Tenet (THC) Q3 2026 Earnings Call Transcript

DATE

Thu, Oct. 29, 2026

CALL PARTICIPANTS

• Chairman and Chief Executive Officer - Saumya Sutaria
• Executive Vice President and Chief Financial Officer - Sun K. Park
• Vice President of Investor Relations - William McDowell

TAKEAWAYS

• Net Operating Revenues -- $5.631 billion, representing a 6.5% increase compared to the third quarter of 2025.
• Adjusted Diluted EPS -- $6.64, growing 79.5% year over year driven by strong underlying performance and contract transition benefits.
• Consolidated Adjusted EBITDA -- $1.355 billion, reflecting same-facility revenue growth and disciplined expense management.
• Ambulatory Care Adjusted EBITDA -- $537 million, representing a 9.1% increase due to consolidated same-facility net patient service revenue growth and acquisitions.
• Hospital Adjusted EBITDA -- $818 million, supported by a 3.2% increase in adjusted admissions and $147 million in net favorable impacts from Conifer transition activities.
• FY 2026 Adjusted EBITDA Outlook -- $5.05 billion to $5.20 billion, an increase of $195 million at the midpoint from previous guidance.
• Adjusted Free Cash Flow -- $1.102 billion for the quarter, bringing the nine-month total to $2.524 billion.
• Share Repurchases -- $1.615 billion for 8 million shares year to date, as the company prioritized capital return to shareholders.
• Hospital Same-Facility Adjusted Admissions -- 3.2% growth, reflecting healthy patient demand and investments in high acuity services.
• USPI Same-Facility Net Revenue Per Case -- 6.1% increase, driven by higher acuity cases and a favorable service mix.
• Total Joint Replacements -- 12.8% same-store growth in ambulatory surgery centers, highlighting the success of the high acuity strategy.
• Exchange Admissions and Revenues -- 18% decline, which negatively impacted the total payer mix and net revenue growth.
• Conifer Transition EBITDA -- $450 million total estimate for the 2026 fiscal year, comprising non-recurring timing benefits and expense efficiencies.
• Leverage Ratio -- 2.11x EBITDA as of Sept. 30, 2026, compared to 2.25x at the end of the 2025 fiscal year.
• USPI Development Investments -- over $100 million in the third quarter alone, focused on facility acquisitions and new partnerships.
• Senior Unsecured Notes -- $2 billion issued at 6.250% maturing in 2034, used to retire existing debt due in 2027 and 2028.
• Supplemental Medicaid Revenues -- $32 million in the quarter, providing a contribution to the Hospital segment's revenue performance.
• USPI Adjusted EBITDA Margin -- 39.2%, reflecting efficient operations and growth in high-margin service lines.
• Hospital Same-Hospital Revenue Per Adjusted Admission -- 0.2% increase, where strength in commercial employer revenue was offset by lower exchange volumes.
• Medicaid Expansion Admissions -- 60% of total admissions, with significant activity reported in states like Michigan.
• Commercial Rate Renewals -- 3% to 5% range, with over 90% of contracts for the 2027 fiscal year already secured.

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RISKS

• Park stated, "Exchange admissions and revenues declined 18% from third quarter of 25," noting that this volume reduction adversely affected the company's payer mix and net revenue.
• Sutaria warned that the company is "sizing further potential exchange headwinds and the estimated impact of Medicaid work requirements" as it begins planning for the 2027 fiscal year.

SUMMARY

Tenet Healthcare Corporation (NYSE:THC) reported results for the third quarter of 2026, highlighting a significant transformation in its business portfolio and capital structure. Management stated that the company outperformed internal expectations due to sustained demand for high acuity services and continued operating efficiencies. The company completed a multiyear debt refinancing initiative that eliminated significant maturities until 2028. Management indicated that capital deployment remains focused on ambulatory surgery center acquisitions and organic hospital growth. The company reported ongoing efforts to manage industry-wide shifts in payer mix and enrollment declines in insurance exchanges.

• Management projected overall adjusted EBITDA growth for the 2027 fiscal year after normalizing for $450 million in non-recurring items related to the Conifer contract transition.
• Sutaria noted that the company's transfer program strategy is designed to receive high acuity patients from rural and smaller suburban communities, which understandingly supports specialty capacity.
• The company is trialing AI-based analytics tools to optimize operating room schedules and maximize fixed asset utilization across its ambulatory and hospital facilities.
• Management confirmed that over 40% of the total 2026 guidance increase is attributed to fundamental business outperformance rather than one-time transition items.
• USPI commenced patient care at four de novo centers during the first nine months of the 2026 fiscal year.
• Park indicated that the company is over 90% contracted with commercial payers for the 2027 fiscal year, providing visibility into future revenue yields.

