Tenet Healthcare Corporation

Good morning and welcome to Tenet Healthcare's fourth quarter 2025 earnings conference call. After the speaker's remarks, there will be a question and answer session for industry analysts. At that time, if you'd like to ask a question, please press star 1 on your telephone keypad to enter the question queue. Tenet respectfully asks that analysts limit themselves to one question each. I'll now turn the call over to your host, Mr. Will McDowell, Vice President of Investor Relations. Mr. McDowell, you may begin.

Good morning, everyone, and thank you for joining today's call. I am Will McDowell, Vice President of Investor Relations. We're pleased to have you join us for a discussion of Tenet's fourth quarter 2025 results, as well as a discussion of our financial outlook. Tenet Senior Management participating in today's call will be Dr. Sam Satoria, Chairman and Chief Executive Officer, and Sun Park, Executive Vice President and Chief Financial Officer. Our webcast this morning includes a slide presentation, which has been posted to the investor relations section of our website, tenanthealth.com. Listeners to this call are advised that certain statements made during our discussion today are forward-looking and represent management's expectations based on currently available information. Actual results and plans could differ materially. Tenant is under no obligation to update any forward-looking statements based on subsequent information. Investors should take note of the cautionary statement slide included in today's presentation, as well as the risk factors discussed in our most recent Form 10-K and other filings with the Securities and Exchange Commission. With that, I'll turn the call over to Sam.

Thank you, Will, and good morning, everyone. We reported 2025 net operating revenues of $21.3 billion and consolidated adjusted EBITDA of $4.57 billion, which represents 14% growth over 2024. Full-year adjusted EBITDA margin of 21.4% improved over 200 basis points from the prior year. Our fourth quarter results were, again, above our expectations, driven by strong same-store revenue growth, high acuity, and disciplined cost control. I would note that our full-year adjusted EBITDA ended the year nearly $500 million higher than the midpoint of our initial expectations. USPI continues to deliver attractive results. Volumes were strong and mix was good. Adjusted EBITDA grew 12% in 2025 to $2.026 billion. Same facility revenues grew 7.5%, highlighted by double-digit same-store volume growth in total joint replacements in the ASCs over prior year. This performance was once again well above our long-term goal of 3% to 6% organic top-line growth. We had an active year in the M&A and de novo activity lines as well, investing nearly $350 million in 2025 and adding 35 facilities to the portfolio. And the pipeline for both M&A and de novo development remains strong as we look into 2026. We remain the preferred acquirer and developer of assets in this space. Turning to our hospital segment, adjusted EBITDA grew 16% to $2.54 billion in 2025. Same-store revenues per adjusted admission was up 5.3% over the prior year as payer mix and acuity remained strong. We've continued to reinvest back in our business to further our capabilities, stepping up our growth capital in 2025. And finally, over the past three years, we've been active repurchasers of our shares. retiring approximately 22% of our outstanding shares for around $2.5 billion since our share repurchase program began in the fourth quarter of 22. We expect to continue to deploy capital for share repurchase, particularly at our current valuation multiples. Our portfolio of businesses is now more predictable with consistently strong performance in both the hospital segment and USPI. Our results represent a continuation of a multiyear track record of strong same-store revenue growth, improved margins, and disciplined execution by our management team. We remain focused on driving further organic growth supplemented by accretive M&A at USPI. Turning to 2026 guidance, we are projecting full-year 2026 adjusted EBITDA of 4.485 to 4.785 billion, driven by ongoing strength in demand and acuity, physician recruitment, and service line expansion, as well as additional sites of care joining the portfolio. We are also tackling expense management more structurally in anticipation of the next few years. We anticipate full year adjusted EBITDA for USPI of $2.13 to $2.23 billion. The continued shift, mixed shift of services towards lower cost sites of care will be furthered by the beginning of the phase out of the inpatient only list in 2026. We see this as a gradual tailwind for USPI that will play out over several years. In this first year, we see opportunities in areas such as high acuity spine and urology procedures. We have detailed tactical plans to capitalize on the opportunity and are actively operationalizing our capabilities to serve patients in 2026. USPI continues to be a high-growth, capital-efficient business that delivers high returns on capital expenditures. Turning to our hospital segment, We are expecting adjusted EBITDA in the range of $2.355 billion to $2.555 billion in 2026. Our plans reflect the headwind associated with the expiration of the enhanced premium tax credits on the exchange marketplace. We continue to closely monitor enrollment levels as well as the potential ramp off ramps for individuals to obtain coverage. through a lower metal tier, commercial plans, or other options. We're assuming a 20% reduction in overall enrollment as we have more significant exposure in states such as Arizona, Michigan, and California. We recognize the uncertainty regarding effectuation rates as individuals make determinations if they can afford their premiums and the resultant expected increase in uninsured rates and have conservatively taken these matters into consideration into our initial guidance. Additionally, we are implementing cost savings plans to help mitigate this pressure and will continue to engage with our patients to ensure that they have good access to care. We are confident in our ability to achieve the strong core earnings growth we forecast for 2026. The significant margin improvements that we have made over the past few years provides us a strong foundation from which to grow our transformed portfolio of businesses. We carry momentum into this new year and have many opportunities to expand our services and deliver value for patients, physician partners, and in turn, our shareholders. And with that, Son will provide us a more detailed review of our financial results.

