DALLAS--(BUSINESS WIRE)--Tenet Healthcare Corporation (NYSE: THC) today announced additional
actions to support the Company’s goal of improving financial performance
and enhancing shareholder value. The changes include an expansion of the
previously announced cost reduction program, an update to the ongoing
board refreshment process to ensure that the Board of Directors has the
best mix of skills and experience to maximize the future value of the
Company, and exploring a potential sale of Conifer. In addition, the
Company is issuing its Outlook for 2018 and has reaffirmed the
previously announced shareholders rights plan until the 2018 annual
meeting.
“We are continuing to take aggressive actions to improve financial
performance and returns for our shareholders by executing on our
previously announced divestiture plans, accelerating growth, enhancing
quality, eliminating unnecessary costs, improving margins and free cash
flow, and lowering our leverage ratio,” said Ronald A. Rittenmeyer,
executive chairman and CEO. “As we have worked through this process, I
want to acknowledge the insights received from many shareholders,
including Glenview Capital, which have been very helpful in our efforts
to reposition Tenet.”
Mr. Rittenmeyer added, “We remain open to all options that can enhance
shareholder value, and given that we have adequate liquidity to operate
our business and no near-term debt obligations, we have the flexibility
we need to achieve the best alternative for shareholders. Conifer has
great business lines with strong growth potential and robust free cash
flow. As we initiate a process to explore a potential sale of Conifer,
our objective is to maximize the value of Conifer for our shareholders
and put Conifer in the best position to continue to provide quality
service to its clients, including our own hospitals.”
“Since taking the leadership of the company in September, I have been
impressed by the dedication and tenacity of Tenet’s people. This team
has responded with speed, energy and a relentless focus on quality care,
patient satisfaction, cost management and compliance. We enter 2018 with
a continued focus on these key areas plus a renewed view of improving
growth across the enterprise,” concluded Mr. Rittenmeyer.
Cost Reduction Initiatives
The Company has increased the size of its previously announced cost
reduction initiatives by $100 million, and now expects to achieve $250
million of annualized run-rate savings by the end of 2018. The Company
expects to realize approximately $125 million of the savings during
calendar year 2018, up from the Company’s previous goal of $75 million
(this $125 million of savings is included in the Company’s Outlook for
2018, which is discussed below).
Strengthen the Alignment of the Annual Incentive Plan with Quality &
Patient Experience
The Company is adding a Quality and Patient Experience Gatekeeper to its
Annual Incentive Plan (“AIP”) in 2018. The gatekeeper will require
certain levels of improvement and performance across all key quality and
patient experience measures in order for participants to be eligible to
participate in the AIP. Failure to achieve these thresholds may
eliminate certain individuals from eligibility for a 2018 AIP award. The
Company is making this change as it believes improved quality and
patient satisfaction is a critical driver of overall performance.
Exploring a Potential Sale of Conifer
Tenet is initiating a process to explore a potential sale of Conifer. To
assist in this process, Tenet has engaged Goldman, Sachs & Co. LLC as
its financial advisor and Kirkland & Ellis LLP as its legal advisor.
Conifer is a leading provider of healthcare business process services in
the areas of hospital and physician revenue cycle management and
value-based care solutions. There can be no assurance that this process
will result in a transaction and Tenet may ultimately decide to retain
all or part of Conifer’s business. Tenet expects that a decision
regarding a potential sale of Conifer should be made during the first
half of 2018.
Board Refreshment Update
As previously announced on August 31, 2017, Tenet has commenced a
process to refresh the composition of its Board of Directors. This
process is focused on ensuring a strong mix of viewpoints, skills, and
experience that align with the Company’s business and will help maximize
the future value of Tenet.
To date, this process has resulted in the identification and appointment
of three new independent directors that collectively have significant
healthcare, financial and operational expertise. The Board will continue
its search for additional independent directors who can further enhance
the Board’s expertise in areas directly relevant to the Company’s
business with a goal of further refreshing the composition of the Board
by the time of the Company’s 2018 annual meeting of shareholders. The
Board intends to continue to actively engage with its shareholders,
including considering their input on potential director candidates.
Tenet’s board currently consists of 12 directors, 11 of whom are
independent and five of whom have joined the board since November 2016.
Shareholder Rights Plan
The short-term shareholder rights plan approved by the Board in August
is intended to protect the Company’s substantial income tax net
operating loss carryforwards (“NOLs”). Tenet currently projects that the
NOL will be approximately $1.6 billion at the end of 2017. As previously
disclosed, the rights plan is scheduled to expire following the
conclusion of the Company’s 2018 annual meeting of shareholders in May.