INDUSTRY GLOSSARY

• USPI: United Surgical Partners International, the ambulatory care segment of Tenet and the largest ambulatory surgery platform in the United States.
• Conifer: Conifer Health Solutions, a Tenet subsidiary providing revenue cycle management and value-based care solutions to healthcare providers.
• ASC: Ambulatory Surgery Center, a facility focused on providing same-day surgical care, including diagnostic and preventive procedures.
• Adjusted Admissions: A healthcare volume metric that adjusts inpatient admissions to include outpatient services by a calculated ratio.
• NCI: Noncontrolling Interests, the portion of equity in a subsidiary not owned by the parent company.
• High Acuity: A term referring to medical services for patients who require a high level of specialized care and nursing for complex conditions.

Full Conference Call Transcript

Operator: Good morning. Welcome to Tenet Healthcare's Third Quarter 26 Earnings Conference Call. After the speakers' remarks, there will be a question and answer session for industry analysts. Tenet respectfully asks that analysts limit themselves to 1 question each. I will now turn the call over to your host, Mr. Will McDowell, vice president of investor relations. Mr. McDowell, you may begin.

William McDowell: Good morning, everyone, and thank you for joining today's call. I am Will McDowell, Vice President of Investor Relations We are pleased to have you join us for a discussion of Tenet's third quarter 26 results as well as a discussion of our financial outlook. Tenet senior management participating in today's call will be Dr. Saumya Sutaria, Chairman and Chief Executive Officer and Sun K. Park, Executive Vice President and Chief Financial Officer. The webcast this morning includes a slide presentation which has been posted to the Investor Relations section of our website tenethealth.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. Tenet 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-Ks and other filings with the Securities and Exchange Commission. With that, I will turn the call over to Saumya.

Saumya Sutaria: Thank you, Will, and good morning, everyone. Third quarter net operating revenues were $5.6 billion and consolidated adjusted EBITDA was $1.355 billion Adjusted diluted earnings per share increased 80% to $6.40 in the third quarter of 26 compared to the prior year. More importantly, after adjusting for 1-time items related to contract transitions that generated adjusted EBITDA of $147 million that was not reflected in our previous guidance, the core business continued its strong growth trajectory in 2026. With an adjusted EBITDA margin of 21.8% growth in adjusted EBITDA over third quarter 25.

We continue to manage through payer mix shifts, and enrollment declines in the exchanges and execute on our technology-enabled growth and expense management plans that support our margin strength. Our strong performance is driving significant free cash flow that we continue to deploy for the benefit of shareholders. Year to date, we have deployed over $1.6 billion for share repurchases. Now turning to our segments, USPI generated $537 million in adjusted EBITDA, which represents 9% growth over third quarter 25. Same facility revenues grew 4.5% as our high acuity strategy continues to yield benefits and is highlighted by our strongest quarterly performance this year with 12.8% same store growth in total joint replacements in the ASCs over prior year.

USPI also had a very successful quarter in development, with over $100 million of investments in the third quarter alone. We remain the preferred acquirer of assets in this space and continue to have an attractive pipeline of partnerships interested in joining USPI. Additionally, we have commenced patient care at 4 de novo centers to date. Turning to our hospital segment. Our performance in the quarter was driven by 3.2% adjusted admissions growth and strong margin performance from sustained expense efficiencies. The investments that we have made in support of our high acuity strategy continue to pay dividends and drive incremental growth.

Excluding the contract transition benefits that I mentioned, adjusted EBITDA grew a very attractive 11% over third quarter 25, again producing results ahead of our expectations. We are pleased with our performance in both operating segments, which continue to generate strong same store revenue growth attractive margins and robust free cash flows. Turning to guidance for the rest of 2026. We began the year with attractive growth expectations and delivered an outsized and competitively differentiated increase to our guidance when we reported our second quarter results.

At this point in the year, we are raising our full year 2026 adjusted EBITDA guidance to a range of $5.05 to $5.2 billion which represents an increase of $195 million or 4% the midpoint of the range over our increased guidance after the second quarter. The guidance increase is supported by our continued expectations for strong fundamental performance as well as the onetime items in the back half of the year. Notably, over 40% of our total guidance increase for this year is from fundamental outperformance. I would like to now spend a few minutes discussing some early thoughts on 2027.

After excluding the impact of the transition activities at Conifer, we expect our enterprise to deliver overall adjusted EBITDA growth in 2027. This assumes the current known regulatory frameworks. The value of our diversified business mix support our belief in this outcome for 2027. We are still conducting business planning, so details will come in the fourth quarter as usual. We are sizing further potential exchange headwinds and the estimated impact of Medicaid work requirements. USPI should not be materially impacted by these and we expect same store revenue growth, consistent margins, and further expansion of the asset portfolio in our ambulatory business.

In the hospital segment, we currently see healthy patient demand that would support same store volume growth and a stable operating environment supported by disciplined cost controls in 2027. To help you bridge the years, we now expect various transition activities at Conifer to total $450 million of adjusted EBITDA in 2026. We do not expect these contributions to recur in 2027 and I will reiterate that this is an estimate depending on how the transitions proceed in operations. We will provide an update following our fourth quarter results.

