Universal Health Services, Inc. ($UHS)

Good day, and thank you for standing by. Welcome to the First Quarter 2026 Universal Health Services Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Darren Lehrich, Vice President of Investor Relations. Please go ahead.

Thanks, Daniel. Good morning, and welcome to Universal Health Services First Quarter 2026 Earnings Conference Call. I'm Darren Lehrich, Vice President of Investor Relations. With me this morning are our President and CEO, Marc Miller; and our Chief Financial Officer, Steve Filton. Marc and Steve will provide some prepared remarks, and then we will open it up to Q&A. During today's conference call, we will be using words such as believes, expects, anticipates, estimate and similar words that represent forecasts, projections and forward-looking statements. For anyone not familiar with the risks and uncertainties inherent in these forward-looking statements, we recommend a careful reading of the section on risk factors and forward-looking statements and risk factors in our Form 10-K for the year ended December 31, 2025. In addition, we may reference during today's call, measures such as EBITDA, adjusted EBITDA, adjusted EBITDA net of NCI and adjusted net income attributable to UHS which are non-GAAP financial measures. Information and reconciliations of these non-GAAP financial measures to net income attributable to UHS can be found in today's press release. With that, let me now turn it over to Marc Miller for some introductory remarks.

Thank you, Darren. Good morning to all participants on today's call, and thank you for your continued interest in UHS. The first quarter of 2026 feature significant acceleration in our behavioral health outpatient strategy with the announcement of the Talkspace acquisition and continued steady operating performance and cash flow generation in our core operations in the midst of a more challenging seasonal volume trends. Revenue growth for the first quarter was 9.6%. Adjusted EBITDA net of NCI increased 8.4% and adjusted EPS increased 16.1% as compared to the first quarter of 2025. These results highlight the adaptability and financial discipline of our leadership teams and the benefits of our efficiency initiatives, which are driven by technology adoption and operational excellence. Speaking first to the Talkspace acquisition announced on March 9. Talkspace is an established market leader in virtual outpatient behavioral health care with a network of 6,000 licensed professionals serving all 50 states. We believe Talkspace is the best-in-class virtual platform in the behavioral industry with differentiated technology offering and strong brand recognition among patients and clinicians. Talkspace successful payer-driven business model aligns well with our strategy to increase access to a full spectrum of outpatient services and diversify our behavioral payer mix. Over the past 24 months, we focused significant resources to grow existing outpatient service locations adjacent to our hospital campuses and develop new freestanding outpatient clinic locations. We will continue to invest in these areas internally. The addition of Talkspace's high-quality scaled platform accelerates our ability to create the industry's first end-to-end continuum of behavioral health care services that is strongly aligned to the demand trends and preferences of the market overall. This national continuum includes lower acuity outpatient and step-in services, all the way to residential and inpatient services where we've led the market for more than 4 decades. We plan to share more details about the impact of the transaction after closing, but I'd like to highlight two primary benefits for the acquisition. First, from a strategic perspective, Talkspace represents a multiyear value creation opportunity, underpinned by access to new sources of outpatient revenue growth. This is supported first by the strength of the base Talkspace business, which has a very strong outlook on a stand-alone basis and enhanced further by the programs we plan to develop alongside Talkspace to complement each other's businesses. For example, there is a significant opportunity for us to introduce Talkspace's 6,000 clinicians into our environment to develop higher acuity virtual offerings such as virtual intensive outpatient programs or IOPs. This will improve our ability to manage more patients stepping down from UHS facilities with a preferred virtual option. The types of programs we build on a virtual outpatient basis will drive higher-quality continuity of care, further downstream after our patients stepped down from higher levels of care. There are numerous other bidirectional revenue synergy opportunities we'll be working on post closing that will improve access to outpatient virtual services for UHS patients and improve access to higher levels of care for tax-based patients. Second, from a financial perspective, we expect the deal to be accretive to earnings during the first 12 months post closing, and we expect it to be increasingly accretive thereafter. By year 3 post closing, we expect the effective EBITDA multiple for the Talkspace transaction to be in the single-digit range. Moving on to the quarter. I'd like to highlight a few items before I turn it over to Steve to review the financials. From a growth perspective, we met our internal same-facility revenue growth and earnings objectives in the first quarter despite a more dynamic operating backdrop. This was accomplished through solid expense management and higher contributions from pricing in both segments due to more positive trends -- We expect same-facility growth to be more balanced between volume and pricing as the year progresses. As we believe first quarter volume performance was impacted heavily by seasonal factors consistent with what we highlighted in February on our fourth quarter earnings call. From a technology perspective, our enterprise-level AI governance process remains very active and focused on 2 primary domains within our business. In the operational domain to impact quality and patient experience and in the administrative domain to increase efficiency. During 2025, we focused heavily on scaling solutions that reduce the burden of our routine administrative tasks. We deployed and scaled a total of 8 different use cases of AI solutions into our revenue cycle operations that are now yielding significant benefit on a go-forward basis. For 2026, we are focusing more heavily on enabling solutions in our clinical operations to improve hospital level efficiency and patient experience. Included in our 2026 road map are several new use cases being designed and built with Hippocratic AI which is one of our key AI solution partners. It is too early to project the longer-term financial impact of the 2026 initiatives, although we expect them to be incremental to margins over time. And just as importantly, we expect them to have a real impact on quality and patient experience. In closing, I am encouraged by our progress so far in 2026 and remain optimistic about our ability to deliver high-quality services in an efficient manner in the communities we serve. On behalf of our entire organization, we look forward to welcoming Talkspace employees into UHS in the coming months. With that, I will now turn the call over to Steve Filton for more details on the quarter.