Son. Thank you, Som, and good morning, everyone. We are very pleased with our performance in 2025, which again demonstrated robust same-store revenue growth in both the hospitals and USPI segments, and adjusted EBITDA that exceeded our expectations each quarter, driven by continued high patient acuity, favorable payer mix, and effective expense management. In the fourth quarter, we generated total net operating revenues of $5.5 billion and consolidated adjusted EBITDA of $1.183 billion, a 13% increase over last year. Our adjusted EBITDA margin in the quarter was 21.4%, a continuation of our improved margin performance over multiple quarters. For full year 2025, net operating revenues were $21.3 billion and consolidated adjusted EBITDA was $4.566 billion, a 14% increase over 24. Adjusted EBITDA margins in 2025 was 21.4%, up 210 basis points from the prior year. I would now like to highlight some key items for both of our segments, beginning with USPI. In the fourth quarter, USPI's adjusted EBITDA grew 9% over last year, with adjusted EBITDA margins at 40.5%. USPI delivered a 7.2% increase in same-facility system-wide revenues, with net revenue per case up 5.5% and same-facility case volumes up 1.6%. Turning to our hospital segment, Fourth quarter adjusted EBITDA was $603 million, a 16% increase over fourth quarter of 24. Same hospital inpatient adjusted admissions were flat, and revenue per adjusted admissions grew 7.5% year over year. Our consolidated salary, wages, and benefits was 40.2% of net revenues in the quarter, a 110 basis point improvement from the prior year. And our contract labor expense was 2.1% of consolidated EBITDA. Next, we will discuss our cash flow balance sheet and capital structure. We generated $367 million of free cash flow in the fourth quarter and $2.53 billion of free cash flow for full year 25. As of December 31st, 2025, we had $2.88 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. And finally, during the fourth quarter, we repurchased 943,000 shares of our stock for $198 million. We repurchased 8.8 million shares for $1.386 billion in 2025. Our leverage ratio as of December 31st was 2.25 times EBITDA, or 2.85 times EBITDA less NCI, driven by our strong operational performance and financial discipline. We remain committed to 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. Our 2026 outlook assumes continued growth in same-store volumes and effective pricing, as well as strong operational efficiencies and disciplined cost controls. Additionally, we anticipate further contributions from M&A and de novo center openings at USPI. In addition, we're also assuming same-hospital admission growth of 1% to 2%, adjusted admissions growth of 1% to 2%, and same-facility USPI revenue growth of 3% to 6%. for 2026. Importantly, our outlook does not assume any contributions from potential increases in supplemental Medicaid programs that have not yet been approved. Also, we believe that the expiration of the enhanced exchange tax credits will result in lower volume growth and a less favorable payer mix. We estimate that this represents a $250 million impact to our 2026 adjusted EBITDA, primarily in the hospital segment. Clearly, there are a wide range of potential outcomes here, and we will continue to monitor enrollment levels and effectuation rates. We will also leverage Conifer's capabilities to assist our patients with their insurance coverage. Based on all those items, we expect consolidated net operating revenues for 2026 in the range of $21.5 to $22.3 billion. In consolidated adjusted EBITDA for 2026, in the range of $4.485 to $4.785 billion. There are two normalizing items that I would like to call out when comparing 2026 adjusted EBITDA to the prior year. First, we reported $148 million of prior year supplemental Medicaid payments in 2025. Second, in the first quarter of 2026, we will recognize a one-time $40 million favorable revenue adjustment as a result of the completed conifer transaction. After normalizing for these items and excluding the headwind from the expiration of the enhanced premium tax credits, our 2026 adjusted EBITDA is expected to grow 10% at the midpoint of our range. Finally, we would expect first quarter 2026 consolidated adjusted EBITDA to be 24% of our full year consolidated adjusted EBITDA at the midpoint. We anticipate that USPI EBITDA in the first quarter will be 22 percent of our full-year 2026 USPI EBITDA at the midpoint. Turning to our cash flows, for 2026, we expect adjusted cash flow from operations in the range of $3.2 to $3.6 billion, capital expenditures in the range of $700 to $800 million, resulting in adjusted free cash flows in the range of $2.5 to $2.8 billion, and adjusted free cash flow after NCI in the range of $1.6 to $1.83 billion. This range includes about $150 million in tax payments for the Conifer transaction. Excluding these tax payments, this would represent $1.865 billion of adjusted free cash flow less 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 at Conifer, while continuing to invest in high priority areas of our businesses. Turning 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. And as Sam noted, we see a strong pipeline to support our $250 million annual target for USPI M&A in 2026. 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'll continue to have a balanced approach to share purchases depending on market conditions and other investment opportunities. And finally, we will continue to evaluate opportunities to retire and or refinance debt. In conclusion, we have another outstanding year in 2025 with strong revenue growth, disciplined operations, and very attractive pre-cash flow generation. We are confident in our ability to deliver on our outlook for 2026 and can continue to drive value for patients, physician partners, and shareholders. And with that, we're ready to begin the Q&A. Operator?

Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. As a reminder, we ask that you please limit your question to one. Confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from Ben Hendrix with RBC Capital. Please proceed with your question. Ben, are you there? Go to the next one. Our next question comes from Steven Baxter with Wells Fargo. Please proceed with your question.

Hi, thank you. I was hoping that perhaps you could expand a little bit on the same store hospital volume performance in the quarter and any moving parts that looked like it was a little bit weaker than the trend. And then just as you're thinking about hospital volumes in 2026, looks like at the midpoint, you might be looking for that to potentially improve a little bit versus the 2025 performance. So just, I guess, help us think about, you know, the moving pieces there with the exchanges and the core performance.

Thanks. Yeah. I mean, obviously our acuity was good, which is what we're really focused on in the fourth quarter flu. I mean, I would just say from our standpoint, the respiratory season was probably a little weaker than otherwise might've expected. And that's probably the basic explanation, you know, in, in 2026, Understanding all the moving pieces, as I indicated in my comments, we had invested significantly in growth capital during the year, and we expect to see returns from some of those investments into 2026, and thus the improvement that you pick up on.

Our next question comes from Whit Mayo with Lorinc Partners. Please proceed with your question.

Hey, guys. When you say, Son, that you're tackling expense management more structurally, what do you mean by that? And can you elaborate on what's incremental about the cost efficiencies that you expect to see this year?

Yeah, structurally, Whit really refers to the notion that we are looking – As opposed to what I would describe as more traditional annual expense management, we're looking, as we've talked about over the past year, more thoroughly at the deployment of technology, basically, that allows us more expense reduction opportunities, and that includes application of those technologies in our global business center. Yeah, that's a little bit of a different pathway than before, more sustainable, more what I would describe as modernization of the business, given some of the new tools and technologies available to us. It's not just AI, which is, I think, become kind of the central buzzword for this, but there's a lot more that can be done in automation. And then the other thing is just as we look at our clinical throughput, application of those technologies ramping up in our clinical throughput, we believe, is another area to take things to the next level. So whether that's areas like length of stay management or throughput in some of the more high-value portions of the hospitals, real estate, et cetera, ORs, ERs, et cetera, those kinds of things become more structural in nature. That's what I meant by that.

