Tenet Health(THC) - 2024 Q2 - Quarterly Results

Financial Highlights and Corporate Developments Second Quarter 2024 Performance Summary The company reported strong Q2 2024 results, exceeding expectations with significant growth in Adjusted EBITDA and net income Q2 & Six Months 2024 vs 2023 Performance | ($ in millions, except per share) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Net operating revenues | $5,103 | $5,082 | $10,471 | $10,103 | | Net income available to Tenet common shareholders | $259 | $123 | $2,410 | $266 | | Net income per diluted share | $2.64 | $1.15 | $24.22 | $2.47 | | Adjusted EBITDA | $945 | $843 | $1,969 | $1,675 | | Adjusted diluted earnings per share | $2.31 | $1.44 | $5.53 | $2.87 | - Consolidated Adjusted EBITDA for Q2 2024 was $945 million, a 12.1% increase over Q2 2023, driven by strong same-hospital admission growth, ambulatory net revenue per case growth, favorable payer mix, and improved contract labor costs[35][63] - The company recognized a $30 million favorable pre-tax impact in Q2 2024 from additional Medicaid supplemental revenues in Texas related to prior years[13][45] Balance Sheet, Cash Flow, and Capital Allocation The company improved its financial health with increased free cash flow, reduced leverage, and a new share repurchase program - The Board of Directors authorized a new $1.5 billion share repurchase program[28][37] - The company completed its previous $1 billion share repurchase program by repurchasing 4,801,461 shares for $548 million in the first six months of 2024[66] - Free cash flow for the first six months of 2024 was $948 million, compared to $680 million for the same period in 2023[30][101] - The ratio of net debt to Adjusted EBITDA improved to 2.61x at June 30, 2024, down from 2.79x at March 31, 2024, and 3.89x at December 31, 2023[67] Segment Performance Ambulatory Care Segment The Ambulatory Care segment delivered strong Q2 2024 growth in revenue and Adjusted EBITDA, driven by higher acuity and acquisitions Ambulatory Segment Q2 & Six Months 2024 Performance ($ in millions) | Metric | Q2 2024 | Q2 2023 | Six Months 2024 | Six Months 2023 | | :--- | :--- | :--- | :--- | :--- | | Net operating revenues | $1,141 | $942 | $2,136 | $1,847 | | Same-facility surgical cases | 0.2% | 6.6% | 0.0% | 7.2% | | Adjusted EBITDA | $447 | $370 | $841 | $710 | | Adjusted EBITDA margin | 39.2% | 39.3% | 39.4% | 38.4% | - Q2 2024 net operating revenues increased 21.1% YoY, driven by strong net revenue per case growth, facility acquisitions, and new service lines[70] - Surgical business same-facility system-wide net revenue per case increased 6.8% in Q2 2024, driven by higher acuity case mix and favorable payer mix[41] - As of June 30, 2024, USPI had interests in 520 ambulatory surgery centers (377 consolidated) and 24 surgical hospitals (7 consolidated) in 38 states[69] Hospital Operations and Services Segment The Hospital segment's revenue declined due to divestitures, but same-hospital performance and Adjusted EBITDA remained strong Hospital Segment Q2 & Six Months 2024 Performance ($ in millions) | Metric | Q2 2024 | Q2 2023 | Six Months 2024 | Six Months 2023 | | :--- | :--- | :--- | :--- | :--- | | Net operating revenues | $3,962 | $4,140 | $8,335 | $8,256 | | Same-hospital admissions | 5.2% | 3.0% | 4.7% | 3.6% | | Adjusted EBITDA | $498 | $473 | $1,128 | $965 | | Adjusted EBITDA margin | 12.6% | 11.4% | 13.5% | 11.7% | - The 4.3% decline in Q2 2024 net operating revenues was primarily due to the impact of hospital divestitures in Q1 2024[73] - Same-hospital net patient service revenue per adjusted admission increased 5.7% year-over-year for Q2 2024, driven by improved pricing yield, favorable payer mix, and a focus on higher acuity services[44] 2024 Financial Outlook Consolidated Outlook The company raised its full-year 2024 outlook for Adjusted EBITDA and Free Cash Flow, reflecting strong year-to-date performance FY 2024 and Q3 2024 Consolidated Outlook ($ in millions, except per share) | Metric | FY 2024 Outlook | Q3 2024 Outlook | | :--- | :--- | :--- | | Net