Thanks, Marc. I'll highlight a few financial and operational trends before opening the call up to questions. The company reported net income attributable to UHS per diluted share of $5.65 for the first quarter of 2026. After adjusting for the impact of the items reflected on the supplemental schedule, as included with the press release, our adjusted EPS was $5.62 for the first quarter. On a same facility basis, adjusted admissions at our acute care hospitals were unchanged as compared to the first quarter of 2025. We estimate acute care volumes during the first quarter of 2026 were impacted by approximately 200 basis points due to weaker flu and respiratory activity and winter weather in certain markets. Performance in the Nevada market rebounded slightly with adjusted admissions increasing approximately 1.5% over the prior year. Same-facility acute care emergency department visits increased approximately by 2% and we also saw positive trends in certain higher acuity important service lines or inpatient service lines, notably cardiology, orthopedics and neurology. On a same-facility basis, net revenues in our acute care hospital segment during the first quarter of 2026 increased 8.2% and were up 6.2%, excluding the impact of our health plan. Acute Care same-facility revenue per adjusted admission increased 6.3% during the first quarter of 2026 on a reported basis and was up 4.9% after excluding approximately $30 million of prior period supplemental program net benefit related to the expanded 2025 Nevada program, which we contemplated in our guidance. Operating expenses were well managed across labor, supply and other expense categories. Same-facility acute care salaries, wages and benefits expense per adjusted admission increased 3.1% and supply expense per adjusted admission increased 3.5% over last year's first quarter. Same facility contract labor was 2.3% of Acute Care segment revenues or 40 basis points lower year-over-year. Other operating expenses increased primarily as a result of the growth in our health plan. For the first quarter of 2026, our acute care performance resulted in 11.7% growth in same-facility segment EBITDA. Excluding the prior period supplemental program revenue first quarter 2026 Same-facility acute care segment revenue would have increased 3.3% on a year-over-year basis. With respect to health insurance exchange trends during the first quarter of 2026, we estimate an impact of approximately $15 million. Our exchange adjusted admissions declined approximately 5% as compared to the first quarter of 2025. However, due to our expectation that some of the exchange members treated at our acute care facilities during the first quarter will not sustain their premium payments, the impact to our acute care financials assumes an effective fix decline that is higher than the reported trend. We are reiterating the full year $75 million pretax impact, which assumes the exchange declines will steepen somewhat as the year progresses. Turning to our behavioral health segment results during the first quarter of 2026. Same-facility net revenues increased 7.3%, supported by a 5.8% increase in same facility revenue per adjusted patient day and a 1.6% increase in same-facility adjusted patient days as compared to the first quarter of 2025. We estimate that the winter weather impacted first quarter behavioral health volume growth by approximately 40 to 50 basis points. Same facility Behavioral Health segment EBITDA increased by 8.4% in the first quarter of 2026. Excluding the net benefit from prior period supplemental payments, Same facility revenue per adjusted patient day would have increased 4.9% and same facilities segment EBITDA would have increased 4.3%. For the first quarter of 2026, behavioral health segment, same-facility salaries, wages and benefits per adjusted patient day increased by approximately 6% on a year-over-year basis moderating slightly from the 7% to 8% level we experienced during 2025. In California, we are making good progress year-to-date with respect to the state's nurse staffing ratio requirements that go into effect June 1, and we remain on track with the assumptions contemplated in our 2026 outlook. Cash generated from operating activities was $402 million for the 3 months ended March 31, 2026, as compared to $360 million during the same period last year. During the first quarter of 2026, we spent $217 million on capital expenditures. In the Acute Care segment, we continue to invest in the 156 bed de novo hospital in Florida scheduled to open in May and in 2 bed towers and a replacement hospital project together comprising 178 beds that go online during the second quarter. In our behavioral health segment, we opened a 144-bed de novo joint venture hospital in Pennsylvania in the early part of the first quarter and plan to open a 120-bed de novo hospital in Missouri later this year. During the first quarter of 2026, we acquired 675,000 of our shares at a total cost of $127 million. As of March 31, 2026, we had $1.3 billion of repurchase authorization available pursuant to our stock buyback program. and we expect to remain active with share repurchase throughout 2026, including leading up to and following the closing of the Talkspace acquisition. From a balance sheet perspective, in late April, we expanded the aggregate capacity of our credit facilities by $900 million to provide additional flexibility with the pending Talkspace transaction, other potential acquisitions and our continued prioritization of returning capital to shareholders through buybacks and dividends. As of March 31, 2026, we have $373 million of borrowings outstanding pursuant to our revolving credit facility the borrowing capacity of which was recently expanded to $1.5 billion. Turning to our outlook for 2026. We are reiterating the financial and operating forecasts that we established on February 25 in conjunction with fourth quarter earnings. Customary with our historical practice, we plan to reevaluate annual guidance as necessary in conjunction with our second quarter earnings plan for July. Operator, that concludes our prepared remarks, and we're pleased to answer questions at this time.

