Tenet Healthcare Corporation

Greetings and welcome to the Tenant Healthcare Corporation second quarter earnings conference call. Today's call is being recorded. It's now my pleasure to introduce your host, Regina Nethery, Vice President of Investor Relations. Please go ahead.

Thank you. We're pleased to have you join us for a discussion of Tenant's second quarter 2020 results, including an update on the impact of the COVID-19 pandemic. Tenant Senior Management participating in today's call will be Ron Rittenmeyer, Executive Chairman and Chief Executive Officer, Saumya Sutaria, President and Chief Operating Officer, and Dan Kinselemi, Executive Vice President and Chief Financial Officer. Our webcast this morning includes an accompanying slide presentation, which has been posted to the investor relations section of our website, tenanthealth.com. Listeners to this call are advised that certain statements made during our discussion today are forward-looking and represent tenant management's expectations based on currently available information. Actual results and plans could differ materially. Tenant is under no obligation to update any forward-looking statement based on subsequent information. Investors should take the cautionary statement slide included in today's presentation as well as the risk factors discussed in our most recent Form 10-K, subsequent Form 10-Q filings, and other filings with this Securities and Exchange Commission. With that, I'll turn the call over to Ron.

Thank you, Regina, and thank you all for joining us today. April, May, and June in our view represented three different stories, with each month having unique characteristics and challenges to navigate, mitigate, and overcome. Thank you very much. We already discussed April in some detail in our June update, so I'm not going to comment beyond the facts as shown in our slides on volume and in slide six, which we did add for transparency purposes on monthly EBITDA, that April was a significant negative financial impact to the company. Joined by the mandate to eliminate elective surgeries and stay-at-home orders, while ensuring every acute care hospital was fully opened and staffed, as well as some USPI facilities, Thank you very much. April proved we could move quickly, in unison and with determination, focusing on patients and moving decision to action in an effective and efficient manner. We never allowed ourselves to be overwhelmed. As wintered May, we developed a stage reopening across the network. We implemented separate care pathways for COVID patients in ERs, inpatient units, and outpatient services to minimize the risk of transmissions. We also continued to actively screen patients presenting for evaluation of COVID through virtual visits, off-site locations, and emergency services. Our markets amplified engagement with our physicians and increased patient education and marketing resources focused on a COVID safe awareness program at the local level. We also coordinated with physicians and patients to very deliberately schedule procedures and to add back to staff This has been a very important part of our recovery effort as we ensure we do not add staff too early or too late. Our USPI facilities ramped up quickly with heightened coordination across all departments and our health system partners. The implementation of rigorous pre-screening and intake protocols to identify at-risk patients as well as redesigning patient flow were key actions to take to de-risk our facilities and our staff. Our ambulatory centers also provided a critical access point for care in locations to treat patients not suffering from the virus, but needing surgical care that may have been unavailable in a hospital due to COVID. While many volumes demonstrated the beginning of the recovery, our core metrics, while much stronger than the April trials, were still well below pre-COVID levels. Markets with COVID surges that were ongoing, such as in Michigan, Massachusetts, New Jersey, Pennsylvania, and California were all much more impacted whether in our hospitals or our ambulatory business. June was the turning point where we regained the cadence of operating our business with greater insight, discipline, and data-driven decisions that drove much improved performance. As executive orders were lifted or eased in most of our markets, volumes in June continued their upward trajectory. with admissions and surgeries in our hospitals and our USPI facilities all reaching 90% of pre-COVID levels. We were also pleased with the mix and acuity we saw in terms of hospital admissions. And on the USPI side, even when excluding grant income, we drove double-digit increases in our net revenue per case both in the month of June and for the second quarter, primarily due to a higher case complexity and a more favorable payer mix. That will likely moderate over the balance of 2020, but it is a clear indication of the importance of our ambulatory division and its impact on our overall business. Unlike most others in our space, our ambulatory business impact is significant to our bottom line, so when we're forced to shut it down, we feel a more significant impact than others. Likewise, when we bring it back online, as in June, we can see the positive impact of how this operation fits with our overall portfolio. In our hospitals, outpatient, and ER visits, we moved the needle in the right direction from when we spoke to you in mid-June. We need to improve further, and we believe this is a byproduct of patient comfort levels on accessing hospital care. We focused our marketing efforts to ensure our communities that our hospitals are safe with designated COVID-safe areas. The message we deliver both to our hospitals and our physicians is that your health can't wait. and Delane Care can create profoundly serious health issues for our patients in both near and long term. We're beginning to see consumer confidence coming back and we believe that focus is really working. Our results in the quarter and particularly in June underscore the ability of the business to adapt, flex and perform and provide clarity that we will deliver at or above expectations even in times of a crisis. On a non-cares act basis, we generated EBITDA on a EBITDA in June of $218 million. That was only slightly lower than our prior year results for the month and underscores we can deliver. While we believe, given the continued COVID surges, which we are managing well in several markets, setting guidance at this time would not be feasible, we do strongly believe June is representative of how we will recover. Our performance on a non-CARES Act basis of $218 million for June, as shown on slide 6, was in line with our original budget expectation. The changes we have made during the quarter are permanent, they're sustainable, and they will continue going forward. As I said, June was the turning point for us to believe we made the right changes, developed the right structure to address our performance as a company going forward. Now I'd like to touch on several other key contributors to the results in the second quarter. First, let's start with the CARES Act. Thank you. Thank you. Thank you. and many more. As I've already said, to provide full transparency on the CARES Act financial implications, we created slide six, which outlines adjusted EBITDA both with and without grant income by month, providing a complete view of the support that was vital to our ability to provide