Good morning. Welcome to Tenet Healthcare's First Quarter 2024 Earnings Conference Call. I will now turn the call over to your host, Mr. William McDowell, Vice President of Investor Relations. Mr. McDowell, you may begin.

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 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. Saum 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. Actual results and plans could differ materially. 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.

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 9 hospitals for pretax proceeds of $4 billion. 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 more capital-efficient, profitable, and a 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. 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. 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 in 2023 and an adjusted EBITDA margin of 19.1%. In terms of performance, let's start with USPI. We had a great quarter with $394 million in adjusted EBITDA, representing 16% growth over first quarter 2023. Service plan expansion, elevated acuity, and favorable payer mix all drove the strong organic growth. Joint replacement surgeries continue to be an excellent source of growth for us and were up 21% over prior year. 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 the synergized EBITDA minus NCI multiple of 6 to 7 by year 3 for those centers. USPI's de novo development activity also continues strong with nearly 30 centers currently in syndication stages or in construction. 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. 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 remained strong within the first quarter of 2024 with revenue per adjusted admission up 8.8% over prior year. We have opened up capacity to meet demand in a number of our markets. In addition to the ongoing investment in our frontline 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. 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 into 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. 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. As a result of the incident, the Clearinghouse function and Change impacted the ability to send claims to many payers. We have experienced some delays in near-term billings and estimate that this will only have a temporary impact on our cash flows that 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 billion 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. 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. 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. We are very pleased with the demand that we are seeing in our network, and we'll 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, I'd like to spend some time discussing the progress we have made in our portfolio transformation. As I mentioned previously, the transactions that we have executed on have established the dawn of a new era for Tenet. We have completed 3 very attractive hospital sale transactions, which have generated $4 billion in gross proceeds. Within 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. 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 3.5x, a significant decrease from approximately 7x that we had at the start of 2018. We've 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 have returned almost $280 million in capital to shareholders via repurchases in the first quarter alone. 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. The operational discipline that we've instilled in each of our facilities enabled by an analytics-driven culture is producing differentiated results. Our balance sheet, which was once a challenged part of Tenet's 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. Sun?

Thank you, Saum, 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, a 23% increase over the first quarter 2023. These results were driven by strong same-store revenues, continued high patient acuity, favorable payer mix, and effective cost controls. 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 acuity. 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 2023. Now turning to our hospital segment. First quarter hospital adjusted EBITDA grew 28% with adjusted EBITDA margins up 240 basis points over last year at 14.4%. First quarter same-hospital inpatient admissions increased 4.2% and revenue per adjusted admission grew 8.8%, demonstrating strong payer 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 '23. And our consolidated contract labor expense was 2.9% of SWNB, a material reduction from 6% in the first quarter of '23. These reductions in costs reflect the disciplined approach that we take towards labor management. 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. 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 31, we had nearly $2.5 billion of cash on hand with no borrowings outstanding on our $1.5 billion line of credit facility. 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 Saum 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 31, 2024, was 2.79x EBITDA or 3.46x 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. 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. Finally, we have no significant debt maturities until 2027 and all of our outstanding senior secured and unsecured notes have fixed interest rates. 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. For 2024, we now expect consolidated net operating revenue in the range of $20 billion to $20.4 billion. As Saum mentioned, we are raising our '24 adjusted EBITDA outlook range by $250 million to $3.5 billion 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. And finally, a year-over-year headwind of $24 million in the sale of 2 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 range. Finally, we would expect second quarter consolidated adjusted EBITDA to be in the range of $835 million to $885 million, and we anticipate that USPI's EBITDA in the second quarter will be 23.5% to 25% of our full year USPI EBITDA guidance at the midpoint. 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 midpoint. This range includes the payment of $687 million in net taxes related to our announced divestitures. 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 EBITDA from the divested hospitals. As we stated last quarter, our cash flow performance has improved substantially over the past several years and we continued 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. 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 investing in key hospital growth opportunities, including our focus on higher acuity service offerings. 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. 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?

