Tenet Healthcare's Q3 2025: Contradictions Emerge on Exchange Subsidy Impact, Volume Growth Expectations, Capital Allocation, USPI Revenue Per Case, and Inpatient Trends

Date of Call: October 28, 2025

Financials Results

• Revenue: $5.3B net operating revenues in Q3 2025
• Operating Margin: Adjusted EBITDA margin 20.8%, up 170 basis points YOY; consolidated adjusted EBITDA $1.1B, up ~12% YOY

Guidance:

• Full year 2025 adjusted EBITDA raised to $4.47B–$4.57B.
• Consolidated net operating revenues for 2025 now expected $21.15B–$21.35B.
• 2025 capital expenditures increased to $875M–$975M to fund organic/high-acuity growth.
• Free cash flow expected $2.275B–$2.525B; after NCI $1.495B–$1.695B.
• Continued M&A and de novo investment in USPI expected.

Business Commentary:

* Strong Financial Performance: - Tenet Healthcare reported third quarter 2025 net operating revenues of $5.3 billion, with consolidated adjusted EBITDA growing 12% year-over-year to $1.1 billion. - The growth was driven by strong same-store growth and continued operating efficiency, particularly in the USPI segment and hospital segment.

• USPI Segment Growth:
• USPI's adjusted EBITDA grew 12% year-over-year to $492 million, with same-facility revenues increasing by 8.3%.

• Growth was attributed to high demand for high acuity cases like total joint replacements and strategic acquisitions and de novo development.

• Hospital Segment Improvement:

• The hospital segment's adjusted EBITDA increased 13% to $607 million, with same-store hospital admissions up 1.4%.

• The improvement was supported by strong payer mix, acuity, and the opening of a new state-of-the-art hospital in Florida.

• Capital Expenditure and Investment:

• Tenet increased its capital expenditure guidance for 2025 to $875 million to $975 million, an increase of $150 million at the midpoint.
• This reflects investment in program infrastructure, service line support, and growth strategies to capitalize on healthy demand and operating efficiencies.

Sentiment Analysis:

Overall Tone: Positive

• Management raised 2025 adjusted EBITDA and free-cash-flow guidance, citing strong same-store growth, 12% consolidated adjusted EBITDA growth, improved margins (+170 bps YOY), $778M Q3 free cash flow and strengthened cash balance ($2.98B).

Q&A:

• Question from Kevin Fischbeck (Bank of America): Are you building any higher utilization into Q4 guidance ahead of possible exchange subsidy expirations; capacity to accommodate demand at USPI; and what is USPI's exchange exposure?
  Response: No assumed subsidy expiration baked into guidance; USPI has planned capacity for typical year-end demand; exchange exposure modest (Q3: 8.4% of admissions, ~7% of consolidated revenue).

• Question from Scott Fidel (Goldman Sachs): Can you detail the increased 2025 CapEx allocation and the key investments driving the higher guidance?
  Response: Incremental CapEx is directed to hospital high-acuity infrastructure (cardiac, ICUs, cath labs, high-end imaging, surgical programs) and residual capital to open Port St. Lucie, funding identified growth opportunities.

• Question from Craig Hettenbach (Morgan Stanley): What are the drivers of the free cash flow increase and how sustainable are those trends?
  Response: FCF improvement driven by strong Conifer cash collections, EBITDA growth, working-capital optimization and lower interest expense from deleveraging; management expects to sustain these operational improvements.

• Question from Jason Cassorla (Guggenheim Securities): The implied USPI Q4 growth decelerates relative to earlier quarters — is that conservatism or timing/other factors?
  Response: Management says deceleration reflects lapping/pricing math and larger-scale asset bases, not weaker demand; no change in operational outlook for USPI.

• Question from Ann Hynes (Mizuho): Do you expect the favorable 2025 labor environment and other inflationary dynamics to continue into 2026?
  Response: While not commenting specifically on 2026, labor trends remain favorable today with no meaningful near-term changes expected; tariffs managed via sourcing/GPO but will be monitored.

• Question from Benjamin Rossi (JPMorgan Chase): How did Conifer contribute in Q3 and could it help with identifying patients losing exchange coverage if subsidies expire?
  Response: Conifer is performing well on cash collections and enrollment capabilities; management is ramping investments to use Conifer for enrollment support if exchange timelines are disrupted.

• Question from Ryan Langston (TD Cowen): Which service lines/geographies drove ASC and hospital performance in Q3?
  Response: ASC growth driven by ortho/spine, robotics and a GI recovery; hospitals strong in trauma/high-acuity and higher revenue per admission, while respiratory/infectious outpatient visits were softer.

• Question from Justin Lake (Wolfe Research): What was the DPP/provider tax contribution in Q3 and the updated estimate for the year, and how should we treat the $148M prior-year item?
  Response: Q3 recorded ~$346M of supplemental Medicaid DPPs (including $38M prior‑year); YTD ~ $1.02B, with $148M out-of-period one-time item to be normalized between '25 and '26.

• Question from Brian Tanquilut (Jefferies): You've exceeded USPI acquisition targets — how should we think about further M&A versus buybacks?
  Response: Management remains opportunistic on M&A (have outspent initial guidance) funded by USPI cash generation; share repurchases are balanced and will depend on market conditions and other priorities.

