Tenet's Q3 2025 Earnings Call: Contradictions Emerge on Exchange Subsidies, Free Cash Flow, and Strategic Priorities

Date of Call: October 28, 2025

Financials Results

• Revenue: $5.3 billion net operating revenues (Q3 2025; YOY change not provided)
• Operating Margin: Adjusted EBITDA margin 20.8%, up 170 basis points year-over-year

Guidance:

• Consolidated 2025 net operating revenues raised to $21.15B–$21.35B (+$150M vs prior).
• 2025 adjusted EBITDA raised to $4.47B–$4.57B (midpoint increase totaling ~$445M vs initial guidance).
• 2025 CapEx increased to $875M–$975M (midpoint +$150M).
• 2025 free cash flow expected $2.275B–$2.525B; free cash flow after NCI $1.495B–$1.695B (midpoint +$250M).
• Continue M&A and de novo investment in USPI; balanced share repurchases and debt refinancing evaluated.

Business Commentary:

• Strong Financial Performance and Guidance Increase:
• Tenet Healthcare reported net operating revenues of $5.3 billion for Q3 2025, with consolidated adjusted EBITDA growing 12% over Q3 2024 to $1.1 billion.
• The company'sadjusted EBITDA margin improved by 170 basis points to 20.8%, driven by strong same-store growth and operational efficiency.

• Tenet raised its full-year 2025 adjusted EBITDA guidance to a range of $4.47 billion to $4.57 billion, reflecting confidence in business performance.

• USPI Segment Growth and M&A Activities:

• USPI's adjusted EBITDA grew by 12% year-over-year, with same-facility revenues increasing by 8.3% in Q3 2025.
• The growth was attributed to an 11% increase in total joint replacements in ASCs and the acquisition of 11 centers and opening of 2 de novo centers.

• Tenet has spent nearly $300 million on M&A in this space year-to-date, indicating ongoing investment in expansion and high acuity specialties.

• Hospital Segment Performance and Capacity Expansion:

• Tenet's hospital segment reported a 13% increase in adjusted EBITDA to $607 million, with same-store admissions up by 1.4%.
• The opening of a new hospital in Port St. Lucie, Florida, was highlighted as a strategic move to expand capacity in a rapidly growing region.

• The segment benefited from strong payer mix and acuity, contributing to a 5.9% increase in revenue per adjusted admission.

• Free Cash Flow and Capital Expenditures:

• Tenet generated $778 million in free cash flow in Q3 2025, with an increase in full-year 2025 free cash flow minus NCI guidance to a range of $1.495 billion to $1.695 billion.
• The company increased its capital expenditures guidance for 2025 to $875 million to $975 million, allocating additional funds for high acuity services and service line support.
• Improved cash collection performance by Conifer and disciplined cost controls contributed to the increase in free cash flow.

Sentiment Analysis:

Overall Tone: Positive

• Management: "we exceeded our expectations for revenue, adjusted EBITDA and margins." Company raised full-year adjusted EBITDA guidance and CapEx and reported strong cash generation (Q3 free cash flow $778M; YTD free cash flow $2.16B), repurchases of $93M in Q3 and leverage at 2.3x EBITDA, indicating confidence and constructive outlook.

Q&A:

• Question from Kevin Fischbeck (Bank of America): Great. I wanted to ask you about the Q4 guidance and kind of the expectations for utilization. Are you guys building anything in there for higher utilization before these subsidies expire? And how do you think about the capacity, I guess, particularly within USPI to accommodate utilization there? And then I guess, secondly, you mentioned that USPI is insulated from the headwinds for next year, but just trying to understand a little bit where you do see that pressure. I guess can you talk a little bit about exchange exposure within USPI?
  Response: No assumed surge from exchange subsidy expirations; management expects a political compromise, hasn't modeled a rush. USPI has standard Q4 capacity plans and can absorb typical year‑end demand; exchange exposure is limited (Q3: 8.4% of admissions, 7% of consolidated revenue).

• Question from Scott Fidel (Goldman Sachs): Wanted to hopefully just draw a little bit more to the CapEx inputs for the year, including the increase in the CapEx guidance. Maybe if you can talk about specific allocation of capital related to the increase and then maybe bucket some of the key larger investments that you're making within the CapEx for the full year?
  Response: Incremental CapEx is targeted to hospital clinical/program infrastructure and high‑acuity growth (cardiac/ICU/cath labs/high‑end imaging/surgical programs) and residual spend to open Port St. Lucie; spend driven by healthy demand.

