Tenet Reports Results for the Third Quarter Ended September 30, 2019

• Tenet reported a net loss from continuing operations attributable to Tenet common shareholders of $233 million, or $2.25 per diluted share, in the third quarter of 2019, primarily due to a $180 million pre-tax loss, or $1.70 per diluted share, associated with the Company’s debt refinancing transaction in the third quarter of 2019 that reduces future annual cash interest payments and retired all significant debt maturities until April 2022.
• Adjusted diluted earnings per share from continuing operations were $0.58 in the third quarter of 2019, above the high end of the Company’s Outlook.
• Adjusted EBITDA for the third quarter of 2019 was $631 million, which was above the midpoint of the Company’s Outlook. Adjusted EBITDA consisted of $334 million in the Hospital Operations and other segment, $207 million in the Ambulatory Care segment and $90 million in the Conifer segment.
• Hospital segment same-hospital net patient service revenues grew 5.8 percent in the third quarter of 2019: admissions increased 3.6 percent, adjusted admissions increased 2.8 percent and net revenue per adjusted admission increased 2.9 percent. Adjusted EBITDA in the hospital segment grew 7.1 percent.
• Ambulatory Care segment same-facility system-wide surgical revenue grew 6.9 percent in the third quarter of 2019, with surgical cases up 4.4 percent and surgical revenue per case up 2.5 percent. Adjusted EBITDA less facility-level noncontrolling interest increased 17.5 percent.
• Conifer’s Adjusted EBITDA grew 11.1 percent and margins increased 500 basis points to 26.8 percent.
• Updating 2019 Outlook for net operating revenue, net income, earnings per share and Adjusted earnings per share; reiterating previously provided 2019 Outlook for Adjusted EBITDA and Adjusted Free Cash Flow.

DALLAS–(BUSINESS WIRE)–Tenet Healthcare Corporation (NYSE: THC) today announced its results for the third quarter ended September 30, 2019.

Ronald A. Rittenmeyer, Executive Chairman and CEO, said, “We had a very positive third quarter with performance improvement in each of our operating segments. For the third consecutive quarter, our hospitals delivered accelerating volume growth and we generated strong results at both USPI and Conifer. In addition to driving improvements in our financial results, we made continued steady progress on many of the core initiatives we established for 2019 and discussed at the beginning of the year, including cost savings, physician recruitment, ambulatory acquisitions, marketing and board refreshment. We exceeded the midpoint of our Adjusted EBITDA Outlook in seven of the last eight quarters and exceeded the midpoint of our Adjusted EPS Outlook for eight consecutive quarters. While we have more to accomplish, we have established a solid foundation for growth and performance.”

Rittenmeyer continued, “We also completed a $4.2 billion debt refinancing and increased our line of credit borrowing capacity to $1.5 billion. These actions enhance our financial flexibility, reduce future interest payments and eliminate all significant debt maturities until April 2022.”

Results for the Quarter Ended September 30, 2019

Tenet reported a net loss from continuing operations attributable to Tenet common shareholders of $233 million, or $2.25 per diluted share, in the third quarter of 2019, primarily due to the debt refinancing mentioned above, compared to a net loss of $9 million, or $0.09 per diluted share, in the third quarter of 2018.

Tenet produced Adjusted net income from continuing operations available to Tenet common shareholders of $61 million, or $0.58 per diluted share, in the third quarter of 2019, compared to $30 million, or $0.29 per diluted share, in the third quarter of 2018.

Adjusted EBITDA was $631 million in the third quarter of 2019 compared to $577 million in the third quarter of 2018, an increase of 9.4 percent. Results in the third quarter of 2019 included $8 million of additional expense in the Hospital Operations and other segment due to a decline in the treasury rate utilized to discount our actuarial liabilities compared to a $6 million benefit in the third quarter of 2018. The results for the quarter also included decreased revenue and additional expenses related to Hurricane Dorian as well as a one-time increase in contract labor due to a one-day strike by union nurses at 12 of our hospitals.

Reconciliations of GAAP net income available (loss attributable) to Tenet common shareholders to Adjusted net income available (loss attributable) from continuing operations, Adjusted diluted earnings (loss) per share from continuing operations and Adjusted EBITDA are contained in Tables #1 and #2 at the end of this release.

Hospital Operations and Other Segment

Net operating revenues in the Hospital Operations and other segment were $3.850 billion in the third quarter of 2019, up 2.3 percent from the third quarter of 2018. The increase in revenue was primarily due to revenue growth on a same-hospital basis, partially offset by hospital divestitures. Revenues included $58 million from the California Provider Fee program in the third quarter of 2019 compared to $71 million in the third quarter of 2018.