We are pleased with the results of the highly attractive Conifer transaction as the total value generated from the contract sale will now increase to approximately 15x 2025 adjusted EBITDA minus NCI. In summary, we have a transformed portfolio of businesses with strong underlying fundamentals disciplined operations, and a business mix, which is diversified, from many of the reimbursement headwinds that are affecting the industry. Finally, I will again reiterate our commitment to returning free cash flow to shareholders via repurchases. Especially at our attractive valuation multiple in light of recent comparable multiples for combination ASC hospital platforms. For more details on our results, I will now turn it over to Sun.

Sun K. Park: Thank you, Saumya, and good morning, everyone. Again delivered strong performance in the third quarter of 26. Generating total net operating revenues of $5.6 billion and consolidated adjusted EBITDA of $1.355 billion Third quarter adjusted EBITDA margins were driven by strong revenue performance and disciplined operating expense management. With continued progress on the efficiency initiatives that we outlined at the beginning of the year. As well as favorable transition items as described in the earnings release. I would now like to highlight some key items for both of our segments beginning with USPI. In the third quarter, USPI adjusted EBITDA grew 9.1% over third quarter 25 at $537 million with adjusted EBITDA margins at 39.2%.

Same facility system wide revenues increased 4.5%, with net revenue per case up 6.1%.

Saumya Sutaria: And same facility case volumes down 1.5% reflective of our high acuity focus.

Sun K. Park: Turning to our Hospital segment. Same hospital adjusted admissions rose 3.2% in the quarter, as demand remained healthy.

Saumya Sutaria: Revenue per adjusted admission increased 0.2% year over year in the quarter, primarily due to strength in commercial employer revenues, offset by the impact of reduced exchange volumes.

Sun K. Park: Exchange admissions and revenues declined 18% from third quarter of 25. And represented about 5.5% of consolidated net operating revenues in the third quarter of 26. We recognized $32 million of out-period supplemental Medicaid revenues in the quarter. This compares to $38 million of out-of-period supplemental Medicaid revenues that we had in the third quarter of 25. I would note that year to date is $124 million of favorable out of period supplemental Medicaid revenues related to prior years. Finally, we recognize the net benefit of $147 million associated with the timing of revenue recognition in various transition activities related to Conifer in the third quarter of 26.

Saumya Sutaria: This amount is comprised of 2 items. First, our net operating revenues increased by $97 million due to revenue recognition timing.

Sun K. Park: It is important to note that this is simply a timing shift between the third and fourth quarters and as such does not impact our full year 2026 revenues associated with the transitioning contract. Second, we recognized $50 million of EBITDA from various transition activities including expense reductions that took place earlier than we had originally anticipated. All in all, our operating discipline strategic focus enabled us to deliver another strong quarter despite the patient coverage challenges that the industry is facing.

Saumya Sutaria: Next, we will discuss our cash flow, balance sheet and capital structure. We generated $1.1 billion of adjusted free cash flow in the third quarter. Which brings us to $2.5 billion of adjusted free cash flow year to date. As of 9/30/2026, we had $2.67 billion of cash on hand with no borrowings outstanding under our line of credit facility.

Sun K. Park: As previously announced, we issued $2 billion of senior unsecured notes that mature in 2034. We used the proceeds from the notes to retire $2 billion of notes that would have been due in 2027 and 2028.

Saumya Sutaria: We now have no significant debt maturities until 2028.

Sun K. Park: And finally, during the third quarter, we repurchased 970 thousand shares of our stock for $255 million. Year to date, we have repurchased 8 million shares of our stock for $1.615 billion. Our leverage ratio as of 9/30/2026, was 2.11x EBITDA, or 2.58x 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 continue to drive shareholder value.

Let me now turn to our outlook for 2026 For 2026, we now expect consolidated net operating revenues in the range of $22.05 to $22.45 billion an increase of $50 million at the midpoint of the range over prior expectations.

Saumya Sutaria: As Saumya mentioned, we are raising our 2026 adjusted EBITDA outlook range by $195 million at the midpoint to $5.05 to $5.2 billion reflecting the increased EBITDA expectations associated with our transition activities as well as the additional out of period supplemental Medicaid revenues that we recognized in the quarter.

Sun K. Park: Turning to our cash flow for 2026, We now expect adjusted free cash flow after NCI in the range of $1.925 to $2.155 billion an increase of $100 million at the midpoint from our previous guidance range. This range includes the payment of $150 million in tax payments this year for the Conifer transaction. Excluding these tax payments, this would represent $2.2 billion of adjusted free cash flow after NCI at the midpoint of our 2026 outlook. Our businesses continue to deliver strong free cash flow conversion from our EBITDA performance while we continue to invest in high priority areas.

Saumya Sutaria: To support future growth. Turning to our capital deployment priorities. We are well positioned to create value for shareholders through the effective deployment of free cash flow. 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 continue to be active in share repurchases, as we continue to see significant opportunity at our current valuation, continued operating performance and strong leverage position. And finally, we will continue to evaluate opportunities to retire and or refinance debt.

We are pleased with our continued effective execution and remain confident in our ability to deliver on our increased outlook for 2026. And with that, we are ready to begin the Q&A. Operator.

Operator: Thank you. We will now be conducting a question and answer session. And again, for participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. Our first question comes from the line of Jason Cassorla with Guggenheim. Please proceed with your question.

