Tenet Healthcare Corporation

Greetings and welcome to the Tenant Healthcare Corporation first quarter 2022 earnings conference call. At this time, all participants are on a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Will McDowell. Thank you, Will. You may begin.

Good morning, everyone, and thank you for joining today's call. I am Will McDowell, Vice President of Investor Relations. We're pleased to have you join us for a discussion of Tenet's first quarter 2022 results, as well as a discussion of our financial outlook. Tenet Senior Management participating in today's call will be Ron Rittenmeyer, Executive Chairman, Dr. Som Sataria, Chief Executive Officer, and Dan Kinselemi, Executive Vice President and Chief Financial Officer. Our webcast this morning includes a 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 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 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 and other filings with the Securities and Exchange Commission. With that, I'll turn the call over to Sam.

Thank you, and good morning, everyone. We had a strong quarter and exited Q1 with significant momentum for the year. Our operators effectively managed through Omicron and accelerated in their recovery month by month after the last surge. We are, of course, pleased that COVID cases have decreased significantly and overall community health should improve as a result. We delivered enterprise net operating revenues of $4.7 billion and $888 million of adjusted EBITDA in the quarter. This is a 14% increase in adjusted EBITDA from prior year. Even after normalizing for a gain on sale, Texas Medicaid supplemental revenues and a little bit of incremental grant income, which were not assumed in our Q1 guidance, we delivered $756 million in adjusted EBITDA, which exceeded the midpoint of our Q1 guidance. In a quarter marked with speculation about the sector's performance, our core operations performed and delivered ahead of our expectations. The additional items adding to the earnings are attractive upside in the quarter. Let's turn to the business units. We had a great quarter at USPI with $282 million in adjusted EBITDA. Same facility system-wide cases grew 8%, and adjusted EBITDA grew 15%, excluding grant income, both from prior year. January was challenging given the high transmissibility of Omicron that drove higher cancellation rates. Despite that, there was a substantial rebound in February and March with volumes exceeding 2019 on a same-store basis. USPI has increased its portfolio by roughly 50% in the last 18 months. Integration of our newly acquired SCD and Compass facilities is on track, and these centers are performing well. Physicians' receptivity to our buy-up offers has been very good. And additionally, the progress under our new partnership and new center development agreement with SCD is ahead of our expectations. We are truly energized by the level of development activity we continue to have. In Q1, USPI added six new facilities. We have over 20 de novos under construction or in syndication and are executing against a robust M&A pipeline. This reinforces the long-term investment thesis behind Tenet. Turning to our hospitals, the hospitals maintain their track record of strong, consistent performance, delivering $514 million in adjusted EBITDA. Our operators effectively balanced resources during the Omicron surge, maintained their cost management, and drove a strong recovery despite the staffing challenges the industry is facing. This was enabled by our disciplined operating processes and real-time analytics. Although our Q1 same-store hospital adjusted admissions were 1.4% below last year, by early February, we saw the COVID case trend line dropping and adjusted our operating platform to quickly match supply of resources and demand for services. We kept our focus on acuity and ensured convenient access to our emergency services for all those who needed it. We were very pleased with our performance in hospital-based surgeries. In March, we had less than 10% of the COVID admissions that we had in January. Our operators reduced length of stay by over 10%, reduced premium pay by over 20%. And as I indicated, our surgical volumes were strong. And in March, we're about 25% higher than they were in January. Nearly all of our markets outpaced our internal expectations in March. Our continued investments in specialty programs enabled sustained higher acuity. Case mix index was 1.77 in Q1, which is roughly 16% higher than pre-COVID, and revenue per adjusted admission was 4% higher than prior year. We continue to enhance high acuity services across our hospitals, including cardiovascular, neurosciences, surgical services, trauma, and women's health. For example, in Q1, this included an expanded women's tower in San Antonio, a new cath lab and biplane capabilities in El Paso, expanded procedural capacity in Palm Beach, and an enhanced atrial fibrillation care access protocol in South Carolina. Our healthcare campus developments in San Antonio, Phoenix, and South Carolina are on track. This includes our new hospital in Fort Mill, South Carolina, which is slated to open in the third quarter of this year. We were also very pleased to see ongoing improvement in clinical quality with a 46% year over year reduction in serious safety events and a continued decline in hospital acquired infections. Turning to Conifer, Conifer had a good quarter with a return to top line growth. Conifer's commercial capabilities have translated into a stronger sales pipeline. Of note, we had a new client win in Birmingham. Conifer will soon begin to serve four Baptist Health System hospitals that are part of the Brookwood Baptist joint venture. The five-year contract for end-to-end hospital revenue cycle services will start in May, next month of this year. Conifer delivered $92 million in adjusted EBITDA, which is approximately 7% growth over prior year and maintained a strong margin at 28.4%. We continue to enrich automation capabilities while expanding our global footprint. We quickly scaled offshore capabilities during the quarter and now have roughly 3,500 team members providing service to our clients from global delivery centers. In addition, with Conifer remaining part of Tenet, we have begun to integrate certain functions within the broader Tenet enterprise as part of an ongoing commitment to efficiency and effectiveness. In terms of our ongoing initiatives in the foundation of the business of Tenet, I will also briefly comment on our managed care relationships and enterprise liquidity position, both of which continue to meaningfully improve. We're pleased to announce an extension of our nationwide relationship with Aetna through 2026 and a new four-year contract with Blue Cross Blue Shield of Texas. I'm pleased with both of these as they ensure access for patients in our markets and importantly, continue to support value-based care initiatives, especially in site of care optimization. Our operational performance during the quarter and prior years has led to significant increases in cash flow generation, as well as effective balance sheet management. This was recognized during the quarter with the upgrade of our corporate credit rating by all three rating agencies. We also sold certain of our medical office buildings in Birmingham, resulting in cash proceeds of $147 million and an EBITDA multiple of approximately 19 times. These items have allowed us to proactively reduce almost $825 million of debt so far this year using balance sheet cash, which will save us $61 million in annual cash interest payments. We are pleased with our start to the year and our performance and are reiterating our outlook for 2022. In a quarter with significant Omicron impact, USPI delivered substantial volume growth and month-over-month improvements. The hospitals executed and flexed extraordinarily well, as well as performing very well in hospital-based surgeries. And Conifer tackled the quarter with both top line growth and margin expansion. We do have a plus or minus $100 million range on the midpoint of our guidance for the year. Let's reflect on where we were a year ago. A year ago at this time, we were coming off a very large COVID surge in the early part of 2021. And with vaccines in place, many assumed COVID would melt away. Some of you probably remember those conversations. And then the rest of 2021 was consumed with Delta and Omicron. So at this point, given we are already seeing new variants, we are simply being prudent about our priorities to keep our heads down, recognize our outperformance in Q1, and operate and execute in Q2 in order to better update guidance later and better informed in 2022. In summary, our first quarter performance demonstrates our ability to consistently perform despite ongoing challenges due to the pandemic. We remain committed to volume recovery and executing against our strategic plan. We plan to continue to scale USPI's leading position, enhance high-acuity care in our hospital segment, and grow Conifer's client base. This is supported by a committed team with a high level of operational discipline and a commitment to real-time analytics. I'll now turn it over to Dan for a more detailed look at our financial results.