On a same-hospital basis, net patient service revenues were $3.562 billion in the third quarter of 2019, up 5.8 percent from the third quarter of 2018. Admissions increased 3.6 percent on a same-hospital basis, adjusted admissions increased 2.8 percent and revenue per adjusted admission increased 2.9 percent. Surgeries grew 0.8 percent and increased 3.2 percent including surgeries performed at a USPI facility located in one of Tenet’s hospital markets.

Adjusted EBITDA in Tenet’s hospital segment was $334 million in the third quarter of 2019, an increase of 7.1 percent compared to $312 million in the third quarter of 2018.

Selected operating expenses in the Hospital Operations and other segment increased just 2.3 percent on a per adjusted admission basis in the third quarter of 2019. Selected operating expenses include salaries, wages and benefits, supplies and other operating expenses and exclude the costs of the Company’s health plan businesses.

Ambulatory Care Segment

The Ambulatory Care segment produced net operating revenues of $522 million in the third quarter of 2019, an increase of 4.0 percent compared to $502 million in the third quarter of 2018.

After normalizing for the divestiture of Aspen Healthcare, the Company’s former business in the U.K. which was sold in the third quarter of 2018, the Ambulatory Care segment generated Adjusted EBITDA of $207 million in the third quarter of 2019, up 13.7 percent from $182 million in the third quarter of 2018, and Adjusted EBITDA less facility-level noncontrolling interest was $134 million, up 17.5 percent from $114 million in the third quarter of 2018. Aspen generated $21 million of revenue and $2 million of Adjusted EBITDA and Adjusted EBITDA less facility-level noncontrolling interest in the third quarter of 2018.

The results of many of the facilities in which the Ambulatory Care segment has an investment are not consolidated by Tenet (of the 348 facilities at September 30, 2019, the results of 111 were accounted for under the equity method for unconsolidated affiliates). To help analyze the segment’s results of operations, management uses system-wide measures, which include revenues and cases of both consolidated and unconsolidated facilities. On a same-facility system-wide basis, revenue in the Ambulatory Care segment increased 6.9 percent in the third quarter of 2019, with cases increasing 5.1 percent and revenue per case increasing 1.7 percent. In the surgical business, which represents the majority of the revenue in the Ambulatory segment, same-facility system-wide revenue grew 6.9 percent in the third quarter of 2019, with cases up 4.4 percent and revenue per case up 2.5 percent.

Conifer Segment

Conifer generated $90 million of Adjusted EBITDA in the third quarter of 2019, up 11.1 percent from $81 million in the third quarter of 2018. Adjusted EBITDA margins increased 500 basis points to 26.8 percent primarily due to our continuing cost reduction initiatives.

During the third quarter of 2019, Conifer’s revenue declined 9.4 percent to $336 million, from $371 million in the third quarter of 2018, primarily due to client attrition as a result of hospital divestitures by Tenet and other customers. Revenue from third-party customers declined 12.9 percent to $196 million in the third quarter of 2019.

Results for the Nine Months Ended September 30, 2019

Tenet reported a net loss from continuing operations attributable to Tenet common shareholders of $245 million, or $2.37 per diluted share, in the first nine months of 2019 compared to net income of $113 million, or $1.09 per diluted share, in the first nine months of 2018. The 2019 period includes a $227 million pre-tax loss from the extinguishment of debt, or $2.14 per diluted share, including the aforementioned $180 million pre-tax loss, or $1.70 per diluted share, recorded during the third quarter of 2019. The 2018 period included a $111 million pre-tax gain, or $0.84 per diluted share, from the sales, consolidation and deconsolidation of facilities.

Tenet produced Adjusted net income from continuing operations available to Tenet common shareholders of $176 million, or $1.68 per diluted share, in the first nine months of 2019, compared to $140 million, or $1.35 per diluted share, in the first nine months of 2018.

Adjusted EBITDA was $1.901 billion in the first nine months of 2019 compared to $1.876 billion in the first nine months of 2018, an increase of $25 million or 1.3 percent. Items that lowered the year-over-year growth in Adjusted EBITDA included: (i) a $51 million year-over-year increase in expense due to a decline in the treasury rate used to discount the Company’s actuarial liabilities; and, (ii) the divestiture of Aspen Healthcare, which generated $16 million of Adjusted EBITDA in the first nine months of 2018.

Hospital Operations and Other Segment

Net operating revenues in the Hospital Operations and other segment were $11.539 billion in the first nine months of 2019, up 0.8 percent from the first nine months of 2018. Revenues included $187 million from the California Provider Fee program in the first nine months of 2019 compared to $198 million in the first nine months of 2018.