Jason Cassorla: Great, thanks. Good morning. I wanted to ask about commercial pricing. it is an area you have called out a couple of times or at least the past couple of quarters. Maybe can you just discuss what you are realizing on the commercial rate side, how you are working with payers as a partner to increase revenue yields, reduce administrative costs, the like. And how you are thinking about the sustainability of this commercial pricing favorability? As you look out into the future? Thanks.

Sun K. Park: Hey, Jason. Good morning. it is Sun. Yes, I think our relationship with our commercial payers and commercial pricing overall has not changed very much at all from our prior commentary, right? We still are seeing good renewals a lot of them at the 3% to 5% range. You know, we are obviously fully contracted for this year, and are basically over 90% contracted for next year as well. So we have good visibility. You know, the only other thing I would note is from a net revenue per adjusted admissions rate, you know, we said 0.2% this year. Or this quarter, excuse me. A lot of that is driven by, as expected, good pricing mix across our categories.

Then, obviously, offset by exchange headwinds. The exchange headwinds represented about a 1.8% headwind, on our net revenue stat. And then from a operational basis, look, I mean, we try to have a win-win relationship with all our payers. You know, we obviously have to be very diligent from our Conifer business operations on our revenue yield. As we respond to different requests and, you know, delete denial activity from the payers, and we, performed very well, I think, from a revenue yield basis. And that really has not changed over the last several years in our commentary.

And we think given Conifer's capabilities and the investments we continue to make in technology and Conifer overall, that, we will be able to sustain that. I am wondering if you have any other comments. All right.

Operator: Thank you for your question. Thank you. And, again, as a reminder, ask that everyone to assist them, please limit themselves to only 1 question. Our next question comes from the line of Ryan Langston with TD Cowen. Please proceed with your question.

Ryan Langston: This is Will on for Ryan. I just have a quick question on the state directed payments. So you disclosed a number in your filings about Medicaid supplemental payments. Wondering if you could ballpark what percentage of those will not be subject to reductions under HR 1? Thanks.

Operator: Hey, thanks for your question.

Sun K. Park: Yes, we did disclose our overall state directed supplemental Medicaid payments excuse me. And for this quarter, you will see in our 10-Q, it will be $356 million total of supplemental payments. That being said, we do not disclose, the proportion of which would be subject to, you know, HR 1 activity going forward.

Ryan Langston: Fair enough. If I could just ask a quick follow-up then on just work requirements and thinking about that for next year. When you think about your total adjusted admissions, what percentage come from Medicaid expansion individuals? Thanks.

Sun K. Park: So when you look at our admissions, I would say is about 60% of our admissions that are from expansion states. I think that is about it. I think you realize you know that we have know, parks like Michigan where there is a lot of, activity and we are important, providers in that expansion state as an example. So it is about 60%.

Analyst: Nice.

Operator: Thank you. Our next question comes from the line of Kevin Fischbeck with Bank of America. May proceed with your question.

Kevin Fischbeck: Great, thanks. Just 1 clarification before I ask the question. When you said that you think you are going to be able to grow EBITDA next year ex Conifer, Is that the only adjustment is the $450 million or do we also have to take out the prior year Medicaid supplemental payments? And then I guess, the real question is just about your view on surgeries broadly there is been a lot of talk about a weaker surgery backdrop and we would like to hear what you are seeing on that respect. Thanks.

Saumya Sutaria: Yes. Let me start with the second question, I will pass to Sun. I think the surgical environment, you know, look. I mean, from an industry perspective, in terms of what we are seeing, we are pleased with our results. Obviously, there are 2 components. The hospital segment and the ASC segment. Both of which I think are generally you know, generally consistent or better than the better than what we are seeing in the general industry. Remember, on the USPI side, as I noted, we are still so focused on our strategy of Acuity that you have to take those results in light of that.

But, again, I think competitively differentiated results there as well, both on revenue and volume. So we are pleased with we are pleased with that. You know? And that said, I would not say this is a gangbusters surgical environment right now. Right? So you just have to take both of them together, and the importance of our strategy is probably the critical point here in terms of what is driving our confidence in the earnings growth going forward into 2027.

Sun K. Park: Yes. And, Kevin, this is Sun. Just on your, clarification question. Yeah. We do believe we will grow total EBITDA next year once you normalize for the $450 million of 1-time transition items that we called out this year?

Operator: Our next question comes from the line of Steven Baxter with Wells Fargo. You may proceed with your question.

Stephen Baxter: Hi, thanks. I was hoping you could update us a little bit on what you are seeing on compensated care trends. It looks like the third quarter, there was some uptick in both unpaid admissions and also, I think, a little bit more so unpaid outpatient visits when compared to the second quarter. Does that go beyond what you are seeing on the exchanges? Any kind of update just on the exchange trajectory throughout the year? Thank you.

Saumya Sutaria: I mean, first of all, the primary comment I would make is that largely Q3 is a stabilization message from Q2, right? I mean, Q1 started with what would have been under the basic run rate of impact and Q2 accelerated, Q3 is a stabilization message is our main takeaway there and then you. You are right about the you know, slight changes there. Do not know, Sun, if you have any other comments, but that is how we are viewing it. And, looking further to add, Tom.