Yeah, thanks.

Our next question comes from Ben Hendrix with RBC Capital Markets. Your line is live.

Great. Thank you very much, and apologies for getting cut off earlier. I just wanted to get a little more color on the hospital admission growth guide, the 1 to 2 percent. Just wanted to talk a little bit about the slowdown from last year, the degree to which, you know, if we can parse out that slowdown between exchange expiry, between kind of investments toward higher acuity and higher margin capabilities in the hospital setting, and then also just a general slowdown of admissions that we've been seeing across the acute sector to begin with. So just any commentary you can offer there. Thank you.

Yeah, hey, Ben. It's Son. You know, Sam already commented on kind of the Q4 admission, you know, including sort of the flu respiratory season being, you know, sort of, non-material for us. And then as we get into 2026, a lot of it has to do with CapEx and technology investment that we've made in 25, creating some volume momentum coming into 26. On your question about the exchange, as we said in our comments, there's a pretty wide range of potential outcomes here. As Tom mentioned, we're assuming about 20% decrease in enrollment, but We'd have to then, there's lots of areas where what happens to those volumes, right? Do they, do those people find, do those patients find alternate coverage and other plans, alternative plans? You know, certainly a big majority of them could become uninsured, but, you know, that volume will still show up at our hospitals, obviously, and the USPI. It's just a question then becomes, can we optimize our cost and efficiency? So, You know, our range anticipates some impact of lost volumes, but, you know, I think our EBITDA range, and as we discussed, our lost EBITDA range is quantifying the exchange a little bit more.

Our next question comes from Matthew Gilmore with KeyBank Capital Markets. Your line is now live.

Hey, thanks for the question. Maybe following up on the cost efficiencies, are you able to quantify what you're able to pull through this year? I was also curious about the timing or building throughout the year such that you'll get a year-over-year benefit in future periods, or do they take place earlier in the year so they're all captured in 26?

Yeah, no, we're not providing specific guidance between that. I mean, if you think about our guidance from a core growth of EBITDA standpoint, I would just expect that embedded in there is both the value of the initiatives that we have invested in through capital and growth strategies for this year and expense management strategies that would be more, as I said, more structural over and above what we might have done in a typical year. And as I indicated, the thought process behind those isn't just about 2026, it's about being prepared for the years ahead.

Fair enough.

Thank you.

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

Yeah, thanks. I just want to follow up on that point. I guess when we think about that type of growth, I mean, is this the type of growth that you think is sustainable in out years as we think about offsets, because 10% is a pretty big number to be thinking about. And so I just want to understand, is this new focus on expense management, you know, replicatable? Are you, is it kind of, this is what we're doing in year one and that's it, or is this is what we're doing in year one? And, And we should be thinking about similar types of opportunity in the out years because it is a little hard to bridge what would normally be viewed as, you know, a hospital business that might grow 3% to 5%. Now you're saying it's 10%. Like, is that sustainable?

Well, Kevin, I mean, I think two things. One is we've built up a track record of acuity growth and net revenue per case growth ahead of, you know, generally what the market does. Our margin expansion over the past, not just two years as I indicated, but even beyond that in the hospital segment itself has been significant above and beyond the asset sales that we did, which obviously helped some of that margin improvement. We said all along that we kept the markets where we felt like we had the best opportunities for growth and leadership. And as we look ahead to the environment that may be coming, you know, in 28, 29, et cetera, with OBBB and other things, now is the time to take on the challenge of really being well prepared for that. And so, you know, look, we understand what the core growth guidance is. We think it's very attractive guidance. We think there's a lot of work that's going to be required to get there and creativity. But on the other hand, that's exactly the work we should be doing given the platform that we've built. And so that's what we're going after.

Our next question is from Josh Raskin with Nephron Research. Your line is now live.

Thanks. I want to stay on the same topic, and, Salm, appreciate what you just said. You know, I sort of looked at it. Margins are up 680 basis points since 2019, and, you know, the hospital segment's up 660 basis points, so it's not really mixed. It seems as though we've heard a lot about process improvement and optimization at Tenet for a couple of years, and now we're hearing about this new focus on expense management. I'd just be curious to get your view on just the broader technology agenda, specifically including AI and, you know, overall business, including revenue cycle management. And just, you know, do you think there's additional step function improvements in margins? I guess that's the main question. Do you think, you know, we're going to see continued margin improvement like we've seen in the past?