operating revenues | $20,600 to $21,000 | $5,000 to $5,100 | | Adjusted EBITDA | $3,825 to $3,975 | $900 to $950 | | Adjusted diluted EPS | $10.41 to $11.12 | $2.16 to $2.58 | | Free cash flow | $1,100 to $1,350 | N/A | - The FY 2024 Adjusted EBITDA Outlook was increased by $300 million, and the Free Cash Flow outlook was increased by $150 million[63] Segment Outlook The company provided a detailed full-year 2024 outlook for its Ambulatory and Hospital segments, projecting continued growth FY 2024 Ambulatory Segment Outlook | Metric | FY 2024 Outlook | | :--- | :--- | | Net operating revenues | $4,325M to $4,475M | | Adjusted EBITDA | $1,750M to $1,810M | | Surgical cases volumes | Up 1.0% to 2.0% | | Net revenues per surgical case | Up 4.5% to 5.5% | FY 2024 Hospital Segment Outlook | Metric | FY 2024 Outlook | | :--- | :--- | | Net operating revenues | $16,275M to $16,525M | | Adjusted EBITDA | $2,075M to $2,165M | | Inpatient admissions | Up 3.0% to 4.0% | | Adjusted admissions | Up 1.0% to 3.0% | Financial Statements Consolidated Statements of Operations The statements show 3.6% revenue growth and a significant increase in net income for the first six months, driven by facility sales Consolidated Statement of Operations - Six Months Ended June 30 ($ in millions) | Line Item | 2024 | 2023 | | :--- | :--- | :--- | | Net operating revenues | $10,471 | $10,103 | | Operating income | $4,046 | $1,207 | | Net gains on sales of facilities | ($2,558) | ($13) | | Income before income taxes | $3,671 | $753 | | Net income | $2,811 | $589 | | Net income available to common shareholders | $2,410 | $266 | | Diluted EPS | $24.22 | $2.47 | Consolidated Statement of Operations - Three Months Ended June 30 ($ in millions) | Line Item | 2024 | 2023 | | :--- | :--- | :--- | | Net operating revenues | $5,103 | $5,082 | | Operating income | $761 | $604 | | Income before income taxes | $587 | $373 | | Net income | $477 | $293 | | Net income available to common shareholders | $259 | $123 | | Diluted EPS | $2.64 | $1.15 | Consolidated Balance Sheets The balance sheet as of June 30, 2024, shows increased cash, reduced long-term debt, and a significant rise in total equity Consolidated Balance Sheet Summary ($ in millions) | Line Item | June 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $2,880 | $1,228 | | Total current assets | $7,955 | $7,167 | | Total assets | $29,265 | $28,312 | | Liabilities & Equity | | | | Total current liabilities | $5,493 | $4,760 | | Long-term debt, net | $12,769 | $14,882 | | Total liabilities | $21,396 | $22,804 | | Total equity | $5,056 | $3,117 | | Total liabilities and equity | $29,265 | $28,312 | Consolidated Statements of Cash Flows Net cash from operations increased, while significant proceeds from facility sales drove positive investing cash flow for the first half of 2024 Consolidated Statement of Cash Flows - Six Months Ended June 30 ($ in millions) | Line Item | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $1,333 | $1,047 | | Net cash provided by (used in) investing activities | $3,134 | ($467) | | Proceeds from sales of facilities | $4,048 | $16 | | Purchases of property and equipment | ($385) | ($367) | | Net cash used in financing activities | ($2,815) | ($504) | | Repayments of borrowings | ($2,179) | ($1,437) | | Repurchases of common stock | ($548) | ($90) | | Net increase in cash and cash equivalents | $1,652 | $76 | Segment Reporting This section details the financial performance of the Ambulatory Care and Hospital Operations segments for the first six months of 2024 Segment Financial Data - Six Months Ended June 30, 2024 vs 2023 ($ in millions) | Metric | Segment | 2024 | 2023 | | :--- | :--- | :--- | :--- | | Net operating revenues | Ambulatory Care | $2,136 | $1,847 | | | Hospital Operations | $8,335 | $8,256 | | | Total | $10,471 | $10,103 | | Adjusted EBITDA | Ambulatory Care | $841 | $710 | | | Hospital Operations | $1,128 | $965 | | | Total | $1,969 | $1,675 | | Adjusted EBITDA margins | Ambulatory Care | 39.4% | 38.4% | | | Hospital Operations | 