[Operator Instructions] And our first question comes from A.J. Rice with UBS.

The number you gave on the behavioral side, 4.3% or of the normalized core growth. I wondered if I could ask you to maybe a lot of parts in the acute business with a negative [indiscernible] weather and the flu and on the positive DPP variance year-to-year [indiscernible] parse those out and give us a sense of what the core grew on an EBITDA basis in the acute side, possibly?

Yes. I think it was in the low single-digit range, A.J.

Okay. All right. And then, obviously, interesting to talk about the AI use cases that Marc called out. And then it sounds like there's some additional ones you're looking at. I wondered if you could pick out 2 or 3 that you're saying these are really meaningful and maybe delve in a little bit more on what you're seeing as an opportunity to deploy AI.

Yes. I mean as I said, A.J., we're looking to do things that affect our administrative functions to increase efficiency and in clinical operations. So if we can impact patient experience, improve outcomes. So that's kind of where our focus has been. We're already seeing some of those things paying dividends. For example, right now, one of the things on the operating side, we've deployed and scaled a total of 8 different use cases of AI solutions into our revenue cycle operations. And we've already seen, like I said, significant benefits already, and I think this is going to continue and multiply going forward. So I think our efficiency is getting better, but we're also seeing it on the financial side and increased the hours, improvements within is management and then hopefully increase revenue. And then we're also doing a lot of things that are touching the patient. So anything that we can do in those two areas are kind of where we're going to focus for now. We're not doing much in the clinical space yet. But I do think down the line, we'll see something there as well.

Our next question comes from Jason Cassorla with Guggenheim.

I wanted to check back in with the $46 million of combined Nevada and Ohio, out-of-period Medicaid supplemental payments. I think we're calcing somewhere around $120 million to $130 million year-over-year, but total Medicaid supplemental payments in the quarter. Is that a fair characterization? And then if it's so, then could you help us bridge what would indicate a decent step-up in core EBITDA ramp for the remainder of the year to meet that 5% growth expectation? Just any color there would be helpful to start.