• Question from Craig Hettenbach (Morgan Stanley): I want to just extend that just focused on free cash flow here, the increase to guidance. You mentioned kind of improved cash collections at Conifer. You also have margins coming up. So any other context around kind of free cash flow and importantly, just the sustainability of those trends as you see it?
  Response: Free cash flow uplift driven by Conifer's strong cash collections, EBITDA growth, working capital optimization and lower interest expense from deleveraging; management believes these drivers are sustainable with continued focus.

• Question from Jason Cassorla (Guggenheim Securities): Great. I just wanted, Sun, to go back to your commentary around the implied 4Q guidance on USPI. At the midpoint, it would imply year-over-year growth, a little over 8%, which is still strong, marks a little bit of a deceleration from like the low to mid-teens you've done this year. Just any thoughts around that? Is it conservatism? Anything from a timing perspective, like the pace of development coming online that's impacting that? Just any further detail around the implied fourth quarter guidance for USPI would be helpful.
  Response: Management says it's not demand weakness but math/lapping on larger assets; no change in underlying outlook—Q4 cadence is normal and they're focused on standard year‑end ramp.

• Question from Ann Hynes (Mizuho): Just looking at the -- obviously, margins and cash flows have been very strong. Costs have been very good. going into 2026, especially the labor environment, I think that's better than expectations in 2025. Do you expect that to continue into 2026 on the labor side? And then any other inflationary pressure you would call out as we do our models, that would be great.
  Response: While not commenting on 2026 guidance, management says the labor environment remains favorable with no meaningful changes expected today; tariff/supply pressures are being managed via sourcing, contracts and GPOs but will be monitored.

• Question from Benjamin Rossi (JPMorgan Chase): I guess just checking in on Conifer, how did Conifer's contribution within the Hospital Operations segment shake out during 3Q? And then you've previously mentioned Conifer's ability to sit with patient eligibility and enrollment services during things like Medicaid redeterminations. I guess should the ACA exchange subsidies expire, do you think Conifer could have a similar utility for you in helping identify patients with lost coverage and to be eligible for coverage elsewhere?
  Response: Conifer is performing well and materially contributing to cash collections; management confirms Conifer can assist with enrollment/eligibility outreach if exchange enrollment timelines are disrupted and they're investing to scale those capabilities.

• Question from Ryan Langston (TD Cowen): Nice to see the ASC volumes positive. Any particular service lines or maybe even geographies driving this? And maybe same thing for the acute side, any hospital service line stronger or weaker than you expected in the third quarter?
  Response: ASC growth driven by higher‑acuity service lines (orthopedics, spine, robotics) and a GI recovery; hospitals strong in trauma/high‑acuity emergency cases, while outpatient respiratory/infectious volumes were a bit softer.

• Question from Justin Lake (Wolfe Research): I might have missed it, but I was hoping to get an update on total contribution from DPP provider taxes in the third quarter. and your updated estimate on that benefit for the year. And then I appreciate you pointing out the $148 million of prior year DPP that we should think about as being kind of onetime, I assume. Any other items we should consider for 2026 in terms of that bridge year-over-year versus kind of typical growth?
  Response: Q3 recorded ~$346M of Medicaid supplemental payments (DPP), including $38M prior‑period; YTD ~ $1.02B with $148M out‑of‑period—management says the $148M is the largest normalization factor for 2025→2026.

• Question from Brian Tanquilut (Jefferies): Just a question on capital allocation. Obviously, you've set goals for USPI's acquisition spend, and you've already exceeded that. And then how should we be thinking about that and then the buyback in terms of how you're thinking about your thrown capital to buyback since you've hit your M&A targets already?
  Response: M&A guidance is flexible; stronger opportunity flow led to higher spend and USPI cash can fund it. Buybacks remain part of a balanced approach; repurchase activity depends on valuation and market conditions.

• Question from A.J. Rice (UBS): As you start to think about 2026 budgeting together, et cetera, are there any particular areas on the expense management side. I know you've talked a little bit about some of the things you're seeing this year in labor. But whether it's labor supplies, other there are opportunities for incremental savings or programs to initiatives to move forward? And then obviously, there's a lot of discussion about AI, whether there's anything on AI that's worth calling out that you're focused on being able to deploy that.
  Response: Company has an ongoing transformation to optimize labor, supplies and corporate structure, scaling the global business center, using advanced analytics and automation; AI/automation are part of efficiency initiatives but no single AI program quantified.

