Tenet Healthcare Corporation

Hello, and welcome to Tenant Healthcare Corporation's third quarter 2020 earnings conference call. I will now turn the call over to Regina Nethery, Vice President of Investor Relations for Tenant.

Thank you. We're pleased to have you join us for a discussion of Tenant's third 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, Sam Sataria, President and Chief Operating Officer, and Dan Kusami, 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 to differ materially. Tenants is under no obligation to update any forward-looking statements based on subsequent information. Investors should take note of 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 filing, and other filings with the Securities and Exchange Commission. With that, I'll turn the call over to Ron.

Thank you, Regina, and thank everybody for joining us today. Our third quarter results, I believe, underscored the operational discipline that we've put into action on an ongoing basis. As the pandemic has continued to evolve in waves, we have successfully met each sharp turn with a carefully coordinated and active response. Every step we have taken remains anchored by our commitment to the highest standards of quality and safety. We're very pleased with the performance of each of our business statements during the quarter. Despite the COVID-19 case surge, which was about 60% plus in late July and August compared to the second quarter across our system, we delivered a solid performance in every part of our business. While we experienced a surge, we safely handled caring for COVID and non-COVID patients. Notably, our performance overall for the quarter was strong in delivering EBITDA at $621 million without grant income. Additionally, our free cash flow was 26% above 2019 before grant and Medicare advance dollars were considered due in part to significant improvements from our Conover operation. However, due to the new guidance issued by HHS in September, which was markedly different than the original guidance we had in June, we had to reverse 70 million from Q2 in grant dollars, thus lowering our reported Q3 EBITDA to 551 million. We strongly believe this guidance from HHS does not recognize the structural differences across complex networks involving multiple hospitals, including mixed differences in reimbursement levels in the different service areas, capital investment made in 2019 and early 2020 to effectively improve patient access and quality, as well as the incredible losses experienced in the shutdown that need to be recovered to ensure sustainable operations. We continue to discuss these details with JHHS in hopes of a more balanced outcome But regardless, remain optimistic on our performance and our ability to continue to improve. What should be more evident is that the operational enhancements we've highlighted on the past earnings calls have played a major role in continuing to provide benefits across the enterprise. Our continued performance should substantiate. These are not one-time events, but sustainable and critical foundational improvements. For example, enhanced analytical tools. and pull through a precise real-time data, which we continue to refine and develop with deeper insights. Knowledge sharing from COVID learnings real-time across the company summarized and transmitted in technical and operational scheduled calls that have resulted in improved response to patient needs and an average staff infection rate of approximately 3.75% versus a national average of approximately 13.4%. That focus ensures we remain open to both COVID and non-COVID cases safely and effectively, even while dealing with isolated market surges such as in the third quarter. We've also demonstrated solid sustainable controls, which include responsive workforce adjustments and tightly controlled labor market management. Continued development of our IT platform focused on delivering a streamlined set of tools utilization of cloud-based infrastructure, and a much improved cyber platform, better purchasing and contracting methodologies, tighter capital controls, and allocations based on defined needs by market. We've also added highly qualified physician groups based on community need, tighter controls in the tenant physician resource group, and consistent improvements to ensure physicians have an efficient and effective methodology to insist in their ability to support patients. And finally, the continued expansion of our very capable and effective global business center in Manila has been an important enhancement to our 24-7 support model. In the hospital's volumes for the quarter ended close to 90% at pre-COVID levels. This is continuing to be a solid recovery during the time period and remains very positive. Our operators across our markets have responded very well given the nature of the complexities of the pandemic, and we continue to perform tightly aligned to the volumes presented. We've experienced historically high growth in net patient revenue for adjusted admission, driven in part by a higher mix of more complex procedures and a stronger commercial mix, coupled with the sustained efficiencies we've gained operationally. Importantly, this set of improvements is represented both in the hospitals and at USPI. further emphasizing the critical nature of how hospitals and USBI play an integral role with each other, including sharing best practices. We realize and operate every day with the assumption that COVID spikes will be part of what we face until a vaccine becomes widely deployed. We've learned how to deal with these spikes and have done so effectively. We also are aware the pandemic remains a threat, and our focus on staff and facility safety will continue to be paramount in our daily approach. We continue to use resources internally and externally, including contract labor, to support our operations as needed. We remain engaged in securing sufficient PPE, supplies, and medications to ensure we have adequate coverage. Most importantly, we also realize that agility, speed to respond, and the need for clear, precise communications coupled with a strong and responsive real-time analytical platform throughout our system, is a critical part of remaining in control of these changes and surges. There is no perfect equation, but we do believe our learnings from each spike improves our responsiveness, our planning, and furthers our effectiveness. At USPI, the quarter was very strong, demonstrated first and foremost by solid performance. but also carried by excellent