Sure, Jason. So I think that's accurate. And I also think it's worth noting that nothing that you enumerated was outside of our expectations. Everything that you suggested, all the DPP that we recorded or the vast majority of it in Q1 was in our guidance. I think that if you exclude the $46 million of out-of-period DPP in Q1, you'll have a good run rate for the rest of the year, and that number is consistent with what we disclosed in our 10-K and will disclose in our first quarter 10-Q as our estimated DPP for the year. So we recognize that we would have this significant benefit in Q1 largely because we had a number of large DPP programs last year if you could recall, Tennessee UCC that we're not approved and therefore recorded and recognized until after the first quarter. As far as the ramp for the rest of the year, so I'm just trying to make the point that everything we recorded in Q1 was within our expectations. I think our overall results were within our expectations. And I think that implies that we expect a ramp in our earnings as the year goes on to get to that core level growth of 5% that's embedded in our guidance. That -- those assumptions include the continued ramp-up of the new facilities Cedar Hill in Washington, D.C., which celebrated its first year anniversary this month, the opening of the new hospital in Florida. The opening, as I -- as we alluded to in our remarks, of 178 new beds in existing hospitals in California, in Las Vegas and in Florida. The continued improvement in behavioral both in outpatient revenues, higher-margin outpatient revenue business and continued operating leverage from growth in volumes. And I think volumes were on the softer side in both acute and behavior, and we expect them both as the year goes on. And -- finally, I think as I also, I think, suggested in my remarks, we expect continued moderation in wage pressures in the behavioral business. We saw a significant investment in wages in behavioral in 2025, moderated a little bit in Q1 '26, but expected to moderate further as '26 progresses.

Got it. Great. Very helpful. And if I could just follow up maybe on the behavioral volume picture, excluding weather impacts, you still -- you hit the low end of your 2% to 3% volume target in the quarter. Maybe can you just talk about -- or talk a little bit more about the drivers of growth in the quarter? Maybe how much of that kind of step up or that volume acceleration ex weather was a function of the higher headcount and increased labor supply? Or are you seeing anything different in the demand picture or throughput there? Just any thoughts around the volume environment for behavioral would be helpful.

Sure. I think there's two broad trends. And I think you touched on at least one of them, Jason. Again, we made the point in our year-end call that we invested heavily in beefing up our staffing in behavioral in 2025. And the point of that was to allow us greater flexibility and ability to take on greater patient demand. And I think that's beginning to affect itself or reflect itself. And then also, we've talked at great length over several quarters about our continued focus on outpatient growth in a business where we're finding more and more of the demand. And we think demand remains strong for behavioral services, but more and more of that demand is shifting to the outpatient setting. And I think we're doing more -- a better job and a more focused job on capturing that demand. And again, I think we think that's an upward climbing trajectory, as I alluded to in my answer to your first question.

Our next question comes from Ann Hynes with Mizuho.

Can we just talk about bad debt reserve trends? I know this is a dynamic environment with some Medicaid enrollment and also the exploration of the ACA subsidies. How is that trending versus your expectation? And can you remind us, does your guidance assume a deterioration of collectibility on the co-pays to deductibles?

Yes, Ann. So we addressed, I think, specifically kind of the HICS dynamic as it relates to uncompensated care and bad debt in our prepared remarks. We saw a decline in HICS volume in Q1. But as I noted, we also recorded an additional reserve because we believe that some of those HICS patients who are presenting themselves as having X coverage will later be deemed not to have coverage because they fail to make their premium payments. So I think we've taken a reasonably conservative position in Q1. We continue -- we'll continue to learn more about those HICS dynamics. But at the moment, we believe that our $75 million negative estimate for the impact of the HIC subsidies expiring is good. It will continue to get larger as the year goes on, but that was always our expectation. And that impact largely is reflected in higher levels of bad debt and uncompensated care. Other than that, I can't say that we saw any dramatic changes in our payer mix. Slight increases are noninsured in Medicare -- excuse me, yes, slight increases in uninsured decreases in Medicaid utilization, slightly increase in Medicare utilization slightly, but no other big changes. No big changes in denials or patient status changes from the payers. And I think we attribute a lot of that to the investments that Marc alluded to in technology and also in people in process in our revenue cycle, we've really been focused, particularly in the acute care segment on improvements in our revenue cycle efficiency. And I think that's allowing us to, at a minimum, keep pace with the payers as they demonstrate more aggressive behavior. And as we've disclosed before, we're going to shift that focus or increase that focus to the behavioral segment in 2026 and our revenue cycle efficiencies in that segment.

Our next question comes from Matthew Gillmor with KeyBanc.

I wanted to follow up on the pricing comments. I think Mach had mentioned the positive contribution in rate, but expecting a more balanced outlook for the balance of the year. It seemed like that outperformance was above and beyond your expectations even excluding the SVP. So could you give us a sense for what drove the stronger pricing in the quarter? And what's behind your expectation for the moderation for the rest of the year?

