Tenet Healthcare Corporation · NYSE:THC
Tenet Healthcare — Q4 2010 Earnings Presentation
35 slides from Tenet Healthcare's earnings presentation, Feb 25, 2011
Slide 1: Q4'10 Earnings Call
Q4 10 Q4’10 Earnings Call February 25, 25 2011
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: 2010 and Q4'10 Highlights
2010 and Q4’10 Highlights Nearly 30% increase in adjusted EBITDA (Q4’10) 12.2% EBITDA margin (Q4’10) Strongest 4th quarter margin in 7 years 260 bp improvement over Q4’09 Q4 09 $1.050 billion adjusted EBITDA (2010) High-end of initial 2010 Outlook range of $985mm to $1.050 billion Achi
Slide 4: Volume trends show substantial improvement
Volume trends show substantial i improvementt November and December were strongest volume months of the year, following a soft October Strengthening volume trends have continued into 2011 0.2% 0 2% admissions growth in first 7 full weeks of 2011 (49 days, d through th h Feb 18) Outpatient vo
Slide 5: Volume trends show substantial improvement (cont.)
Volume trends show substantial i improvementt (cont.) ( t) Surgery trends improved 0.7% decline in total surgeries, g less than half the rate of decline in Q3’10 Sum of uninsured and charity admissions flat (Q4 (Q4’10 10 versus Q4’09) Q4 09) 5
Slide 6: Pricing growth extends strong trend line
Pricing growth extends strong trend line Favorable pricing trend expected to continue into 2011 Commercial revenues under signed contract: 90% of 2011 60% for 2012 15% for 2013 Contracting strategy provides good balance of locking in attractive pricing p g where available, while p preser
Slide 7: Outstanding cost performance
Outstanding cost performance 1.0% decline in controllable costs (PAPD, Q4’10 versus Q4’09) 1.5% decline in SW&B (PAPD, Q4’10 versus Q4’09) 0.9% 0 9% increase in supply costs (PAPD, (PAPD Q4’10 versus Q4’09) 7
Slide 8: Adjusted Free Cash Flow
Adjusted Free Cash Flow $92mm Adjusted Free Cash Flow (2010) Included only $9mm net cash contribution from California Provider Fee program $64mm contribution to Q1’11 Q1 11 EBITDA and revenue from California Provider Fee program Final written CMS approval of managed care portion of program r
Slide 9: 2011 Outlook adjusted EBITDA range of $1.15 – 1.25 billion reconfirmed
2011 Outlook adjusted EBITDA range of $1.15 – 1.25 billion reconfirmed 9
Slide 10: Sources of earnings and cash flow growth
Sources of earnings and cash flow growth 1 Outpatient Improve outpatient/inpatient mix High Hi h growth/high th/hi h margin i revenue cycle l managementt business b i ffocused d on acute t 2 Conifer care providers 3 MPI (1) Significant cost savings extracted from productivity and other efficiency in
Slide 11: Outpatient acquisitions coming on line and driving growth
1 Outpatient Improve outpatient/inpatient mix Outpatient acquisitions coming on line and driving growth • $3mm contribution to EBITDA in Q4’10 • $165mm expected investment in newly acquired OP centers in 2010 and 2011 • $25mm expected contribution to 2011 EBITDA from acquisitions closed in 2010 • $1
Slide 12: Conifer continues to grow
High growth/high margin revenue cycle management business focused on acute 2 Conifer care providers Conifer continues to grow • Sales p pipeline p is expanding p g • Doubling of non-Tenet revenue expected in 2011 12
Slide 13: MPI cost savings exceeding interim targets
3 MPI Significant cost savings extracted from productivity and other efficiency initiatives MPI cost savings g exceeding g interim targets g • Exceeded $30mm EBITDA contribution target in 2010 • 2010 savings gain enhanced EBITDA visibility in 2011 • $50mm incremental savings target in 2011 reconfirm
