THC - Tenet Reports Third Quarter 2023 Results; Raises 2023 Outlook

• Net income from continuing operations available to common shareholders in third quarter 2023 was $101 million, or $0.94 per diluted share

• Adjusted diluted earnings per share from continuing operations ¹ was $1.44 in third quarter 2023

• Consolidated Adjusted EBITDA ¹ in third quarter 2023 was $854 million, including $3 million of grant income

• Third quarter 2023 Ambulatory Care Adjusted EBITDA of $370 million increased 16.0% over third quarter 2022

• Same-facility system-wide ambulatory surgical cases increased 4.1% versus third quarter 2022; Same-hospital admissions increased 0.6% versus third quarter 2022, with non-Covid admissions up 4.5%

• Net cash provided by operating activities was $503 million in third quarter 2023 and free cash flow was $327 million

• FY 2023 Adjusted EBITDA Outlook increased, now expected to be in the range of $3.365 billion to $3.465 billion

Tenet Healthcare Corporation (Tenet) (NYSE: THC) today announced its results for the quarter ended September 30, 2023.

"Sustained same facility revenue growth and effective cost controls drove strong performance in both our ambulatory care and hospital segments in the third quarter," said Saum Sutaria, M.D., Chairman and Chief Executive Officer of Tenet. "Our steadfast commitment to operating discipline and strategic focus fortify our care capabilities and position us for future growth."

Tenet’s results for third quarter 2023 versus third quarter 2022 are as follows:

• Net income from continuing operations available to the Company’s common shareholders in the third quarter 2023 was $101 million, or $0.94 per diluted share, versus $131 million, or $1.16 per diluted share, in third quarter 2022.

• Third quarter 2023 included COVID-related stimulus grant income of $3 million pre-tax ($2 million after-tax, or $0.02 per diluted share) versus $54 million pre-tax ($41 million after-tax, or $0.37 per diluted share) in third quarter 2022.

• The Company recognized additional income tax expense for the three months ended September 30, 2023 of approximately $16 million, or $0.15 per diluted share, and $40 million, or $0.36 per diluted share for the three months ended September 30, 2022, as a result of interest expense limitation tax regulations.

• Adjusted EBITDA ¹ excluding grant income in third quarter 2023 was $851 million compared to $787 million in third quarter 2022, reflecting strong volume growth in our Ambulatory Care and Hospital Operations segments, improved contract labor costs, and the recognition of $7 million of income from cybersecurity insurance proceeds. The Company believes this strong volume growth is due in part to patient care deferred as a result of the pandemic. Third quarter 2022 results included a $45 million gain on the sale of a substantial portion of the Company's interest in assets of a group purchasing organization.

Balance Sheet and Cash Flows

• Cash flows provided by operating activities for the nine months ended September 30, 2023 were $1.550 billion versus $662 million for the nine months ended September 30, 2022 (or $1.542 billion excluding $880 million of repayments associated with Medicare advances).

• The Company produced free cash flow ¹ of $1.007 billion for the nine months ended September 30, 2023 versus $190 million for the nine months ended September 30, 2022 (or $1.070 billion excluding the repayment of Medicare advances).

• In the nine months ended September 30, 2023, the Company repurchased 1,485,983 shares of common stock for $90 million.

• The Company’s ratio of net debt to Adjusted EBITDA ¹ was 4.08x at September 30, 2023 compared to 4.14x at June 30, 2023 and 4.10x at December 31, 2022.

• The Company had no outstanding borrowings on its $1.5 billion line of credit as of September 30, 2023.

Ambulatory Care (Ambulatory) Segment

Tenet’s Ambulatory business segment is comprised of the operations of United Surgical Partners International (USPI). As of September 30, 2023, USPI had interests in 457 ambulatory surgery centers (316 consolidated) and 24 surgical hospitals (eight consolidated) in 35 states. For all periods prior to June 30, 2022, the Company owned 95% of the voting stock of USPI and now owns 100%.

• Third quarter 2023 net operating revenues increased 16.7% compared to third quarter 2022 driven by strong same-facility net surgical case growth, acquisitions and opening of de novo facilities, service line growth and improved pricing yield.

• Surgical business same-facility system-wide net patient service revenues increased 7.9% in third quarter 2023 compared to third quarter 2022, with cases up 4.1% and net revenue per case up 3.7%.

• Third quarter 2023 Adjusted EBITDA increased 16.0% relative to third quarter 2022, due to strong same-facility system-wide surgical case growth, contributions from acquisitions and de novo facilities, and improved pricing yield.