Well, I think a little bit of it, Matt, is simply the mix with a lower sort of flu component, a significantly lower flu component this year and in last year, by definition, the patients that we had this year were of higher acuity, most flu and respiratory patients, obviously carry a fairly low acuity. So I think that's a big piece of it. But I did stress, I think -- or one of us stressed in our prepared comments that we also saw reasonably healthy increases in some of the more acute service lines, including cardiology, orthopedics and neurology. So that helped as well with the acuity and the pricing in acute care.

Fair enough. And then maybe asking a follow-up on trends with professional fees. I heard the comments about the controlling costs. But I was curious if there's anything to report there and give us a sense for what you're doing to try to alleviate some of that particularly in areas like radiology.

Sure. So I think in our guidance for the year, we talked about professional fees rising at -- I call it inflationary rate in the single-digit range, maybe towards the high end of the single digits. And I think we're largely operating within that range. That's not to say that we're not seeing pressure in our markets from certain hospital-based physicians for higher fees. The way we're dealing with that is being more competitive in terms of going out for coverage with more trying to reduce the number of locums physicians we use for our hospital-based physicians, which tend to be more expensive. And it's really just sort of a daily grind, but I think our operators have been fairly successful in keeping those professional fees at a level that is manageable, as I said, in the single digits even if it's in the high single digits.

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

This is actually Joanna Gajuk filling for Kevin here. So maybe first, I guess, you talk about the decline in the HICS volumes. I don't think I heard you talk about the changes in your uninsured mix. Can you talk about the payer mix a little bit more in the quarter?

Yes, Joanna. So what I thought I said before was, obviously, we saw a decline in HICS volumes. We saw a slight decline in Medicaid utilization, slight increase in uninsured volumes and a slight increase in Medicare volumes.

Okay. So material -- I'm sorry. Yes. No, I was just saying so it's a slight increase in self or uninsured, sorry.

Yes.

Okay. And so that's helpful. And I guess, on the supplemental payment programs, right? So like there was nothing new that it was approved that came through this quarter. And I guess we're still waiting for Florida and California. So any update on these programs?

So Florida is concerned, I think as a number of our peers have expressed. I think there is a high level of confidence amongst providers in Florida based on feedback that we've gotten from the state that their pending 2025 program is likely to be approved. We don't know the exact timing. It could be imminent. It could be another while. But ultimately believe the 2025 program will be approved. And when it is, we'll record it in that period and revise our guidance appropriately at that time. We have been estimating that to be about a $50 million benefit to us. When we see the final approvals, we believe that benefit could be measurably higher. But waiting for the details from the state. As far as California is concerned, we've been asked about this before. We think that the likelihood of a renewed or expanded California program is much less likely or much less certain, I should say. And we've done nothing to try and estimate the potential benefit there until there's further, I think, sort of consensus building between the state of California and CMS. But it is possible that if there is an expanded program, it could be measurably beneficial to us, but I think it's way too preliminary to make that judgment.

Our next question comes from Justin Lake with Wolfe Research.

Just wanted to follow up on core growth. I appreciate all the commentary about what's going to get better through the year. I think a lot of investors want to look at the hospital business right now, given EPP is going to be winding down to some extent going forward on an x DPP basis. And when I do that math, and I think about all the other moving parts, the headwinds you had on flu and weather, I get to about an $80 million benefit on DPP plus the headwinds versus your growth of about $50 million in the quarter on EBITDA. So it looks like core EBITDA was down $30 million or about 5%, 6%. Just curious if you can help us understand, was there anything in the first quarter last year that wouldn't have reoccurred, for instance, a good guys that we haven't thought about? Or anything else in the core that you think was driving that minus 5%, if I'm thinking about it...

Yes. So Justin, it's a little bit difficult to answer your question with precision. I don't have your calculation in front of me. But I don't dispute at the point that I think I made in an earlier response was simply all the points that you raised all the points that were raised earlier are things that we anticipated, I think that were appropriately included in our guidance. We understood that there was a difficult DPP comparison for us in the first quarter. We understood that our earnings trajectory would have to increase over the years progression in order for us to get to that core 5% growth that's embedded in our guidance. And the reasons that I tried to enumerate before, I think we believe we can get there. But I acknowledge I'm not going to agree to all your numbers. I'm not suggesting they're wrong. I just don't -- I'm not able to do that off the top of my head. But I would suggest we get it that we're not at that core 5% growth, excluding all the DPP and other nonrecurring items in the quarter, but still believe that we're going to get there for the full year.