Slide 14: Solid 2010 and Q4'10
Solid 2010 and Q4’10 Pricing and cost trends remain favorable Volume trends improving Bad debt expense better than initially anticipated Uninsured and charity y trends show early y indications of stabilization Q4’10 and 2010 demonstrate our longer-term positive earnings trajectory remains
Slide 15: Strong track record and bright future
Strong track record and bright future Clinical quality, patient care, and integrity remain top priorities “Commitment to Quality” launched 7 years ago Malpractice expense PAPD, down nearly 70% CMS’ Evidence-Based Medicine 2010 measures our highest to date Full 2% CMS annual payment update
Slide 16: Biggs Porter, Chief Financial Officer
Biggs Porter Chief Financial Officer
Slide 17: Key Metrics
Key Metrics $281mm in Q4’10 and $1.050 billion in 2010 adjusted EBITDA 1.8% revenue growth, or $40mm increase (Q4’10) Smaller impact from adverse payer mix shift $39mm increase in outpatient revenues 2.2% revenue growth after adjusting for $3mm unfavorable PYCA in Q4’10 and $6mm favorable
Slide 18: Medicaid Reimbursement Issues
Medicaid Reimbursement Issues Several states have proposed cuts in Medicaid reimbursement: Texas $ $175mm in Texas Medicaid revenues ((includes both managed g and direct Medicaid revenues)) $9mm estimated adverse annual impact from 10% reduction included in legislative budget proposal, but onl
Slide 19: Cost performance remains excellent
Cost performance remains excellent 1.0% decline in total controllable costs PAPD (Q4’10) 1.5% decline in SW&B PAPD (Q4’10) 0.9% increase in supply costs PAPD (Q4 (Q4’10) 10) $21mm decline in malpractice p expense p (Q4’10) Includes $10mm related to higher interest rates, reversing adverse impact i
Slide 20: HIT investments improve clinical outcomes and operational efficiencies
HIT investments improve clinical outcomes p and operational efficiencies 4 Health IT Clinical systems are critical to physician alignment and integration, reduction of medication errors standardization of clinical practice and reduction of cost errors, ($ in millions) 2009 2010 2011 2012 2013 2014
Slide 21: Bad debt expense remains lower than anticipated
Bad debt expense p remains lower than anticipated $191mm in bad debt expense $10mm increase, or 5.5% (Q4’10 versus Q4’09) 8.3% bad debt ratio, 30bp increase to Q4’09, but flat to Q3’10 Increased bad debt expense, despite declining uninsured volumes, results from: Pricing increases Declining
Slide 22: Cash
Cash $405mm in cash and cash equivalents (12/31/10) $7mm increase from $398mm at 9/30/10 $ $175mm net cash from operating p g activities (Q (Q4’10)) $180mm adjusted cash provided by operations (Q4’10) $16mm adjusted free cash flow used in continuing operations (Q4’10) $58mm decease in ta
Slide 23: 2011 Outlook
2011 Outlook Reconfirming R fi i 2011 Outlook O tl k range as $1.15 $1 15 billion billi tot $1.25 $1 25 billi billion 9.5% to 19% increase over 2010 GAAP cash from operations expected in range of $570mm to $740mm Increase of $98mm to $268mm Expect slightly higher capex in 2011, including $
Slide 24: 2011 Outlook Assumptions
2011 Outlook Assumptions Line 2011 # Outlook 1 Admissions - growth (%) (1.0) – (0) 2 Inpatient Revenue per Admission – growth (%) 3.5 – 4.5 3 Outpatient Revenue per Visit - growth (%) (1.0) – 0 4 Net operating revenues ($Bil) 9.7 – 9.9 5 Controllable operating expenses (includes $50mm expense for 20
Slide 25: 2011 EBITDA expected to follow historic distribution across quarters
