Q1 2024 Tenet Healthcare Corp Earnings Call

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unknown: Good morning. Welcome to Tenet Healthcare's first quarter 2024 earnings conference.

Speaker Change: Good morning, welcome to Tenet Healthcare's first quarter 2024 earnings conference call.

unknown: After the speaker remarks, there will be a question-and-answer session for questions. If you would like to ask a question at that time, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would 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 2. Tenet respectfully asks that participants limit themselves to one question each. I'll now turn the call over to your host, Mr. Will McDowell, Vice President of Investigation. Mr. McDowell, you may begin.

After the speaker remarks, there will be a question and answer session or interesting.

If he would like to ask a question at that time. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from Nicky.

Speaker Change: Participants using speaker equipment, it may be necessary to pick up your handset before question Destocking.

Speaker Change: And it respectfully ask that analysts limit themselves to one question.

I'll now turn the call over to your host Mr. Willis Vice President of Investor Relations.

Willis: You may begin.

William McDowell: Good morning everyone, and thank you for joining today's call and for Will McDowell, Vice President of Investor Relations. We're pleased to have you join us for a discussion of Tenet's first quarter 2024 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 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, 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, while actual results in planes could differ materially.

William McDowell: 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 Tennant's first quarter 2024 results as well as a discussion of our financial outlook tenant.

William McDowell: Tenants senior management participating in today's call will be Dr. Som, Citabria, Chairman and Chief Executive Officer, and Sun Park, Executive Vice President and Chief Financial Officer.

William McDowell: Our webcast. This morning includes a slide presentation, which has been posted to the Investor Relations section of our website tenant health Dot com.

William McDowell: Listeners to this call are advised that certain statements made during our discussion today are forward looking and represent managements expectations based on currently available information.

William McDowell: Actual results and plans could differ materially.

unknown: 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-K and other filings with the Securities and Exchange Commission. With that, I'll turn the call over to Saum.

William McDowell: Tenet is under no obligation to update any forward looking statements based on subsequent information.

William McDowell: 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.

William McDowell: With that I'll turn the call over to song.

Saumya Sutaria: Thank you, Will, and good morning everyone. We have significantly accelerated the strategic transformation of our portfolio. In the first quarter of 2024, we closed the sale of nine hospitals for pre-tax proceeds of four billion dollars. This enabled us to retire debt and substantially lower our leverage ratio while continuing to invest in our leading ambulatory care program. As a result, Tenet is a more capital-efficient, profitable, and value-based care enterprise. We are well positioned to deliver high-quality specialty care in the communities we serve and to deliver exceptional shareholder value.

Song: Thank you will and good morning, everyone. We have significantly accelerated the strategic transformation of our portfolio in the first quarter of 2024, we closed the sale of nine hospitals for pre tax proceeds of $4 billion. This enabled us to retire debt and substantially lower our leverage ratio, while continuing to invest.

William McDowell: And our leading ambulatory care program.

William McDowell: As a result tenant as more capital efficient profitable and value based care enterprise, we're well positioned to deliver high quality specialty care in the communities, we serve and to deliver exceptional shareholder value.

Saumya Sutaria: Importantly, with our strong core performance and the anticipated contributions from completed ambulatory M&A, we expect to essentially replace the lost EBITDA from the hospital asset sales in our run rate expectations. I'll spend more time on our portfolio transformation in a minute, but first, a quick review of our quarterly results.

William McDowell: Importantly, with our strong core performance and the anticipated contributions from completed ambulatory M&A, we expect to essentially replace the lost EBITDA from the hospital asset sales in our run rate expectations.

William McDowell: I'll spend more time on our portfolio transformation in a minute, but first a quick review of our quarterly results.

Saumya Sutaria: We carried significant momentum through the first quarter of 2024. Strong revenue growth, supported by the continued recovery of utilization, as well as high acuity levels and favorable payer mix, drove performance well in excess of our initial guidance. In the first quarter, we delivered net operating revenues of $5.4 billion. Consolidated adjusted EBITDA was $1.02 billion, which represents a 23% increase over the first quarter of 2023 and an adjusted EBITDA margin of 19.1%. In terms of performance, let's start with USPI.

William McDowell: We carried significant momentum through the first quarter of 2020 for strong revenue growth supported by the continued recovery of utilization as well as high acuity levels and favorable payer mix drove performance well in excess of our initial guidance.

William McDowell: In the first quarter, we delivered net operating revenues of $5 4 billion consolidated adjusted EBITDA was 1.02 billion, which represents a 23% increase over the first quarter in 2023, and an adjusted EBITDA margin of 19, 1%.

William McDowell: In terms of performance, let's start with USPI.

Saumya Sutaria: We had a great quarter, with $394 million in adjusted EBITDA, representing 16% growth over first quarter 2023. Service line expansion, elevated acuity, and favorable payer mix all drove this strong organic growth. Joint replacement surgeries continue to be an excellent source of growth for us and were up 21% over prior years.

William McDowell: We had a great quarter with 394 million in adjusted EBITDA, representing 16% growth over first quarter 2023.

William McDowell: Service line expansion elevated acuity and favorable payer mix all drove this strong organic growth.

William McDowell: Joint replacement surgeries continue to be an excellent source of growth for us and were up 21% over prior year.

Saumya Sutaria: We also had an active start to the year in terms of our USPI development pipeline. We are proud to have grown USPI to over 535 centers in what is still a highly fragmented market with meaningful new additions this past quarter. We expect these newly acquired centers to deliver approximately $80 million of EBITDA in the first 12 months of ownership. In addition, we expect to ultimately realize a synergized EBITDA minus NCI multiple of six to seven by year three for those centers. USPI's DeNovo development activity also continues strong, with nearly 30 centers currently in the syndication stages or in construction.

William McDowell: We also had an active start to the year in terms of our USPI development pipeline. We are proud to have grown USPI to over 535 centers in what is still a highly fragmented market with meaningful new additions this past quarter.

William McDowell: We expect these newly acquired centers to deliver approximately $80 million of EBITDA in the first 12 months of ownership. In addition, we expect to ultimately realize to synergize EBITDA minus NCI multiple of six to seven by year three for those centers.

William McDowell: USPI is de Novo development activity also continues strong with nearly 30 centers currently in syndication stages or in construction.

Saumya Sutaria: We are pleased to deploy capital to provide more low-cost access points for the communities in which we operate that also generate very attractive returns. Turning to our hospital segment, Adjusted EBITDA grew 28% to $630 million in the first quarter of 2024. Same store hospital admissions grew 4.2%, demonstrating the continued recovery of utilization that we saw last year. Acuity levels remain strong within the first quarter of 2024, with revenue per adjusted admission up 8.8% over the prior year.

William McDowell: We are pleased to deploy capital to provide more lower cost access points for the communities in which we operate that also generate very attractive returns.

William McDowell: Yeah.

William McDowell: Turning to our hospital segment.

William McDowell: Adjusted EBITDA grew 28% to $630 million in the first quarter of 2024.

William McDowell: Same same store hospital admissions grew four 2% demonstrating the continued recovery of utilization that we saw last year.

William McDowell: Acuity levels remained strong within the first quarter of 2024 with revenue per adjusted admission up eight 8% over prior year.

Saumya Sutaria: We have opened up capacity to meet demand in a number of our markets. In addition to the ongoing investment in our front-line workforce, we are proud to have recognized our many field supervisors, managers, directors, and other leaders with incremental financial and professional development rewards for their contributions to our post-pandemic recovery in 2023. We strongly believe that these management layers are critical to successful recruiting and retention initiatives.

William McDowell: We have opened up capacity to meet demand in a number of our markets.

William McDowell: In addition to the ongoing investment in our frontline workforce. We are proud to have recognized there are many field supervisors managers directors and other leaders with incremental financial and professional development of rewards for their contributions to our post pandemic recovery in 2023, we strongly believe that these management layers or <unk>.

William McDowell: Critical to successful recruiting and retention initiatives.

Saumya Sutaria: Additionally, we continue to invest in our high-acuity specialty services. Our plans to open a new hospital in Westover Hills, San Antonio, near the end of the second quarter remain on track this year. Over the balance of the year, we plan to allocate more capital to our existing markets for high-acuity service line development to further drive organic growth with strong returns on capital. I'd like to take a moment to thank the special team of Tenet and Conifer colleagues who have worked tirelessly to respond to the cybersecurity attack that took place at Change Healthcare in the early part of this year.

William McDowell: Additionally, we continue to invest in our high acuity specialty services, our plans to open a new hospital in west over Hilton San Antonio near the end of the second quarter remain on track this year.

William McDowell: Over the balance of the year, we plan to allocate more capital into our existing markets for high acuity service line development to further drive organic growth with strong returns on capital.

William McDowell: I'd like to take a moment to thank the special team of tenant and conifer colleagues, who have worked tirelessly to respond to the cyber security attack that took place at change healthcare and the early part of this year.

Saumya Sutaria: We utilize Change in some but not all of our own and our Conifer Client Hospitals, and we do not utilize it at USPI or with our physician business. As a result of the incident, the clearinghouse function at Change impacted the ability to send claims to many payers.

William McDowell: We utilized change in some but not all of our own and our conifer client hospitals, and we do not utilize it at USPI or with our physician business.

William McDowell: As a result of the incident, the clearinghouse function of change impacted the ability to send claims to many payers.

Saumya Sutaria: We have experienced some delays in near-term billings and estimate that this will only have a temporary impact on our cash flows, which we expect to resolve over the course of 2024. All in all, our hospitals have had a very strong start to the year. Looking forward, we are raising our full-year 2024 Adjusted EBITDA guidance to a range of $3.5 to $3.7 billion, which represents an increase of $215 million, or 6%, at the midpoint of our range over our prior guidance, which was already quite attractive.

William McDowell: We have experienced some delays in near term billings and estimate that this will only have a temporary impact to our cash flows that we expect to resolve over the course of 2024.

William McDowell: All in all our hospitals have had a very strong start to the year.

William McDowell: Looking forward, we are raising our full year 2024, adjusted EBITDA guidance to a range of $3 five to $3 7 billion, which represents an increase of $215 million or 6% at the midpoint of our range over our prior guide.

William McDowell: <unk>, which was already quite attractive.

Saumya Sutaria: In order to ensure that we are clear... Our increase in guidance reflects the structural increases in revenue reimbursement that we have earned that were not in our original assumptions for 2024, additions to our ASC portfolio, and the impact of reductions in our hospital sales and hospital asset sales. We are not addressing, but obviously acknowledge, the underlying organic outperformance in our business units during Q1 in our increased guidance at this stage. We are early in the year, and we are very pleased with the demand that we are seeing in our network. We will address this component of our expectations for the full year in the future. We're confident in our ability to deliver on these increased expectations. Before I turn the call over to Sun,

William McDowell: In order to ensure that we are clear.