Sun K. Park: it is really, exchange volume reductions that we discussed. And the commensurate increase in, you know, uncompensated care numbers that you are seeing. I do not know if there is anything beyond that, Thank you.

Operator: Our next question comes from the line of Whit Mayo with Leerink Partners. Please proceed with your question.

Whit Mayo: Thanks. Is there a revenue headwind that we should be aware of as we think about the hospital segment for the fourth quarter with CommonSpirit now gone and is the $450 million headwind next year, is that ratably across each of the quarters? Does it have a different slope to it? Thanks.

Sun K. Park: Yeah. Hey, Whit. This is Sun. Only revenue headwind we will call out is the timing piece that we explicitly said, $97 million that came into Q3 from a timing basis that otherwise would have been in Q4 instead. that is the only material 1 that I would call out from a hospital segment perspective. For next year, the 450 I would say, a big portion of that is would be spread ratably throughout the year, and that is the, you know, the overall contribution of the common spirit contract that we saw this year.

And then there is a portion, and we called that about a $160 million total, between Q3 and Q4, that is gonna be more obviously second half weighted. Given that, some of the efficiency and transaction activities took place in the second half of the year versus the first half? So I think those are the, major moving pieces.

Operator: Okay. Thanks. Thank you. Our next question comes from the line of Brian Tanquilut with Jefferies.

Brian Tanquilut: Hey, good morning, guys. Maybe, Sun, as I think about the salaries line, I see it down both sequentially on a year over year basis. Is this largely driven by the Conifer transition? Or there anything to think about in terms of the efforts that you guys have put in on SWB and is this the right baseline to basically adjust and build off of going forward? Thanks.

Sun K. Park: Yeah. I would actually say it is the other way around. I mean, most of the, efficiency you are seeing in our SWB line is from all the things that we just talked about over the course of the year, where we obviously, I spent a lot of time and energy and effort and have shown performance on cost controls, you know, in the face of exchange reductions and other, challenges. So, you know, there are a lot of moving pieces, obviously, in that line item. But a lot of-- a majority of that is from our efficiency efforts. Now.

And as you get into Q3 and Q4, as again said, there are some additional efficiency initiative impact that we will see as we transition activities. But by and large, SW is from our efficiency efforts overall across, Tenet Healthcare.

Operator: Thank you. Thank you. Our next question comes from the line of Pito Chickering with Deutsche Bank. You may proceed with your question.

Pito Chickering: Hey. Hey, good morning guys. Thanks for taking my question. So just looking at the ASC growth engine for the next few years, ortho obviously, a big 1. But should we be thinking about other areas like bringing used da Vincis, used XIs, urology-- I mean, kind of, as you look past ortho, which again will continue for another couple of years, where's the next sort of big growth engine that we should be thinking about within ASCs?

Saumya Sutaria: Yeah. Thanks, Pito. For sure, you know, orthopedics and the expansion of orthopedics cases beyond the current case mix is an important driver. But in addition for us, you know, as you know, we have been pursuing growth in urology in general surgery, in advanced body robotics, in spine, I mean, there are a number of areas standing up some new cardiac centers. You know, as I have always said, slower process, but still opportunity. So the diversification in the higher acuity areas while maintaining and growing our base are both important drivers of that future.

And really, you know, the combination of that strategy with the regulatory framework and support for moving surgical care into safe lower cost settings are both things that I think will benefit us over a multiyear period. Like, I. I am. You know, in this environment, and look. The regulatory environment is somewhat known and somewhat uncertain. Based upon what happens from election standpoint. But I would say and reiterate what I noted in my comments which is having the diversified platform at scale we have is a really important driver of our ongoing ability to build and grow this business, you know, at an enterprise level. Great.

Pito Chickering: And then a follow-up here, you know, like, you raised the core EBITDA growth by sort of $30 million versus last quarter. I assume there is a lot of moving pieces within that $3 million So can you sort of talk about the good guys and bad guys in that as it seems pretty solid considering the volatility we are seeing in the markets today? Thank you.

Sun K. Park: Yes, Pito. I mean, I think, as we kind of said in our prepared comments, the change in our estimates for guidance ranges was pretty mechanical this quarter, where it was virtually all to do with the onetime items as well as the revenue recognition piece that we already mentioned, plus the out of period Medicaid. Without those, I would say you know, from a core fundamental performance basis, we had a very significant raise last quarter. Both for the first half of the year and the second half of the year. And, you know, I think. We think we obviously delivered in the. Our. To our increased expectations. In Q3.

So I would say those are the probably the moving pieces I would point to. Yes.

Saumya Sutaria: I mean, we are reiterating the belief in the strength of the business today and also our ability to manage that into the fourth quarter at the elevated levels that we have provided. And we think we have the foundation in place and the tactics for the fourth quarter in place given the demand we are seeing right now for a successful end to the year.