The Tenet Board recently reviewed the Company’s short-term shareholder
rights plan. At this point, there is no plan to extend the short-term
shareholder rights plan following the Company’s 2018 annual meeting;
however, the Board will further evaluate the ongoing need for the rights
plan at such time based on the status of the risk to the Company’s NOLs.
The plan is not intended to prevent any action that the Board determines
to be in the best interests of the Company.
Outlook for 2018
The Company’s Outlook for 2018 includes:
-
Net operating revenues of $17.8 billion to $18.2 billion,
-
Net income from continuing operations attributable to Tenet common
shareholders of $65 million to $70 million,
-
Adjusted EBITDA of $2.475 billion to $2.575 billion,
-
Net cash provided by operating activities of $1.245 billion to $1.450
billion,
-
Adjusted net cash provided by operating activities of $1.300 billion
to $1.550 billion,
-
Capital expenditures of $625 million to $675 million,
-
Adjusted Free Cash Flow of $675 million to $875 million,
-
Earnings per diluted share from continuing operations attributable to
Tenet shareholders of $0.63 to $0.68, and
-
Adjusted diluted earnings per share from continuing operations
attributable to Tenet shareholders of $1.07 to $1.36.
The Company’s Adjusted EBITDA Outlook for 2018 by segment is comprised
of the following:
-
Hospital Operations and other: $1.435 billion to $1.495 billion,
-
Ambulatory Care: $770 million to $800 million, and
-
Conifer: $270 million to $280 million.
In addition, the Outlook for 2018 is based on the following assumptions:
-
Our expectation of organic revenue growth in our hospitals and
ambulatory facilities.
-
A promising pipeline of acquisitions and de novo developments across
our ambulatory offerings.
-
The Outlook for 2018 does not incorporate any impact from a potential
sale of Conifer.
-
$220 million to $230 million of revenue related to the California
Provider Fee program.
-
Divestitures are expected to be completed at various points throughout
2018. The Outlook for 2018 includes approximately $300 million to $350
million of revenue and $40 million to $50 million of Adjusted EBITDA,
representing a partial-year contribution from eight hospitals in the
United States and nine facilities in the United Kingdom, which the
Company is planning on divesting.
-
No change in the tax laws. Based on the Company’s review of the tax
bills that have separately passed the Senate and the House, and the
negotiated changes to these bills by the House-Senate conference
committee which remain subject to change, the Company currently
expects that its net income and earnings per share will be lower than
the 2018 Outlook figures outlined above due to the limitations that
these bills place on the deductibility of interest expense. Also, if a
tax bill is enacted by year end, the Company will recognize in the
fourth quarter ending December 31, 2017 a substantial revaluation and
associated non-cash partial write-down of its net deferred income tax
assets, including its NOLs, due to an expected reduction in the
corporate federal income tax rate. The Company does not currently
anticipate the proposed changes in tax law having a meaningful impact
on the Company’s ability to utilize its NOLs.
Additional details on Tenet’s Outlook for 2018 are available in Tables
#1 and #2 at the end of this press release. The Company intends to
provide additional perspectives on its Outlook for 2018 on its fourth
quarter earnings call, which the Company expects to hold on the morning
of February 27, 2018.
Non-GAAP Financial Information
This press release includes certain non-GAAP measures, such as Adjusted
EBITDA, Adjusted net income (loss) from continuing operations
attributable to Tenet shareholders, Adjusted diluted earnings (loss) per
share from continuing operations attributable to Tenet shareholders, and
Adjusted Free Cash Flow. Reconciliations of these measures to the most
comparable GAAP measure are contained in the tables at the end of this
release.
Tenet Healthcare Corporation is a diversified healthcare services
company with nearly 130,000 employees united around a common mission: to
help people live happier, healthier lives. Through its subsidiaries,
partnerships and joint ventures, including United Surgical Partners
International, the Company operates general acute care and specialty
hospitals, ambulatory surgery centers, urgent care centers and other
outpatient facilities in the United States and the United Kingdom.
Tenet’s Conifer Health Solutions subsidiary provides technology-enabled
performance improvement and health management solutions to hospitals,
health systems, integrated delivery networks, physician groups,
self-insured organizations and health plans. For more information,
please visit
www.tenethealth.com
.
The terms "THC", "Tenet Healthcare Corporation", "the Company", "we",
"us" or "our" refer to Tenet Healthcare Corporation or one or more of
its subsidiaries or affiliates as applicable.