William McDowell: Our increase in guidance reflects the structural increases in revenue reimbursement that we have earned that were not in our original assumptions for 2024.

William McDowell: Additions to our ASC portfolio and the impact of reductions in our hospital sales hospital asset sales.

William McDowell: We are not addressing but obviously acknowledged the underlying organic outperformance in our business units during Q1 in our increased guidance at this stage. We are early in the year. We are very pleased with the demand that we're seeing in our network and we will address this component of our expectations.

William McDowell: For the full year in the future.

William McDowell: We're confident in our ability to deliver on these increased expectations.

Speaker Change: Before I turn the call over to Sun I'd like to spend some time discussing the progress we have made in our portfolio transformation.

Saumya Sutaria: I'd like to spend some time discussing the progress we have made in our portfolio. As I mentioned previously, the transactions that we have executed on have established the dawn of a new era for Tenet. We have completed three very attractive hospital sale transactions that have generated $4 billion in gross proceeds. Throughout these sales, we have maintained, and in most cases enhanced, a commercial service provision relationship with the buyer. We expect these relationships will be an attractive contributor to earnings for years to come.

William McDowell: As I mentioned previously the transactions that we have executed on have established the dawn of a new era for tenet.

William McDowell: We've completed three very attractive hospital sale transactions, which have generated $4 billion in gross proceeds.

William McDowell: Within these sales we have maintained and in most cases enhanced a commercial service provision relationship with the buyer.

William McDowell: We expect these relationships will be an attractive contributed earnings for years to come.

Saumya Sutaria: We have a commitment to deleverage the balance sheet and have retired $2.1 billion in debt in the first quarter alone. At the end of the first quarter, our EBITDA minus NCI leverage ratio was approximately three and a half times, a significant decrease from approximately seven times that we had at the start of 2018. We have demonstrated capital and financial flexibility this year by allocating 450 million dollars of capital towards our top priority, the attractive expansion of our ambulatory business.

William McDowell: We have a commitment to deleverage the balance sheet and have retired $2 1 billion in debt in the first quarter alone.

William McDowell: At the end of the first quarter.

William McDowell: Our EBITDA minus NCI leverage ratio was approximately three five times a significant decrease from approximately seven times that we had at the start of 2018.

William McDowell: We have demonstrated capital and financial flexibility this year by allocating $450 million of capital towards our top priority attractive expansion of our ambulatory business. Additionally, we've returned almost $280 million in capital to shareholders via repurchases in the first quarter alone.

Saumya Sutaria: Additionally, we've returned almost $280 million in capital to shareholders via repurchases in the first quarter alone. As a result, while our mission to provide quality, compassionate care in the communities we serve has not changed, we are essentially a new company. A repositioned portfolio of businesses is more predictable and capital efficient, with attractive margins and free cash flow. The operational discipline that we've instilled in each of our facilities, enabled by an analytics-driven culture, is producing differentiated results.

William McDowell: While our mission to provide quality compassionate care in the communities. We serve has not changed we are essentially a new company. Our repositioned portfolio of businesses is more predictable and capital efficient with attractive margins and free cash flow.

William McDowell: The operational discipline that we've instilled in each of our facilities enabled by an analytics driven culture is producing differentiated results.

Saumya Sutaria: Our balance sheet, which was once a challenging part of the Tenet story, has been deleveraged. This provides us with a strong foundation and a significant amount of capital and financial flexibility for the future. We feel well positioned to drive enduring value for our patients, our business partners, and, in turn, our shareholders. And with that... Sun will now provide a more detailed review of our financial results.

William McDowell: Our balance sheet, which was once a challenged part of the tenant story has been deleveraged.

William McDowell: This provides us with a strong foundation and a significant significant amount of capital and financial flexibility for the future.

William McDowell: We feel well positioned to drive enduring value for our patients our business partners and in turn our shareholders.

Speaker Change: And with that.

Speaker Change: Sun will now provide a more detailed review of our financial results.

Sun K. Park: Thank you Saum and good morning everyone. Our financial results for the first quarter represent a strong start to the year, with adjusted EBITDA coming in well above our guidance range. In the first quarter, we generated total net operating revenues of 5.4 billion dollars and consolidated adjusted EBITDA of 1.02 billion dollars, a 23% increase over the first quarter of 2023. These results were driven by strong same-store revenues, continued high patient acuity, favorable payer mix, and effective cost control.

Sun K. Park: Thank you Tom and good morning, everyone. Our financial results in the first quarter represent a strong start to the year with adjusted EBITDA coming in well above our guidance range in the first quarter. We generated total net operating revenues of $5 4 billion and consolidated adjusted EBITDA of 1.02 billion.

Speaker Change: A 23% increase over first quarter 2023.

Speaker Change: These results were driven by strong same store revenues continued high patient acuity favorable payer mix and effective cost controls.

Sun K. Park: Now I'd like to highlight some key items for each of our segments, beginning with USPI, which again delivered strong operating results in the first quarter. USPI's first quarter adjusted EBITDA grew 16% compared to last year, and its adjusted EBITDA margin continues to be very strong at 39.6%. USPI delivered a 6.4% increase in same-facility, system-wide revenues compared to the first quarter of 2023, with same-facility, system-wide net revenue per case up 6.8%, driven by high levels of acute care.

Speaker Change: Now I'd like to highlight some key items for each of our segments, beginning with USPI, which again delivered strong operating results in the first quarter.

Speaker Change: Uspi's first quarter, adjusted EBITDA grew 16% compared to last year and its adjusted EBITDA margin continues to be very strong at 39, 6%.

Speaker Change: USPI delivered a six 4% increase in same facility system wide revenues compared to first quarter of 2023 with same facility system wide net revenue per case up six 8% driven by high levels of acuity.

Sun K. Park: This was partially offset by a modest decrease in surgical case volume of 0.4%, in line with our expectations. As we noted last quarter, we are expecting growth in cases to build over the year due to the significant volume performance we saw in the first quarter of 2022. Now turning to our hospital segment.

Speaker Change: This was partially offset by a modest decrease in surgical case volume of <unk>, 4% in line with our expectations.

Speaker Change: As we noted last quarter, we are expecting growth in cases to build over the year due to the significant volume performance. We saw in the first quarter of 2023.

Speaker Change: Now turning to our hospital segment.

Speaker Change: First quarter Hospital, adjusted EBITDA grew 28% with adjusted EBITDA margins up 240 basis points over last year's at 14, 4%.

Sun K. Park: First Quarter Hospital Adjusted EBITDA grew 28%, with Adjusted EBITDA margins up 240 basis points over last year's at 14.4%. First quarter, same hospital, inpatient admissions increased 4.2%, and revenue per adjusted admission grew 8.8%, demonstrating strong pair mix and continued high acuity levels. In terms of continued expense management, our consolidated salary, wages, and benefits were 43.2% of net revenues in the first quarter, which was substantially lower than 45% in the first quarter of 2023, and our consolidated contract labor expense was 2.9% of SW&B, a material reduction from 6% in the first quarter of 2013. These reductions in costs reflect the disciplined approach that we take toward labor management.

Speaker Change: First quarter same hospital inpatient admissions increased four 2% and revenue per adjusted admission grew eight 8% demonstrating strong payer mix and continued high acuity levels.

Speaker Change: In terms of continued expense management, our consolidated salary wages and benefits were 43, 2% of net revenues in the first quarter, which was substantially lower than 45% in the first quarter of 'twenty three.

Speaker Change: And our consolidated contract Labor expense was two 9% of SWM be a material reduction from 6% in the first quarter of 'twenty three these.

Speaker Change: These reductions in costs reflect the disciplined approach that we take toward labor management.

Speaker Change: In addition to the strong operating performance in our hospital segment. Our first quarter results also include $88 million of additional revenues associated with CMS approval of increased funding for the Michigan Medicaid hospital rate adjustment program or <unk> for short.

Speaker Change: About half of this amount is related to the fourth quarter of 2023.

Sun K. Park: In addition to the strong operating performance in our hospital segment, our first quarter results also include $88 million of additional revenues associated with CMS' approval of increased funding for the Michigan Medicaid Hospital Rate Adjustment Program, or HRA for short. About half of this amount is related to the fourth quarter of 2023. We are the leading safety net provider of healthcare services for the people of Southeast Michigan and the greater Detroit area, and these funds will support the care that we provide to this community. Excluding this additional funding, revenue per adjusted admissions still grew 6.1%, a very attractive result.

Speaker Change: We are the leading safety net provider of healthcare services for the people of southeast, Michigan in the greater Detroit area and these funds will support the care that we provide to this community.

Speaker Change: Excluding this additional funding revenue per adjusted admissions still grew six 1% very attractive result.

Speaker Change: We've had a strong start to the year in both USPI and hospitals, reflecting strong fundamental same store revenue growth and disciplined expense management.

Speaker Change: Next we will discuss discuss our cash flow balance sheet and capital structure.

Speaker Change: We generated $346 million of free cash flow in the first quarter and as of March 31, we had nearly $2 $5 billion of cash on hand, with no borrowings outstanding under our $1 5 billion line of credit facility.

Speaker Change: We had an active first quarter on the M&A front as well, we invested $450 million for USPI acquisitions at attractive multiples and as Tom mentioned, we expect to deliver enhanced post center to returns on these acquisitions over the next few years.

Sun K. Park: We've had a strong start to the year in both USPI and hospitals, reflecting strong fundamental same-store revenue growth and disciplined expense management. Next, we will discuss our Cash Flow, Balance Sheet, and Capital Structure. We generated $346 million of free cash flow in the first quarter, and as of March 31st, we had nearly $2.5 billion of cash on hand, with no borrowings outstanding under our $1.5 billion line of credit facility. We had an active first quarter on the M&A front as well.

Speaker Change: Finally during the first quarter, we retired $2 1 billion of senior secured first lien notes that were previously due in 2026 and repurchased two 8 million shares of our stock for $278 million.

Speaker Change: Our leverage ratio as of March 31, 2024 was $2 seven to nine times, EBITDA or 3.46 times EBITDA less NCI a substantial improvement from year end, reflecting the proceeds that we received from our hospital divestitures as well as our outstanding operational performance.