Yeah, I mean, I don't, you know, obviously we're giving guidance in a year where there happens to be a headwind that, We've done our best to quantify with respect to the exchange premium tax credits. You know, stated a different way, if those headwinds weren't there, we've been saying all along that we continue to believe there's margin expansion opportunity in the hospital segment. The urgency with respect to much of what we're talking about doing is enhanced because of the, you know, what's happened on the exchange marketplace or what hasn't happened on the exchange marketplace. you know, as the case may be. The other thing I'm mindful of is that, you know, there are, what happens with respect to many of these reimbursement items might change over the next couple of years, right? So we're not really planning out to that level of specificity for 27, 28, et cetera. There are elections that happen between now and then that could alter, modify, or just transform policy. from where it is today. But I think this gets back to the first part of your question, which is, as we look around the environment, we've done a lot in this organization to improve reliability, accountability, the types of efficiencies we've taken as we've scaled the company down in the hospital segment. you know, reliably moving our overhead structure in line with that, all the things you would expect from an organization that is attempting to be best in class in what it does. And now, with the advent of many of these technologies in AI and automation, the ability to actually begin to deploy those and see if we can drive the next level of improvement, we're better set up for that now because we have... more standard processes. We have more standard workflows. We have labor standards and supply standards that have been uniformly disseminated across the company. You know, it's much harder to do those things when every market is doing something very different versus having established those standards. And we've done that. And we've consistently demonstrated that establishing those standards have improved our business. So now it's about taking that to the next level. And that's really what we're talking about.

Our next question comes from Justin Lake with Wolf Research. Your line is now live.

Thanks. Good morning. Wanted to follow up on some of the guidance stuff. Appreciate all the details. Obviously, the DPP, you gave us the one-time benefit there last year that comes out. I'm just curious if you could specify if DPP, other than that flat year-over-year, any change within that core guidance? Maybe you could also give us the run rate of DPP. And then I thought your estimate of the impact of the subsidy expirations was towards the higher end of my expectations, at least. And I'm curious how you treated, at least your thoughts on the shift the potential shift of some of these enrollees back to employer commercial. What you've assumed there versus, let's say, I think UHS or one of your peers is assuming none, and one of your peers is assuming 15 to 20%. Thanks.

Hey, Justin. It's Son. Thanks for your questions. On your question about the Medicaid supplemental payments, Yeah, as we pointed out, so a couple numbers here. We finished 2025 with $1.34 billion in total supplemental payments, and obviously we pointed out about $148 million of that is outer period payments. So let's call it 1.2 effective run rate for 2025. In 26, our guidance assumes effectively a pretty consistent number with our 25 normalized baselines. So hopefully that helps. And then on your question about exchange, yeah, I mean, like we said, we assume about 20% overall reduction of enrollment. I would say on your question about our assumptions for people finding alternative plans, including commercial, we're about 10% to 15% as our internal assumption. Now, all of that, again, depends on what we see in Q1 and what run rates we see, but that's our assumption embedded in our guidance.

Our next question comes from Peter Chickering with Deutsche Bank. Your line is now live.

Hey, good morning, guys. Thanks for taking my question. Can I ask about sort of the first quarter guidance? Normally, you guys get more than 24% of you get down in the first quarter. I think in the script you said that 21% would come from the ASCs, which is normal, so that means that the change is actually in the hospital segment. So is this something fundamental like the flu or lower surgical demand, or is this just the $40 million of prior period DPP from last year or something else? And then just a quick clarification, can you quantify the DPP that you received in the fourth quarter of 25-6?

Yeah, hey, Peter. It's Son. Just to be clear, our USPI Q1 guidance is 22% of our full-year guidance in Q1 for USPI. And then for our hospital, you're right. You know, I think the $40 million one-time benefit in Q1 kind of skews the total rates Other than that, we see pretty standard annual Q1 percentages as a percent of a full year. And then for your question on DPP Q4, we had $315 million.