This release contains “forward-looking statements” – that is, statements
that relate to future, not past, events. In this context,
forward-looking statements often address our expected future business
and financial performance and financial condition, and often contain
words such as “expect,” “assume,” “anticipate,” “intend,” “plan,”
“believe,” “seek,” “see,” or “will.” Forward-looking statements by their
nature address matters that are, to different degrees, uncertain.
Particular uncertainties that could cause our actual results to be
materially different than those expressed in our forward-looking
statements include, but are not limited to, the outcome of the sale
process we are initiating for Conifer Health Solutions, our ability to
realize cost savings under our cost reduction initiatives, potential
disruptions to our business or diverted management attention as a result
of these recently announced actions, and the other factors disclosed
under “Forward-Looking Statements” and “Risk Factors” in our Form 10-K
for the year ended December 31, 2016, Form 10-Q for the quarterly period
ended September 30, 2017 and other filings with the Securities and
Exchange Commission.
Tenet uses its Company website to provide important information to
investors about the Company including the posting of important
announcements regarding financial performance and corporate developments.
Non-GAAP Financial Measures
Adjusted EBITDA, a non-GAAP measure, is defined by the Company as net
income (loss) attributable to Tenet Healthcare Corporation common
shareholders before (1) the cumulative effect of changes in accounting
principle, (2) net loss (income) attributable to noncontrolling
interests, (3) income (loss) from discontinued operations, (4) income
tax benefit (expense), (5) other non-operating income (expense), net,
(6) gain (loss) from early extinguishment of debt, (7) interest expense,
(8) litigation and investigation (costs) benefit, net of insurance
recoveries, (9) net gains (losses) on sales, consolidation and
deconsolidation of facilities, (10) impairment and restructuring charges
and acquisition-related costs, (11) depreciation and amortization and
(12) income (loss) from divested operations and closed businesses (i.e.,
the Company’s health plan businesses). Litigation and investigation
costs do not include ordinary course of business malpractice and other
litigation and related expense.
Adjusted net income (loss) from continuing operations attributable to
Tenet Healthcare Corporation common shareholders, a non-GAAP measure, is
defined by the Company as net income (loss) attributable to Tenet
Healthcare Corporation common shareholders before (1) impairment and
restructuring charges, and acquisition-related costs, (2) litigation and
investigation costs, (3) gains on sales, consolidation and
deconsolidation of facilities, (4) gain (loss) from early extinguishment
of debt, (5) income (loss) from divested operations and closed
businesses, (6) the associated impact of these five items on taxes and
noncontrolling interests, and (7) net income (loss) from discontinued
operations. Adjusted diluted earnings (loss) per share from continuing
operations, a non-GAAP term, is defined by the Company as Adjusted net
income (loss) from continuing operations attributable to Tenet
Healthcare Corporation common shareholders divided by the weighted
average primary or diluted shares outstanding in the reporting period.
Free Cash Flow, a non-GAAP measure, is defined by the Company as (1) net
cash provided by (used in) operating activities, less (2) purchases of
property and equipment from continuing operations.
Adjusted Free Cash Flow, a non-GAAP measure, is defined by the Company
as (1) Adjusted net cash provided by (used in) operating activities from
continuing operations, less (2) purchases of property and equipment from
continuing operations. Adjusted net cash provided by (used in) operating
activities, a non-GAAP measure, is defined by the Company as cash
provided by (used in) operating activities prior to (1) payments for
restructuring charges, acquisition-related costs and litigation costs
and settlements, and (2) net cash provided by (used in) operating
activities from discontinued operations.
The Company believes the foregoing non-GAAP measures are useful to
investors and analysts because they present additional information on
the Company’s financial performance. Investors, analysts, Company
management and the Company’s Board of Directors utilize these non-GAAP
measures, in addition to GAAP measures, to track the Company’s financial
and operating performance and compare the Company’s performance to its
peer companies, which utilize similar non-GAAP measures in their
presentations. The Human Resources Committee of the Company’s Board of
Directors also uses certain of these measures to evaluate management’s
performance for the purpose of determining incentive compensation.
Additional information regarding the purpose and utility of specific
non-GAAP measures used in this release is set forth below.
The Company believes that Adjusted EBITDA is a useful measure, in part,
because certain investors and analysts use both historical and projected
Adjusted EBITDA, in addition to other GAAP and non-GAAP measures, as
factors in determining the estimated fair value of shares of the
Company’s common stock. Company management also regularly reviews the
Adjusted EBITDA performance for each operating segment. The Company does
not use Adjusted EBITDA to measure liquidity, but instead to measure
operating performance.