Sun K. Park: We invested $450 million in USPI acquisitions at attractive multiples. And, as Saumya mentioned, we expect to deliver enhanced post-synergy returns on these acquisitions over the next few years. And finally, during the first quarter, we retired $2.1 billion of senior-secured first-lien notes that were previously due in 2026 and repurchased 2.8 million shares of our stock for $278 million. Our leverage ratio as of March 31st, 2024 was 2.79 times EBITDA or 3.46 times EBITDA less NCI, a substantial improvement from year-end, reflecting the proceeds that we received from our hospital debentures as well as our outstanding operational performance.

Speaker Change: I would note that we have not yet made tax payments on the gains from the hospital sales and the impact of these tax payments are not reflected in our current leverage ratios.

Speaker Change: Finally, we have no significant debt maturities until 2027, and all of our outstanding senior secured and unsecured notes have fixed interest rates.

Speaker Change: In the aggregate, we have made substantial progress transforming our balance sheet and capital structure.

Speaker Change: We are well positioned with a high degree of financial flexibility and cash flow generation to support our capital allocation priorities in the years to come.

Speaker Change: Now, let me turn to our outlook for 2024.

Speaker Change: For 2024, we now expect consolidated net operating revenue in the range of $20 billion to $24 billion.

Speaker Change: As Tom mentioned, we are raising our 2000 and for adjusted EBITDA outlook range by $215 million to $3 five to $3 7 billion, reflecting the strong start of the year.

Sun K. Park: I would note that we have not yet made tax payments on the gains from the hospital sales, and the impact of these tax payments is not reflected in our current leverage ratio. Finally, we have no significant debt maturities until 2027, and all of our outstanding senior secured and unsecured notes have fixed interest rates.

Speaker Change: The $250 million increase is driven by the following structural changes to our guidance.

Speaker Change: $209 million of incremental net revenues associated with the Michigan Medicaid HRA program.

Speaker Change: Second $30 million of incremental EBITDA from ASC acquisitions that we made in the first quarter above what we had previously assumed in guidance in.

Sun K. Park: In the aggregate, we have made substantial progress transforming our balance sheet and capital structure. We are well positioned with a high degree of financial flexibility and cash flow generation to support our capital allocation priorities in the years to come. Now, let me turn to our outlook for 2024.

Speaker Change: And finally, our year over year headwind of $24 million from the sale of two California hospitals to Adventist, which was not previously reflected in our guidance.

Speaker Change: On a normalized basis, our full year 'twenty for adjusted EBITDA is now expected to grow 13% over last year at the midpoint of our range.

Speaker Change: Finally, we would expect second quarter consolidated adjusted EBITDA to be in the range of $835 million to $885 million and we.

Sun K. Park: For 2024, we now expect consolidated net operating revenue in the range of $20 to $20.4 billion. As Saum mentioned, we are raising our 24 Adjusted EBITDA Outlook Range by $215 million to $3.5 to $3.7 billion, reflecting the strong start of the year. The $250 million increase is driven by the following structural changes to our guidance. First, $209 million of incremental net revenues associated with the Michigan Medicaid HRA program. Second, $30 million of incremental EBITDA from ASC acquisitions that we made in the first quarter, above what we had previously assumed in guidance.

Speaker Change: <unk> at Uspi's EBITDA in the second quarter will be 23, 5% to 25% of our full year USPI EBITDA guidance at the midpoint.

Speaker Change: Turning to our cash flows we now expect free cash flow in the range of $950 million to $1 2 billion and.

Speaker Change: An increase of $75 million at the midpoint. This range includes the payment of $687 million and net taxes related to our announced divestitures.

Adjusting for these tax payments. This represents $1 76 $2 billion of free cash flow at the midpoint of our of our outlook, which demonstrates continued strong performance even after the loss of EBITDA from the divested hospitals.

Speaker Change: As we stated last quarter, our cash flow performance has improved substantially over the past several years and we continue to demonstrate the ability to generate this cash flow, while also deleveraging our balance sheet, making investments in our businesses and executing on key growth plans.

Sun K. Park: And finally, a year-over-year headwind of $24 million in the sale of two California hospitals to Adventist, which was not previously reflected in our guidance. On a normalized basis, our full year 24 adjusted EBITDA is now expected to grow 13% over last year at the midpoint of our rate. Finally, we would expect second quarter consolidated adjusted EBITDA to be in the range of $835 to $885 million, and we anticipate that USPI's EBITDA in the second quarter will be 23.5 percent to 25 percent of our full year USPI EBITDA guidance at midterm.

Speaker Change: And finally as a reminder, our capital deployment priorities have not changed for 2024 first we will continue to prioritize capital investments to grow USPI through M&A.

Sun K. Park: We expect to invest in key hospital growth opportunities, including our focus on higher acuity service offerings.

Speaker Change: Third we will evaluate opportunities to retire <unk> refinance debt and finally, a balanced approach to share repurchases, depending on market conditions and other investment opportunities.

Speaker Change: We are pleased with our strong start to the year and the significant progress we have made with the portfolio. We are confident in our ability to deliver on our increased outlook for 2024, as we continue to provide high quality care for those in the communities we serve.

Sun K. Park: Turning to our cash flows, we now expect free cash flow in the range of $950 million to $1.2 billion, an increase of $75 million at the midterm. This range includes the payment of $687 million in net taxes related to our announced divestiture.

Speaker Change: With that we're ready to begin the Q&A operator.

Speaker Change: Thank you will.

Speaker Change: Now be conducting our question and answer session if you'd like to ask the question again. Please press star one on your telephone keypad.

Sun K. Park: And you can tell we're indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue.

unknown: Adjusting for these tax payments, this represents $1.762 billion of free cash flow at the midpoint of our outlook, which demonstrates continued strong performance even after the loss of Evita from the divested hospital. As we stated last quarter, our cash flow performance has improved substantially over the past several years. And we continue to demonstrate the ability to generate this cash flow while also deleveraging our balance sheet, making investments in our businesses, and executing on key growth plans.

unknown: 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.

unknown: Our first question comes from the line of Kevin Fischbeck with Bank of America.

unknown: Please proceed with your question.

Speaker Change: Great. Thanks, So overall I guess quite a look really good feeling number that still kind of looks a little bit off to me is just the same store case growth within USPI. I know you guys had a tough comp but is there anything that you would point to that kind of indicates.

unknown: That said that returning to volume as the year goes on are you guys sound confident in building is there anything on it.

unknown: Case for surgical day or trends in the quarter or something that you would point to that kind of say we've got good visibility.

unknown: And finally, as a reminder, our capital deployment priorities have not changed for 2024. First, we will continue to prioritize capital investments to grow USPI through M&A. Second, we expect to invest in key hospital growth opportunities, including our focus on higher acuity service options. Third, we will evaluate opportunities to retire and or refinance debt. And finally, a balanced approach to share repurchases depending on market conditions and other investment opportunities. We are pleased with our strong start to the year and the significant progress we have made with the portfolio.

Speaker Change: <unk> that that volume will reaccelerate.

unknown: Reaccelerate and build as the year goes on.

Speaker Change: Thanks, Kevin.

unknown:

Speaker Change: So first of all let me just address the quarter I mean this is what we expected right I think in the in the past.

Speaker Change: I'd said pretty clearly that we expect volume to build through the year.

unknown: Whereas the year goes on so this is this is no different than what we expected.

unknown: Yes.

Speaker Change: It's not worth it it's a footnote so I'll just be brief about it I mean, there were a couple of centers handful of centers that were shut down due to weather issues. We were essentially flat at the end of the day. When you really look at what was same store operating.

Speaker Change: Which which drove that number but the longer term implication of the result is actually very important in our minds and the way we were looking at the year, because you know with last year's volume growth being so strong.

unknown: We are confident in our ability to deliver on our increased outlook for 2024 as we continue to provide high-quality care for those in the communities we serve. And with that, we're ready to begin the Q&A. Operator.

Speaker Change: They were all and by the way even for us in the business doing this bottoms up there were always questions about was this volume simply deferred care.

unknown: That was going to be one time, and then actually there would be a rebase seeing significantly downwards, and we didn't think that based upon our planning in the business last year. When we went through the bottoms up planning and we're delighted that that's correct, which is to say that having the business. After a year, where we grew more than twice what.

unknown: Thank you. We will now be conducting our question and answer session. If you would like to ask a question again, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would 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 key.

unknown: Our typical growth rate would be.

unknown: Remained flat and have an opportunity to build off that floor suggests significant fundamental strength and tailwind in the demand for USPI type of services as opposed to 2023, having just been.

unknown: A catch up year that was going to go away when you look under the surface of our volumes.

Kevin Mark Fischbeck: One moment, please, while we poll for questions. Our first question comes from the line of Kevin Fischbeck with Bank of America. Please proceed with your question.

Kevin Mark Fischbeck: All of the major service lines that we focus on including the strength, we saw in Gi experienced a bit of further growth. So the volume that was down a little bit was more in low acuity pain type procedures, but we saw orthopedic CNT Gi other bone and other Bo.

Saumya Sutaria: Great, thanks. So overall, I guess the quarter was really good. The only number that still kind of looks a little bit off to me is just the same store case growth within USBI. I know you guys had a tough comp, but is there anything that you would point to that kind of indicates that return in volume as the year goes on? You guys sound confident about building. Is there anything on a Case for Surgical Day or Trends in the Quarter or something that you would point to that kind of says, you know, we've got good visibility that that volume will reaccelerate and build as the year goes on? Thanks. Yeah, thanks, Kevin.

Speaker Change: And joint care that we're focused on shoulders, obviously, the attractive urology partnership we have all growing so I think the fundamentals look good the comps are hard through the year, we think they get a little bit better as the year goes on but our fundamental.

Speaker Change: Belief is that the.

Speaker Change: The ability to grow off of last year is really what the first quarter affirmed as opposed to that have been that have been.

Saumya Sutaria: So, first of all, let me just address the quarter. I mean, this is what we expected, right? I think in the past, I said pretty clearly that we expect volume to build through the year or as the year goes on. So, this is no different than what we expected. You know, it's not worth it.

Speaker Change: Just purely one time deferred activity in 'twenty three we viewed as a good news story.

Speaker Change: Alright, great. Thanks.

Saumya Sutaria: Yeah.

Saumya Sutaria: Thank you. Our next question comes from the line of Justin Lake with Wolfe Research. Please proceed with your question.

Speaker Change: Thanks. Good morning, just a couple of quick numbers questions first in the first quarter. Obviously was really strong I appreciate the conservatism on that kind of assuming that continues through the year, but just want to make sure we understand how much better was it versus your internal forecast.

Saumya Sutaria: It's a footnote, so I'll just be brief about it. I mean, there were a couple of centers, a handful of centers that were shut down due to weather issues. We were essentially flat at the end of the day when you really look at what was the same store operating, which drove that number. But the longer-term implication of the result is actually very important in our minds and the way we were looking at the year.

