Tenet Healthcare Corporation (THC) Earnings

Management highlights

- **Overall Operational Performance - Tenet delivered Q2 results exceeding internal goals, driven by strong same-store revenue and volume growth across both segments, supported by the company's long-standing high-acuity focused strategy - Technology- and AI-enabled expense management initiatives planned at the start of 2026 are delivering on expected margin improvements, with year-to-date fundamental outperformance totaling $97 million across segments - Exchange revenues declined 17% year-over-year, with the largest impacts concentrated in Florida, Arizona, Michigan, South Carolina, and Texas; management has proactively adjusted the cost base to offset this headwind while maintaining margin strength - **Capital Deployment & Balance Sheet - Tenet deployed $1.36 billion to repurchase 7 million shares in the first half of 2026, with 5.7 million shares ($1.04 billion) repurchased in Q2 alone - The Board of Directors authorized a $2 billion increase to the company's share repurchase program, and management expects to continue active repurchases for the remainder of 2026 - As of Q2 end 2026, Tenet held $2.17 billion in cash with no outstanding revolving credit borrowings, and no significant debt maturities until late 2027. The leverage ratio was 2.33x EBITDA, reflecting a strong, deleveraged balance sheet with significant financial flexibility - Adjusted free cash flow totaled $1.422 billion year-to-date 2026, with $444 million generated in Q2 - **Strategic Priorities - USPI remains the company's key M&A priority, with management now expecting full-year 2026 M&A spend to exceed $300 million, supported by a robust pipeline of new partnership and acquisition opportunities - The hospital segment continues to prioritize organic growth investments in higher-acuity specialty services, with a more cautious approach to large-scale new hospital builds until market conditions clarify - Management remains committed to maintaining a strong balance sheet and evaluating additional debt retirement or refinancing opportunities

Guidance

- Management raised full-year 2026 consolidated guidance across all key metrics, driven by better than expected fundamental operational performance in the first half of the year that is expected to continue into the second half: - Consolidated net operating revenue guidance raised to a range of $21.9 to $22.5 billion, a $300 million increase at the midpoint versus prior guidance - Consolidated adjusted EBITDA guidance raised to a range of $4.83 to $5.03 billion, a $295 million increase at the midpoint (6% increase) versus prior guidance - Adjusted free cash flow after non-controlling interest guidance raised to a range of $1.825 to $2.055 billion, a $225 million increase at the midpoint versus prior guidance (this range includes a $150 million tax payment related to the Conifer transaction) - Segment-level adjusted EBITDA guidance was also revised upward: - USPI 2026 adjusted EBITDA guidance: $2.16 to $2.22 billion - Hospital segment 2026 adjusted EBITDA guidance raised to $2.67 to $2.81 billion, a $285 million increase at the midpoint versus prior guidance - Q3 2026 expected adjusted EBITDA ranges: 23% to 24% of full-year consolidated adjusted EBITDA at the midpoint for the consolidated company, and 24% to 25% of full-year USPI adjusted EBITDA at the midpoint for USPI - The $140 million total expected contribution from newly approved supplemental Medicaid program increases (including out-of-period prior year revenues) includes $20 million expected to be recognized in the second half of 2026

Segment performance

Tenet Healthcare reported consolidated Q2 2026 net operating revenues of $5.6 billion and consolidated adjusted EBITDA of $1.304 billion, representing a 23.2% adjusted EBITDA margin and 16.3% year-over-year adjusted EBITDA growth. Adjusted diluted earnings per share increased 52% year-over-year to $6.12. 1. **USPI (Ambulatory Surgical Segment)**: Q2 2026 adjusted EBITDA was $542 million, growing 8.8% year-over-year, with an adjusted EBITDA margin of 39%. USPI contributed 41.6% of consolidated Q2 2026 adjusted EBITDA. Same-facility system-wide revenues grew 5% year-over-year, with net revenue per case up 6.3% and same-facility case volumes down 1.2%, reflecting the segment's ongoing high-acuity focus. Total joint replacement same-store volume grew 10% year-over-year. 2. **Hospital Segment**: Q2 2026 adjusted EBITDA was $762 million, growing 22% year-over-year, with an adjusted EBITDA margin of 18%. The hospital segment contributed 58.4% of consolidated Q2 2026 adjusted EBITDA. Same hospital inpatient adjusted admissions rose 2.6% year-over-year (a sequential improvement from Q1), while revenue per adjusted admissions increased 3.3% year-over-year, driven by higher acuity and supplemental Medicaid revenues, partially offset by 17% year-over-year declines in ACA exchange revenues. Exchange revenues represented 5.5% of consolidated net operating revenues in Q2 2026. 3. **Conifer**: Year-to-date 2026 results are in line with management expectations as the business winds down a third-party contract.