Thank you. Our next question comes from Ben Hendrix with RBC Capital Markets.

Just wanted to follow up on the HICS trends real quick. You said a 5% decline in volume though. And then that's excluding what you expect may not actually kind of effectuate in the quarter. And I just wanted to get your thoughts on that 5% versus the 25% to 30% of HICS patients and loss coverage that you kind of embed in your assumptions for the year. Anything changing with that? Or any kind of results that you saw in the first quarter that kind of informs your decision to renew that number or anything within that range for the 25% to 30% changing?

Yes. So I think what we tried to articulate then was that while we could identify a 5% decline in our HICS volumes in Q1, we had an expectation that some of the patients that we were recognizing in HICS patients will later likely be identified as not having coverage because they fail to make their premium payments. So the reserve on those patients that we recorded for the first quarter reflects sort of a higher level of optics volume decline, probably something in the low double digits, 10% or 11% or 12%. We continue to believe that, that number will increase as the year goes on. Our 25% to 30% estimate for the year, we believe we may still get there. Obviously, we were not there in Q1. But again, that was an expectation that we wouldn't get there right away. So we'll see. I think what all of our peers have said and I think providers have generally said is there's still a lot of dynamics in the movement of HICS patients, and who's able to make their premiums and who's not that we're going to continue to learn for at least another quarter and maybe more. But I think we feel like from an accounting perspective and reporting perspective, we're being conservative in how we're thinking about it.

Our next question comes from Andrew Mok with Barclays.

Given that flu and weather were early quarter dynamics, can you comment on the progression of volumes throughout the quarter in each segment, including exit rates in March and April?

Well, what I would say, Andrew, is I think the flu volume comparison was more significant in January and February. I think flu season was largely over last year and this year as we got to the end of the quarter. So I think that was the significant sort of flu decline was felt more acutely in the first couple of months of the quarter. And then the weather related really dependent on the market, but we had storms in both January and February that affected, I think, both business segments. Again, I think March was kind of a better word, a cleaner month, meaning no real flu impact and no significant weather impact. And I think March volumes were -- showed a more normative increase over last year.

Our next question comes from Raj Kumar with Stephens.

Maybe following up on the kind of March, April trends. I guess -- did you see a significant pickup in potential kind of deferred care that got pushed back because of the winter storms. And then maybe just also any kind of commentary on acute care surgical volume trends and just general acuity profile shifts year-over-year?

Well, what I would say generally, is that what we find are elective procedures, and that's mostly in the acute segment that are scheduled and postponed because of the weather tend to be rescheduled. But as we indicated, the bigger impact in acute care was the flu, which is not something you recover from. So I think we talk about maybe $5 million to $7 million of weather impact. And that's mostly in the DC market, where we had some burst pipes in one of our facilities and had to close beds for a period of time. Quite frankly, that's not something you can really recover from the bed closure. And on the behavioral side, same thing, you'll recover outpatient visits, et cetera. But inpatient trauma source of admissions are generally going to go somewhere else if they can't get to the hospital. So -- yes, again, I think that's something that we're not as I talk about our recovery for the rest of the year or our growth for the rest of the year, we're not really counting on a tremendous amount of recapture of those deferred procedures.

Our next question comes from Craig Hettenbach with Morgan Stanley.

I wanted to go back to the strategy in outpatient behavioral health and the Talkspace deal. Can you maybe just touch on kind of 1,000 Branches, how that's been going and how much that kind of informed this next step on Talkspace?

Sure. I mean things are going well. It's been a little bit slower deployment than we would have thought just with various different situations state by state. But it didn't really inform us at all as far as being an impetus for Talkspace. We've known about Talkspace for many years. We obviously follow the landscape. So we know everybody that's out there. And we've talked a lot about our own outpatient deployment for many years now and wanting to become more proficient in outpatient. So 1,000 Branches is something we've been working on for a number of years. But Talkspace happened because there was an opportunity that we didn't really create. And once that company indicated that they were interested in at least considering options, we began discussions and it got to where it got to. So I wouldn't say that one led us to the other. I would say that we've been studying that landscape for a long time. And we were pleased, and we are pleased that we're able to go in both directions because I think that our current outpatient offerings and the ones that we're developing ourselves internally are only going to help us as we combine with Talkspace and grow, as I said earlier, our whole continuum.