Saumya Sutaria: When you adjust for everything going on in terms of the deals and.

Saumya Sutaria: Because, you know, with last year's volume growth being so strong, I think there were all, and by the way, even for us in the business doing this bottom up, there were always questions about whether this volume was simply deferred care, that was going to be one time, and then actually there would be a rebasing significantly downwards. And we didn't think that based upon our planning in the business last year when we went through the bottoms-up planning process.

Saumya Sutaria: The ASC purchase and the.

Saumya Sutaria: And the asset sales and then secondly post the asset sales.

Speaker Change: I think you had said that you were going to pay down debt here with those proceeds is that still the intent and if so can you give us an idea of where you think those leverage ratios kind of norm would be on a normalized basis at the end of the year posted debt repayments.

Saumya Sutaria: And we're delighted that that's correct, which is to say that having the business after a year where we grew more than twice what our typical growth rate would be.., remain flat and have an opportunity to build off that floor suggests significant fundamental strength and tailwind in the demand for USPI type of services as opposed to 2023 having just been a you know a catch-up year that was going to go away. When you look under the surface of our volumes all of the major service lines that we focus on including the strength we saw in GI experienced a bit of further growth so the volume that was down a little bit was more in low acuity pain type procedures but we saw orthopedics, ENT, GI, other bone and you know other bone and joint care that were focused on shoulders obviously the attractive urology partnership we have all growing so I think the fundamentals look good the comps are hard through the year we think they get a little bit better as the year goes on but our fundamental belief is that The ability to grow off of last year is really what the first quarter affirmed as opposed to that have been, you know, that have been just purely one-time deferred activity in 23. We view it as a good news story.

Justin: Hey, Justin.

Speaker Change: I'll take the first one son I'll pass this on.

Saumya Sutaria: The results the core results were significantly better than <unk>.

Saumya Sutaria: Our expectations for the quarter and that's true in the hospital segment and the USPI segment. Both demonstrated so if you just start with USPI and even building off Kevin's question.

Saumya Sutaria: The net revenue strength was substantial and.

Saumya Sutaria: It was related to acuity and pricing, obviously, which drove a.

Saumya Sutaria: Net revenue result above what our typical guide.

Saumya Sutaria: <unk> expectations would be so we felt pretty good about that and I think I've covered that piece of it on the hospital side. Similarly, the volume strength was good the mix was good the acuity was up again.

Saumya Sutaria: Over this period of time and I'm, referring to it.

Saumya Sutaria: And in the absence of some of the reimbursement our supplemental payment changes in the absence of that it was strong across the board. So we thought the core performance was quite a bit better than we expected for the for the quarter.

Justin Lake: Thank you. Our next question comes from the line of Justin Lake with Wolf Research. Please proceed with your question.

Justin Lake: Thanks, Tom and then Justin on your second question around debt and leverage maybe I'll take it in reverse order. So you are right as I mentioned in my script.

Sun K. Park: Thanks. Good morning.

Justin Lake: Our debt leverage ratios as of March 31, we will have to will probably change right as you add as we pay down debt and we mentioned about $687 million related to that.

Sun K. Park: Just a couple of quick numbers questions. First, the first quarter, obviously, was really strong. I appreciate the, you know, the conservatism, but I'm not kind of assuming that it continues through the year. But just want to make sure we understand, you know, how much better it was versus your internal forecast when you adjust for everything going on in terms of deals and the set, you know, the ASC purchase and the asset sales.

Sun K. Park: Attacks excuse me.

Sun K. Park: <unk>.

Sun K. Park: And then in terms of urine ratios were not <unk>.

Speaker Change: Prepared to address that specifically, yet, but as you can imagine based on our guidance.

Sun K. Park: We feel comfortable with the ranges that we're expecting and it will depend ultimately on the eventual capital allocation decisions that we make throughout the course of the year and as I said.

Sun K. Park: In my prepared remarks, as well our capital allocation strategies and priorities have not changed and then finally in terms of debt pay down.

Sun K. Park: Our hospital divestitures as Tom mentioned have done a great job of deleveraging tenant in terms of actual tactically paying down debt, we paid down our 26 note as we just mentioned and then our next.

Sun K. Park: And then secondly, post the asset sales, I think you had said that you were going to pay down debt here with those proceeds. Is that still the intent? And if so, can you give us an idea of where you think those leverage ratios would be on a normalized basis at the end of the year, post the debt repayments? Thanks.

Sun K. Park: Note is really February of 2027, which is almost actually three years from now right. So we'll obviously, we stay committed to paying down debt.

Sun K. Park: We'll take our time and look at the optimal weighted to execute on that.

Speaker Change: For the question.

Speaker Change: Thank you.

Saumya Sutaria: Yeah, hey Justin, it's Saum. I'll take the first one, Sun. I'll pass it to Sun.

Sun K. Park: Our next question comes from the line of Stephen Baxter with Wells Fargo. Please proceed with your question.

Sun: Hi, Thanks for the hospital business it'd be great to get some more color on the sources of acuity and payer mix in the quarter I guess, what's driving that and maybe how much of it is coming from the exchanges any type of quantification on where your exchange mix. That's after the significant growth we've seen over the past couple of years would be great. Thank you.

Sun K. Park: The results, the core results, were significantly better than our expectations for the quarter. And that's true in the hospital segment and the USPI segment. Both demonstrated – so if you just start with USPI and even build off Kevin's question, the net revenue strength was substantial. And that, you know, is related to acuity and pricing, obviously, which drove a net revenue result above what our typical, you know, guidance expectations would be. So we felt pretty good about that, and I think I've covered that piece of it.

Sun K. Park: Sure.

Speaker Change: A few thoughts for you.

Sun K. Park: One is that I think it's important to note that the volume strength was very broad based different markets.

Sun K. Park: And we've obviously talked historically about markets that recovered more quickly and less quickly from COVID-19, but the volume strength was pretty broad based I also indicated that we are now beginning to add some capacity back thoughtfully.

Sun K. Park: On the hospital side, similarly, the volume strength was good, the mix was good, and the acuity was up again over this period of time. And I'm referring to it, you know, in the absence of some of the reimbursement or supplemental payment changes. In the absence of that, it was strong across the board. So, you know, we thought the core performance was quite a bit better than we expected for the quarter.

Sun K. Park: In different markets, which we're pleased to see that we can accommodate without eroding our cost.

Sun K. Park: Performance so.

Sun K. Park: An important part of our story for the quarter was maintaining our cost discipline, even as we added the capacity, which helped with the margin expansion.

Sun K. Park: Thanks, Tom. And then, Justin, on your second question around debt and leverage, I'll take it in reverse order. So, you're right, as I mentioned in my script, the leverage ratios as of March 31 will have to, will probably change, right, as you add, as we pay down debt, and we mentioned about $687 million related to that, of tax. Excuse me. And then in terms of year-in ratios, you know, we're not prepared to address that specifically yet.

Sun K. Park: The service line acuity, especially the the procedure based work.

Sun K. Park: It was good.

Sun K. Park: We saw a lot of strength in.

Sun K. Park: In a number of markets in <unk>.

Sun K. Park: High acuity kind of ICU care type of <unk>.

Sun K. Park: Medical admissions and then and then to your last point, which I'll spend a minute on we did see significant strength in the exchange population.

Sun K. Park: But as you can imagine, based on our guidance, we feel comfortable with the ranges that we're expecting. It'll depend ultimately on the eventual capital allocation decisions that we make throughout the course of the year. And as I said in my prepared remarks as well, our capital allocation strategies and priorities have not changed.

Sun K. Park: Over over over prior year and I think this is probably and by the way the Medicaid business was down a little bit so I think.

Sun K. Park: Some of this is related obviously to the the short term phenomenon that we're probably seeing a bit from re determinations.

Stephen C. Baxter: And then finally, in terms of debt paydown, you know, our hospital divestitors, as Saum mentioned, have done a great job of deleveraging Tenet. In terms of actually, tactically paying down debt, you know, we paid down our 26 note, as we just mentioned. And then our next note is really February of 2027, which is almost three years from now, right? So we'll obviously stay committed to paying down debt, but we'll take our time and look at the optimal way to execute on that. Thanks for the question. Thank you. Our next question comes from the line of Stephen Baxter with Wells Fargo.

Sun K. Park: And the effect they are having now.

Stephen C. Baxter: For us.

Stephen C. Baxter: Wanted out before we've had a broad based.

Stephen C. Baxter: Contracting strategy to be in network with exchange plans around the country and our markets and so I think that probably helps us with respect to the.

Stephen C. Baxter: The ability to serve those patients for those that pickup exchange exchange coverage.

Stephen C. Baxter: Thank you.

Speaker Change: Our next question comes from the line of <unk> Chickering with Deutsche Bank. Please proceed with your question.

Stephen C. Baxter: Hey, good morning, and great job on the quarter.

Stephen C. Baxter: On the hospital segment margins.

Stephen C. Baxter: In the last quarter, we guided to be about 10, 9% at the midpoint.

Stephen C. Baxter: And now they got it to be $12. One so excluding the 60 basis points of margin improvement from Michigan.

Stephen C. Baxter: Thank you. Our next question comes from the line of Stephen Baxter with Wells Fargo. Please proceed with your question. Hi, thanks. For the hospital business, it'd be great to get...

Stephen C. Baxter: The bridge, what sort of made those margins go up.

Stephen C. Baxter: Was it the AD sales in California, just help bridge us to sort of that margin Delta and then a quick numbers question for you you talked about the England.

Saumya Sutaria: Yeah, sure. I have a few thoughts for you. One is that I think it's important to note that the volume strength was very broad-based. Different markets, you know, and we've obviously talked historically about markets that recovered more quickly and less quickly from COVID, but the volume strength was pretty broad-based. I also indicated that we are now beginning to, you know, add some capacity back thoughtfully in different markets, which we're pleased to see that we can accommodate without eroding our cost performance.

Saumya Sutaria: EBITDA coming from these asset sales what was the revenue contribution from these <unk> for the year. Thanks.

Saumya Sutaria: Yes.

Speaker Change: Alright, let me I'll take the first one.

Saumya Sutaria: Peter.

Speaker Change: Thanks for the support.

Saumya Sutaria: <unk>.

Saumya Sutaria: The margin strength.

Saumya Sutaria: Is it mean, it's multiple fold I think you covered you're covered many of the.

Saumya Sutaria: The areas there, obviously I would start with.

Saumya Sutaria: The importance of maintaining cost discipline, which we.

Saumya Sutaria: Which we have done.