Our first question comes from Kevin Fischbeck with Bank of America.

So overall, I guess, the quarter looks really good. These are numbers that still look a little bit off to me, 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 indicates a return on volume as the year goes on? You guys sound confident in building. Is there anything on case for surgical days or trends in the quarter or something that you would point to that says we've got good visibility that that volume will accelerate and build as the year goes on?

Let me first talk about the quarter. This aligns with our expectations. I previously mentioned that we anticipate volume to increase as the year progresses, and this situation is consistent with that. There were a few centers closed due to weather, but overall we ended up flat in terms of same-store operating results. What stands out to us is the long-term implication of this performance, especially after last year's strong volume growth. There were concerns about whether this volume was merely a result of deferred care that would lead to a significant downturn, but our planning last year indicated otherwise. We are pleased to have been correct in our assessment. After a year where our growth rate was more than double the usual, remaining flat and having the potential to grow from that baseline indicates strong fundamental demand for USPI services, rather than just viewing 2023 as a year of recovery that wouldn't last. Delving deeper into our volumes, most of the major service lines we focus on, including the growth we observed in GI, showed further improvement. The slight decline was primarily in low-acuity pain procedures, while areas like orthopedics, ENT, GI, and our successful urology partnership are all expanding. The fundamentals appear solid, and while the comparisons will be challenging throughout the year, we expect them to improve as time goes on. Ultimately, we believe that our ability to grow from last year's performance is what the first quarter has confirmed, rather than it being merely a one-time effect of deferred activity in 2023. Overall, we see this as a positive development.

Our next question comes from the line of Justin Lake with Wolfe Research.

I have a couple of quick questions about the numbers. First, the first quarter was clearly very strong, and I appreciate the cautious approach of not assuming that momentum will continue throughout the year. However, I want to clarify how much better the performance was compared to your internal forecast after accounting for all factors such as deals, the ASC purchase, and the asset sales. Secondly, you mentioned that you plan to use the proceeds from the asset sales to pay down debt. Is that the only intention? If so, could you provide an estimate of where you anticipate the leverage ratios might settle at the end of the year after the debt repayments?

Justin, it's Saum. I'll take the first question, and then I'll hand it over to Sun. The quarter's results exceeded our expectations significantly, particularly in both the hospital and USPI segments. Starting with USPI and building on Kevin's question, the net revenue was considerably strong, which is obviously connected to acuity and pricing. This led to a net revenue result that surpassed our usual guidance expectations, so we were quite pleased with that. On the hospital side, we also experienced good strength in volume and mix, with acuity increasing during this period. Referring to it without considering any reimbursement or supplemental payment changes, the performance was solid overall. Therefore, we believe the core performance was much better than our expectations for the quarter.

Thank you, Saum. Justin, regarding your question about debt and leverage, I'll address it in reverse order. As I mentioned in my script, the leverage ratio as of March 31 is likely to change as we pay down debt, which we noted is about $687 million related to tax. Regarding your range ratios, we aren't ready to address that specifically just yet. However, based on our guidance, we are comfortable with the ranges we anticipate. Ultimately, it will depend on the capital allocation decisions we make throughout the year. As I noted in my prepared remarks, our capital allocation strategies and priorities remain unchanged. Lastly, concerning debt paydown, our hospital divestitures have significantly helped reduce Tenet's leverage. We paid down our '26 note, and our next note isn't due until February 2027, which is nearly three years away. We are committed to paying down debt but will take our time to determine the best approach for doing so.

Our next question comes from the line of Stephen Baxter with Wells Fargo.

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 kind of quantification on where your exchange meets after the significant growth we've seen over the past couple of years would be great.

Yes, sure. 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. 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 add some capacity back thoughtfully in different markets, which we're pleased to see that we can accommodate without eroding our cost performance. So 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. 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 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 prior year. And I think this is probably, and by the way, the Medicaid business was down a little bit. So I think 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 for us, I've pointed out before, we've 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 coverage.