Risks & headwinds

- Ongoing ACA exchange enrollment decline is a material headwind to revenue, with management expecting current Q2 2026 decline trends to continue through the second half of 2026. Most displaced exchange patients are converting to uninsured status on a roughly one-to-one basis - Proceeding rule changes related to 340B drug pricing and hospital outpatient payment (HOPPS) include unexpected provisions that could have material financial impacts; management is still analyzing the proposal and has not yet quantified potential effects - While management has proactively adjusted cost structures to offset exchange headwinds, further acceleration of enrollment declines beyond current forecasts could create unanticipated pressure on margins - Large-scale new hospital builds carry uncertain returns in the current volatile market environment, leading management to take a more cautious approach to these projects

Analyst Q&A

• Q: What specific initiatives are driving margin expansion despite industry headwinds like declining exchange enrollment? /

  A: Management highlighted three core categories of cost initiatives planned in advance in 2025 and launched at the start of 2026. First are traditional efficiency programs: productivity improvement, vendor contract renegotiation, and supply standardization. Second are clinical operations improvements, including length of stay management, emergency department throughput, operating room and cath lab utilization, and scheduling efficiencies, which also improve patient and physician access. Third are technology and AI-driven automation, deployed both domestically and in the global business services center, which reduces overhead and support costs at the facility and corporate level. All three areas are delivering expected cost savings that have accrued through the first half of 2026.

• Q: What are the key service line growth priorities for the USPI ambulatory segment, and is there any benefit from the first tranche of musculoskeletal (MSK) procedures being removed from the Medicare inpatient-only list? /

  A: Management continues to focus on expanding clinically appropriate high-acuity services in the ambulatory setting, starting with expanded orthopedics, which is directly supported by the inpatient-only list changes that are already driving scale growth. Other priority growth areas include urology, expanding robotics for general surgery, bariatrics, and gradual expansion into cardiovascular procedures. Management is also increasing acuity in core legacy ambulatory service lines, including higher-acuity GI procedures (like duodenal endoscopy and biopsies) and specialized retinal procedures in ophthalmology, to grow revenue and acuity in existing ASCs.

• Q: How did Q2 2026 exchange revenue and volume declines compare to expectations, and where are patients going after losing exchange coverage? /

  A: Q2 2026 exchange revenues declined 17% year-over-year and exchange admissions declined 13.5%, which was exactly in line with management expectations after expected post-grace-period enrollment erosion accelerated from Q1 to Q2. Management expects this trend to continue roughly unchanged through the second half of 2026, which is already baked into updated guidance. The 17% revenue decline created a $65 million headwind in Q2, which was fully offset by cost flexibility and other growth initiatives. Almost all lost exchange volume is converting to uninsured volume on a roughly one-to-one basis, a trend expected to continue through year-end.

• Q: With strong free cash flow and low leverage after the increased share repurchase authorization, is management considering initiating a dividend, and what are the core capital deployment priorities going forward? /

  A: Management reaffirmed that the highest capital priorities are organic growth investments in hospital higher-acuity services and M&A to expand the USPI ambulatory portfolio, with full-year 2026 USPI M&A spend now expected to exceed $300 million. Management views current share valuations as compelling, so share repurchases remain a very attractive use of excess free cash flow for the foreseeable future. Management also noted the company's debt position is very well-managed with no near-term maturities, and is comfortable with the current balance sheet strength. No mention of upcoming plans to initiate a dividend was made.