quality and service recognition, service line expansion, and the growth of our medical staff. Excluding grant income, USPI had a significant EBITDA growth of 10% over prior year. As you can see on the volume charts, surgical cases remain relatively steady in terms of volume month to month, ending with September growth at 96% of the same period last year. Even with the impact of the various shutdowns and cessation, of nearly all elective care that began in the first quarter, the USPI team has remained diligent about energizing various operational programs to enhance facility offerings and expand our network. This includes adding service lines and complex procedures that benefit patients and physicians alike. Despite the pandemic and its disruption, we have successfully expanded our offerings at existing facilities with 54 new service line starts year to date, including 24 muscular skeletal programs and outpatient joint growth of 51% year over year. Another remarkable stat that underscores our reputation in the market is that we've added 1,100 new surgeons who have joined our USPI medical team during the first nine months of the year. USPI facilities also continue to earn high marks for patient experience, including Prescani Awards last month for delivering incredible patient-centric care. Additionally, 23 of 24 eligible USPI surgical hospitals earned a four- or five-star rating in the July 2020 HCAHPS star rating as administered by CMS. Particularly during COVID, we have adhered to the highest quality and safety standards. Out of more than 688,000 USPI surgical cases performed from mid-March through September, we have not had a single confirmed case of COVID as a result of performing a surgical procedure at our facilities. At the development front, we closed on the acquisition of an ASC in Washington and a new surgical hospital and ASC in the Central Valley of California in July together with local physicians and two of our existing health system partners. Fresno Surgical Hospital is very well known in the community with a rich history and a strong reputation for quality and patient experience. In fact, years ago, the hospital became one of the first facilities in the country to provide elective surgery and post-surgical care in a non-hospital setting. Going forward, our pipeline remains active with opportunities to strategically add to our network in Q4 and next year We're very enthusiastic about continuing our stated strategy to put muscle behind USPI to grow the platform and provide physicians and patients with more convenient options for care and to continue to evaluate our hospital portfolio for fit and make adjustments in that portfolio as we deem appropriate. Conifer continues to execute very well, despite the pandemic, providing value to its clients with its traditional end-to-end solution and its newer, point-of-service solutions. Conifer has remained focused on client satisfaction, performance, and liquidity. I'm going to call out a few metrics that speak to certain improvements. First, cash collections are up substantially as compared to the third quarter of last year. Second, Conifer AR days or tenant AR days are significantly down versus the prior period. Third, client satisfaction continues to improve, maintaining a very strong positive trend. And fourth, expense controls remain solid with an EBITDA margin improvement of 270 basis points versus the prior year. These steps forward are particularly notable given the extreme challenges created by the pandemic for Conifer. The Conifer spin remains ongoing in terms of the pre-work already discussed. Our view is the same as last quarter regarding the spin, and we continue to maintain focus on the previous schedule. We have filed... the appropriate paperwork on schedule with the IRS. So that important step is now underway. Beyond that, we continue to search for a new counter for CEO and have made several meetings with several viable candidates in this process. The team overall though is performing very well and we are pleased with the overall performance of the business. Before turning the call to Dan to provide an overview of our financials, I'll speak briefly. to the critical support we've received from the federal government related to the pandemic. The Medicare advance payments have been a critical source of liquidity, allowing us to focus on caregiving. Recently, the repayment terms for these advances were amended, allowing for an elongated capture period by CMS, as well as a more reasonable interest rate for any balance outstanding at the end of the recapture period. We expect to make the repayments within the allocated recapture time frame. and greatly appreciate this flexibility provided by CMS and HHS. The CARES grant stimulus funds have also been extraordinarily helpful. As I mentioned, HHS recently issued new guidance for the recognition of revenue associated with the stimulus funding, which has had a major impact on our results this quarter due to the reversal from the second quarter. While the change in methodology will reduce our flexibility, we're taking steps to ensure the change does not negatively impact us over time Our system, as I've mentioned, has incurred a larger number of COVID cases in general. And we feel that we've taken it in stride. And the change in methodology will place additional pressure on us in the recovery over time relative to the COVID cases. But we also believe we will continue to recover these care grant stimulus funds. It will just be over a longer period of time. than we thought we were originally going to, based on the June guidance. So again, we're not concerned that it'll hurt us over time. We just think it is unfortunate that we had to make the change. So as I turn the call over to Dan, I want to note how pleased we are that we're able to take advantage of the capital markets, position us even more favorably in terms of both debt maturities and interest rates. While we do have many more hurdles yet to overcome, The performance of the teams across the entire tenant portfolio remains excellent. Our performance in safety, quality, and financially, despite the pandemic, is very positive. And while we can sit here and parse various points and speculate on the unknown, factually, we have consistently delivered results at or ahead of expectations before and during the pandemic. I'm very proud of our caregivers and our support staff for their continued excellence. So with those comments, I'll turn it over to Dan for a discussion of the financials. Dan?