Our next question comes from the line of Pito Chickering with Deutsche Bank.

Great job on the quarter. On the hospital segment, margins on the last quarter were guided to be about 10.9% at the midpoint. And now it guided to be 12.1%. So excluding the 60 basis points of margin improvement from Michigan, can you help bridge what sort of made those margins sort of go up? Was it the asset sales in California? Just help bridge us sort of that margin delta. And then a quick numbers question for you. You talked about the EBITDA coming from these asset sales. What was the revenue contribution from these ASCs for the year?

I'll take the first question. Thank you for the support. The strength in margins is quite significant. As you mentioned, there are several important factors. Firstly, we have maintained cost discipline, which is crucial. Secondly, increased volume and better capacity utilization lead to improved margins. Thirdly, the payer mix has also played a role, particularly with stronger performance from both Medicare and commercial businesses, including commercial exchanges during the quarter. Additionally, we are focusing on service line opportunities, which can positively impact margins due to the high acuity work in those areas. These factors collectively drove our performance. Regarding the balance on asset sales, some have been in higher-margin markets than others. However, my impression from past observations is that the divestitures may not have significantly contributed to margin improvement. Go ahead, Sun.

Yes, that's correct. And Pito, on your second question about the ASC-acquired revenues. As Saum mentioned, the first 12-month equivalent of EBITDA is about $80 million. We obviously in our guidance have 9 months of that in fiscal '24. And I would assume sort of standard USPI EBITDA margins for that book of business.

Our next question comes from the line of Jason Cassorla from Citi.

I just wanted to really quickly ask about the free cash flow expectations, EBITDA up $200 million. The cash flow seems only to be up $100 million. What's driving that differing outlook? Is it just related to the divestiture and the nuances that move with that or timing elements, just to make sure we're good on that on the free cash flow side.

This is Sun. Yes, I would say with the EBITDA, we obviously tax-effect that addition. And then as we mentioned, we have additional taxes that we expect to pay on the California 2 hospital divestitures as well. So those are probably the 2 most important factors there. Thanks for your question.

Our next question comes from the line of Ben Hendrix with RBC Capital Markets.

Just a quick question on the medical fee headwind that you mentioned. I wanted to know how that has trended from quarter to quarter, in relation to your expectations, and how we should view that moving forward after the end of the year.

Thanks for your question on the professional fees. 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 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 9% to 10% increase. So thanks for your question.

Our next question comes from the line of Josh Raskin with Nephron Research LLC.

Can you talk about Detroit Medical Center and specifically the new sub 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 billions in terms of revenue?

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 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 statewide, but regional draw. So it's a large complex academic health science center across a pretty broad geography, multiple trauma programs, etc. Now the other thing that the Detroit Medical Center is importantly for that community is the largest safety net provider in Southeast Michigan in Detroit, in particular, both for the under and uninsured in that community. So there, the Detroit Medical Center has always had multiple objectives in terms of the patient population that it needs to continue to serve on a broad basis. And our strategy there has been to invest in accomplishing all of those missions together. 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 portion of the mission at the DMC. And I think what we see here in the improvements essentially brings Michigan to par with the way other states have managed ensuring that, that access continues to be made available for that population. So your question on how we look forward at the DMC is one that we'll address 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 to focus on being successful in the multiple missions. I think what changes is more the return that we generate from those investments improves more so than there's going to be some wholesale change in our strategy.

And the revenue side?

We don't report on the revenue side of our individual markets, and I'm not sure that there's any reason to do that here.

Our next question comes from the line of Whit Mayo with Leerink Partners.

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, not sure if there's a back story, I presume this is a larger transaction? Are these in hospital markets, potential JV partners, the mix? Just any additional color would be helpful.