Operator: Great. Thanks so much. Appreciate it. Thank you. Again, as a reminder, Tenet respectfully asks that analysts limit themselves to only 1 question each. Our next question comes from the line of A. J. Rice with UBS. You may proceed with your question.

Albert Rice: Hi, everybody. We have had now with the announcement last week, 2 major deals where the health nonprofit health systems are buying surgery center assets. Paying, you know, significantly higher premiums than what your business is being valued in the market? And you historically, I think USPI has generally been viewed in the industry as probably the, premium surgery center asset. I wonder with that backdrop, can you comment on is this having any impact in the market on deals, the smaller deals? In terms of how people are thinking about pricing? Is it changing the competition for ASC assets in any way?

That maybe these guys are out of the market because they are in the process of selling or maybe the nonprofit systems are gearing up to be more active acquirers? And does it do to make you think about being more proactive in trying to get recognition for the value that is. That, obviously, there at USPI, but does not seem to be recognized by the market?

Saumya Sutaria: Well, thanks, AJ. I mean, let's start with the last part of it. I mean, again, as I commented at the end, I think from a practical perspective, the 2 things that we can do are continue to deliver differentiated earnings growth. I believe that USPI has delivered differentiated earnings growth versus any other ASC platform in the industry, both recently and over a long period of time. I think facts would support that pretty easily. And the second thing is with our free cash flow generation, recognizing the attractive valuation of our equity, relative to you know, relative to what are some reasonable valuations of in this case, more recently, ASC Hospital combination platforms as I noted.

So those are the 2 practical things. Like, we believe in continuing to build this business and do it on a differentiated manner. In terms of the m and a market, look at the third quarter again. Right? A very successful third quarter. In acquisitions, the vast majority of which were not competitive processes. But came exclusively to USPI in those processes, and we have a terrific pipeline looking ahead. I know we keep saying that, but the reality is our acquisitions every year continue to confirm that pipeline translates to actual acquisition activity and successful ramp up of our ability to deliver synergies into those assets.

At the same time, you know, our strategy is diversifying more and more inclusive of more rapid pace of de novo development new tools in the toolkit about how we think about those de novo developments. A heavier focus of those de novo developments into some of the higher acuity service lines where we have built a differentiated reputation in the marketplace with physician and physician groups and MSOs that are investing in those in those specialties. So I think that is another important feature of what we are able to do looking forward.

And then finally, you know, because of the value that we are providing health plans in the ASC sector, and the government, candidly, you know, our ability to move into new markets and new states with our contracting platform and move surgical care into lower cost settings without having to own more acute care hospitals is another important differentiator in what we are able to do with respect to expanding USPI's scope and activity. So again, as you can imagine, we spend a lot of time on this and how we remain competitively differentiated going forward, not just where we are today, And, that gives you a little bit of a flavor of it. Look.

In terms of the 2 recent ASC acquisitions, you know, I have I personally extended my congratulations to both new owners. This is an important part of the market. And we have a lot of work to do together from an advocacy perspective in order to support and build the growing interest in ambulatory surgery, maintain high quality and safety, and also ensure that regulators understand the benefits that this portion of the surgical sector is providing to the cost of health care going forward, And so I look forward to those collaborations with those leaders.

Operator: Okay. Thanks a lot. Thank you. Our next question comes from the line of Justin Lake with Wolfe Research. Please proceed with your question.

Justin Lake: Thanks. Good morning. You guys have done an incredible job of managing costs and improving margins at the hospital segment in particular. Wanted to see if you can give us any color on where you see yourself in terms of the life cycle of that margin trajectory effectively asking whether you still see meaningful opportunity here or should we expect core growth going forward in the hospital business to look more like top line growth ex items like PPP exchanges work requirements that are going to be transitioning?

Sun K. Park: Hey, Justin. Thanks for the question and we have spent a lot of time and energy making sure that our total business, including hospitals as you noted, is running efficiently and we are finding cost opportunities wherever we can. And that is been a long standing campaign for Tenet, obviously. This year, as we have talked about several times, we accelerated those efforts. Including, adoption of, different technologies and AI tools. For obvious reasons in the face of some headwinds that we had in exchange as well as other dynamics. You know, going forward, it is tough to say, you know, where in the life cycle we are, Right?

You know, I think it is reasonable to assume that we will have access to, you know, even more improved technologies and other solutions as we go. That we may not be aware of today, but that we can adopt as we go in the future and I think Tenet's shown the ability to do that. From a more operational basis, you know, the operating environment, I think, is pretty stable, right, as we said many times from a labor standpoint, from a, our ability to, manage our suppliers and other medical professional providers. You know, I think, you know, there remains opportunity, and we will continue to work on those. But I think we have, managed that pretty significantly.

So, listen, I think, Tenet's been showing the ability to kind of dial up, dial down as the situation, requires. We will see as we get through our planning for 2027 what all of the headwinds entailed are, and, obviously, managing our operating expenses will be a big part of how we, deliver, our commitment. So hopefully, that answers the question. Thanks.

Saumya Sutaria: Thanks. The thing I would add is that our commentary about 2027 is probably a reflection of how positively we feel about our controllable activities looking forward into the coming year. Agree.