• Question from Joshua Raskin (Nephron Research): First was a quick clarification, I think, on Kevin's question. Did you see the contribution from exchanges, the revenue contribution was less than the percentage of adjusted admissions? And then my real question just sort of getting back to the M&A environment for the ASCs. There's been a couple more reports, media reports in terms of maybe a competitive landscape. And I'm just curious if that's been changing or if you're seeing anything on valuations yet? And as you speak to your conversations with physicians, maybe how they're evaluating opportunities in ASCs as well?
  Response: Admissions from exchange patients are proportionally higher than their revenue (Q3: 8.4% admissions vs 7% revenue). ASC M&A is active/competitive but USPI views itself as the partner of choice due to scale, track record and multi‑specialty capabilities.

• Question from Whit Mayo (Leerink Partners): So CMS is this new Wiser model in fee-for-surface Medicare that starts next year. Do you see any impact on prior for administrative work for USPI? I know it's only 6 states, but Texas is one of them and knee arthroscopy and certain implants. I think there are an area they're focused on. So just any thoughts or insight into how you're preparing for this.
  Response: Management is preparing for preauthorization/documentation and scheduling impacts; USPI's revenue‑cycle capabilities are positioned to manage compliance and operational changes and may shift mix toward commercial where appropriate.

• Question from Andrew Mok (Barclays Bank): As we await the finalization of the hospital outpatient role, could you comment on whether the removal of the inpatient-only list is a net positive or net negative for the enterprise?
  Response: Policy is uncertain; removing inpatient‑only could benefit USPI via outpatient volume migration, while Tenet's hospital portfolio—focused on high‑acuity—would be less affected; no quantified impact provided.

Contradiction Point 1

Impact of Exchange Subsidies on Volume

It involves differing perspectives on the impact of exchange subsidies on patient volumes, which could affect revenue projections and operational planning.

Are you factoring higher utilization prior to subsidy expiration into Q4 guidance? How is USPI capacity being planned to support utilization? - Kevin Fischbeck (Bank of America)

2025Q3: Tenet is not planning or expecting significant rush to the office due to exchange subsidies. USPI has planned for typical seasonal capacity utilization increases, and any additional demand due to fluctuations in exchanges won't affect capacity planning. - Saumya Sutaria(CEO)

Can you clarify acuity trends, payer mix changes, and exchange volume growth in the hospital segment? - Megan Holt (Jefferies)

2025Q1: We did see a significant contribution from exchanges driving the top line from a patient growth perspective. - Sun Park(CFO)

Contradiction Point 2

Free Cash Flow Growth Sustainability

It involves differing comments on the sustainability of free cash flow growth, which is a key financial metric for investors.

Can you discuss the sustainability and context of free cash flow trends? - Craig Hettenbach (Morgan Stanley)

2025Q3: Free cash flow improvements driven by operational efficiency, strong cash collections by Conifer, and better working capital management. Tenet continues to optimize costs and expects continued sustainable free cash flow growth. - Sun Park(CFO)

What were the main drivers behind the Q1 earnings beat, and are there concerns about order front-loading due to recession fears? - Ann Hynes (Mizuho Securities)

2025Q1: We are projecting that we will be able to generate a positive free cash flow this year for the first time since 2014. - Saum Sutaria(Chairman and CEO)

Contradiction Point 3

Volume Environment and Expectations

It involves differing expectations for the volume environment and growth, which are critical for understanding the company's operational and financial outlook.

Can you detail this year’s CapEx increase and capital allocation? - Scott Fidel (Goldman Sachs)

2025Q3: We anticipate a balanced growth across both segments, with a strong demand environment supporting USPI's growth. - Saumya Sutaria(CEO)

Can you discuss the current volume environment and expectations for 2025 volumes? - Jamie Perse (Goldman Sachs)

2024Q4: We anticipate a strong volume environment in 2025. We don't see changes in the coverage, employment, or demographic environment since the last year, which supports our guidance. - Saumya Sutaria(CEO)

Contradiction Point 4

Strategic Focus on High-Acuity Procedures

It highlights a shift in strategic focus, which could impact operational decisions and financial performance.

Can you discuss the sustainability of free cash flow trends? - Craig Hettenbach (Morgan Stanley)

2025Q3: USPI's focus on high-acuity, low-Medicaid exposure procedures mitigates risk. - Saumya Sutaria(CEO)

What caused the sharp increase in USPI despite minimal changes in case mix? - Andrew Mok (Barclays)

2024Q4: The increase in acuity is driven by focusing on high-margin, high-acuity procedures like joint replacements, which have high reimbursement per case compared to low-acuity ones. - Saumya Sutaria(CEO)