versus even though it's present in both.

But I don't think that I noticed anything unusual about the nature of the exchange volumes, this quarter. Sun Park, is there anything you would point out there?

Sun Park: No. I think you're right, Saumya Sutaria. It's pretty consistent with prior mix overall.

Saumya Sutaria: Okay. Got it.

Operator: Our next question comes from Ryan Langston with TD Cowen. Please proceed with your question.

Ryan Langston: Thanks. Good morning. SWB continues to run pretty favorably. I mean, I assume as you achieve these levels, this becomes kind of the new baseline expectation to your operators. But I guess the question is how much more opportunity do you see on SWB? And I guess what types of initiatives can you execute on to keep up sort of this level of performance?

Saumya Sutaria: Well, obviously, effective labor management has been a strength of our organization, not just recently, but over the last few years. We stay focused on the various parameters that drive demand. Obviously, length of stay, the acuity, the day-to-day productivity, and accurate staffing needs that we have in our hospitals. But at the same time from a supply standpoint, you know, we've really, I think, benefited from improved recruiting strategies, relationships with some terrific nursing schools around the country, where we've created good opportunities for their students and graduates to work in our environments, and also improving our retention rates as a result of what we've done.

We found that making investments and we have made real investments in our nursing and overall hospital management director and other supervisor levels with special recognitions and other things that have been ongoing for multiple years because we see the value that they provide in terms of creating a stable and effective workforce for patient care, that has been an important part of what we have done over the last few years, and recognizing their efforts. So, I mean, I think, look, all of those things are sustainable strategies and all of them contribute to the improvements that we've made both in our efficiencies and effectiveness there.

Operator: Thanks. Our next question comes from John Ransom with Raymond James. Please proceed with your question.

John Ransom: Hey, good morning. I'm going to ask Saumya Sutaria a question. He's like, answer. When he's got an answer, I'll ask him another question. Do you think that now that we've gotten the bill behind us and we know the nose, is the environment if you're able to sell any more hospitals, is the environment they go out such that's more profitable now?

Saumya Sutaria: I, you know, John Ransom, I'm not sure how to answer that question. We don't comment on asset sales and anything that we may be looking at there. We're pretty happy with the portfolio. It's obviously performing. Based upon, you know, the last couple of years in the post-transaction environment. I don't know how to comment on whether the broader industry has fully understood the implications for them of the OBBB or anything else that may come, you know, I would take this opportunity to reiterate that our view from what we have seen so far in the external landscape related to legislation regulation, etcetera, Washington essentially, it, you know, we think about this pretty carefully.

It has not changed our commitment to our core strategy. As it stands right now. And so I feel good about that. Looking forward.

John Ransom: Yeah. So you let me write to my other question. What now that this bill is behind us, what are your current legislative and lobbying priorities at DC? Then where are you gonna send your time, miss?

Saumya Sutaria: The most important area right now as I said, both for the health care industry, for the insurance industry, and importantly, we think now that we have an understanding of how important these exchanges are for small businesses, and keeping and remaining a competitive workforce for small businesses in America is engaging in dialogue about mechanisms to extend the exchange subsidies.

Operator: Our final question comes from Kevin Fischbeck with Bank of America. Please proceed with your question.

Kevin Fischbeck: Alright. Great. Thanks. I guess, to understand a little bit more of the commentary on hospital volumes and the payer mix. I guess how much of the payer mix improvement that you're seeing is because of exchange growth? If we took exchanges out, would you still be talking about improved payer mix to the same degree? And then when we think about the volume outlook, the volume outlook being lower you guys have always had a different view on volume, so it's hard to kinda tell what how much is this high acuity strategy versus underlying demand? Do you have a sense of what underlying demand growth was in the quarter?

Was it consistent with where Q1 was or did it decelerate similar to how your overall volumes decelerated from Q1 to Q2? Thanks.

Saumya Sutaria: Yeah. A couple of things. One is, you know, commercial mix was strong. And as I indicated earlier, maybe another way of describing that. I mean, the obviously, the growth that Sun Park described in the exchanges indicates that some of that mixed strength is definitely on the payer mix side, is definitely coming from the exchanges and this is again, going back to the importance of the exchanges as a landing spot as Medicaid redetermination has worked its way through the overall system. It's been an important landing spot. And then finally, no. I mean, I think look. Underlying demand in this environment is still strong on a macro basis.

I mean, it wouldn't be the case that we would be able to lose significant amounts of underlying what you would call general med surg emergency department, etcetera, demand and exist solely on a high acuity strategy. Right? The high acuity strategy is meant to support the types of margin expansion and growth that we have seen on an efficient basis in the hospital segment and the margin expansion in the hospital segment over the last twelve and we're just looking over the last twelve months or even over the last three to four years has been significant.

And that's really what the strategy has helped support but I don't think it's worth making anything of, you know, one single quarter especially when you have seasonal trends and quarter to quarter trends and, you know, ramp on and ramp off of respiratory illness and other things I think this will play itself out over time. The underlying demand environment, you know, when you compare it to a multiyear basis still seems strong to me.

Operator: Okay. Great. Thanks. We have reached the end of the question and answer session, and this concludes today's conference. You may disconnect your lines at this time and we thank you for your participation.

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