Great. Thanks so much.

All right. Thank you.

Our next question is from Andrew Mock with Barclays Bank. Your line is now live.

Hi. This is Thomas Walshon for Andrew. With Conifer's services to common spirit concluding at the end of this year, could you frame the current plan to redeploy existing resources to growth opportunities and otherwise reduce expenses to right-size the cost structure?

Well, I mean, we have a full year of service that we have to execute with respect to Conifer's and our client this year. So we're not expecting to take cost reductions this year from that perspective. If anything, we may both increase revenue and cost if we end up doing more from a transition service standpoint, and that may come with a margin. After that, we've talked about the fact that we have other growth opportunities that are already locked in starting in and around 2027 that will allow us to redeploy talent in that direction. So we can see that, you know, we'll be rebasing a bit the business at Conifer and preparing it for future growth. I mean, I don't know. I would kind of just go back to the core of what actually happened here in what we did. I mean, if I were to be very simple about this. We had an expiring contract for which the cash flow that we would have taken in between 2026 and 2032 was basically break-even at best because at the end of that period, we would have significant obligations to the client in terms of payments that would need to be made and equity that we'd have to buy back. I mean, one thing that may not have been so clear, we haven't made cash distributions from that joint venture in the last decade, and that resulted in a pretty significant buildup of redeemable non-controlling interest and other liabilities. So what we did was we retired $885 million of those obligations on the balance sheet and got back 23.8% of the equity that was in the joint venture for $540 million. And then if you look at the remaining six years of the contract that got dealt with in the transaction, we received $1.9 billion in accelerated cash flow over three years that would have come over six years in the contract. And the present value of those two things was roughly double what we would have got by running off the contract. So I mean, we've gone back for what it's worth and done the math. If you just look at this on an NPV basis after tax, the incremental value from actually running out the contract that we've created, again, post-tax present value was north of $1 billion. We calculate $1.1 billion. This was absolutely the right path to go down in addition to getting complete control of the strategic future of conifer. How we deal with that in 2027 and beyond, including growth opportunities, investments that we can now control in reducing the cost to collect and positioning conifer to be more competitive, is the work of 2026 that we have in this asset. But maybe that kind of bottom line calculation You know, now that we've had a chance to look at what the earnings will look like in the out years, based on what we know today, is helpful in framing what we did in this transaction. Again, after-tax NPV of about a billion to a billion one is what we calculate. We're pleased with the outcome.

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

Thanks. Good morning. I was hoping maybe you could elaborate a bit on, for the AIC business, how you're thinking about it and planning for investments that can be either around the new facilities in terms of organic or de novo expansion. From a case mix and procedure perspective, just interested in where you see you know, underlying demand the strongest, where you see, you know, the best opportunities, you know, to continue to drive the trend that you've had of, you know, favorable case mix and profitable, you know, sort of acuity and procedure growth in some of these specialty areas in the AIC business.

Yeah, no, thanks for the question. I guess I would make three comments. One is that, you know, I alluded earlier to the inpatient only list and additional opportunities there. I think that'll be a, you know, slow tailwind going forward as there are more things that qualify in that area. I think USPI is well known to be kind of at the leading edge of the innovation in higher acuity procedures in that area. We continue to build on our urology platform, you know, looking forward to doing more spine work there. A lot of the robotics capabilities that we have brought into the ASCs continue to continue to allow us to find new avenues of expansion, and obviously the large ongoing opportunity that we continue to see double-digit growth in our joint programs across the network. All those areas are, I think, attractive looking forward. We had a big M&A year, and a lot of the value that USPI brings after 2020 we acquire the assets and get into those settings is the planning for service line diversification and whatnot. So we have a big cohort this year. Usually it takes about a year to start to work on new physician entry and restructuring of the operating schedules where possible to bring some of that higher acuity in. Sometimes, as we've talked about in the past, it removes lower acuity procedures in the context of doing that. You know, when you get new centers, usually it takes a year or so to kind of get that done. So we have a lot of work to do in that regard. And then the last point I would make is that, you know, Q4, as we expected about a year ago, we said that we saw a ramp going forward. Q4 had a nice pickup in GI case recovery as well. And that's, you know, that was an important driver of that performance. So... I think it's the same this year. We expect the year to build over the year stronger and stronger. The first quarter last year was an incredibly strong quarter for us because of a lot of the synergies that dropped on the Covenant transaction, the CPP transaction in Q1 of 25. But as we kind of overcome that this first quarter, we expect to see growing momentum in the business looking ahead.