Saumya Sutaria: The second is just volume and improvement in capacity utilization improves margins. The third is related to the mix in the payer mix in particular.

Saumya Sutaria: So, you know, an important part of our story for the quarter was maintaining our cost discipline even as we added capacity, which helped with the margin expansion. The service line acuity, especially the procedure-based work, was good. We saw a lot of strength in a number of markets in high-acuity, you know, kind of ICU care type of medical admissions. And then to your last point, which I'll spend a minute on, we did see significant strength in the exchange population over the prior year.

Saumya Sutaria: Both Medicare and commercial business, including commercial exchanges being.

Saumya Sutaria: Being stronger.

Saumya Sutaria: In the in the quarter and then obviously there the the service line opportunities, where you know, where we're focused which for obvious.

Saumya Sutaria: For obvious reasons.

Saumya Sutaria: Can be accretive to margins given some of the high acuity work that falls into those categories. So.

Saumya Sutaria: Those are the things that really drove the performance.

Saumya Sutaria: And, you know, I think this is probably, and by the way, the Medicaid business was down a little bit. So I think, you know, some of this is related, obviously, to the short-term phenomenon that we're probably seeing a bit from redeterminations and the effect they're having. Now, you know, for us, I've pointed out before, we have had a broad-based contracting strategy to be in network with exchange plans around the country in our markets, and so I think that probably helps us with respect to the ability to serve those patients for those that pick up exchange vault exchange coverage.

Saumya Sutaria: Because of the balance on the asset sales.

Saumya Sutaria: Higher significantly some of them being significantly higher margin markets than others, I'm not actually sure that the.

Saumya Sutaria: To be honest with you would have to go look for sure, but my general impression from what I looked in the past as I'm not actually sure the divestitures.

Saumya Sutaria: Where that accretive to margin.

Speaker Change: Go ahead Sir.

Speaker Change: Yes, that's correct and Peter on your second question about the ASC acquired revenues.

Saumya Sutaria: As Tom mentioned.

Saumya Sutaria: First 12 months equivalent of EBITDA is about $80 million, we obviously in our guidance have nine months of that in fiscal 'twenty, four and I would assume sort of a standard.

Saumya Sutaria: USPI EBITDA margins for that book of business.

Speaker Change: Great. Thanks, so much.

Saumya Sutaria: Thank you. Our next question comes from the line of Jason Cazorla with Citi. Please proceed with your question.

Philip Chickering: Our next question comes from the line of Peto Chickering with Deutsche Bank. Please proceed with your question.

Philip Chickering: Hey, good morning, and great job on the quarter. In the hospital segment, margins for the last quarter were guided to be about 10.9% at the midpoint, and now they got it to be 12.1.

Philip Chickering: Great. Good morning, Thanks, and congrats on the quarter I just wanted to really quickly ask about the free cash flow expectations EBITDA up to 100 free cash flow since only the $100 million.

Saumya Sutaria: So excluding the 60 base points of margin improvement from Michigan, can you guess what sort of made those margins sort of go up? You know, was it the asset sales in California, or did it just help bridge sort of that margin delta? And then a quick numbers question for you. You talked about the inland R of EBITDA coming from these asset sales. What was the revenue contribution from these ASCs for the year?

Philip Chickering: What's driving that differing outlook is that just related to the divestiture of the nuances that move with that are timing elements just to make.

Saumya Sutaria: Make sure we get on that free cash flow side. Thanks.

Sun: Yeah, Hey, Jason Thanks for the question. This is sun yes.

Saumya Sutaria: I would say with the EBITDA, we obviously on tax effect that addition, and then as we mentioned we have additional taxes that we expect to pay on the California, two hospital divestitures as well. So those are probably the two most to two <unk>.

Saumya Sutaria: Factors there.

Saumya Sutaria: All right, let me, I'll take the first one, Peto, and thanks for the support. The margin strength is... I mean, it's on a multiple fold. I think you covered many of the areas there. Obviously, I would start with the importance of maintaining cost discipline, which we have done. The second is just volume, and improvement in capacity utilization improves margins. The third is related to the mix and the payer mix, in particular, both Medicare and commercial business, including commercial exchanges, being stronger in the quarter.

Speaker Change: Thanks for your question.

Speaker Change: Thank you.

Saumya Sutaria: Thank you. Our next question comes from the line of Ben Hendrix with RBC capital markets. Please proceed with your question.

Peto: Great. Thank you very much just a quick question on the medical fee headwind that you called out just wanted to see how that has trended quarter to quarter trended versus your expectations and how we should think about that through the.

Speaker Change: Through the end of the year. Thank you.

Speaker Change: Yeah, Hey, Thanks for your question on the professional fees. So as we said before for full year 'twenty four we're pleased to see moderation in the rate of growth and change here.

Saumya Sutaria: And then, obviously, there are the service line opportunities where we're focused, which, for obvious reasons, can be accretive to margins given some of the high-acuity work that falls into those categories. Those are the things that really drove performance. Because of the balance on the asset sales, you know, higher significantly, some of them being significantly higher-margin markets than others, I'm not actually sure that the – and I, to be honest with you, would have to go look for sure, but my general impression from what I looked at in the past is I'm not actually sure the divestitures were that accretive.

Saumya Sutaria: We're still assuming about 8% to 10% range for fiscal 'twenty for guidance I will also add that in Q1.

Saumya Sutaria: We saw it be flat sequentially versus our last quarter and then for Q1 24 versus Q1 of 'twenty three we saw about 9% to 10% increase so thanks for your question.

Saumya Sutaria: Uh huh.

Saumya Sutaria: Thank you. Our next question comes from the line of Josh Raskin with Nephron Research LLC. Please proceed with your question.

Speaker Change: Hi, Thanks. Good morning can you talk about Detroit Medical Center, and specifically at the New SAP payment program changes. The way you think about that market I think it might be helpful to hear about capital projects that have come online for DMC and then if your plans change going forward in terms of investment and then just lastly on the numbers is that still low to bill.

Sun K. Park: Yeah, that's correct. And Peto, on your second question about the ASC acquired revenues, as Saumya mentioned, the first 12 months' equivalent of EBITDA is about $80 million. We obviously in our guidance have nine months of that in fiscal 24, and I would assume sort of standard USPI EBITDA margins for that book of business.

Sun K. Park: In terms of revenue.

Speaker Change: Yeah, Hey, Josh.

Sun K. Park: So the Detroit Medical Center is a is a very large multi asset complex academic health Science center that kind of goes all the way from.

Sun K. Park: The center of Detroit, all the way out into the suburbs with with multiple hospitals.

Jason Paul Cassorla: Great, thanks so much. Thank you. Our next question comes from the line of Jason Cassorla with Citi. Please proceed.

Sun K. Park: And includes the children's hospital of Michigan Ann and.

Jason Paul Cassorla: The rehabilitation Institute of Michigan, both of which are facilities that have not just statewide but regional draw. So it's a large complex.

Jason Paul Cassorla: Thank you. Our next question comes from the line of Jason Cassorla with Citi. Please proceed with your question.

Sun K. Park: Hey Jason, thanks for the question. This is Sun.

Sun K. Park: Academic Health Science center across a pretty broad geography, multiple trauma programs et cetera, now the other thing that the Detroit Medical Center is importantly for that community.

Sun K. Park: Yeah, I would say with the EBITDA, you know, we obviously tax affect that addition. And then, as we mentioned, we have additional taxes that we expect to pay on the two California hospital divestitures as well. So those are probably the two most important factors there. Thanks for your question. Thank you. Our next question comes from the line of Ben Hendrix with...

Sun K. Park: Is.

Benjamin Hendrix: The largest safety net provider in southeast, Michigan and Detroit in particular, both for the under an uninsured.

Benjamin Hendrix: In that in that community. So they are the Detroit Medical Center has always had multiple objectives in terms of the patient population.

Benjamin Hendrix: Thank you. Our next question comes from the line of Ben Hendrix with RBC Capital Markets. Please proceed with your question. Okay.

Benjamin Hendrix: That it it needs to continue to serve on a broad basis and.

Benjamin Hendrix: Our strategy there has been to invest in accomplishing all of those missions.

Benjamin Hendrix: Hey, thanks for your question. On the professional fees.

Sun K. Park: So, as we said before, for full year 24, we're pleased to see moderation in the rate of growth and change here. We're still assuming about an 8 to 10% range for fiscal 24 guidance. I will also add that in Q1, we saw it be flat sequentially versus our last quarter. And then for Q1 24 versus Q1 of 23, we saw about a 9 to 10% increase. So thanks for your question. Thank you. Our next question comes from the line of Josh.

Benjamin Hendrix: Together.

Benjamin Hendrix: We've been working on improvements in.

Josh: The supplemental payment programs in the state for years.

Josh: This doesn't really come out of the Blue if you will for us in the sense that a lot of effort has gone in and among multiple stakeholders, including the leaders.

Josh: The DMC and working with the state on finding ways in order to help the portion of the mission that provides increasing access and access to care for the under an uninsured portion of the mission at the DMC and I think what what we see here.

Joshua Richard Raskin: Thank you. Our next question comes from the line of Josh Raskin with Nephron Research, LLC. Please proceed with your question.

Saumya Sutaria: Yeah, hey, Josh. So, the Detroit Medical Center is a very large, multi-asset, complex, academic, health science center that kind of goes all the way from the center of Detroit all the way out into the suburbs with, you know, multiple hospitals and includes the Children's Hospital of Michigan and the Rehabilitation Institute of Michigan, both of which are facilities that have not just a statewide but a regional draw. So it's a large, complex academic health science center across a pretty broad geography with multiple trauma programs, et cetera.

Joshua Richard Raskin: The improvements.

Joshua Richard Raskin: Essentially brings Michigan to par with the way other states have managed ensuring that that access continues.

Saumya Sutaria: Continues to be made available for that population.

Saumya Sutaria: So.

Saumya Sutaria: Your question on how we look forward at the DMC is one that.

Speaker Change: We will address.

Saumya Sutaria: In the market over time.

Saumya Sutaria: But again I would point you back to the comment that I made that we have always operated the DMC and made investments too.

Saumya Sutaria: Focus on being successful in the multiple missions I think what changes as more of the return that we generate from those investments improves.

Saumya Sutaria: Now the other thing that the Detroit Medical Center is important for that community is the largest safety net provider in southeast Michigan and in Detroit, in particular, both for the under and uninsured in that community. So the DMC has always had multiple objectives in terms of the patient population that it needs to continue to serve on a broad basis. You know, our strategy there has been to invest in accomplishing all of those missions together.

