Tenet Healthcare Corporation · NYSE:THC
Tenet Healthcare — Q3 2010 Earnings Presentation
26 slides from Tenet Healthcare's earnings presentation, Nov 2, 2010
Slide 1: Q3'10 Earnings Call
Q3’10 Earnings Call November 2, 2010
Slide 2: Forward-Looking Statements
Forward-Looking Statements Certain statements contained in this presentation constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements are based on management's curre
Slide 3: Q3'10 Highlights
Q3’10 Highlights $932 million in net income, or $1.68 per diluted share Deferred tax benefit contributes $981 million, or $1.75 per diluted share Loss from early extinguishment of debt of $55 million (pre-tax), or $0.06 per diluted share $203mm adjusted EBITDA 9.0% adjusted EBITDA margin 2nd Stronge
Slide 4: Adjusted EBITDA Margin
5-year trend line of our third quarters • Unusually strong Q3’09 • Quarter-to-quarter volatility: but one quarter doesn’t change trend $250 $240 $ 219 (2) 20% CAGR Adjusted EBITDA Margin $225 11% $200 $177 $203 $175 $156 10.6% 9% $ Millions $150 $125 9.0% $108 8.0% 7% $100 $89 7.2% $75 $50 5% 3.7% $
Slide 5: Notable items impacting Q3'10 and Q3'09
Notable items impacting Q3’10 and Q3’09 Q3’10 Q3’09 • $11mm PYCA (1) Favorable • $2mm PYCA (1) • $6mm HMO distribution • $3mm pension adjustment Unfavorable •$14mm discount rate impact • $4mm HIT increment Net $16mm Unfavorable $20mm Favorable $36 mm (1) “PYCA” refers to Prior Year Cost Report Adjus
Slide 6: Volume Metrics
Volume Metrics (Q3’10 compared to Q3’09) 3.5% decline in total admissions 8.6% decline in commercial admissions 1.8% decline in adjusted admissions Admissions trends improving July was weakest month in Q3’10 August improved relative to July September continued to improve through mid-month 6
Slide 7: Outpatient volumes faring better than inpatient
Outpatient volumes faring better than inpatient (Q3’10 compared to Q3’09) 2.0% decline in total outpatient visits 1.7% decline in ED visits, but 70% of ED decline due to flu 6.3% decline in commercial outpatient visits 0.1% growth in outpatient surgeries 1.8% decline in adjusted admissions 7
Slide 8: Volume declines largely confined to just seven hospitals
Volume declines largely confined to just seven hospitals Q3’10 YTD (09/30/10) Percent of Company’s Percent of Company’s Volume Change (1) Volume Change (1) Admissions - Total 72 64 Admissions - Commercial 37 27 Outpatient Visits - Total 21 34 Outpatient Visits - Commercial 20 24 (1) Volume change of
Slide 9: Volume declines concentrated by service line
Volume declines concentrated by service line (Q3’10 compared to Q3’09) 32% of total admissions decline was in obstetrics Elective procedures being deferred 9
Slide 10: Commercially-insured patients reducing utilization of deferrable/elective services
Commercially-insured patients reducing utilization of deferrable/elective services (Q3’10 compared to Q3’09) Non- Aggregate (% change) Commercial Total Commercial Growth Admissions Admissions Admissions Rate Orthopedic 0.2 (9.0) (2.5) 7,000 Surgeries Spinal 16.6 (14.8) (0.3) 2,000 Fusions Urology 6.