13.5% | 11.7% | | | Total | 18.8% | 16.6% | Non-GAAP Reconciliations and Disclosures Definitions of Non-GAAP Measures The company defines non-GAAP measures like Adjusted EBITDA and Free Cash Flow, which management uses to track performance - The company uses non-GAAP measures to track financial and operating performance, compare against peers, and for management incentive compensation[82] - Key non-GAAP measures are defined, including: - Adjusted EBITDA: Net income adjusted for items like interest, taxes, D&A, NCI, gains/losses on sales, and litigation costs - Adjusted Net Income: Net income adjusted for items like gains/losses on sales, litigation costs, and their associated tax and NCI impacts - Free Cash Flow: Net cash from operating activities less purchases of property and equipment[82] - Investors are encouraged to use GAAP measures when evaluating financial performance as non-GAAP measures exclude many items and may not be comparable to other companies' metrics[17] Reconciliation of Net Income to Adjusted Net Income This table reconciles GAAP Net Income to Adjusted Net Income, primarily excluding a $2.56 billion net gain on sales of facilities Reconciliation to Adjusted Net Income ($ in millions) | Line Item | Six Months 2024 | Six Months 2023 | | :--- | :--- | :--- | | Net income available to common shareholders | $2,410 | $266 | | Net gains on sales of facilities | $2,558 | $13 | | Tax and NCI impact of adjustments | ($625) | $7 | | Other adjustments | ($93) | ($79) | | Adjusted net income available to common shareholders | $550 | $308 | Reconciliation of Net Income to Adjusted EBITDA This section reconciles GAAP Net Income to Adjusted EBITDA by adding back items like interest, taxes, depreciation, and facility sale gains Reconciliation to Adjusted EBITDA ($ in millions) | Line Item | Six Months 2024 | Six Months 2023 | | :--- | :--- | :--- | | Net income available to common shareholders | $2,410 | $266 | | Add: NCI | $401 | $323 | | Add: Income tax expense | $860 | $164 | | Add: Interest expense | $421 | $447 | | Add: Depreciation & amortization | $416 | $430 | | Less: Net gains on sales of facilities | ($2,558) | ($13) | | Other adjustments | $13 | $58 | | Adjusted EBITDA | $1,969 | $1,675 | Reconciliation of Cash Flow to Free Cash Flow This reconciliation details the calculation of Free Cash Flow from operating cash flow, showing $948 million for the first half of 2024 Reconciliation to Free Cash Flow - YTD June 30 ($ in millions) | Line Item | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $1,333 | $1,047 | | Purchases of property and equipment | ($385) | ($367) | | Free cash flow | $948 | $680 | | Payments for restructuring, etc. | $64 | $78 | | Adjusted free cash flow | $1,012 | $758 | Outlook Reconciliations These tables provide reconciliations for the company's 2024 financial outlook, bridging projected GAAP and non-GAAP measures FY 2024 Outlook Reconciliation: Net Income to Adjusted EBITDA ($ in millions) | Line Item | Low | High | | :--- | :--- | :--- | | Net income available to common shareholders | $2,825 | $2,930 | | Adjustments (Taxes, Interest, D&A, etc.) | ($2,558) | ($2,558) | | Less: Net gains on sales of facilities | $2,558 | $2,558 | | Other adjustments | $735 | $845 | | Adjusted EBITDA | $3,825 | $3,975 | FY 2024 Outlook Reconciliation: Net Income to Adjusted Net Income ($ in millions) | Line Item | Low | High | | :--- | :--- | :--- | | Net income available to common shareholders | $2,825 | $2,930 | | Less: Net gains on sales of facilities | ($2,558) | ($2,558) | | Other adjustments & tax impact | $753 | $718 | | Adjusted net income available to common shareholders | $1,020 | $1,090 | FY 2024 Outlook Reconciliation: Operating Cash to Adjusted Free Cash Flow ($ in millions) | Line Item | Low | High | | :--- | :--- | :--- | | Net cash provided by operating activities | $1,900 | $2,250 | | Purchases of property and equipment | ($800) | ($900) | | Free cash flow | $1,100 | $1,350 | | Payments for restructuring, etc. | $125 | $75 | | Adjusted free cash flow | $1,225 | $1,425 |