Tenet Healthcare Corporation

Greetings and welcome to the Tenant Healthcare second quarter 2023 earnings conference call and webcast. After the speaker remarks, there will be a question and answer session for industry analysts. You may press star one at any time to be placed into question queue. 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 of Investor Relations. Mr. McDowell, you may begin.

Good afternoon, 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 second quarter 2023 results, as well as a discussion of our financial outlook. Tenant Senior Management participating in today's call will be Dr. Sam Sattoria, Chief Executive Officer, and Dan Kinselemi, Executive Vice President and Chief Financial Officer. Our webcast this afternoon 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 afternoon, everyone. Before we get into this quarter's results, I'd like to start by extending a warm welcome to Sun Park, who has joined us for this phone call. Sun will become our Chief Financial Officer following Dan's retirement. He has more than 25 years of finance experience and an impressive track record of delivering positive results in the healthcare industry. Most recently, he was responsible for the commercial and operational finance for all of AmerisourceBergen's business units. The CFO transition at Tenet is actively underway and supported by our broader leadership team. I look forward to the impact of Sun's leadership as we continue to execute on our strategic priorities. Now let's turn our attention to the results that I'm pleased to present for the second quarter. In the second quarter, we reported net operating revenues of $5.1 billion and consolidated adjusted EBITDA of $843 million, which translates into an attractive 16.6% margin. Robust volumes and effective cost control drove attractive results and strong free cash flows. And our adjusted EBITDA is about 53 million or 6.7% better than the midpoint of our guidance range. We produced another very strong quarter in USPI with 370 million of adjusted EBITDA, which represents 16% growth over second quarter 2022. Same facility cases grew 6.6% and adjusted EBITDA margins remained robust. Orthopedics volumes were strong with total joint replacements in the ASCs up over 12% over second quarter 2022, coupled with ongoing strength in GI, urology, and ENT. Net revenue per case improved nearly 3%. Looking ahead, the tailwinds that support ambulatory surgery demand recovery and growth are evident in the current environment. These tailwinds include an active but aging population. patients proactively seeking more convenient access to procedural care, a recovering healthcare ecosystem looking for lower sites of care, and ongoing innovation in ambulatory surgery care delivery. These factors collectively create a strong foundation for continued growth. As the leader in this space, USPI is well-positioned to capitalize on these opportunities. We continue to attract and retain high-quality physicians, which is translated into growth in overall physicians performing procedural care in a USPI facility. We continue to expand high acuity service lines while delivering high patient and physician satisfaction through operational excellence. This has enabled strong volume growth from servicing new physicians as well as deferred demand. It is worth noting that GI case growth has been particularly strong so far this year. We see evidence of both deferred care and also expansion of care for the under 50-year-old patient population from recent guideline changes, which we believe should be a source of ongoing and expanding demand over time. During the quarter, we successfully expanded our reach by adding 12 new centers. Among this impressive new portfolio are three single specialty GI centers in Ohio, bringing our total to 12 in the state. Additionally, two of our new facility openings were focused on orthopedics and de novos in Michigan and Florida. We are also encouraged by the high level of de novo activity in our pipeline, with more than 30 centers currently in the syndication stages or under construction. This demonstrates momentum in our expansion efforts and further strengthens our growth prospects. USPI's future is bright, and our capital deployment into this business will continue to grow and develop this portfolio. Turning to our hospital segment, we generated $388 million of adjusted EBITDA in second quarter 2023. Acuity remains strong, with revenue per adjusted admission up 4% over second quarter 2022. On a non-COVID basis, same-store admissions were up 5%. Our workforce continues to grow and stabilize. We have successfully reduced turnover and nurse hiring has accelerated and shown improvement. As a result, we reduced contract labor costs during the second quarter of 2023 to about 4.3% of SW&V. With the improving labor environment, we find ourselves in a favorable position to capitalize on our strategic approach to prioritize high-acuity specialty services. We feel comfortable with this level of contract labor and will look to prioritize placement of new hires for targeted capacity expansion aligned with our strategy. It is important to note that our SW&V as a percent of net revenue was 47.3% for the first half of 2019 and is now running 45% year-to-date in 2023. We see this as a validation of our analytics-driven labor management capabilities, continued portfolio transformation, and the higher acuity top line strategy as we recover from the pandemic. It gives us more room to invest, and at the right time, market by market, add capacity as we feel comfortable bringing it online. Our business processes utilize real-time analytics to equip staff, managers, and senior leadership to make data-driven decisions to optimize their areas. This includes workforce productivity, contract labor utilization, inpatient throughput, procedural room utilization, transfer acceptance, and more. The analytics are easily digestible and highly accessible with dashboards and insights integrated into key workflows and care team huddles. We believe that this data-driven operating discipline coupled with our focus on high-acuity service line development will enable our hospital segment to continue to deliver strong results. Conifer continues to perform well for its clients and also delivered strong margins. Ongoing technology automation and offshoring initiatives support that performance. Second quarter EBITDA margins were 26.3%. Conifer continues to focus on commercial activities, especially in patient eligibility services. given the need from the Medicaid redeterminations. Stepping back, I indicated last quarter that our confidence in the ability to turn the various styles on the business and generate predictable results is growing. I like the operating environment right now because it is evolving such that higher acuity focus, effective capacity management, and nimble cost control, all strengths of ours, support improving results in our business. As a result, we are again raising our full year 2023 adjusted EBITDA guidance by $75 million at the midpoint to a range of $3.31 to $3.46 billion. This range represents a $125 million increase over our initial full year guide. In short, we are optimistic about our ability to continue to differentiate our unique business mix and deleverage through strong earnings growth. Free cash flow continues to improve, which provides us flexibility to make necessary investments to enhance our future growth prospects and improve our capital structure. And with that, Dan will now provide a more detailed review of our financial results. Dan?