Thomas Walsh

Thomas Walsh asked for clarification on why Acadia Healthcare's core EBITDA growth appeared to outpace underlying rate and volume components, seeking insights into other contributing factors, potentially on the cost side. He also inquired about the company's preparations for California's new staffing requirements and their embedded impact in the 2026 guidance.

Answer

CFO Todd Young explained that the core EBITDA growth is primarily driven by the ramping of facilities opened between 2023 and 2025, which provides an occupancy benefit and greater leverage. Regarding California staffing, he stated that the new nursing ratios, effective June 1, are expected to have a $4 million EBITDA impact in 2026, mainly due to the need for higher-level nurses rather than increased headcount. CEO Debbie Osteen added that the company is working with the California Hospital Association to advocate for offsetting funding for these new regulatory requirements.

Thomas Walsh asked for clarification on what factors, potentially on the cost side, are contributing to Acadia's core EBITDA growth outpacing underlying rate and volume components. He also inquired about the company's preparations for California's expected mid-year staffing requirement changes and what is embedded in the guidance for this.

Answer

CFO Todd Young explained that the primary driver of core EBITDA growth is the ramping of facilities opened between 2023 and 2025, which provides an occupancy benefit and greater leverage into EBITDA. Regarding California staffing requirements, Mr. Young stated the team is diligently preparing for the June 1 implementation, with an estimated $4 million EBITDA impact embedded in guidance, primarily due to the need for a higher level of nursing staff rather than increased headcount. CEO Debbie Osteen added that Acadia is working with the California Hospital Association to advocate for offsetting funding for new regulatory requirements.

Thomas Walsh, on behalf of Andrew Mok, asked about the plan to redeploy resources and reduce expenses at Conifer as its services to CommonSpirit conclude, aiming to rightsize the cost structure.

Answer

Saum Sutaria, Chairman and Chief Executive Officer, explained that cost reductions are not expected this year due to ongoing service execution. He highlighted other growth opportunities locked in for 2027, allowing for talent redeployment. Mr. Sutaria detailed the significant financial value generated from the Conifer transaction, including retiring $885 million in obligations and receiving $1.9 billion in accelerated cash flow, resulting in an after-tax NPV of over $1 billion.

Thomas Walsh, on behalf of Andrew Mock, asked about Tenet Healthcare's plan to redeploy existing resources and reduce expenses at Conifer, given the conclusion of services to CommonSpirit at the end of 2026.

Answer

CEO Saum Sutaria explained that Tenet Healthcare does not expect cost reductions at Conifer in 2026, as there is a full year of service to execute, potentially with increased revenue and cost for transition services. He noted that other growth opportunities are already secured for 2027, allowing for talent redeployment. Mr. Sutaria detailed the Conifer transaction's value, including retiring $885 million in obligations, regaining 23.8% equity for $540 million, and receiving $1.9 billion in accelerated cash flow. He calculated an after-tax NPV of $1.1 billion in incremental value, emphasizing the strategic control gained over Conifer's future.

Thomas Walsh asked whether the potential removal of the inpatient-only list would be a net positive or negative for Tenet's enterprise.

Answer

Chairman and CEO Saum Sutaria stated that the discussion around the inpatient-only rule list is still uncertain. He noted that any benefit would primarily be in the USPI segment, potentially shifting more volumes from hospitals to outpatient settings. He added that Tenet's acute care hospitals, with their greater focus on high-acuity work, would be less affected proportionally than typical general acute care facilities.

Thomas Walsh inquired about the potential impact of the removal of the inpatient-only list on Tenet Healthcare's enterprise, whether it would be a net positive or negative.

Answer

CEO Saum Sutaria clarified that the inpatient-only list's removal is still under discussion and not confirmed. If it were to happen, the benefit would primarily be in the USPI segment, potentially pushing more volumes from hospitals to outpatient settings. He noted that Tenet's acute care hospital segment, with its focus on high-acuity work, would be less affected proportionally than typical general acute care facilities. No quantification has been shared, and the policy is still very much in discussion.

Thomas Walsh, on for Andrew Mok, noted that Q2 EBITDA guidance implies different seasonality than in prior years and asked for color on the expected trajectory of medical margin and EBITDA throughout 2025.

Answer

CFO Jeffrey Schwaneke explained that direct comparisons to prior years are difficult due to significant prior period development that occurred in Q3 of last year. He stated the current budget is built on an incurred basis, which restates the timing of those costs and alters the seasonal appearance. He advised to expect a normal progression with higher profitability in early quarters and the highest medical costs in Q4.