Yes, the 45 centers are located across the country. Most of them are in new markets for USPI, where we do not currently have centers. They include a wide range of services such as orthopedics, GI, and ophthalmology, which are typical in the ambulatory sector. Some centers have close partnerships with physicians, while others are linked to health systems. Additionally, there are centers that are more independent, where groups have come together over time to create a partnership that we have invested in. I believe all of the centers we acquired are focused on consolidating positions, so there won't be a need for a 'buy up' strategy in the future. I'll stop there; I think that covers it.

Our next question comes from the line of A.J. Rice with UBS.

It appears that your analysis assumes organic growth in the ambulatory business will yield an EBITDA growth of around 4%. As you mentioned, there seems to be a tougher comparison this year for case line, though you still expect it to be slightly positive. Given the strong revenue per case observed in the first quarter, do you consider this a conservative estimate? Should we expect any moderation in revenue per case due to your investments and changes in mix? Additionally, regarding USPI, many peers have mentioned a calendar effect at the end of the first quarter, with Easter and spring break potentially impacting elective outpatient procedures. Did you experience that, and do you have any early insights for April?

We have several factors influencing our guidance this quarter, which we have adjusted to align with our expected revenue and asset ownership changes. We are satisfied with the overall demand across our businesses and are aware of the solid underlying performance, though we haven't adjusted our guidance to reflect that yet. As we move forward, we anticipate addressing this in future calls. Currently, there are no concerning trends in the environment, and we remain optimistic about business demand. Regarding the calendar effects, especially for USPI that operates on a weekday schedule, we address these yearly fluctuations. This year did present some impact in that regard. However, we are encouraged that the performance in the first quarter reassured us that 2023 will not just be a temporary rebound year, but an opportunity to build on last year's strong volume. As the year continues, we aim to foster growth in volumes despite tough comparisons from 2023. Overall, the first quarter has provided us with confidence in the strength and potential growth for our business.

And our next question comes from the line of Andrew Mok with Barclays.

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. When I look at the acquisition and development activity line in your ASC bridge, I think the revision was closer to $30 million over 3 quarters. I'm not sure if there was any contribution in the quarter. So if so, that implies a pretty material step-up in 1Q '25. Just want to make sure I'm understanding about this business and the cadence of synergies that should materialize in 2025. Is that the right way to think about it?

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 a first 12-month of ownership number. So in our '24 guidance, we had 9 months contribution. And I would assume that as 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. So what you're seeing with our new number of 101 in acquisition development activity for USPI calculates that and assumes that in parts, a lot of the acquisition in Q1 goes towards the original guidance. So that's part one. 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 3-year outlook that we will work hard to achieve 6 to 7x multiple EBITDA minus NCI for that acquisition. Thanks for your question.

This is an attractive portfolio of assets. The diversity of service lines presents excellent opportunities for performance improvement over the first three years, which will contribute to growth in earnings and EBITDA minus NCI. All assets are consolidated from the start, avoiding a buy-up strategy. We are pleased with the portfolio we acquired and will integrate it throughout the year.

Our next question comes from the line of Sarah James with Cantor Fitzgerald.

So a couple of times today, you've touched on your strategy of growing off of a new higher base for USPI volume. I'm wondering if you've done any analysis on that to see were there just stronger market trends? Or did you guys gain share? And if it is share gain, are you able to tell, was that due to partnerships and referrals or growing catchment area or sort of what was behind it?

There are a few points to consider. The ASC environment isn't as data-rich as the hospital side. Therefore, we also rely on proxies to forecast our business. Our primary method is conducting bottom-up, center-by-center business planning each year, which is informed by our strategies, their success, and feedback from physician partners. It's a straightforward yet comprehensive approach. Additionally, as I mentioned in our fourth-quarter call, we measure the busyness of individual physicians in 2023. Some physicians worked exceptionally hard, achieving productivity levels we haven't seen in previous years. However, we must question whether significant portions of last year's performance, particularly in the post-pandemic context, were due to one-time deferred care. This is why I emphasize this point. From our bottom-up planning, we anticipated that volume growth would increase throughout the year, though there's always a risk that our forecasts may not be completely accurate, leading to a retreat in volume if last year’s growth was truly driven by deferred care. My focus is not on individual quarters; instead, I concentrate on the broader trends that support USPI and our ability to grow earnings over the long term. I reiterate this to reinforce our confidence in our solid long-term foundation. Additionally, we track the addition of new physicians and how quickly they ramp up. We had some confidence this year that growth would occur as we added new physicians to the USPI portfolio, who usually take 9 to 18 months to reach their comfort levels in an ASC. Therefore, we expected to see growth beyond where we ended last year. I hope that provides a clearer picture of how our business planning works.