On a same-hospital basis, net patient service revenues were $10.666 billion in the first nine months of 2019, up 4.4 percent from the first nine months of 2018. Admissions increased 2.2 percent on a same-hospital basis in the first nine months of 2019, adjusted admissions increased 1.8 percent and revenue per adjusted admission increased 2.5 percent. Surgeries declined 1.0 percent and increased 1.2 percent including surgeries performed at a USPI facility located in one of Tenet’s hospital markets.

Adjusted EBITDA in Tenet’s hospital segment was $1.018 billion in the first nine months of 2019 compared to $1.059 billion in the first nine months of 2018. The $41 million decline was primarily due to a $51 million year-over-year increase in expense due to a decline in the treasury rate used to discount the Company’s actuarial liabilities.

Selected operating expenses in the Hospital Operations and other segment increased 3.3 percent on a per adjusted admission basis in the first nine months of 2019. Selected operating expenses include salaries, wages and benefits, supplies and other operating expenses and exclude the costs of the Company’s health plan businesses.

Ambulatory Care Segment

The Ambulatory Care segment produced net operating revenues of $1.526 billion in the first nine months of 2019, a decrease of 0.3 percent compared to $1.531 billion in the first nine months of 2018. The decline in revenue was due to the divestiture of Aspen Healthcare, which was completed in the third quarter of 2018. Aspen generated $117 million of revenue and $16 million of Adjusted EBITDA and Adjusted EBITDA less facility-level noncontrolling interest in the first nine months of 2018. After normalizing for the divestiture of Aspen, the Ambulatory Care segment generated Adjusted EBITDA of $591 million in the first nine months of 2019, up 11.3 percent from $531 million in the first nine months of 2018 and Adjusted EBITDA less facility-level noncontrolling interest was $378 million, up 12.2 percent from $337 million in the first nine months of 2018.

On a same-facility system-wide basis, revenue in the Ambulatory Care segment increased 5.5 percent in the first nine months of 2019, with cases increasing 3.1 percent and revenue per case increasing 2.3 percent. In the surgical business, which represents the majority of the revenue in the Ambulatory segment, same-facility system-wide revenue grew 5.5 percent in the first nine months of 2019, with cases up 3.3 percent and revenue per case up 2.1 percent.

Conifer Segment

Conifer generated $292 million of Adjusted EBITDA in the first nine months of 2019, up 8.1 percent from $270 million in the first nine months of 2018. Adjusted EBITDA margins increased 480 basis points to 28.1 percent.

During the first nine months of 2019, Conifer’s revenue declined 10.4 percent to $1.040 billion, from $1.161 billion in the first nine months of 2018 primarily due to client attrition as a result of hospital divestitures by Tenet and other customers. Revenue from third-party customers declined 15.7 percent to $608 million in the first nine months of 2019.

Cash Flow and Liquidity

Cash and cash equivalents were $314 million at September 30, 2019 compared to $249 million at June 30, 2019. The Company had $275 million of outstanding borrowings on its $1.5 billion credit line as of September 30, 2019. Accounts receivable days outstanding from continuing operations were 59.6 at September 30, 2019 compared to 58.4 at June 30, 2019; the increase was primarily due to a short-term disruption in collections in two markets following the consolidation of two local business offices, which is expected to reverse in future periods.

Net cash provided by operating activities was $713 million in the first nine months of 2019, representing an $86 million decrease compared to $799 million in the first nine months of 2018. This decline is due in part to $81 million of interest payments being accelerated into the three months ended September 30, 2019 from the fourth quarter of 2019 ($72 million) and the first quarter of 2020 ($9 million) as a result of our recent debt refinancing transaction. After subtracting $492 million and $404 million of capital expenditures in the first nine months of 2019 and 2018, respectively, Free Cash Flow was $221 million in the first nine months of 2019, a decrease of $174 million compared to Free Cash Flow of $395 million in the first nine months of 2018. Adjusted Free Cash Flow was $361 million in the first nine months of 2019, representing a $151 million decrease from $512 million of Adjusted Free Cash Flow in the first nine months of 2018.

Net cash used in investing activities was $426 million in the first nine months of 2019 compared to $120 million of net cash provided by investing activities in the first nine months of 2018. Results in the first nine months of 2019 included $113 million of proceeds from the sales of facilities, marketable securities, long-term investments and other assets compared to $663 million in the first nine months of 2018.

Net cash used in financing activities was $384 million in the first nine months of 2019 compared to $1.030 billion used in the first nine months of 2018 when the Company invested $630 million in cash to increase its ownership in USPI from 80 percent to 95 percent.

