Tenet Healthcare Corporation

Good morning. Welcome to Tenet Healthcare's first quarter 2024 earnings conference call. After the speaker remarks, there will be a question and answer session for industry analysts. If you would like to ask a question at that time, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. 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 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 2024 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, and Sun Park, 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 have significantly accelerated the strategic transformation of our portfolio. In the first quarter of 2024, we closed the sale of nine hospitals for pre-tax proceeds of $4 billion. This enabled us to retire debt and substantially lower our leverage ratio while continuing to invest in our leading ambulatory care program. As a result, Tenet is more capital efficient, profitable, and a value-based care enterprise. We're well-positioned to deliver high-quality specialty care in the communities we serve and to deliver exceptional shareholder value. Importantly, with our strong core performance and the anticipated contributions from completed ambulatory M&A, we expect to essentially replace the lost EBITDA from the hospital asset sales in our run rate expectations. I'll spend more time on our portfolio transformation in a minute, but first, a quick review of our quarterly results. We carried significant momentum through the first quarter of 2024. Strong revenue growth supported by the continued recovery of utilization as well as high acuity levels and favorable payer mix drove performance well in excess of our initial guidance. In the first quarter, we delivered net operating revenues of $5.4 billion, Consolidated adjusted EBITDA was $1.02 billion, which represents a 23% increase over the first quarter in 2023, and an adjusted EBITDA margin of 19.1%. In terms of performance, let's start with USPI. We had a great quarter, with $394 million in adjusted EBITDA, representing 16% growth over first quarter 2023. Service line expansion, elevated acuity, and favorable payer mix all drove this strong organic growth. Joint replacement surgeries continue to be an excellent source of growth for us and were up 21% over prior year. We also had an active start to the year in terms of our USPI development pipeline. We are proud to have grown USPI to over 535 centers in what is still a highly fragmented market with meaningful new additions this past quarter. We expect these newly acquired centers to deliver approximately 80 million of EBITDA in the first 12 months of ownership. In addition, we expect to ultimately realize the synergized EBITDA minus NCI multiple of six to seven by year three for those centers. USPI's de novo development activity also continues strong with nearly 30 centers currently in syndication stages or in construction. We are pleased to deploy capital to provide more lower-cost access points for the communities in which we operate that also generate very attractive returns. Turning to our hospital segment, adjusted EBITDA grew 28% to $630 million in the first quarter of 2024. Same-store hospital admissions grew 4.2%, demonstrating the continued recovery of utilization that we saw last year. Acuity levels remain strong within the first quarter of 2024, with revenue per adjusted admission up 8.8% over prior year. We have opened up capacity to meet demand in a number of our markets. In addition to the ongoing investment in our frontline workforce, we are proud to have recognized our many field supervisors, managers, directors, and other leaders with incremental financial and professional development rewards for their contributions to our post-pandemic recovery in 2023. We strongly believe that these management layers are critical to successful recruiting and retention initiatives. Additionally, we continue to invest in our high-acuity specialty services. Our plans to open a new hospital in Westover Hills, San Antonio near the end of the second quarter remain on track this year. Over the balance of the year, we plan to allocate more capital into our existing markets for high-acuity service line development to further drive organic growth with strong returns on capital. I'd like to take a moment to thank the special team of Tennant and Conifer colleagues who have worked tirelessly to respond to the cybersecurity attack that took place at Change Healthcare in the early part of this year. We utilize Change in some but not all of our own and our Conifer client hospitals, and we do not utilize it at USPI or with our physician business. As a result of the incident, the clearinghouse function at change impacted the ability to send claims to many payers. We have experienced some delays in near-term billings and estimate that this will only have a temporary impact to our cash flows that we expect to resolve over the course of 2024. All in all, our hospitals have had a very strong start to the year. Looking forward, we are raising our full-year 2024 adjusted EBITDA guidance to a range of $3.5 to $3.7 billion, which represents an increase of $215 million, or 6%, at the midpoint of our range over our prior guidance, which was already quite attractive. In order to ensure that we are clear, our increase in guidance reflects the structural increases in revenue reimbursement that we have earned that were not in our original assumptions for 2024, additions to our ASC portfolio, and the impact of reductions in our hospital asset sales. We are not addressing, but obviously acknowledge, the underlying organic outperformance in our business units during Q1 in our increased guidance at this stage. We are early in the year. We are very pleased with the demand that we are seeing in our network and we will address this component of our expectations for the full year in the future. We're confident in our ability to deliver on these increased expectations. Before I turn the call over to Sun, I'd like to spend some time discussing the progress we have made in our portfolio transformation. As I mentioned previously, the transactions that we have executed on have established the dawn of a new era for tenants. We have completed three very attractive hospital sale transactions, which have generated $4 billion in gross proceeds. Within these sales, we have maintained and, in most cases, enhanced a commercial service provision relationship with the buyer. We expect these relationships will be an attractive contributor to earnings for years to come. We have a commitment to deleverage the balance sheet and have retired $2.1 billion in debt in the first quarter alone. At the end of the first quarter, our EBITDA minus NCI leverage ratio was approximately three and a half times, a significant decrease from approximately seven times that we had at the start of 2018. We have demonstrated capital and financial flexibility this year by allocating $450 million of capital towards our top priority, attractive expansion of our ambulatory business. Additionally, we've returned almost $280 million in capital to shareholders via repurchases in the first quarter alone. While our mission to provide quality, compassionate care in the communities we serve has not changed, we are essentially a new company. Our repositioned portfolio of businesses is more predictable and capital efficient, with attractive margins and free cash flow. The operational discipline that we've instilled in each of our facilities enabled by an analytics-driven culture is producing differentiated results. Our balance sheet, which was once a challenged part of the tenant's story, has been deleveraged. This provides us with a strong foundation and a significant amount of capital and financial flexibility for the future. We feel well-positioned to drive enduring value for our patients, our business partners, and in turn, our shareholders. And with that, Son will now provide a more detailed review of our financial results. Son?