Slide 11: Less elective service lines show uniform utilization across payers
Conversely, . . . service lines which are less elective show uniform utilization across payers (Q3’10 compared to Q3’09) Non- Aggregate (% change) Commercial Total Commercial Growth Admissions Admissions Admissions Rate OB (7.0) (6.3) (6.8) 18,000 Delivery Neonatal (8.5) (6.4) (7.9) 2,200 11
Slide 12: Capital structure enhanced
Capital structure enhanced Balance sheet strengthened 2013 maturities extended to 2020 $229mm repurchased (par value) Debt reduced to $4.06 billion Net debt reduced to $3.66 billion New $800mm bank line Less restrictive covenants 12
Slide 13: Revenues
Revenues Favorable pricing and acuity drive stable revenue picture Commercial pricing particularly strong 2.4% increase in commercial acuity 0.9% increase in commercial revenues 13
Slide 14: Sources of earnings and cash flow growth
Sources of earnings and cash flow growth 1 Capacity Volume growth expected to improve utilization from current 50.8% (YTD 2010) Utilization Outpatient margins are significantly greater than inpatient margins 2 Outpatient Outpatient/ inpatient revenue mix expected to grow from current 33/67 mix (YTD
Slide 15: Expected contributions to near-term performance
Expected contributions to near-term performance Outpatient Acquisitions beginning to come on-line $70mm expected to be invested by 12/31/10 to acquire: Revenues of $100mm to $150mm (2011) EBITDA (2011) of $30-40mm . . . 300-400 basis points of year-over-year growth in EBITDA MPI (Medicare Performanc
Slide 16: Tax benefit of net operating loss carryforward
Tax benefit of net operating loss carryforward $981mm contribution to net income $1.75 per diluted share Recognized THC’s sustained and sustainable return to profitability Future reporting periods will approximate a normalized tax rate of roughly 40% Cash tax payments, however, expected to remain lo
Slide 17: California provider fee expected to be recognized in Q4'10
California provider fee expected to be recognized in Q4’10 Expect $64mm benefit in Q4’10 Partial CMS approval received in October Managed care portion still awaiting CMS approval – but expected before 12/31/10 A portion of cash receipts, approximately $36mm, expected to be delayed until Q1’11 Califo
Slide 18: Revenues grew slightly after adjusting for PYCAs
Revenues grew slightly after adjusting for PYCAs Commercial pricing strong and further strengthened by enhanced commercial CMI but offset by adverse payer mix and aggregate declines in paying volumes 2.4% increase in commercial CMI PYCAs contribute $2mm to Q3’10 revenues $9mm adverse variance to the
Slide 19: Increases in unit revenues
Increases in unit revenues (Q3’10 vs Q3’09) 0.9% growth in commercial managed care revenues 1.1% increase in net inpatient revenues per admission 5.6% increase in net outpatient revenues per visit Low flu volumes helped outpatient pricing growth Good visibility into future increases: 80% of 2011 com
Slide 20: Costs remain well controlled
Costs remain well controlled 800 FTE reduction by 9/30/10 FTEs per adjusted average daily census declined by 1.2% (September) Cuts implemented in Q3’10 expected to have greater visibility in Q4’10. 4.9% increase in controllable costs (PAPD) (Q3’10 vs Q3’09) 4.9% SW&B increase (PAPD) Impacted by phys
Slide 21: Bad debt pressure less than initially anticipated
Bad debt pressure less than initially anticipated Q3’10 Q3’09 Bad Debt / Net Operating Revenues (%) 8.3 8.5 Uninsured Admissions (change - %) (5.9) Uninsured Outpatient Visits (change - %) (2.7) Uncompensated(1) Admissions (change -%) 0.7 Uncompensated(1) O/P Visits (change - %) (1.7) Cost of provid
Slide 22: Cash Flow
Cash Flow $398mm cash and cash equivalents at 9/30/10 $313mm decline $274mm used to repurchase debt $160mm adjusted net cash provided by operating activities - continuing operations $53mm adjusted free cash flow $107mm in capex – continuing operations Lower levels of accounts payable reduced cash fl
Slide 23: MOB sale (subsequent to quarter end)
MOB sale … (subsequent to quarter end) $46mm cash received (October 2010) MOBs had generated $10mm in annual rents and $3.5mm in EBITDA $50mm additional sale under contract, but not in outlook 23
Slide 24: 2010 Outlook Assumptions
2010 Outlook Assumptions Line Prior Revised # Outlook Outlook 1 Admissions - growth (%) (1.5) – (0.5) (3.5) – (2.5) 2 Outpatient visits - growth (%) 1.0 – 2.0 (1.0) – 0.0 3 Inpatient Revenue per Admission - growth (%) 3.0 – 4.0 4.0 – 5.0 4 Outpatient Revenue per Visit - growth (%) 3.0 – 4.0 5.5 – 6.
Slide 25: Cash Walk Forward – Q4'10
Cash Walk Forward – Q4’10 ($mm) Low High EBITDA Outlook (Q4’10) 281 331 Add Back: Stock Compensation Charges 4 14 Changes in Cash from Operating Assets and Liabilities 42 52 Interest Payments (88) (88) Adjusted Net Cash Provided by Operating Activities – Cont. Ops. 239 309 Capital Expenditures – Con
Slide 26: Summary
Summary NOL value confirmed from accounting perspective Raised low end of 2010 adjusted EBITDA Outlook range to new range of $1.050 - $1.100 Billion Cost efficiencies partially offset impact of lower volumes Free Cash Flow reflects both declining AP and AR days Pricing remains a source of strength C