Reconciliations of net cash provided by operating activities to both Free Cash Flow and Adjusted Free Cash Flow are contained in Table #3 at the end of this release.

Outlook

The Company’s Outlook for 2019 includes:

• Revenue of $18.350 billion to $18.550 billion,
• Net loss from continuing operations attributable to Tenet common shareholders of $135 million to $230 million,
• Adjusted EBITDA of $2.650 billion to $2.750 billion,
• Net cash provided by operating activities of $1.045 billion to $1.325 billion,
• Adjusted Free Cash Flow of $600 million to $800 million,
• Diluted loss per share from continuing operations of $1.31 to $2.23, and
• Adjusted diluted earnings per share from continuing operations of $2.25 to $2.91.

The Outlook for 2019 assumes California Provider Fee revenues of approximately $246 million, equity in earnings of unconsolidated affiliates of $170 million to $180 million, depreciation and amortization expense of $830 million to $840 million, interest expense of $985 million to $995 million, net income available to noncontrolling interests of $390 million to $410 million and an average diluted share count of 105 million.

The Company’s Outlook for the fourth quarter of 2019 includes:

• Revenue of $4.678 billion to $4.878 billion,
• Net income from continuing operations available to Tenet common shareholders of $15 million to $110 million,
• Adjusted EBITDA of $749 million to $849 million,
• Diluted earnings per share from continuing operations of $0.14 to $1.04, and
• Adjusted diluted earnings per share from continuing operations of $0.57 to $1.23.

The Outlook for the fourth quarter assumes California Provider Fee revenues of approximately $59 million, equity in earnings of unconsolidated affiliates of $56 million to $66 million, depreciation and amortization expense of $203 million to $213 million, interest expense of $243 million to $253 million, net income available to noncontrolling interests of $131 million to $151 million, and an average diluted share count of 106 million.

Additional details on Tenet’s Outlook for both the fourth quarter and calendar year 2019 are available in Tables #4, #5 and #6 at the end of this press release and in an accompanying slide presentation that will be accessible through the Company’s website at www.tenethealth.com/investors.

Management’s Webcast Discussion of Third Quarter Results

Tenet management will discuss the Company’s third quarter 2019 results on a webcast scheduled for 10:00 a.m. Eastern Time (9:00 a.m. Central Time) on November 5, 2019. Investors can access the webcast through the Company’s website at www.tenethealth.com/investors. A set of slides, which will be referred to on the conference call, will be available on the Company’s website.

Additional information regarding Tenet’s quarterly results of operations is contained in its Form 10-Q report for the period ended September 30, 2019, which will be filed with the Securities and Exchange Commission and posted on the Company’s website.

This press release includes certain non-GAAP measures, such as Adjusted EBITDA, Adjusted net income available (loss attributable) from continuing operations to Tenet common shareholders, Adjusted diluted earnings per share from continuing operations, Free Cash Flow and Adjusted Free Cash Flow. Reconciliations of these measures to the most comparable GAAP measures are contained in the tables at the end of this release.

About Tenet Healthcare

Tenet Healthcare Corporation (NYSE: THC) is a diversified healthcare services company headquartered in Dallas with 110,000 employees. Through an expansive care network that includes United Surgical Partners International, we operate 65 hospitals and approximately 500 other healthcare facilities, including surgical hospitals, ambulatory surgery centers, urgent care and imaging centers and other care sites and clinics. We also operate Conifer Health Solutions, which provides revenue cycle management and value-based care services to hospitals, health systems, physician practices, employers and other customers. Across the Tenet enterprise, we are united by our mission to deliver quality, compassionate care in the communities we serve. For more information, please visit www.tenethealth.com.

This release contains “forward-looking statements” – that is, statements that relate to future, not past, events. In this context, forward-looking statements often address our expected future business and financial performance and financial condition, and often contain words such as “expect,” “anticipate,” “assume,” “believe,” “budget,” “estimate,” “forecast,” “intend,” “plan,” “predict,” “project,” “seek,” “see,” “target,” or “will.” Forward-looking statements by their nature address matters that are, to different degrees, uncertain. Particular uncertainties that could cause our actual results to be materially different than those expressed in our forward-looking statements include, but are not limited to, the factors disclosed under “Forward-Looking Statements” and “Risk Factors” in our Form 10-K for the year ended December 31, 2018, and subsequent Form 10-Q filings and other filings with the Securities and Exchange Commission.

Contacts

Investor Contact
Brendan Strong

469-893-6992

investorrelations@tenethealth.com

Media Contact
Lesley Bogdanow

469-893-2640

mediarelations@tenethealth.com

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