Got it. And then just as a quick comment. You mentioned kind of the effective multiple to be in single digits a few years out. Just what gives you that confidence in terms of what you're seeing in their business and what you can do with it to drive that effect of multiple down?

Yes. I mean you said it actually in the question. I mean we have confidence now that we've had a full look at their business model, what they achieved just in the last couple of years and what their plans are, and we think they can achieve. I'll even say what they were going to achieve on their own in the next 24 months. Add that to what we think we can do to help them increase those achievements and earnings. That's what gives us greater confidence that a few years from now, we'll look back on this, and I think the multiple will be single digits because when you look at it now, we've had folks ask us about it it's harder to understand the multiple if you just look at it from today's earnings. But in the next couple of years, again, they're on a great growth path themselves, and we're going to add to that once we combine resources.

Our next question comes from Benjamin Rossi with JPMorgan.

Just following up on the volume discussion across segments that we're through the first quarter, what's your current outlook for Medicaid volumes for the year for both segments? And are you seeing any signs of volatility returning either through administrative churn or eligibility friction at the start of the year?

Yes, Ben, I mean, as I've now said a couple of times on the call, we saw I think slight declines in Medicaid utilization in Q1. I think that's reasonably consistent with our expectations for the year. We're not expecting any other major changes either in Medicaid, quite frankly, or in payer mix other than the HICS commentary that we've talked about a couple of times. So yes, again, I would describe the changes to payer mix outside of in Q1 as relatively minor and pretty consistent with our expectations. And I think we think about that as being -- likely to be true for the rest of the year as well.

Okay. Just then as a follow-up then on the de novo side, can you just provide an update on your de novo hospitals and how you're thinking about full year EBITDA performance across some of your recent openings in Nevada and D.C. and along with the Florida Hospital set to open up next month?

Yes. I'll just -- I'll remind people that as part of our guidance, we talked about the idea that the new hospital in Florida, which is really the true de novo for this year, would likely experience an operating loss for the year as with most new hospitals, we believe and our guidance contemplates that whatever loss that it incurs would likely be largely offset by gains and improvements at our Cedar Hill facility in Washington, D.C. I think we would reiterate that guidance, although I think we are of the mind that the Cedar Hill improvement is likely more back-end loaded maybe than we originally contemplated. It's gotten -- it's had some issues with the weather and some of the other dynamics that we've talked about. . The other new capacity that we referred to in our prepared remarks, new towers in Las Vegas and in the West Coast of Florida and replacement facility in California. These are in existing markets, and they'll all come online at some point during the second quarter, and we expect they'll ramp up relatively quickly because they're in existing markets and essentially just adding to our existing operations. So you can believe that they will have a very positive impact on growth in the back half of the year.

Our next question comes from Ryan Langston with TD Cowen.

I just wanted to follow up and make sure I understood your comments on the denials activity. Are you saying you are seeing accelerating levels of denials, but you're just able to navigate them more effectively? And are you able to provide any further details on what you're seeing by payer class?

So -- no, I don't think we're seeing an increased level of denials, Ryan, of any material amount. What I suggested I think is that because I think others have talked about maybe more aggressive behavior on the part of payers. And all I was trying to make the point that I think the investments that we've made in our own revenue cycle, particularly in the acute space, both from a technology perspective but also from personnel and process perspective are allowing us to sort of keep pace with potentially more aggressive behavior on the part of the payers. And I've just simply also made the point that we expect to make similar investments over the next 12 to 18 months in our behavioral health revenue cycle functions.

Our next question comes from Scott Fidel with Goldman Sachs.

First question would be interested if you could give us an update on just how you're seeing the sort of underlying trend in behavioral in terms of just the demand versus supply, equilibria there's relatively consistent with where we've been the last couple of years or just any type of incremental chips you may be seeing either on the suppliers on the demand side?

