0000070318-26-000026
SEC filingRevenue grew 2.8% to $5.37B, with operating income up 37% driven by $413M contract termination revenue; Hospital Operations margins improved while Ambulatory Care margins declined.
Consolidated net operating revenues rose 2.8% to $5.368 billion in the first quarter of 2026 from $5.223 billion a year ago. Hospital Operations contributed $4.048 billion (+0.5%) and Ambulatory Care added $1.320 billion (+10.6%). Operating income surged 37.4% to $1.296 billion from $943 million, largely due to a $413 million gain from terminating the Conifer revenue cycle management agreement with CommonSpirit Health. Excluding this item, operating income would have been $883 million, still up slightly year-over-year. Operating margin expanded 600 basis points to 24.1% (18.1% prior year), but the adjusted margin (excluding contract termination) was 16.4%.
Same-hospital net operating revenues were essentially flat (+0.1%) at $4.030 billion, as higher patient volumes were offset by a less favorable payer mix. Net patient service revenue per adjusted admission declined 1.5% to $16,142. Operating income jumped to $877 million ($524 million prior year) including the contract termination revenue; excluding it, segment operating income was $464 million, down from $524 million. Total operating expenses (salaries, supplies, other) rose 1.4% to $3.370 billion, with salaries per adjusted admission flat.
Net operating revenues grew 10.6% to $1.320 billion, driven by acquisitions, de novo development, and same-facility revenue growth of 5.3% (net revenue per case up 5.6%). However, total operating expenses increased 12.0% to $887 million, outpacing revenue growth and compressing operating margin from 35.1% to 31.7%. Same-facility case volume slipped 0.3%, but higher acuity and rate increases supported revenue.
Management reiterated strategic priorities: expanding ambulatory care via acquisitions and de novo centers, driving hospital operations through operational effectiveness and physician network growth, and improving profitability through cost management and case mix optimization. Capital expenditure guidance for FY2026 is $700 million to $800 million. The company noted potential headwinds from the One Big Beautiful Bill Act (OBBBA) enacted in July 2025, which may reduce Medicaid enrollment and payments beginning in 2027, but quantitative impacts are not yet estimable. Liquidity remains strong with $2.967 billion cash and $1.9 billion undrawn credit facility.
Operating cash flow (CFO) of $1,641M exceeded net income of $906M, reflecting strong cash conversion. Key adjustments included $229M depreciation, $25M stock-based compensation, and $24M impairment charges. Working capital provided a net inflow of $493M, primarily from a $407M decrease in inventories and other current assets and a $259M income tax benefit, partially offset by a $145M increase in accounts payable and other liabilities. Net income quality is high, with CFO covering 1.8x net income.
Capex of $180M represented 11% of CFO, indicating low capital intensity. Investing activities also included $121M for business acquisitions and $26M for marketable securities purchases, offset by $22M in proceeds from sales.
Financing activities used $1,240M, driven by $318M in share repurchases, $549M in purchases of noncontrolling interests, and $197M in distributions to noncontrolling interests. Debt repayments of $33M were modest. The large purchase of noncontrolling interests relates to the redemption of CHI's minority stake in Conifer, a significant capital allocation decision. Overall, the company generated robust cash flow, returning substantial capital to shareholders while investing in growth.