Hospital Operations and Other (Hospital) Segment

Tenet’s Hospital business segment is primarily comprised of acute care and specialty hospitals, imaging centers, ancillary outpatient facilities, micro-hospitals and physician practices.

• Third quarter 2023 net operating revenues increased 3.7% from third quarter 2022 primarily due to increased adjusted admissions and improved pricing yield.

• Same-hospital net patient service revenue per adjusted admission increased 3.2% year-over-year for third quarter 2023 primarily due to improved pricing yield and our focus on growing higher acuity services. COVID admissions were 2% of total admissions in the third quarter 2023 versus 6% in the third quarter 2022. Third quarter non-COVID inpatient admissions increased 4.5% over third quarter 2022.

• Adjusted EBITDA excluding grant income in third quarter 2023 was $398 million compared to $378 million in third quarter 2022, reflecting strong non-COVID adjusted admissions growth and improved contract labor costs, and the recognition of $7 million of income from cybersecurity insurance proceeds, partially offset by higher other operating expenses. Third quarter 2022 results included a $45 million gain on the sale of a substantial portion of the Company's interest in assets of a group purchasing organization and $6 million of income from cybersecurity insurance proceeds.

Conifer Segment

Tenet’s Conifer business segment provides comprehensive end-to-end and focused-point business process services, including hospital and physician revenue cycle management, patient communications and engagement support and value-based care solutions to hospitals, health systems, physician practices, employers, and other clients.

• Third quarter 2023 net operating revenues and Adjusted EBITDA declined compared to third quarter 2022 primarily reflecting previously announced contract changes with Tenet hospitals and client divestitures.

2023 Outlook ¹

Tenet’s Outlook for full year 2023 ( consolidated and by segment) and fourth quarter 2023 follows:

Management’s Webcast Discussion of Results

Tenet management will discuss the Company’s third quarter 2023 results in a webcast scheduled for 5:00 p.m. Eastern Time (4:00 p.m. Central Time) on October 30, 2023. Investors can access the webcast through the Company’s website at www.tenethealth.com/investors .

The slide presentation associated with the webcast referenced above, a copy of this earnings press release, and a related supplemental financial disclosures document will be available on the Company’s Investor Relations website on October 30, 2023.

Cautionary Statement

This release contains “forward-looking statements” - that is, statements that relate to future, not past, events. In this context, forward-looking statements often address the Company’s 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, especially with regards to developments related to COVID-19. Particular uncertainties that could cause the Company’s actual results to be materially different than those expressed in the Company’s forward-looking statements include, but are not limited to the impact of the COVID-19 pandemic, and other factors disclosed under “Forward-Looking Statements” and “Risk Factors” in our Form 10-K for the year ended December 31, 2022 and other filings with the Securities and Exchange Commission.

Footnotes

1. Tables and discussions throughout this earnings release include certain financial measures, including those related to our fourth quarter and full year 2023 Outlook, that are not in accordance with accounting principles generally accepted in the United States of America (GAAP). Reconciliations of GAAP measures to the Adjusted (non-GAAP) measures used are detailed in Tables #1-6 included at the end of this earnings release. Management’s reasoning for the use of these non-GAAP measures and descriptions of the various non-GAAP measures are included in the Non-GAAP Financial Measures section of this earnings release.
2. Same-facility system-wide revenues and statistical information include the results of the facilities in which the Ambulatory segment has an investment that are not consolidated by Tenet. 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.
3. For 2023, same-hospital revenues and statistical data include those for hospitals and hospital-affiliated outpatient centers operated by the Company’s Hospital segment continuously from January 1, 2022 through September 30, 2023. Amounts associated with physician practices are excluded.
4. Adjusted admissions represent actual patient admissions adjusted to include outpatient services provided by facilities in our Hospital segment by multiplying actual patient admissions by the sum of gross inpatient revenues and outpatient revenues, then dividing that result by gross inpatient revenues.
5. Income tax expense is calculated by multiplying 24% (the federal corporate tax rate of 21% plus an estimate of state taxes) by the sum of: pretax income less GAAP facility level NCI expense plus permanent differences, and non-deductible interest expense.
6. Change versus prior year is presented on a same-facility system-wide basis for USPI Ambulatory surgical cases and on a same-hospital basis for hospital statistics.

About Tenet Healthcare

Tenet Healthcare Corporation (NYSE: THC) is a diversified healthcare services company headquartered in Dallas. Our care delivery network includes United Surgical Partners International, the largest ambulatory platform in the country, which operates or has ownership interests in more than 480 ambulatory surgery centers and surgical hospitals. We also operate 61 acute care and specialty hospitals, approximately 110 other outpatient facilities, a network of leading employed physicians and a global business center in Manila, Philippines. Our Conifer Health Solutions subsidiary provides revenue cycle management and value-based care services to hospitals, health systems, physician practices, employers and other clients. 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 .