Scott, in that regard, I think we've been pretty consistent for several years now in suggesting that we think behavioral demand remains strong and probably our greatest challenge is then in meeting that demand. Probably the single biggest obstacle we've had in meeting that demand for the last several years has been inadequate staffing in certain markets, in certain personnel functions, sometimes that's nurses, sometimes that's therapists, sometimes that's mental health technicians, the unlicensed personnel in our behavioral facilities. The only other, I think, comment that we've made about demand, particularly, I would say, in the last several quarters or maybe the last year is that while the demand remains strong, I think we see it as shifting not unlike the way it has shifted in the acute segment for a decade or more at this point to more outpatient delivery and as Marc alluded to in his previous answer, we're trying to meet that demand in a number of different ways, building out our own freestanding ability to deliver care in freestanding facilities with our 1,000 branches initiative, more focused on the step down of patients who are being discharged from our existing facilities, and obviously through the tapas acquisition as well. So strong demand, although to a degree that demand is shifting more and more to the outpatient setting.

Okay. So if I could ask a follow-up around that, Steve, and around the outpatient strategy that's underway. And particularly, just as it relates to how that's informing your you're thinking right now on capital allocation. And specifically, obviously, you have the outpatient clinics expansion going on, you have the Talkspace acquisition. I'm curious around how you're weighing sort of balancing buybacks relative to sort of continuing to invest more, allocating more capital towards continuing to build out that full capacity flywheel on the outpatient and digital side?

Well, I think the point that we've tried to make since announcing the Talkspace acquisition, we had a number of questions. I think when we first announced sort of in the context of, well, this is a fairly large acquisition, how -- is this an either/or in terms of share repurchase. And I think, again, as we tried to articulate in our remarks, we continue to find a buyback of our own shares to be a pretty compelling investment and intend to remain active in that regard. I think we talked on our end of the year call as having a buyback target in the $800 million to $900 million range, and I think that certainly remains a target for us at a minimum. The Talkspace acquisition does not increase our leverage significantly. We go from a little under 2x levered to a little over 2x, but certainly, that leaves us plenty of space to consider, as we said in our prepared remarks, any other acquisitions that would come up that we found compelling as well as a continued aggressive CapEx program as well as continue being an active return of capital to our shareholders.

Our next question comes from Michael Ha with Baird.

Just quickly first following up on Justin's question. I understand you're not providing the core growth math at the moment, but I wanted to ask you about the inputs and to see if I'm missing any major components of this math. So far, I'm looking at net DPPs, the exchange subsea headwind, California staffing requirement headwind, the flu weather impact. But then how should we treat any Palm Beach Garden de novo cause, the theater, which sounds more back-end loaded now? And is there anything else that you should consider anything on first quarter last year that would not reoccur?

Yes. I mean everything that you ticked through, Michael, I believe items that we've discussed already, again, I made the point earlier, and I'll just reiterate, none of those items were really a surprise to us during the quarter, and our overall results in the quarter were very consistent with our internal expectations. I think these were all known going into the quarter, obviously, other than the weather and the flu, although we certainly, I think, referenced both on our fourth quarter call. Your question about Cedar Hill and the new hospital in Florida. Again, I'll reiterate, we said in our guidance, we thought that would be a wash for the year, largely -- that continues to be our belief, although I made the point that I think the Cedar Hill improvement is probably a little bit back-end loaded. But -- no, I mean, I think we've covered all those items. Those were all well within our expectations, all included in our guidance.

Got it. And then following up on Scott's question on behavioral health. I know you had implemented labor efforts focused on retention at year one hires in the turnover rate of post Tier 1 hire diminishes drastically, wondering how those efforts gone? I know last time we spoke, the turnover rate was moving from as high as 50% down to over the last half year. Curious where are you today on that turnover rate? Is it still in the 40s. And if you could remind us what your pre-COVID turnover rate was just to establish reference point, that would be great.

Yes. So again, I think as we said in our prepared remarks, I reminded people that last year, our salary and wage expense in behavioral was up 8%, which included a pretty significant increase in the headcount. In Q1, it was more in the 6% to 7% range. So we saw some moderation in Q1. We expect to see further moderation as the year goes on. That's a function, I think, of any number of things -- it is -- we're not hiring as aggressively in '26 as we did in '25, that's number one. Number two, I think we're seeing some moderation in wage increases. And again, I think we expect -- and as your question implied, we're also seeing some progress on turnover. Turnover remains high in April, it remains high, I think, in all sub-acute industries, but we have clearly made progress and measurable progress on turnover in the last year or so.

I'm showing no further questions at this time. I would now like to turn it back to Darren Lehrich for closing remarks.

Thank you, everyone, for participating in today's call and for your interest in of a great rest of your day.

This concludes today's conference call. Thank you for participating. You may now disconnect.