• Question from Albert Rice (UBS): As you budget for 2026, where are incremental expense-savings opportunities and any AI initiatives to call out?
  Response: Company-wide business transformation targets labor and supply efficiencies, scaling the global business center and automation; AI/automation considered within those initiatives but no specific programs detailed.

• Question from Joshua Raskin (Nephron Research): Is exchange revenue contribution lower than its share of adjusted admissions, and what's the ASC M&A competitive landscape/physician sentiment?
  Response: Exchange patients represent a slightly higher share of admissions than revenue (Q3: 8.4% admissions vs 7% revenue); ASC market competitive but USPI claims advantage due to scale, track record and ability to grow centers.

• Question from Benjamin Mayo (Leerink Partners): How are you preparing for CMS's Wiser/preauthorization changes in fee‑for‑service Medicare?
  Response: Prepared via USPI's revenue-cycle capabilities, documentation/compliance and scheduling processes; expect an adjustment period and will manage mix toward commercial where appropriate.

• Question from Andrew Mok / Thomas Wilson (Barclays): If the inpatient-only list is removed, is that a net positive or negative for the enterprise?
  Response: Potentially positive for USPI by shifting certain volumes outpatient, but policy is uncertain, unquantified and management has not provided a specific impact estimate.

Contradiction Point 1

Exchange Subsidy Impact

It involves differing perspectives on the impact of exchange subsidies, which are crucial for revenue projections and financial planning.

Is Q4 guidance factoring in higher utilization before exchange subsidies expire? Does capacity in USPI align with utilization expectations? Could you clarify exchange exposure in USPI? - Kevin Fischbeck (Bank of America)

2025Q3: We aren't planning or expecting the exchange subsidies to expire at this stage, so we haven't built that into our Q4 guidance. - Saumya Sutaria(CEO)

Can you provide details on acuity, payer mix, and exchange volume growth in the hospital business? - Megan Holt (Jefferies)

2025Q1: Regarding our outlook for the year, we're assuming the exchange subsidies don't expire, and we're not incorporating an expiration into our guidance. - Sun Park(CFO)

Contradiction Point 2

Volume Growth Expectations

It involves differing expectations for volume growth, which could impact revenue projections and strategic planning.

Why is the implied Q4 USPI growth lower than previous quarters? Is this due to conservative guidance? - Jason Cassorla (Guggenheim Securities)

2025Q3: It's not conservatism. We're not looking at this fourth quarter any differently than prior fourth quarters. - Saumya Sutaria(CEO)

Can you update on the current volume environment and outlook for the year? - Jamie Perse(Goldman Sachs)

2024Q4: We expect the volume environment will remain strong in 2025, based on current trends...We don't see changes from December 31 to January 1 that affect our guidance. - Saumya Sutaria(CEO)

Contradiction Point 3

Capital Allocation and Share Repurchase Strategy

It involves differing statements about capital allocation and share repurchase strategy, which could influence investor expectations and financial management.

How should we approach capital allocation and share buybacks given USPI's exceeded M&A targets? - Brian Tanquilut(Jefferies)

2025Q3: We remain active in share buybacks, especially when multiples are favorable. - Saumya Sutaria(CEO)

What are your target leverage ratios, and will the remaining cash flow be allocated to share repurchases? - Pito Chickering(Deutsche Bank)

2024Q4: We plan to be active repurchasers of shares at the current valuation multiples...The return on share repurchase is higher than debt-based urgency. - Saumya Sutaria(CEO)

Contradiction Point 4

USPI Revenue Per Case Growth

It pertains to the drivers of USPI revenue per case growth, which is a key performance indicator for the company's financial health and growth strategy.

Why is Q4 USPI growth lower than prior quarters? Is this conservatism? - Jason Cassorla (Guggenheim Securities)

2025Q3: It's not conservatism. We're not looking at this fourth quarter any differently than prior fourth quarters. The change is due to typical fourth-quarter ramp-up in business activity. - Saumya Sutaria(CEO)

Are there any out-of-period items related to the $40 million Medicaid supplemental revenue? What drove USPI's higher revenue per case growth despite lower total joint case growth? - Stephen Baxter (Wells Fargo)

2025Q1: For USPI, the revenue per case growth is driven by the contracting platform, acuity, and strategic opportunities. - Saumya Sutaria(CMO)

Contradiction Point 5

Inpatient and Adjusted Admissions Trends

It involves the explanation of trends in inpatient and adjusted admissions, which are crucial for understanding the company's volume growth and capacity management.

Where are the specific capital allocations in the increased CapEx guidance, and how are the larger investments categorized for the year? - Scott Fidel(Goldman Sachs)

2025Q3: The guidance reflects the math for the rest of the year. We had strong volumes, high acuity, and favorable mix in the second quarter. There's nothing unusual outside of seasonality, and we remain focused on our high acuity strategy. - Saumya Sutaria(CEO)

What caused the slowdown in inpatient and adjusted admissions? Were volumes affected by any one-time items in the quarter? - Andrew Mok(Barclays Bank PLC)

2025Q2: We had strong volumes, high acuity, and favorable mix in the second quarter. There's nothing unusual outside of seasonality, and we remain focused on our high acuity strategy. - Saumya Sutaria(CEO)