Saumya Sutaria: More so than theres going to be some wholesale strength change in our.

Saumya Sutaria: Our strategy.

Saumya Sutaria: And the revenue size.

Saumya Sutaria: We don't report on the revenue size of our individual markets and I'm not sure that there is any reason to do that here.

Saumya Sutaria: Okay.

Saumya Sutaria: Thanks.

Speaker Change: Thank you.

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

Speaker Change: Thanks, Good morning, maybe you hit on some of this but the 45 centers that were acquired can we just maybe get a little bit more color on those how sure. If there's a back story I presume. This was a larger transaction or these in hospital markets potential JV partners. The mix just just any additional color would be helpful. Thanks.

Saumya Sutaria: We've been working on improvements in the supplemental payment programs in the state for years. This doesn't really come out of the blue, if you will, for us in the sense that a lot of effort has gone in among multiple stakeholders, including the leaders at the DMC and working with the state on finding ways in order to help the portion of the mission that provides increasing access and access to care for the under and uninsured.

Saumya Sutaria: No problem, thanks, with the 45 centers comprise.

Saumya Sutaria: Centers all across the nation.

Saumya Sutaria: The vast majority of them are new markets to USPI places, where we don't have.

Saumya Sutaria: Necessarily.

Saumya Sutaria: Centers today.

Saumya Sutaria: And, you know, I think what we see here in the improvements essentially brings Michigan to par with the way other states have managed to ensure that that access continues to be made available for that population. So, you know, your question on how we look forward at the DMC is one that... You know, we'll address it in the market over time, but again, I would point you back to the comment that I made that we have always operated the DMC and made investments too focused on being successful in the multiple missions. I think what changes is more the return that we generate from those investments improves more so there's going to be some wholesale change in our strategy and We don't report on the revenue size of our individual markets, and I'm not sure that there's any reason to do that here. Thanks. Thank you. Our next question comes from the line of... and Partners.

Saumya Sutaria: Our broad base of theirs, orthopedics, Theres Gi Theres ophthalmology I mean typical.

Speaker Change: Service lines that that you would end up that you would end up seeing.

Speaker Change: In the ambulatory space.

Saumya Sutaria: <unk>.

Speaker Change: You know I would say that.

Saumya Sutaria: Some of the centers have tightly affiliated partnerships with physicians.

Speaker Change: Some of the centers are.

Saumya Sutaria: In some cases health systems and in some of the centers are more what I would describe as standalone.

Saumya Sutaria: Standalone centers with independent groups that have over the time over periods of time come together bought equity and created a partnership that we bought into.

Speaker Change: I believe in <unk>.

Speaker Change: All of the centers.

Speaker Change: Bought up to consolidating positions.

Speaker Change: So theres no quote buy up.

Saumya Sutaria: The strategy that will be required in these centers in the future.

Speaker Change: I'll stop there I think that covers it.

Speaker Change: I appreciate it thanks.

Benjamin Whitman Mayo: Thank you. Our next question comes from the line of Whit Mayo with Learing Partners. Please proceed with your question.

Saumya Sutaria: Thank you. Our next question comes from the line of AJ Rice with UBS. Please proceed with your question.

Benjamin Whitman Mayo: Yeah, no problem. Thanks, Whit.

Benjamin Whitman Mayo: Hi, everybody.

Benjamin Whitman Mayo: It looks like in your bridge that Youre, assuming organic growth in the ambulatory business of about for EBITDA growth of about 4%. Obviously as you said, you've got a little tougher comp.

Saumya Sutaria: Yeah, the 45 centers comprise centers all across the nation. The vast majority of them are new markets to USPI, places where we don't necessarily have centers today. A broad base of, you know, orthopedics, GI, ophthalmology. I mean typical service lines that you would end up seeing in the ambulatory space.

Saumya Sutaria: Perhaps this year on this on the case volume Savage still expecting that to be slightly positive I guess, just given the strength of.

Saumya Sutaria: The revenue per case that you saw in the first quarter is there any reason.

Saumya Sutaria: That a conservative number is there any reason to think.

Saumya Sutaria: [inaudible] You know, I would say that some of the centers have tightly affiliated partnerships with physicians. Some of the centers are, you know, and in some cases, health systems. And some of the centers are more what I would describe as stand-alone centers with independent groups that have, over time, over periods of time, come together, bought equity, and created a partnership that we bought into. All of the centers we bought up to consolidate positions, so there's no, quote, buy-up strategy that will be required in these centers in the future.

Saumya Sutaria: That your revenue per case, given the investment in mix et cetera that you've done would start to moderate and then I might also on the USPI ask.

Saumya Sutaria: A lot of the peers are talking about.

Saumya Sutaria: Calendar effect at the end of the first quarter Easter spring break that maybe hit hit.

Saumya Sutaria: Hit in late March and affected some of the elective outpatient oriented procedures.

Saumya Sutaria: You see that and do you have any early read on April if you did.

Speaker Change: Yeah, Hey, Jay It's just a couple of a couple of things look we have a lot of moving parts and pieces.

Saumya Sutaria: I don't know. I'll stop there. I think that covers it.

Albert J. William Rice: Thank you. Our next question comes from the line of A.J. Rice with UBS. Please proceed with your question.

Saumya Sutaria: This quarter, including including things impacting our guidance so.

Albert J. William Rice: Hi everybody. It looks like in your bridge that you're assuming organic growth in the ambulatory business of about four and EBITDA growth of about 4%. Obviously, as you said, you've got a little tougher comp, perhaps this year on the case volume side, but you're still expecting that to be slightly positive. I guess just given the strength of the revenue per case that you saw in the first quarter, is there any reason why that is a conservative number? Is there any reason to think that your revenue per case, given the investment in mix, et cetera, that you've done, would start to moderate?

Albert J. William Rice: What we ended up doing was improved increasing our guidance to be consistent with the structural revenue and asset ownership, both additions and subtractions.

Albert J. William Rice: To the portfolio that we could forecast looking ahead to 2024.

Albert J. William Rice: As I said, we're really pleased with the demand we're seeing across the board in the businesses, we recognize the core.

Albert J. William Rice: Underlying outperformance.

Albert J. William Rice: Net of all those other items and we haven't really touched our guidance to acknowledge that performance yet.

Saumya Sutaria: And then I might also, on the USPI, ask... A lot of the peers are talking about this calendar effect at the end of the first quarter, Easter, spring break, that may be hit in late March and affect some of the elective outpatient oriented procedures. Did you see that? And do you have any early read on April if you did?

Saumya Sutaria: Again lots of moving parts and pieces I think with the underlying performance.

Speaker Change: We'll come back and address that.

Saumya Sutaria: On future calls we'll.

Saumya Sutaria: Hopefully be in a position, where we really need to address that on future calls, but theres nothing in the environment right now that we're seeing that's concerning and again I would say.

Saumya Sutaria: Yeah, hey, it's, um...

Saumya Sutaria: Yeah, hey AJ, just a couple of things. Look, we have a lot of moving parts and pieces this quarter, including things impacting our guidance, so. What we ended up doing was increasing our guidance to be consistent with the structural revenue and asset ownership, both additions and subtractions, to the portfolio that we could forecast looking ahead to 2024. Look, as I said, we're really pleased with the demand we're seeing across the board in the businesses. We recognize the core underlying outperformance net of all those other items, and we haven't really touched our guidance to acknowledge that performance yet. Again, lots of moving parts and pieces.

Saumya Sutaria: Up to today, we are pleased with the demand we're seeing in the business.

Saumya Sutaria: Okay.

Speaker Change: The calendar effect question I don't know if you want to address that sooner.

Saumya Sutaria: Yes, I mean of course, we spend a lot of time.

Saumya Sutaria: In particular because USPI.

Saumya Sutaria: Functions on a workday a weekday workday type of schedule focused on those issues from year to year. It does cause some effect on us.

Saumya Sutaria: On the business and the volumes that are there.

Saumya Sutaria: So we're I guess I would say, we're a little bit used to it that that happens and yes. This year. It did have some effect in that in that arena.

Saumya Sutaria: I would reiterate the longer term message around the volumes. We are really pleased with the fact that what we saw in the first quarter.

Saumya Sutaria: I think with the underlying performance, we'll come back and address that on future calls. We'll hopefully be in a position where we really need to address that on future calls. But there's nothing in the environment right now that we're seeing that's concerning.

Saumya Sutaria: Helped to give us even more confidence that 23 was not just a onetime rebound year. It was a year in which we can build upon that volume strength unnaturally high volume strength from last year and as the year progresses look to build volume growth off of what we are.

Saumya Sutaria: And again, I would say that up to today, we're pleased with the demand we're seeing in the business. The calendar effect question, I don't know if you want to address that, Son, or I don't. I mean, I, yes, I mean, of course, we spend a lot of time, you know, in particular because USPI, you know, functions on a workday, weekday, workday type of schedule focused on those issues from year to year. It does cause some effect on the business and the volumes that are there.

Saumya Sutaria: Some very tough comps from 'twenty, three but again fundamentally the first quarter gives us a great sense of relief that.

Speaker Change: We've we've established.

Son: That there is strength in the <unk> for this business are real.

Saumya Sutaria: So we're, I guess I would say we're a little bit used to it that that happens. And yes, this year, it did have some effect in that area. I would reiterate the longer-term message around volumes. We are really pleased with the fact that what we saw in the first quarter... helped to give us even more confidence that 23 was not just a one-time rebound year. It was a year in which we could build upon that volume strength, the unnaturally high volume strength from last year.

Saumya Sutaria: Thank you and our next question comes from the line of Andrew Mok with Barclays. Please proceed with your question.

Speaker Change: Hi, Good morning, just wanted to follow up on the 45 ASC that you acquired in the quarter. I think you said in your prepared remarks that youre expecting $80 million of EBITDA contribution from these centers when I look at the acquisition and development activity aligning your ASC Bridge I think the revision was closer to $30 million over three quarters I'm not sure. If there was any contribution in the <unk>.

Speaker Change: So if so that implies a pretty material step up in <unk> 25, I just wanted to make sure im understanding about this business and the cadence of synergies that should materialize in 2025 is that the right way to think about it. Thanks.

Saumya Sutaria: And as the year progresses, look to build volume growth off of, you know, what were some very tough comps from 23. But again, fundamentally, the first quarter gives us a great sense of relief that there is strength and the tailwinds for this business are real.

Speaker Change: Andrew I'll try to address the.

Speaker Change: The different parts of your question so first of all.

Saumya Sutaria: And Sam's comments, he mentioned $80 million that is a first 12 months of ownership number so in our 24 guidance, we have nine months contribution.