Our next question is from Ryan Langston with TD Cowen. Your line is now live.

Great, thanks. Can you tell us where our exchange volumes and revenues tracked in the fourth quarter? And I know you don't assume any pickup from the supplemental programs that aren't approved, but do you have any insight into where we're at in the approval process for the pending programs like Florida, Arizona, California? Thanks.

Hey, Ryan. On Q4 for exchanges, We were about almost 7% – I'm sorry, 7.5% of total emissions for HICS. And then, you know, a little over 6, 6.5%, somewhere in there, of our total revenues, consolidated revenues, was from exchange. On your question about Medicaid supplement payments, yeah, we were obviously tracking all these sort of the pending submissions and approvals in some of the states that you mentioned. I don't know that we have any specific updates to provide at this time. We'll obviously continue to monitor.

Yeah, I mean, I think it's just worth reemphasizing, you know, we haven't put anything in our guidance about programs that haven't yet received approval for 26.

All right, appreciate it. Thank you.

Anything incremental – sorry, I should be clear. Anything incremental in our guidance –

Our next question comes from AJ Rice with UBS. Your line is now live.

Hi, everybody. Maybe just some comments on what you're seeing with managed care contracting. Obviously, that sector continues to be under pressure with some of the government programs, et cetera. And I wondered, is there any change in discussion in terms of the pace of new contract or contract renegotiations or terms? or just general update in rates?

Yeah, hey, AJ, it's Son. No, no real change in our commentary. Look, I think we have very positive and successful conversations with payers in general based on tenants' overall service lines and what we bring to the table, including USPI as part of the overall package as well. Our commentary on rates is pretty consistent. You know, we see 3% to 5% range from payers And overall, from a contracting standpoint, we're virtually contracting in 2026, I would say high 90s. And then even for 27, we're about 80% contracted. So I think we're in a very good spot. Thanks for your question. Okay.

Our next question is from Sarah James with Cantor Fitzgerald. Your line is now live.

Thank you. Can you elaborate a little bit more about what you saw in payer mix and 4Q for USPI and then unpack what you're assuming for hospital and USPI as far as the scale of change in 26 between 1Q26 and 4Q26? Thanks.

I'll take the second half of it. I don't think we're anticipating any different If you're asking the question about are we anticipating any sort of a different mix quarter to quarter than we saw in the amount of EBITDA that we generate in the hospital segment or USPI proportionally, I don't think we're saying that at all. I mean, you know, this is always the case where you could have movement of a percentage point or something like that up or down depending on You know, we deal with winter weather. We deal with hurricanes. But, you know, we rebook those things and attempt to deal with them. Sometimes that's inter-quarter. Sometimes it's out-of-quarter. So I'd personally focus on the overall guide and our message in terms of the percentages for Q1 aren't meant to imply that we're changing our proportions for Q2, Q3, and Q4. Yeah, I agree.

I guess I was thinking more in terms of as effectuation takes place, if you would expect the payer mix to change at the end of the year and to what degree compared to your assumptions.

Yeah, I would say that, I mean, there's a reason why the guidance range is wider than it normally is. I mean, we don't know, right? I mean, we're tracking it. We have a unique vantage point with Conifer because we do enrollment work as well. So we get a bit of a view into what that enrollment work is yielding in terms of where are people going, what reaction are they having to their premiums as they get exposure to them. So I think we'll have some leading-edge insights there, but let's be honest, it's not perfect at this stage. It's very early in the year, and I think the guidance is appropriately broad in the hospital segment because we really don't know exactly how that's going to translate. We've been transparent with our assumptions with you all, so that you can see where that's going to run relative to what actually happens.