Operator: Great. Thanks. Thank you. Thank you. Next question comes from the line of Andrew Malk with Barclays. May proceed with your question.

Andrew Mok: Total joints have been a strong category for quite some time, but it looks like that category reaccelerated at USPI this quarter. Is there anything to call out driving that reacceleration of total joint growth? And do you believe that share is still coming from hospitals? Thanks.

Saumya Sutaria: Yes. Yes. I mean, I think when you say is that share coming from hospitals, I think it is coming from migration of cases from probably an HOPD to a freestanding outpatient setting I think the driver of that is the continued efforts that we make in helping surgeons realize that they have a service differentiated site of care that as they get comfortable with it, they can continue to grow their activity in that in that environment. Right? it is more convenient for them. it is more convenient for their patients. They have.

You know, 1 of the important things that we have, I think I have talked about before is the ability to help these surgeons who are pretty smart about you know, opportunity and risk with their patients to use frameworks we have established to give them more predictability in terms of which cases are safe in the ASC environment, likely to be successful, in which conditions they may wanna think about that would drive them to continue for patient success and safety standpoint in the hospital. Those protocols, I think, are very helpful to growing the confidence in the surgical community of what they can achieve in a USPI ASC. that is helping to drive the organic growth. You know?

And it is and it is a matter of it is a it is a matter of really expanding the access to those protocols, which is a. Which is really about how many surgeons trial an environment in the USPI setting. You know, 1 of the things we do in this service line is give surgeons an opportunity to trial USPI centers without having to be you know, joint venture partners or equity owners or other things. So that is a really important feature of what we create capacity to do in our environment because those could be future partners. In perhaps New De Novo and other centers.

Operator: Thank you. Thank you. Our next question comes from the line of Sarah James with Cantor Fitzgerald. You may proceed with your question.

Sarah James: You guys have talked positively about surgical results versus the industry. Are you gaining surgical share in 2026? And is it on the hospital USPI or both? And how are you thinking about the surgical versus medical mix? Heading into 2027?

Saumya Sutaria: Yeah. So 2 things, I mean, I would reiterate our strategic focus, We are primarily focused on growing and succeeding in share capture in our higher acuity surgical areas and continuing to build more access points in some of the more foundational ambulatory surgery center environments, which is effectively share capture by growing the number of surgeons or number of doctors affiliated with USPI. In the high acuity areas, we are doing that plus we are seeing growth that is based upon the question that we just answered around the migration from higher cost to lower cost settings. it is a combination of the 2, which is why you see higher growth rates.

The summary from both of those is that we are increasing the proportional share that is happening in the lower cost ASC setting. In the in the acute care business, as I noted, this year has tilted a bit more towards both significant emergent and medical care on balance than surgical care. Though both have been important drivers of our strategy. Remember, for us, again, the focus on that higher acuity segment is very important in terms of what we are doing. So that is what supports our revenue growth and case mix index growth. And the you know, ongoing opportunities for expense management we have with our length of stay platform the things we are doing there.

So the mix of business gives us an opportunity to both grow revenue intensity and improve our expense management, which is why you see the margin strength that we are able to deliver.

Operator: Thank you. Thank you. Our next question comes from the line of Ann Hynes with Mizuho Securities. You may proceed with your question.

Ann Hynes: Good morning. Thank you so much. Thanks on the visibility for being able to be able to grow in 2027. You have any targets, meaning do you have a long term target for each segment? And if you do, do you think you will be able to grow within those, long term targets for each segment? Thank you.

Saumya Sutaria: Yeah. And we have not indicated any kind of long term targets in the segments other than what we sort of repeat year over year when we give guidance until there is full clarity about what is going to happen vis a vis HR1, which we believe is very highly subject to modification based upon election outcomes over the next few years.

Operator: So, thank you. Our next question comes from the line of Craig Hettenbach with Morgan Stanley. Please proceed with your question.

Craig Hettenbach: Yes, thank you. Saumya, in the hospital segment, the transfer program has been an important driver of higher acuity growth and margin performance. Can you just touch on the strategy behind that and the durability of that strategy?

Saumya Sutaria: Yes. Thanks, Craig. So look, I think it is very important in this environment coming out of COVID. This is more of a long term strategy that urban and, you know, sort of larger suburban hospitals have an important role to play in providing access to more smaller suburban and more certainly more rural communities where the funding just has not been necessarily fully available to refresh capital position specialty capacity and other things coming out of the COVID crisis And at the same time, there is still people that live there, need access,, get very sick, and go to their hospitals.

And you know, we have a we have a very important to us transfer program strategy that is willing and able to receive all patients from these from these outlying locations when there are needs, and importantly, return them to their home communities as appropriate as early as possible as well. And our ability operationally to have built these successful partnerships have been sustainable, we found over a number of years. I mean, in the end, if you are a good partner to more rural and smaller suburban communities, they remember that, and you are reliable and you take their patience when they need it you return their patients to them, when appropriate. They remember that.