Andrew Mok: Thank you. And our next question comes from the line of Andrew Mok with Barclays. Please proceed with your question.

Saumya Sutaria: And I would assume that as happening in Q2 through Q4.

Andrew Mok: The other piece I would say is that when we posted original guidance in our last call up $71 million of acquisition acquisition and development activity for USPI. Obviously some of the activity that we accomplished in Q1 goes towards that so what youre seeing with our new number of 101 and acquisition development activity.

Andrew Mok: Hi, good morning. I just wanted to follow up on the 45 ASCs that you acquired in the quarter. I think you said in your prepared remarks that you're expecting $80 million of EBITDA contribution from these centers. However, when I look at the acquisition and development activity line in your ASC bridge, I think the revision was closer to $30 million over three quarters. I'm not sure if there was any contribution in the quarter, but if so, that implies a pretty material step up in 1Q25. Just want to make sure I understand this business and the cadence of synergies that should materialize in 2025. Is that the right way to think about it?

Andrew Mok: For USPI.

Andrew Mok: <unk>.

Andrew Mok: Calculates that assumes that parts a lot of the acquisition of a company in Q1 goes towards the original guidance. So that's part one part two is we won't comment on.

Andrew Mok: <unk> thousand 25 impact yet but.

Andrew Mok: But what we feel confident in is that over the long term over the next three year outlook that we will.

Speaker Change: Work hard to achieve six to seven times multiple EBITDA minus NCI for that acquisition. Thanks for your question. This is an attractive portfolio of assets again diversity of service lines.

Andrew Mok: Nice opportunities to realize.

Andrew Mok: Improvement in performance over the first.

Sun K. Park: Andrew, I'll try to address the different parts of your question. So first of all, in Saum's comments, he mentioned $80 million. That is the first 12 months of ownership number. So in our 24 guidance, we have nine months of contribution. And I would assume that to be happening in Q2 through Q4. The other piece, I would say, is that when we posted original guidance in our last call of $71 million of acquisition and development activity for USPI, obviously, some of the activity that we accomplished in Q1 goes towards that.

Andrew Mok: The first three years that will build and grow earnings.

Sun K. Park: Ordinary EBITDA minus NCI as well and.

Sun K. Park: And as I indicated all consolidated from the beginning not not creating a buy up set of work a work plan.

Sun K. Park: Related to buy ups. So we like the portfolio of assets that we picked up.

Sun K. Park: And we will we will digest over the course of the year.

Speaker Change: Thank you.

Sun K. Park: Our next question comes from the line of Sarah James with Cantor Fitzgerald. Please proceed with your question.

Speaker Change: Thank you.

Sun K. Park: So a couple of times today, if you've touched on.

Sun K. Park: So what you're seeing with our new number of 101 in acquisition and development activity for USPI calculates that and assumes that a lot of the acquisitions of Q1 go towards the original guidance. So that's part one.

Sun K. Park: Your strategy of growing off of a new higher base for USPI volume I'm wondering if you've done any.

Sun K. Park: Analysis on that to see where they're just stronger market trends or did you guys gained share and if it is share gain are you able to tell was that due to partnerships and referrals are growing catchment area or just sort of what was behind it.

Sun K. Park: Part two is we won't comment on 2025 impact yet, but what we feel confident in is that over the long term, over the next three-year outlook, we will work hard to achieve six or seven times multiple EBITDA minus NCI for that acquisition. Yeah, this is an attractive portfolio of assets. Nice opportunities to realize improvement in performance over the first... the first three years that we'll build and grow earnings, and importantly, even to a minus NCI as well.

Speaker Change: Yes, Thanks Sarah.

Sun K. Park: So a couple of things I mean, the ASC environment does not necessarily.

Sun K. Park: As a general market as data rich is some of what you see on the hospital side right. So.

Sun K. Park: And as I indicated, all consolidated from the beginning, not creating a buy-up set, a work plan set, you know, related to buy-ups. So we like the portfolio of assets that we picked up, and we'll digest over the course of the year.

Sun K. Park: We too have to use proxies to understand and forecast, where we're going with the business. Obviously the number one thing. We do is we do bottoms up center by center business planning every year that is built upon our understanding of our strategies how successful they are pulling the physician partners et cetera.

Sun K. Park: Thank you. Our next question comes from the line of Sarah James. Please proceed. Thank you. Thank you. So a couple times today, you've touched me.

Sarah Elizabeth James: It's a pretty.

Sarah Elizabeth James: Simple, but relatively comprehensive process and.

Sarah Elizabeth James: Thank you. Our next question comes from the line of Sarah James with Cancer Fitzgerald. Please proceed with your question. Thank you.

Sarah Elizabeth James: When you when you look at that.

Sarah Elizabeth James: And then you also as I indicated in our fourth quarter call just simply measure how busy some of these individual physicians were in 2023.

Sarah Elizabeth James: Yeah, thanks, Sarah. So, a couple things. I mean, the ASC environment is not necessarily, as a general market, as data-rich as some of what you see on the hospital side, right? So we, too, have to use proxies to understand and forecast where we're going with the business. Obviously, the number one thing we do is we do bottom-up, center by center, business planning every year that is built upon our understanding of our strategies, how successful they are, attracting the physician partners, et cetera. I mean, it's a pretty simple but relatively comprehensive process.

Sarah Elizabeth James: I may have even noted some of these people worked incredibly hard to take care of patients at a level of productivity that we have not seen them.

Sarah Elizabeth James: Deliver in prior years of course, Youre left with the question. Despite our best efforts at forecasting whether or not a significant portion of what we saw last year, especially being post pandemic was simply onetime deferred care. So that's why I elaborate on it because.

Sarah Elizabeth James: In the first quarter, we sort of knew from our bottoms up planning that we believed volume growth would build over the year of course, there is always a risk that.

Saumya Sutaria: And you know when you look at that And then you also, as I indicated in our fourth quarter call, just simply measure how busy some of these individual physicians were in 2023. I think I may have even noted that some of these people worked incredibly hard to take care of patients at a level of productivity that we have not seen them, you know, deliver in prior years. Of course, you're left with the question, despite our best efforts at forecasting, whether or not a significant portion of what we saw last year, especially being post-pandemic, was simply one-time deferred care.

Saumya Sutaria: That planning wasn't entirely accurate and there would be a volume retreat based upon deferred care being the real reason for the growth last year and that's why I comment on it because I'm not as focused on quarters individually I'm focused on the broad based tailwind that drive USPI and our ability to.

Saumya Sutaria: Drive earnings growth over a longer period of time, and that's maybe why I elaborate on that point a few times because it gives us more confidence that we are building solidly for the long term the only other statistic that we're able to look at across the board as our rate of addition of new physicians.

Saumya Sutaria: And being able to measure how they ramp up and so one of the reasons, we had a little bit of confidence. This year that we would see growth as the year went on was despite a busy year last year, we did add physicians to the USPI portfolio and it usually takes them nine to 18 months to <unk>.

Saumya Sutaria: In the first quarter, we sort of knew from our bottom-up planning that we believed volume growth would build over the year. Of course, there was always a risk that, you know, that planning wasn't entirely accurate, and there would be a volume retreat based upon deferred care being the real reason for the growth last year. And that's why I comment on it, because I'm not as focused on quarters individually.

Saumya Sutaria: Ramp into their comfort level in an ASC and so we thought okay based upon those additions we ought to see some growth above and beyond where we were in the latter part of the year side and maybe thats more color than you wanted but that's kind of how this how the planning for this business shapes up.

Saumya Sutaria: I'm focused on the broad-based tailwinds that drive USPI and our ability to drive earnings growth over a longer period of time. And that's maybe why I elaborate on that point a few times; that gives us more confidence that we are building, you know, solidly for the long term. The only other statistic that we're able to look at across the board is our rate of addition of new physicians and being able to measure how they ramp up.

Speaker Change: That's very helpful. Thank you.

Speaker Change: Thank you. Our next question comes from the line of <unk> <unk> with Jpmorgan Chase <unk> Company. Please proceed with your question.

Saumya Sutaria: I wanted to ask you about the 45 centers.

Saumya Sutaria: Were there any large portfolio deals in that quarter.

Saumya Sutaria: And so one of the reasons we had a little bit of confidence this year that we would see growth as the year went on was that, despite a busy year last year, we did add physicians to the USPI portfolio, and it usually takes them 9 to 18 months to ramp up to their comfort level in an ASC. And so we thought, okay, based upon those additions, we ought to see some growth above and beyond where we were in the latter part of the year. So I don't know, maybe that's more color than you wanted, but that's kind of how the planning for this business shapes up. That's very helpful. Thank you. Our next move

Saumya Sutaria: Part of the 45 I know you mentioned that the additions were pretty broad based across markets.

Speaker Change: Any other color on sort of what the acuity or case mix sense for those centers and maybe more broadly just what youre seeing in terms of.

Speaker Change: M&A pipeline.

Saumya Sutaria: Yes.

Speaker Change: So a few things one.

Speaker Change: The centers, where in fact as I said broad based geographically.

Speaker Change: A majority of the centers did come through a single transaction for multiple centers.

Saumya Sutaria: The.

Calvin Alexander Sternick: Thank you. Our next question comes from the line of Cal Sternick with JPMorgan Chase & Company. Please proceed with your question.

Speaker Change: <unk> closed the deal right. So assessing the case mix in the acuity and all that stuff other than what we learned in diligence that gave us comfort.

Calvin Alexander Sternick: <unk> is not really something I'm prepared to talk about at any in any great detail.

Saumya Sutaria: Yeah, hey, Cal. So, a few things. One, the centers were, in fact, as I said, you know, broad based geographically, and the majority of the centers did come through a single transaction for multiple centers. We just closed the deal, right, so assessing the case mix and the acuity and all that stuff, other than what we learned in due diligence that gave us comfort, is not really something I'm prepared to talk about in any great detail.

Saumya Sutaria: Our priority and focus of course is continuing to acquire assets at attractive multiples, adding value to them from a quality safety compliance growth standpoint to increase access to lower cost care in the communities in which we acquire them using the USPI management skills and ultimately.

Saumya Sutaria: Improving the returns to the levels that Sun and I described.

Saumya Sutaria: In a typical fashion by year three we think these things will be very nice additions to the earnings.

Saumya Sutaria: Our priority and focus, of course, is continuing to acquire assets at attractive multiples, adding value to them from a quality, safety, compliance, and growth standpoint to increase access to lower-cost care in the communities in which we acquire them, using USPI management skills, and ultimately improving the returns to the levels that Sun and I described in a typical fashion by year three. We think these things will be very nice additions to USPI's earnings. In terms of the broader... M&A Pipeline and DeNovo Pipeline, they both remain strong. We anticipate continuing to progress through that agenda as the year goes on.