And Sarah, this is Son. On your question about payer mix on USPI, I would say, you know, it's been very consistent. As Son mentioned, you know, we have some GI that came back, so that'll tweak the overall mix a little bit from a payer standpoint, but nothing substantive. So we're very pleased with our payer mix. You know, in Q4, we reported, you know, at USPI, net revenue per case growth of 5.5%. total EBITDA margins above 40%. So, you know, I think all those metrics, you know, show very strong revenue acuity.

Thank you.

Our next question is from Benjamin Rossi with JP Morgan. Your line is now live.

Hey, good morning. Thanks for taking my question. This is a follow-up for the ambulatory side. For the 30 million EBITDA headwind across ambulatory from the EAPTC is expiring, How much of your payer mix for the ambulatory segment came from the ACA exchanges in 2024 and 2025? And then did you see any pull forward across that cohort here during the fourth quarter, given your typical seasonal dynamics for ambulatory?

Thanks. Yeah, Ben, we don't disclose that information in terms of the segment, but we've been pretty clear all along that the HICS exposure at USPI is significantly less than the hospital segment. And no, we did not see any significant pull forward there. We looked for it. Remember, we talked about this a quarter ago as well. We looked for it, but we did not see any significant pull forward. Great. Thanks.

Thanks.

Our next question comes from John Ransom with Raymond James. Your line is now live. John, are you there? Are you muted, John?

Sorry. Can you hear me now?

We can.

Sorry. You know, there's a big narrative over the past few months that providers are getting on top of payers, quote-unquote, with coding advances assisted by AI, particularly claims resubmissions are easier. Is that exaggerated? What inning are we in? And just given that you're position owning Conifer and being a provider. What's your position on that debate?

Yeah, I mean, John, I can only comment for Tenet, and I guess to some extent for, you know, how we operate at Conifer. Our coding has always been appropriate, compliant. It's, you know, we audit carefully. We haven't changed our coding practices over the last few years, either for ourselves or necessarily for our clients. We aim for very high degrees of accuracy, and we have not made changes in those areas. We have obviously been successful in increasing our acuity, which has supported our net revenue per case in terms of our pathway there. And finally, just to unpack a little bit the question earlier related to this, with Sun's comments about our managed care contracting environment. You know, we also don't have extremely heavy HOPD, you know, HOPD market drive from what we're doing, so we do a lot on the basis of freestanding outpatient in what we do, and, you know, that ends up being a value to the plans. We have not found ourselves in conflict over coding practices. We find ourselves in conflict over the nature of the amount of time and energy we put into disputes, denials, underpayments, and things of that nature that have a process back and forth that you got to work through. But increasingly, we've been setting up systems with the health plans to have adjudication mechanisms to work with them on in order to resolve these things in a less resource-intensive way. Some payers have been better than others about doing that with us, but that's the path we're moving down.

Thank you.

You're welcome.

Our final question is from Craig Heidenbach with Morgan Stanley. Your line is now live.

Yes, thank you, and appreciate all the details, given the fluid backdrop in terms of puts and takes on this year. Sam, just keying off of your comment of taking an active approach to buybacks, especially at the current valuation multiple, given the significantly stronger balance sheet, free cash flow generation, and common spirit kind of proceeds, how are you and the Board just thinking about kind of the right cadence here of buybacks?

Well, yeah, I mean, I purposely indicated I purposely noted and indicated that, I mean, all these things link together, right? I mean, it's not just that we have significant cash on the balance sheet. We just described maybe in more detail today the kind of value we just generated from the Conifer transaction. You know, effectively, a portion of that transaction was, you know, like debt retirement, right? I mean, it was an obligation on the balance sheet that was real coming up in the next few years. And so then the other proceeds from that go back into investing in the business, investing in USPI, and it gives us the opportunity for more share buybacks. And I would link this to our guidance for 2026 in terms of, I know we've talked a little bit about our growth rates and core growth rates. I mean, we attempt to operate and behave like a company that trades at a higher multiple. We will deploy our balance sheet like an organization that recognizes that the multiple has a valuation that's attractive to buy back shares. And I think we've done that over the last year. I mean, that's our mindset, right? We expect to perform at that level. We also expect to deploy our balance sheet in a way that demonstrates we have confidence in our ability to operate. That might be the easiest way to describe you know, how we think about the two. They're interlinked for us.

Thank you.

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.