Tenet Health(THC)2024-07-24 16:22Financial Data and Key Metrics - Q2 2024 net operating revenues were $5.1 billion, with consolidated adjusted EBITDA of $945 million, representing a 12% YoY growth [8] - Adjusted EBITDA margin was 18.5% in Q2 2024 [8] - USPI adjusted EBITDA grew 21% YoY to $447 million in Q2 2024 [8] - Same-facility revenues grew 7.1% YoY in Q2 2024 [8] - Hospital segment adjusted EBITDA grew 5.3% YoY, with margins up 120 basis points to 12.6% [15] - Same-hospital inpatient admissions increased 5.2%, and revenue per adjusted admission grew 5.7% in Q2 2024 [15] - Free cash flow in Q2 2024 was $602 million, with $2.9 billion in cash on hand as of June 30, 2024 [44] Business Line Performance - USPI added 11 new centers in Q2 2024, including a partnership with Florida Orthopedic Institute [9] - USPI has nearly 25 centers in syndication stages or under construction [9] - Orthopedic volumes were strong, with total joint replacements in ASCs up 23% YoY [35] - Urology and GI procedures also showed ongoing growth [35] - Hospital segment adjusted EBITDA was $498 million in Q2 2024, with same-store hospital admissions growing 5.2% [36] Market Performance - The company is expanding its network, including a new hospital in Westover Hills near San Antonio, which will focus on procedural services [10] - The new hospital is in a geography growing at six times the national average [10] - USPI's same-facility system-wide revenues grew 7.1% YoY, with net revenue per case up 6.8% [42] Strategic Direction and Industry Competition - The company is prioritizing capital investments to grow USPI through M&A and hospital growth opportunities [21] - Investments are being made in higher acuity service offerings and AI-enabled technologies to enhance clinical and administrative efficiency [39] - The company has retired $2.1 billion of debt in 2024, focusing on deleveraging the balance sheet [39] - A new $1.5 billion share repurchase program has been authorized [13] Management Commentary on Operating Environment and Future Outlook - Management highlighted strong same-store revenues, high patient acuity, favorable payer mix, and effective cost controls as drivers of Q2 performance [14] - The company raised its full-year 2024 adjusted EBITDA guidance to $3.825 billion to $3.975 billion, an increase of $300 million [37] - USPI's 2024 adjusted EBITDA is expected to be $1.75 billion to $1.81 billion, a $100 million increase over prior expectations [19] - Q3 2024 consolidated adjusted EBITDA is expected to be $900 million to $950 million [20] Other Important Information - The company received a $30 million favorable adjustment from additional Medicaid supplemental revenues in Texas [16] - Contract labor expense was 2.6% of salary, wages, and benefits (SWB) in Q2 2024, down from 4.3% in Q2 2023 [43] - The company repurchased 2 million shares for $270 million in Q2 2024 [44] Q&A Session Summary Question: ASC revenue per case and surgical case volume drivers [23] - The increase in net revenue per case is driven by higher acuity and mix, particularly in orthopedics, cardiac, urology, and robotics [51] Question: Supplemental payment programs and opportunities [26] - Six hospital markets currently participate in supplemental programs, with potential for expansion in other states [53] - Michigan recently enhanced its HRA program, improving reimbursement rates [53] Question: Hospital segment performance and capacity expansion [29] - Q2 performance was strong due to strong volumes, capacity expansion, and effective cost control [29] - Capacity expansion is selective, focusing on markets lagging in COVID recovery [57] Question: Volume outlook for hospitals and USPI [65] - Inpatient admissions are expected to grow 3% to 4% in 2024, driven by a favorable utilization environment [95] - USPI volume guidance was adjusted due to strong comps from the previous year, but revenue per case remains strong [94] Question: Exchange-based coverage and margins [96] - Exchange-based coverage accounts for 6.5% of hospital revenues, with margins comparable to commercial payers [96][97] Question: ASC volume growth and service line trends [106] - Urology is in early stages of growth, with potential for multi-year tailwinds as robotic procedures move to ASCs [106] - Ophthalmology is strong, while pain procedures are being diversified to include higher acuity services [106][108] Question: USPI facility mix and hospital partnerships [110] - USPI has a disciplined integration process for new acquisitions, with 30% to 40% of centers in partnership with external hospitals [113] Question: Managed care pricing and contract negotiations [124] - Contract negotiations have normalized, with discussions focused on catching up to inflationary pressures [124] Question: Inpatient surgical growth vs. outpatient surgical decline [127] - Inpatient surgical growth is driven by acuity, while outpatient surgical decline is influenced by the shift to freestanding ASCs [128] Question: Hospital capacity and margin impact [137] - New capacity additions are margin accretive, with early phases potentially using contract labor before transitioning to permanent staff [148] Question: Occupancy levels and capacity utilization [150] - The company is focused on improving capacity utilization, with a measured approach to service line participation [140][141]