Saumya Sutaria: For USPI.

Saumya Sutaria: In terms of the broader.

Saumya Sutaria: M&A.

Saumya Sutaria: Pipeline.

Saumya Sutaria: And de Novo pipeline they both remained strong.

Saumya Sutaria: We.

Saumya Sutaria: <unk> continuing to progress through that agenda as the year goes on.

Speaker Change: Great. Thanks.

Saumya Sutaria: Thank you. Our next question comes from the line of Brian <unk> with Jefferies. Please proceed with your question.

Speaker Change: Hey, good morning, guys and congrats on a solid quarter maybe.

Saumya Sutaria: Maybe some.

Speaker Change: Question for you as I think about the revenue per case related to all the comments you made on USPI right. I mean, obviously it was strong this quarter, but if we think about the mix of ortho continues to grow.

Saumya Sutaria: The impact of the new ASC is that you just acquired and maybe the comment you made about payer rate bumps how should we be thinking about your view on the sustainability of the right level of revenue per case growth number one and maybe some color you can share with us on the payer rate bumps comment you made earlier in your prepared remarks.

Brian Gil Tanquilut: Thank you. Our next question comes from the line of Brian Tanquilut with Jeffrey. Please proceed with your question.

Saumya Sutaria: Hey, good morning, guys, and congrats on a solid quarter. Maybe, Saum, my question for you, as I think about revenue per case, is related to all the comments you made on USPI, right? I mean, obviously, it was strong this quarter. But if we think about the mix of orthopaedics that is expected to grow, the impact of the new ASCs that you just acquired, and maybe the comment you made about payer rate bumps, how should we be thinking about your view on the sustainability of or the right level of revenue per case growth, number one, and maybe some color you can share with us on the payer rate bumps comment that you Cough

Saum: Yes, sure well I mean, I think the number one driver of revenue per case is obviously the mix acuity right I mean, it's it's the case mix and acuity.

Saumya Sutaria: And <unk>.

Saumya Sutaria: Strategically our objective is to grow that.

Saumya Sutaria: It's also important just because the more that we grow in that dimension the more we're creating value for the system by reducing.

Saumya Sutaria: The cost of of similar care that could be done in a more expensive setting.

Saumya Sutaria: Which is obviously important to our payer and government reimbursement stakeholders. So that's how we think about.

Saumya Sutaria: That and why we are focused on that.

Saumya Sutaria: Yeah, sure. Well, I think the number one driver of revenue per case is obviously the mix and acuity, right? I mean, it's the case mix and acuity. And strategically, our objective is to grow that. It's also important just because the more that we grow in that dimension, the more we're creating value for the system by reducing the cost of similar care that could be done in a more expensive setting, which is obviously important to our payer and government reimbursement stakeholders. So that's how we think about that and why we are focused on it.

Saumya Sutaria: The.

Saumya Sutaria:

Saumya Sutaria: The exit of low acuity business.

Saumya Sutaria: Helps that statistic and net revenue per case, but it also over time helps us create some more capacity in our ASC is.

Saumya Sutaria: As I've talked about it's always a headwind to same store growth when you lose.

Saumya Sutaria: Or move out or whatever low acuity pain cases, where you can do 10 of them in the same time you can do one joint surgery that is what it is and we obviously youre going.

Saumya Sutaria: To continue down the path of our service line mix improvements that we believe in regardless of the impact on same store. So obviously our objective to continue to build the same store. However, as we've as we've said in our guidance from a mixed perspective, even in the AFC business I think that.

Saumya Sutaria: The exit of low acuity business... helps that statistic in that revenue per case. But it also, over time, helps us create some more capacity in our ASCs. As I've talked about, it's always a headwind to same-store growth, you know, when you lose or move out or whatever, low-acuity pain cases where you can do ten of them in the same time you can do one joint surgery. That is what it is, and, you know, we obviously are going to continue down the path of our service line mix improvements that we believe in regardless of the impact on the same store.

Saumya Sutaria: Some of the benefit of the exchange population growth, we're seeing that flow through it's not just the hospitals, we're seeing that flow through in the <unk>.

Saumya Sutaria: Business, what's different in the ASC business is there isn't as much Medicaid so youre not seeing.

Saumya Sutaria: The signet youre not seeing the reduction.

Saumya Sutaria: Necessarily.

Saumya Sutaria: It like you would in the hospital segment.

Saumya Sutaria: And the growth in the exchange business, but you are seeing the exchange.

Saumya Sutaria: It's obviously our objective to continue to build the same store, however, as we've said in our guidance. From a mixed perspective, even in the ASC business, I think that, you know, some of the benefit of the exchange population growth is flowing through. It's not just the hospitals. We're seeing that flow through in the ASC business. What's different in the ASC business is there isn't as much Medicaid, so you're not seeing, you know, the significant reduction, necessarily, like you would in the hospital segment and the growth in the exchange business. But you are seeing exchange segment growth on the ASC side.

Saumya Sutaria: Segment growth on the ASC side.

Saumya Sutaria: And then just the impact of the acquisitions.

Speaker Change: Does that dilutive or how should we be thinking about that.

Speaker Change: Yes, that's a good question I mean other than providing the numbers around I mean again, we just closed on a lot of these centers in the past quarter and most of them frankly, we're towards the end of the quarter to SUNS point around they really are an impact in Q2 through Q4 as opposed to having had any impact in Q1.

Saumya Sutaria: The.

Saumya Sutaria: The centers we acquire.

Saumya Sutaria: Generally speaking will be lower margin.

Saumya Sutaria: And dilutive to earnings from a margin standpoint until USPI fully implement its program of improvements, which is how the year three multiples can be forecast over time that obviously comes with earnings improvement and therefore margin improvement and so that's that.

Saumya Sutaria: But it's not just the impact of the acquisition; does that dilute it, or how should we be thinking about that?

Saumya Sutaria: Yeah, that's a good question, and I mean, other than providing the numbers around, I mean, again, we just closed on a lot of these centers in the past quarter, and most of them, frankly, were towards the end of the quarter, to Sun's point around, they really have an impact in Q2 through Q4 as opposed to having had any impact in Q1. The centers we acquire... Generally speaking, we'll be lower margin and dilutive to earnings from a margin standpoint until USPI fully implements its program of improvements, which is how the year three multiples can be forecast over time. You know, that obviously comes with earnings improvement and, therefore, margin improvement. And so that's definitely, you know, that's definitely the case.

Saumya Sutaria: <unk>, that's definitely the case, we haven't gotten into them enough to know whether there are some that we're going to need to do some partnership restructuring or other things, we will provide more visibility as we get into it.

Saumya Sutaria: Next quarter in terms of what impact it may have on volumes earnings any refinement to the earnings, but we feel pretty good about the projections that we've given on these centers for the first 12 months of EBITDA and also what the long term impact or benefit to the company will be.

Speaker Change: Thank you.

Saumya Sutaria: Thanks.

Saumya Sutaria: Thank you and our next question comes from the line of Anne.

Speaker Change: We do hold Securities. Please proceed with your question.

Saumya Sutaria: We haven't gotten into them enough to know whether there are some that we're going to need to do some partnership restructuring or other things. We'll provide more visibility as we get into them, you know, next quarter in terms of what impact they may have on volumes, earnings, and any refinement to earnings. But we feel pretty good about the projection that we've given for these centers for the first 12 months of EBITDA and also about what the long-term impact or benefit to the company will be.

Speaker Change: Hi, good morning.

Speaker Change: I just wanted to focus on divestitures, obviously, they've been a very nice source of debt repayment on the acute care side.

Speaker Change: How do you view the breast divestitures going forward and can you remind us what goes into decision, making on whether it's a strategically keep or divest hospital market. Thanks.

Saumya Sutaria: Yes.

Saumya Sutaria: So and I appreciate the question I think that strategically.

Saumya Sutaria: Our choices about divestitures are dependent upon a few different things. Obviously, one is does it impact our overall corporate strategy.

unknown: Thank you. Thank you. Thank you. Thank you. And our next question comes: We do hold security. Please.

Speaker Change: In a positive or negative way or do we have the ability to provide leadership and ongoing growth in the markets that we were serving based upon our business model.

Anne Hines: Thank you. And our next question comes from the line of Anne Hines with Mizuho Security. Please proceed with your questions. Hi, good morning. So I just want to focus on

Ann Kathleen Hynes: Capital needs and other things that those assets may have and what we might forecast. The return on those capital investments may be versus other things that we could spend the money on and then finally the ability to generate proceeds that fully value. What we've built in these assets, which is again, what we were folks.

Saumya Sutaria: Yeah, I mean, so, and I appreciate the question. I think that, you know, strategically, our choices about divestitures are dependent upon a few different things. Obviously, one question is, does it impact our overall corporate strategy in a positive or negative way? Or do we have the ability to provide leadership and ongoing growth in the markets that we were serving based upon our business model, capital needs, and other things that those assets may have, and what we might forecast the return on those capital investments may be versus other things that we could spend the money on?

Saumya Sutaria: On because these assets.

Saumya Sutaria: Underwent a lot of work over the last five years and we wanted to ensure that we captured full value for them in our in our transactions. That's how we think about those are the criteria that we've thought about where as I've said before we're very comfortable with the portfolio. We have today in the.

Saumya Sutaria: The positions that we hold today and our ability to build and grow.

Saumya Sutaria: And then finally, the ability to generate proceeds that fully value what we've built in these assets, which is, again, what we were focused on because, you know, these assets underwent a lot of work over the last five years, and we wanted to ensure that we captured full value for them in our transactions. That's how we think about them; those are the criteria that we've thought about. We are, as I've said before, very comfortable with the portfolio we have today and the positions that we hold today and our ability to build and grow in the markets that we are in.

Saumya Sutaria: In the markets.

Saumya Sutaria: In the markets that we're in.

Saumya Sutaria: Yeah.

Speaker Change: Thank you.

Speaker Change: And we have reached the end of the question and answer session and this also concludes today's conference.

Speaker Change: And we do thank you for your participation and you may.

Speaker Change: May disconnect your lines at this time.

Saumya Sutaria: Okay.

Saumya Sutaria: Okay.

Saumya Sutaria: Okay.

Saumya Sutaria: Yeah.

unknown: And we have reached the end of the question and answer session, and this also concludes today's conference. And we do thank you for your participation, and you may disconnect your lines at this time.

unknown: Yeah.

unknown: Hum.

unknown: ?? ?? ?? ?? ?? ?? ?? ?? ??