We use, and we believe investors and analysts use, Free Cash Flow and
Adjusted Free Cash Flow as supplemental measures to analyze cash flows
generated from our operations because we believe it is useful to
investors in evaluating our ability to fund distributions paid to
noncontrolling interests, acquisitions, purchasing equity interests in
joint ventures or repaying debt.
These non-GAAP measures may not be comparable to similarly titled
measures reported by other companies. Because these measures exclude
many items that are included in our financial statements, they do not
provide a complete measure of our operating performance. For example,
the Company’s definitions of Free Cash Flow and Adjusted Free Cash Flow
do not include other important uses of cash including (1) cash used to
purchase businesses or joint venture interests, or (2) any items that
are classified as Cash Flows From Financing Activities on the Company’s
Consolidated Statement of Cash Flows, including items such as (i) cash
used to repay borrowings, (ii) distributions paid to noncontrolling
interests, or (iii) payments under the Put/Call Agreement for USPI
redeemable noncontrolling interest, which are recorded on the Statement
of Cash Flows as the purchase of noncontrolling interest. Accordingly,
investors are encouraged to use GAAP measures when evaluating the
Company’s financial performance.
A reconciliation of Outlook Adjusted EBITDA to Outlook net income (loss)
attributable to Tenet Healthcare Corporation common shareholders, the
most comparable GAAP measure, is set forth in Table #1 below for the
twelve months ending December 31, 2018. A reconciliation of Outlook
Adjusted net income from continuing operations attributable to Tenet
Healthcare Corporation common shareholders to Outlook net income (loss)
attributable to Tenet Healthcare Corporation common shareholders, the
most comparable GAAP measure, is set forth in Table #1 below for the
twelve months ending December 31, 2018. A reconciliation of Outlook
Adjusted Free Cash Flow to Outlook net cash provided by (used in)
operating activities, the most comparable GAAP measure, is set forth in
Table #2 below for the twelve months ending December 31, 2018.
|
TENET HEALTHCARE CORPORATION
|
Additional Supplemental Non-GAAP disclosures
|
Table #1 – Reconciliation of Outlook Adjusted EBITDA to
|
Outlook Net Income Attributable to Tenet Healthcare Corporation
Common Shareholders
|
For the Year Ending December 31, 2018
|
(Unaudited)
|
|
(Dollars in millions, except per share amounts)
|
|
|
|
2018
|
|
|
|
|
Low
|
|
|
High
|
Net income attributable to Tenet Healthcare Corporation common
shareholders
|
|
|
|
$
|
60
|
|
|
|
$
|
70
|
|
Less: Net income attributable to noncontrolling interests
|
|
|
|
|
(415
|
)
|
|
|
|
(435
|
)
|
Net loss from discontinued operations, net of tax
|
|
|
|
|
(5
|
)
|
|
|
|
—
|
|
Income from continuing operations
|
|
|
|
|
480
|
|
|
|
|
505
|
|
Income tax expense
|
|
|
|
|
(120
|
)
|
|
|
|
(110
|
)
|
Income from continuing operations, before income taxes
|
|
|
|
|
600
|
|
|
|
|
615
|
|
Interest expense
|
|
|
|
|
(1,000
|
)
|
|
|
|
(1,010
|
)
|
Loss on early extinguishment of debt
|
|
|
|
|
(5
|
)
|
|
|
|
—
|
|
Other non-operating expense, net
|
|
|
|
|
(20
|
)
|
|
|
|
(25
|
)
|
Operating income
|
|
|
|
|
1,625
|
|
|
|
|
1,650
|
|
Gains on sales, consolidation and deconsolidation of facilities(1)
|
|
|
|
|
—
|
|
|
|
|
—
|
|
Impairment and restructuring charges, acquisition-related costs and
litigation costs and settlements(1)
|
|
|
|
|
(50
|
)
|
|
|
|
(100
|
)
|
Depreciation and amortization
|
|
|
|
|
(790
|
)
|
|
|
|
(810
|
)
|
Loss from divested and closed businesses
|
|
|
|
|
(10
|
)
|
|
|
|
(15
|
)
|
Adjusted EBITDA
|
|
|
|
$
|
2,475
|
|
|
|
$
|
2,575
|
|
Net income from continuing operations