this uninterrupted care. At the same time, with no way of knowing how long it would last, we prudently took steps to address cash flow. Again, the CARES Act stepped up with CMS providing, based on history, a six month advance of payments to our hospitals and a three month advance to our ambulatory centers. This was incredibly important to eliminate a potential cash shortfall. Requirement to begin repayment to these advances starts this month and is to be completed by April, which is aggressive considering the surge of COVID cases being addressed. Hopefully Congress will allow more time for these repayments. If not changed by Congress, though, we expect to achieve the repayment date. Internally, we also took a series of actions to further ensure our liquidity was solid. We increased our credit line in April, and additionally placed two secure note offerings during the quarter. While we would not have done these placements were it not for the extreme uncertainty of the pandemic, they afforded us additional adequate liquidity moving forward. We're confident in our liquidity position and believe we've taken prudent steps to remove this as a concern. We also implemented a series of necessary targeted cost actions in Q2 so we could redirect additional resources to our response. These actions build from the efficiency initiatives we began implementing over two years ago to evolve the organization into a more effective operational structure. When the pandemic hit, it resulted in us moving even more aggressively to go deeper and use a different lens to ensure a more effective environment was created and more importantly, was sustainable. Every decision was tested and informed by learnings and analytical tools we have developed before and refined during the pandemic. The changes are permanent and have made our operations stronger and leaner. Addressing the issue of increased costs related to COVID care where costs are more substantial than typical inpatient admissions really involve various factors, including longer length of stay, expense of contract labor and additional use of supplies. Over time, we were able to develop a more targeted approach to manage those incremental expenses, including cohort care, enhanced utilization of PPE without compromising safety, and of course, staffing to demand. Again, well thought out solutions that are permanent and we can deploy them as needed across the enterprise. I also want to address how we have adjusted day-to-day labor management. As I noted earlier, we had to strike the right balance in terms of calibrating staffing to demand in both the ramp down and the ramp up period, as well as in hotspot areas. The real-time data-driven dashboards we created during the pandemic have been instrumental in informing our response. Our teams are constantly inputting data into each system to closely monitor staffing. Additionally, also monitoring PPE supplies, medication, equipment, and bed capacity. The ability to capture real-time inventory levels of crucial things means we can dial back or accelerate as needed, keeping us balanced throughout the system and ahead in meeting the demands of our clinicians and facilities. These systems are supporting our needs and enabling us to transfer nursing support and supplies to other facilities when deemed necessary. On the USPI side, as we have said before, our approach here was to bring back our facilities online OR by OR, not center by center. May seem like a subtle distinction, but very important, as it helped us to move forward with a higher level of effectiveness and efficiency. These processes have been instrumental in ensuring we have a tight and aligned approach in every hospital and throughout USPI. And finally, our global business center in Manila has played a critical role in providing us with dedicated High Touch Support 24 hours a day. We're seeing excellent performance from the Global Business Center and we continue to increase the leverage even throughout the pandemic of this highly effective and skilled team. Addressing Conifer, which delivered really strong revenue cycle performance during the quarter, the teams moved more diligently on cash collection and helped deliver liquidity as industry volume and revenue contracted. Based on the actions we took to reduce spend, and Conifer's collection performance, we did not burn through a material amount of cash in the quarter, even when you exclude the Medicare advances, grants and the payroll tax match deferral. Conifer's work in the last corner is a testament to better operating discipline, customer focus and a more rapid pace of execution instilled by focused leadership. Throughout the first six months of this year, Conifer has improved quality and efficiency by shifting selected cycle functions to our shared service center which we anticipate will generate modest benefits in the second half with more notable growth over time. We've also implemented additional training to ensure frontline team members are well equipped to drive high quality patient satisfaction amidst the pandemic and as part of our continuous improvement philosophy. And finally, we have recently made some great new additions to leadership which includes a very strong new chief operating officer and a great new chief commercial operation officer. both of whom started in late June and are ramping up quickly given their deep healthcare backgrounds and experience in the space. And as it relates to the conifer spin, despite the pandemic, we still believe we can achieve the timeline previously announced. And beyond that, there's nothing more to offer on the schedule at this point. Finally, before I turn it over to Dan, I want to make a few closing comments. The pandemic has been a challenge. but we also have learned much due to the immediate nature of having to revisit every aspect of the business. Our last two years of continued change was instrumental in providing an effective platform to rapidly build on these changes. We had solid operating and financial momentum entering March and we have exited June with financial momentum and with a clear cadence with solid Non-Cures Act EBITDA performance as represented in June, a stronger, better informed team across the enterprise and awareness of the importance and effectiveness of how we are aligning our ambulatory and hospital portfolio going forward for continued success. We've reduced our expenses by over 12%, which is best in class. And while we have continued COVID surges, we have shown and believe our organization has the leadership skills and tools to continue the momentum. Guidance will come, but first we need to lock in our visibility. We are focused on continuing an effective response and in doing so controlling the controllables. We remain committed to absolute transparency and to keeping you updated as we have over this last couple months to the greatest extent possible. And I also want to close by thanking our caregivers and support staff. who've remained resolute in their efforts to serve the needs of our patients and to do everything possible to reduce the rate of infection in our community. And we're proud to say that our staff infections in our hospitals have averaged 1.3% versus 16% nationally. They are the heroes and we thank them along with all who have been first responders across the country and without whom we would not have achieved the results of where we are today. So with that, I'll turn it over to Dan. Dan.