And those relationships that have been built through the through the back end of COVID and all the way into today, are an important part of our strategy. And look, we also have built a better expertise than the market in taking care of high acuity patients and transfers. it is the heart of our strategy. We save intensive care unit capacity for these types of patients. We are very good at stepping people down out of the intensive care unit. When their care is safe in that manner in order to create that capacity. We also have emergency department contracts and physicians that understand we take this obligation to these communities very seriously.

And therefore, we create and save capacity for those patients in emergency environment as well. So it is a comprehensive approach that we do not think is very easy to replicate. In terms of what we have put in place. And, it is an important driver of our in the end, to simplify our high acuity strategy.

Operator: Helpful context. Thank you. Thank you. Our next question comes from the line of Benjamin Hendrix with RBC. You may proceed with your question.

Benjamin Hendrix: Great. Thank you very much. I just wanted to follow-up on some of the joint procedure momentum discussion. And I realize that the strength you are seeing reflects the high acuity focus, service line initiative, share capture, etcetera. I was hoping to get a sense of some of the underlying demand trends in your market, something 1 of your peers had talked about a lull in high acuity ortho with clinic and imaging volume. Not necessarily converting to procedures. Wanted to see kinda what degree you are seeing delays build and if that is informing your growth expectations for 2027. Thanks.

Saumya Sutaria: Yes. I mean, obviously, we have thought a lot about this year and in various forums of kind of made comments about it Again, I think what I said today was like, it is not a gangbusters environment. On a differentiated basis, we are performing well and I think that is good. And I think secondarily, as I said, the commitment we have at USPI is to build and grow the revenues and earnings of the business and to be strategic rather than just kind of catchers of what is in the market. And I think being strategic has consistently helped us over the last few years in terms of how we have built the business.

And so, look, we anticipate continuing to do both. I think as the coverage environment settles, you know, maybe this demand environment will when I say settle, it will at least become more predictable. As we as we look ahead and you know, hopefully, that in combination with settling some of the uncertainty around the election will also help settle 2027 and from our standpoint, as we have gone through our planning process today, we could not see anything visible that suggested that we should not be able to deliver another you know, as I as I called it, consistent year ahead at USPI. And then on top of that, our.

You know, I think I indicated our m and a environment is tracking towards the raised guidance for this year that we gave earlier this year in terms of our ability to have more affiliates more affiliated centers that at USPI. So we are we are looking forward to 2027 from the perspective of ambulatory surgery.

Operator: Thank you. Thank you. Thanks. And our last question comes from the line of Benjamin Rossi with JPMorgan.

Benjamin Rossi: Great. Thanks for squeezing me in here. I guess I will just end with following up on some of the surgical comments. So, Saumya, you have discussed OR productivity a good deal in framing your high acuity strategy. Just with surgical growth in negative territory across segments year to date, give us an update on how your dynamics and throughput are working? How clinics are managing through anesthesia coverage? And how you are approaching things like OR scheduling and physician recruitment as you take on these longer duration cases? Thanks.

Saumya Sutaria: Yeah. Well, I think I have indicated before, I mean, 1 of the sort of just simple operational benefits of longer case times in higher acuity surgery is you know, productive OR capacity utilization. Like anything else, it is a fixed asset. And in the case of ambulatory surgery centers, it is a fixed asset that is only open for a certain number of hours every single day, or at least every weekday, generally. And so the importance of that OR utilization as a driver of our revenue growth, something that we track very, very carefully. And to the point I think you are making, the improvements in those areas are helpful to us.

Look. there is still operationally areas that we are working on improving. You know, some of the new tools that we are working with trialing in patient outreach, including agentic solutions, with respect to improving case cancellations and reminders you know, could be important drivers over time Some of the analytics that we are learning from with some of these new tools help us think about how to organize better operating room schedules to maximize the utilization short cases versus long cases, turnover times you know, what generates efficiency. I mean, some of these things in the past, you would have to rely on the intuition of center leaders who have just been so experienced doing it.

Now with the availability of analytics tools, you can actually put a lot of that retrospective data into algorithms that will help you decide better how to manage your OR scheduling even from that perspective. So we are trying all of that. Stuff in the spirit of being better ASC operators and the way in which this organization embraces the use of many of these AI based technologies. And, you know, we will see what works. Looking forward. But I hope that those things in partnership with our doctors, continue to help us improve the efficiency and accuracy with which we run our operating rooms.

You know, the other things that happen in that environment, of course, are all of the things related to accurately capturing charges, You know, preparing pre authorization. I mean, all of those areas have opportunity for technology to benefit the way that we are the way that we are doing those things. I think your last question or part of your question in there that I will I will wrap with here is, on the anesthesia side. I, you know, I think largely that market which has not been a favorable line item from an expenditure standpoint, has somewhat stabilized.

And, you know, I think it is well known in the industry that we focus our work with a preference on in network anesthesia. And, you know, we do our best to make that clear across the board. Thank you.

Operator: And ladies and gentlemen, we have reached the end of the question and answer session. This also concludes today's conference. And you may disconnect your lines at this time. We thank you for your participation. Have a great day.

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