|
|
|
|
$
|
65
|
|
|
|
$
|
70
|
|
Net income from continuing operations as a % of operating revenues
|
|
|
|
|
0.4
|
%
|
|
|
|
0.4
|
%
|
Net operating revenues
|
|
|
|
$
|
17,800
|
|
|
|
$
|
18,200
|
|
Adjusted EBITDA as % of net operating revenues (Adjusted EBITDA
margin)
|
|
|
|
|
13.9
|
%
|
|
|
|
14.1
|
%
|
Adjusted EBITDA
|
|
|
|
$
|
2,475
|
|
|
|
$
|
2,575
|
|
Depreciation and amortization
|
|
|
|
|
(790
|
)
|
|
|
|
(810
|
)
|
Interest expense
|
|
|
|
|
(1,000
|
)
|
|
|
|
(1,010
|
)
|
Other non-operating expense, net
|
|
|
|
|
(20
|
)
|
|
|
|
(25
|
)
|
Adjusted income from continuing operations before income taxes
|
|
|
|
|
665
|
|
|
|
|
730
|
|
Income tax expense
|
|
|
|
|
(140
|
)
|
|
|
|
(155
|
)
|
Adjusted income from continuing operations
|
|
|
|
|
525
|
|
|
|
|
575
|
|
Net income attributable to noncontrolling interests
|
|
|
|
|
(415
|
)
|
|
|
|
(435
|
)
|
Adjusted net income from continuing operations attributable to
common shareholders
|
|
|
|
$
|
110
|
|
|
|
$
|
140
|
|
Basic weighted average shares outstanding (in millions)
|
|
|
|
|
102
|
|
|
|
|
102
|
|
Fully diluted weighted average shares outstanding (in millions)
|
|
|
|
|
103
|
|
|
|
|
103
|
|
Diluted earnings per share from continuing operations
|
|
|
|
$
|
0.63
|
|
|
|
$
|
0.68
|
|
Adjusted diluted earnings per share from continuing operations
|
|
|
|
$
|
1.07
|
|
|
|
$
|
1.36
|
|
|
|
|
|
|
|
|
|
(1) The Company has provided an estimate of restructuring charges that
it anticipates in 2018. The Company does not forecast impairment
charges, acquisition-related costs and litigation costs and settlements
and gains (losses) on sales, and consolidation and deconsolidation of
facilities because the Company does not believe that it can forecast
these items with sufficient accuracy since some of these items are
indeterminable at the time the Company provides its financial Outlook.
|
TENET HEALTHCARE CORPORATION
|
Additional Supplemental Non-GAAP disclosures
|
Table #2 – Reconciliation of Outlook Adjusted Free Cash Flow
|
for the Year Ending December 31, 2018
|
|
(Dollars in millions)
|
|
|
|
2018
|
|
|
|
|
Low
|
|
|
High
|
Net cash provided by operating activities
|
|
|
|
$
|
1,245
|
|
|
|
$
|
1,450
|
|
Less: Payments for restructuring charges, acquisition-related
costs and litigation costs and settlements(1)
|
|
|
|
|
(50
|
)
|
|
|
|
(100
|
)
|
Net cash used in operating activities from discontinued operations
|
|
|
|
|
(5
|
)
|
|
|
|
—
|
|
Adjusted net cash provided by operating activities – continuing
operations
|
|
|
|
|
1,300
|
|
|
|
|
1,550
|
|
Purchases of property and equipment – continuing operations
|
|
|
|
|
(625
|
)
|
|
|
|
(675
|
)
|
Adjusted free cash flow – continuing operations
(2)
|
|
|
|
$
|
675
|
|
|
|
$
|
875
|
|
|
|
|
|
|
|
|
|
(1) The Company has provided an estimate of payments that it anticipates
in 2018 related to restructuring charges. The Company does not forecast
payments related to acquisition-related costs and litigation costs and
settlements because the Company does not believe that it can forecast
these items with sufficient accuracy since some of these items may be
indeterminable at the time the Company provides its financial Outlook.
(2) The Company's definition of Adjusted Free Cash Flow does not include
other important uses of cash including (1) cash used to purchase
businesses or joint venture interests, or (2) any items that are
classified as Cash Flows From Financing Activities on the Company's
Consolidated Statement of Cash Flows, including items such as (i) cash
used to repay borrowings, (ii) distributions paid to noncontrolling
interests, or (iii) payments under the Put/Call Agreement for USPI
redeemable noncontrolling interests, which are recorded on the Statement
of Cash Flows as the purchase of noncontrolling interests.