2011 EBITDA expected to follow historic distribution across quarters. . . without unusual front-end or back-end loading Historic seasonal EBITDA pattern has been: Q1 - - - 28% of full year’s adjusted EBITDA Q3 - - - 19-25 19 25% Q2 and Q4 - - - remainder evenly split across these two quarter
Slide 26: Cash Outlook for 2011
Cash Outlook for 2011 Seasonal items expected to result in negative cash flow in Q1’11: Pay down year end liabilities for 2010 capital expenditures 401(k) match Incentive compensation Expect E t 2011’s 2011’ growth th in i cash h from f operations ti > growth th in i EBITDA Some of 2010’
Slide 27: 2011 Cash Walk Forward
2011 Cash Walk Forward 2010 2011 Outlook ($mm) Actual Low High Adjusted EBITDA 1,050 1,150 1,250 Add Back: Stock Compensation Charges 22 20 25 Changes in Cash from Operating Assets and Liabilities (149) (135) (70) I t Interest t Payments P t (402) (365) (385) Net Operating Cash before Taxes, Litigat
Slide 28: Summary
Summary 2010 performance continued our upward progression: Solid revenue growth Continued commercial pricing strength Outpatient volume strength Constrained C t i d growth th iin b bad dddebt bt expense Excellent cost performance 2011 expected to extend those favorable trends: Growth ini
Slide 29: Appendix A: Adjusted EBITDA Reconciliation
Appendix pp A: Adjusted EBITDA Reconciliation
Slide 30: Definitions of Non-GAAP Terms
Definitions of Non-GAAP Terms Adjusted EBITDA Adjusted EBITDA, a non-GAAP term, is defined by the Company as net income (loss) attributable to Tenet Healthcare Corporation common shareholders before (1) cumulative effect of changes in accounting principle, net of tax, (2) net income attributable to
Slide 31: Table #1 - Reconciliation of Adjusted EBITDA to Net Income
Additional Supplemental Non Non-GAAP GAAP Disclosures Table #1 - Reconciliation of Adjusted EBITDA to Net Income Attributable to Tenet Healthcare Corporation Common Shareholders (Unaudited) Three Months Ended Year Ended (Dollars in millions) December 31, December 31, 2010 2009 2010 2009 Net income a
Slide 32: Table #2 Reconciliation of Adjusted Free Cash Flow
Addi i l Supplemental Additional S l l Non-GAAP N GAAP DiDisclosures l Table #2 Reconciliation of Adjusted Free Cash Flow (Unaudited) Three Months Ended Year Ended (Dollars in millions) December 31, 31 December 31, 31 2010 2009 2010 2009 Net cash provided by operating activities $ 175 $ 141 $ 472 $
Slide 33: Table #3 - Reconciliation of Outlook Adjusted EBITDA to Net Income
Additional Supplemental Non-GAAP Disclosures Table #3 - Reconciliation of Outlook Adjusted EBITDA to Outlook Net Income Attributable to Tenet Healthcare Corporation Common Shareholders for Year Ending December 31, 2011 (Unaudited) (Dollars in millions) Low High Net income attributable to Tenet Healt
Slide 34: Table #4 - Reconciliation of Outlook Adjusted EBITDA to Normalized Net Income
Additional Supplemental Non-GAAP Disclosures Table T bl #4 - Reconciliation R ili ti off Outlook O tl k Adjusted Adj t d EBITDA tto Outlook Normalized Net Income Attributable to Tenet Healthcare Corporation Common Shareholders for Year Ending December 31, 2011 (Unaudited) (Dollars in millions except
Slide 35: Table #5 Reconciliation of Outlook Adjusted Free Cash Flow
Additional Supplemental Non-GAAP Disclosures Table #5 Reconciliation of Outlook Adjusted Free Cash Flow for the Year Ending December 31, 2011 (Unaudited) (Dollars in millions) Low High Net cash provided by operating activities $570 $740 Less: Payments against reserves for restructuring charges and l