Non-GAAP Financial Measures

The Company believes the non-GAAP measures described below are useful to investors and analysts because they present additional information on the Company’s financial performance. Investors, analysts, Company management and the Company’s Board of Directors utilize these non-GAAP measures, in addition to GAAP measures, to track the Company’s financial and operating performance and compare the Company’s performance to its peer companies, which use similar non-GAAP financial measures in their presentations and earnings releases. The Human Resources Committee of the Company’s Board of Directors also uses certain of these measures to evaluate management’s performance for the purpose of determining incentive compensation. Additional information regarding the purpose and utility of specific non-GAAP measures used in this release is set forth below.

• Adjusted EBITDA is defined by the Company as net income available (loss attributable) to Tenet common shareholders before (1) the cumulative effect of changes in accounting principles, (2) net loss attributable (income available) to noncontrolling interests, (3) income (loss) from discontinued operations, net of tax, (4) income tax benefit (expense), (5) gain (loss) from early extinguishment of debt, (6) other non-operating income (expense), net, (7) interest expense, (8) litigation and investigation benefit (costs), net of insurance recoveries, (9) net gains (losses) on sales, consolidation and deconsolidation of facilities, (10) impairment and restructuring charges and acquisition-related costs, (11) depreciation and amortization and (12) income (loss) from divested and closed businesses (i.e., health plan businesses). Litigation and investigation costs excluded do not include ordinary course of business malpractice and other litigation and related expenses.

• Adjusted diluted earnings (loss) per share from continuing operations is defined by the Company as Adjusted net income available (loss attributable) from continuing operations to Tenet common shareholders, divided by the weighted average diluted shares outstanding in the reporting period.

• Adjusted net income available (loss attributable) from continuing operations to Tenet common shareholders is defined by the Company as net income available (loss attributable) to Tenet common shareholders before (1) income (loss) from discontinued operations, net of tax, (2) gain (loss) from early extinguishment of debt, (3) litigation and investigation benefit (costs), net of insurance recoveries, (4) net gains (losses) on sales, consolidation and deconsolidation of facilities, (5) impairment and restructuring charges and acquisition-related costs, (6) income (loss) from divested and closed businesses (i.e., health plan businesses) and (7) the associated impact of these items on taxes and noncontrolling interests. Litigation and investigation costs excluded do not include ordinary course of business malpractice and other litigation and related expenses.

• Free Cash Flow is defined by the Company as (1) net cash provided by (used in) operating activities, less (2) purchases of property and equipment for continuing operations.

• Adjusted Free Cash Flow is defined by the Company as (1) Adjusted net cash provided by (used in) operating activities from continuing operations, less (2) purchases of property and equipment from continuing operations.

• Adjusted net cash provided by (used in) operating activities is defined by the Company as cash provided by (used in) operating activities prior to (1) payments for restructuring charges, acquisition-related costs and litigation costs and settlements, and (2) net cash provided by (used in) operating activities from discontinued operations.

The Company believes that Adjusted EBITDA is a useful measure, in part, because certain investors and analysts use both historical and projected Adjusted EBITDA, in addition to other GAAP and non-GAAP measures, as factors in determining the estimated fair value of shares of the Company’s common stock. Company management also regularly reviews the Adjusted EBITDA performance for each operating segment. The Company does not use Adjusted EBITDA to measure liquidity, but instead to measure operating performance.

The Company uses, and believes investors use, Free Cash Flow and Adjusted Free Cash Flow as supplemental non-GAAP measures to analyze cash flows generated from the Company’s operations. The Company believes these measures are useful to investors in evaluating its ability to fund distributions paid to noncontrolling interests or for acquisitions, purchasing equity interests in joint ventures or repaying debt.

These non-GAAP measures may not be comparable to similarly titled measures reported by other companies. Because these measures exclude many items that are included in the Company’s financial statements, they do not provide a complete measure of the Company’s operating performance. For example, the Company’s definitions of Free Cash Flow and Adjusted Free Cash Flow do not include other important uses of cash including (1) cash used to purchase businesses or joint venture interests, or (2) any items that are classified as Cash Flows from Financing Activities on the Company’s Consolidated Statement of Cash Flows, including items such as (i) cash used to repay borrowings, or (ii) distributions paid to noncontrolling interests. Accordingly, investors are encouraged to use GAAP measures when evaluating the Company’s financial performance.

See corresponding reconciliations of the non-GAAP financial measures referred to above to the most comparable GAAP financial measures in Tables #1 - 6 below.