Our next question comes from the line of Cal Sternick with JPMorgan Chase & Company.

I wanted to ask about the 45 centers. Were there any large portfolio deals in that quarter in that part of the 45? I know you mentioned that the additions were pretty broad-based across markets. And just any other color on sort of what the acuity or case mix is for those centers. And maybe more broadly, just what you're seeing in terms of the M&A pipeline?

So a few things. One, the centers were, in fact, as I said, broad-based geographically. 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 diligence that gave us comfort, is not really something I'm prepared to talk about in any great detail. 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 improving the returns to the levels that Sun and I described in a typical fashion by year 3. We think these things will be very nice additions to the earnings for USPI. In terms of the broader M&A pipeline and de novo pipeline, they both remain strong. We anticipate continuing to progress through that agenda as the year goes on.

Our next question comes from the line of Brian Tanquilut with Jefferies.

Congratulations on a solid quarter. I have a question regarding revenue per case in relation to your comments on USPI. It was clearly strong this quarter, but considering the growing mix of ortho, the impact of the new ASCs you've acquired, and your earlier remarks about payer rate increases, how should we view the sustainability and the appropriate level of revenue per case growth? Additionally, could you provide some insights on the payer rate increases you mentioned earlier?

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 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 that. The exit of low acuity business helps that statistic in net 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. When you lose or move out or whatever, low acuity pain cases where you can do 10 of them at the same time, you can do 1 joint surgery that is what it is and we obviously are going to continue down the path of our service line mix improvements that we believe in, regardless of the impact on same-store, it's obviously our objective to continue to build the same store, however, as we've said in our guidance. From a mix perspective, even in the ASC business, I think that some of the benefit of the exchange population growth, we're seeing that flowthrough. It's not just the hospitals. We're seeing that flowthrough in the ASC business. What's different in the ASC business is there isn't as much Medicaid. So you're not seeing the reduction necessarily like you would in the hospital segment and the growth in the exchange business, but you are seeing the exchange segment growth on the ASC side. Yes, 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 are an impact in Q2 through Q4 as opposed to having had any impact in Q1. The centers we acquire, generally speaking, will be lower-margin and dilutive to earnings from a margin standpoint until USPI fully implements its program of improvements, which is how the year 3 multiples can be forecast over time. That obviously comes with earnings' improvement and therefore, margin improvement. And so that's definitely the case. We haven't gotten into them enough to know whether there's some that we're going to need to do some partnership restructuring or other things. We'll provide more visibility as we get into it 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 projection 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.

And our next question comes from the line of Ann Hynes with Mizuho Securities.

So I just want to focus on divestitures. Obviously, they've been a very nice source of debt repayment on the acuity side. How do you view divestitures going forward? And can you remind us what goes into decision-making on whether to strategically keep or divest a hospital or a market?

Thank you for the question. Strategically, our decisions regarding divestitures depend on several factors. First, we consider whether it positively or negatively affects our overall corporate strategy and if we can provide leadership and growth in the markets we're involved in based on our business model, capital needs, and the potential return on those investments compared to other opportunities. Lastly, we evaluate our ability to generate proceeds that reflect the true value of the assets we've developed, ensuring we capture full value in any transaction. We're comfortable with our current portfolio and our positions, and we believe we can continue to build and grow within our markets.

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.