Tenet Healthcare Corporation

Good morning, and welcome to the Tenant Healthcare first quarter 2023 earnings conference call. After the speaker's remarks, there will be a question and answer session for industry analysts. If you'd like to be placed into question queue, please press star one on your telephone keypad. Tenant respectfully asks that analysts limit themselves to one question each. I'll now turn the call over to your host, Mr. Will McDowell, Vice President, Investor Relations. Mr. McDowell, 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 Tenant's first quarter 2023 results, as well as a discussion of our financial outlook. Tenant Senior Management participating in today's call will be Dr. Sam Satoria, 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, Will, and good morning, everyone. We're off to a nice start for 2023. Strong volumes support good results in all three business units. USPI's performance continues to accelerate given our focus on organic growth and is ahead of our expectations so far. In the first quarter, we delivered net operating revenues of $5 billion and consolidated adjusted EBITDA of $832 million, which translates into an attractive 16.6% margin. As a result of our strong performance in the first quarter, we are now raising our full-year guidance, which demonstrates the confidence we have in our operations. Across our businesses, a post-pandemic environment is taking shape. COVID admissions are down, a wider range of acuity is returning to the hospitals, deferred GI procedures are returning, and our workforce is starting to stabilize. We have anticipated this for some time and our strategy, operating efficiency, and capital discipline enable us to deliver attractive performance in this environment. We had a great quarter at USPI with $340 million in adjusted EBITDA, which represents 21% growth over first quarter 2022. Same facility cases grew 7.9% and adjusted EBITDA margins were strong at 37.6%. As I've said before, the continued migration of procedural services into the ambulatory setting is a sustained and significant tailwind for our business. Growth in our active physician population, as well as higher acuity service line expansion, especially GI, urology, ENT, and orthopedic cases, drove the first quarter volume strength. We are pleased to have our organic growth initiatives gaining traction and bearing fruit. Our USPI development pipeline remains active and healthy. We added three new centers in the quarter. We completed two additional post-transaction buy-ups in the quarter at multiples unchanged from prior buy-ups. Progress continues in this area. As previously discussed, USPI's M&A engine under the tenant umbrella is an industry-leading differentiator. We continue to drive post-synergy multiples for many of our acquisitions to below five times. We intend to invest approximately $250 million in ambulatory M&A each year and have a robust pipeline to support that level of investment. We are also energized by the level of de novo activity in the USPI pipeline with over 25 centers currently in syndication stages or under construction. USPI is the preferred partner for high-quality physicians as demonstrated by our organic growth and development pipeline. The linkage to our hospital business creates a superior platform of management talent and significant scale benefits. Turning to our hospital segment, we generated $405 million of adjusted EBITDA in the first quarter of 2023. Same-store hospital adjusted admissions grew 6.7%, and ER volumes grew 4.8% over the first quarter in 2022. On a non-COVID basis, same-store inpatient admissions were up 14%. Acuity levels remain strong as our case mix index has grown at a 3% compounded annual growth rate since 2019. We continue to expand access to high-acuity specialty services across our hospitals and enable access to cutting-edge clinical technologies. In the first quarter, we maintained our focus on cardiovascular, neurosciences, specialty surgical services, trauma, and women's health. A few examples include a new non-invasive focused ultrasound technology to treat Alzheimer's patients at our Delray Medical Center, certification of our Resolute Baptist Hospital as a Joint Commission Advanced Primary Stroke Center, and the achievement of a level one trauma designation at our Desert Regional Medical Center, which enables us to provide total care for nearly every aspect of injury across a broad region of the Southwestern United States. Our workforce is getting stronger. Investments in 2022 in pay and benefits have reduced turnover, and the pace of first quarter 2023 nurse hiring continues to accelerate. This helped to further reduce our contract labor costs in the first quarter of 2023. All in all, our hospitals have had a nice start to the year. Conifer continues to perform well for its clients and deliver strong margins. Ongoing technology automation and offshoring initiatives support that performance. Third-party revenue was up 3.8% in the quarter, and cash collection performance was strong in the quarter, helping to drive tenants' days outstanding in accounts receivable down by two days from year end. Conifer continues to ramp up commercial activities with a strong sales pipeline for 2023. Looking forward, we are raising our full-year 23 adjusted EBITDA guidance by $50 million at the midpoint to a range of $3.21 billion to $3.41 billion. Our management discipline, operational excellence, and ongoing investments in talent have enabled a strong start to the year, and we remain focused on accelerating performance across our businesses. At USPI, strong margins, organic growth tailwinds, and inherent capital efficiencies generate significant free cash flow. Continuing to add centers with strong margins and attractive post-synergy multiples will remains a great use of cash for investments to enhance tenants' free cash flow. These cash flows will enable us to further grow, deleverage the balance sheet, and return capital to shareholders in the future. And with that, Dan will provide a more detailed review of our financial results. Dan?