Tenet Healthcare Corporation

Good afternoon. Welcome to Tenant Healthcare's third quarter 2023 earnings conference call. 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 in the question queue. Tenant will specially ask the 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 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 third 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, Chairman and Chief Executive Officer, Dan Kinsellmi, Executive Vice President and Chief Financial Officer, and Sun Park, Executive Vice President. 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. We continue to deliver strong results in 2023. In the third quarter, we generated net operating revenues of $5.1 billion and consolidated adjusted EBITDA of $854 million. This translates into an attractive almost 17% margin. These results were driven by sustained volume growth and effective cost control across each of our businesses. USPI had another very strong quarter with $370 million of adjusted EBITDA, which represents 16% growth compared with third quarter 2022. Same facility revenues grew 7.9% and adjusted EBITDA margins remained robust. USPI had attractive volume growth in high-acuity service lines, including mid-teens growth in total joint replacements in the ASCs over third quarter 2022. We also delivered ongoing strength in GI urology and ENT procedures. We remain focused on attracting high-quality physicians who choose to practice in our low-cost, high-patient satisfaction setting of care. This, coupled with tailwinds from increased patient demand for ambulatory surgery care, will support continued organic growth. We also remain committed to scaling our portfolio. During the quarter, we added six new centers, the majority of which were focused on higher acuity orthopedic services. These included centers in Nevada, Maryland, Texas, and Florida, all with leading regional musculoskeletal specialists. Our acquisition pipeline remains robust with attractive opportunities. We also have a healthy de novo development pipeline of more than 30 centers currently in the syndication stages all the way to being under construction. Notably, de novo centers have effective EBITDA multiples in the low single digits, making them a very attractive use of capital that further advances the site-of-service value-based care which USPI uniquely delivers. Turning to our hospital segment, we generated $401 million of adjusted EBITDA in the third quarter 2023. Our patient acuity levels remained strong with revenue per adjusted admission up 3.2% over third quarter 2022. Additionally, on a non-COVID basis, same-store inpatient admissions increased 4.5%. Our hospitals continued to enhance access to higher acuity services for the benefit of our patients. For example, our Arizona Heart Hospital was the first in Arizona to implant a new device to reduce stroke risk, and our Palm Beach Gardens Medical Center expanded its robotic surgical capabilities. We will continue to increase patient access to cutting-edge specialty care across the communities we serve. Our third quarter results lend further credence to our hospital strategy of being focused on acuity rather than all things to all people. We continue to make significant progress improving nurse retention and accelerating hiring. This has resulted in a substantial reduction in contract labor usage to 3.1% of consolidated SW&B, which is the high end of pre-pandemic levels. Given our progress in hiring and retention, the reductions in contract labor did not come at the expense of further capacity reductions. We reach these levels in advance of our own projections through disciplined, data-driven processes. We will balance the utilization of contract labor for nurses with our targeted strategies to increase capacity to support patient demand for high acuity services. In the fourth quarter, as demand rises, it is possible we will invest additional resources to ensure access, continuing to employ the same discipline we have used in contract labor utilization over the past two years. We continue to manage cost pressures from medical fees. Medical fees, while higher than last year, remained relatively flat from Q2 to Q3 23. As I noted through the pandemic, we began a process of restructuring our staffing contracts market by market, which includes decisions on insourcing services where that is most beneficial. This has helped to mitigate the magnitude of expense increases in our business. Again, as patient demand rises into the winter, we anticipate some increases in costs from our current run rate to ensure access to our specialty services, but this will not change our longer-term discipline nor our make-versus-buy strategy. Finally, I want to point out that over the last two years, we have successfully settled over 30 labor union contract negotiations. These require a delicate balance between understanding our employees' needs and and our ability to have a cost structure to deliver affordable care for our patients. We will continue with our strategy to balance those two aspects. Before I turn my attention to Conifer, I'll make a few comments about our views on the GLP-1 receptor agonist potential impact on our business. These products are very early in their lifecycle of impact. They have extraordinarily high costs, an expanding list of side effects, patient tolerance issues, and concerns about lean muscle loss, which translates into an unknown long-term safety profile. We believe that this means adoption among populations which could benefit is still and likely to be for some time low. Additionally, these products require sustained consumption. The underlying conditions of diabetes or the related root causes of obesity are not cured. Given this, we see no reason to alter our current focus on taking care of patients with multiple chronic illnesses, and we see no reason to alter our capital plans in moving care into convenient ambulatory settings. The high acuity strategy in the hospitals is subject to less demand elasticity, and the capital efficient business model we've designed to take care of the most complex needs of patients will endure. The aging of the population, the growing burden of chronic illness, the population shifts into many of our markets, and the continued impacts of service and technology innovation that occur outside of the pharmaceutical sector provide a significant tailwind for the important role that hospitals and ASCs will continue to play. Turning to Conifer, our Conifer business continues to deliver strong margins and provide high-quality services to its clients. This performance has been supported by ongoing automation and offshoring initiatives, and third-quarter EBITDA margins were over 26%. We recently renewed our longstanding relationship with one of our larger physician revenue cycle management clients and are slated for additional renewals by the end of the year. Before I turn the call over to Dan, I want to reiterate the strength of our portfolio of businesses and the ongoing performance they have produced. While we continue to navigate a challenging environment, our strategic focus on higher acuity services, agile approach to managing operating expenses, and effective capacity management all play a pivotal role in delivering these durable results. As a result, we are again raising our full year 2023 adjusted EBITDA guidance to a range of $3.365 to $3.465 billion. We're still formulating plans for 2024, and we'll take the time to see what a fourth quarter looks like in the post-pandemic environment before getting specific about our guidance for next year. From a capital deployment perspective, our priorities are consistent. USPI expansion at very attractive post-synergy multiples and investments in the growth of our high-acuity strategy in the acute care segment. Those two priorities help to reduce leverage through earnings growth and free cash flow generation. We maintain an opportunistic balance in this public market trading environment between our desire to pay down debt more directly and the very attractive valuation of our equities. I will remind you that we have all fixed-rate debt and no maturities due until 2026, providing a great deal of predictability relative to other companies that may have a similar level of leverage. And with that, Dan will now provide a more detailed review of our financial results. Dan?