01—Abstract
Summary
Summary of the 10-K filed February 27, 2017. Cited figures are marked; the original filing is the authoritative source.
Tenet Healthcare Corporation's Form 10-K for the year ended December 31, 2016 reports net operating revenues before provision for doubtful accounts of $21.07 billiona, net operating revenues of $19.62 billion, operating income of $1.22 billion, and interest expense of $979 million.
The company reports a net loss attributable to Tenet common shareholders of $192 millionb for 2016, compared with a net loss of $140 million in 2015, and Adjusted EBITDA of $2.41 billion. Net cash provided by operating activities fell to $558 million from $1.026 billion in 2015. Long-term debt, net of current portion, was $15.06 billion at year-end.
The company operates 79 hospitals, about 470 outpatient centers, and nine UK facilities, organized into three segments: Hospital Operations and other (86% of 2016 revenues per the filing), Ambulatory Care (driven by the USPI joint venture, 9%), and Conifer (revenue cycle and value-based care services, 5%). The filing highlights a Non-Prosecution Agreement with the DOJ, a $517 millionc Clinica de la Mama settlement payment, pending shareholder class and derivative litigation, and the planned sale or wind-down of health plans by the end of 2017.
The company also notes uncertainty around repeal or replacement of the Affordable Care Act, which it says could reduce volumes and increase uncompensated care. For investors, the key issues are high leverage (the ratio of long-term debt net of cash to Adjusted EBITDA was 6.03x), the expected USPI put obligations (initial 2017 payment estimated at $159 million to $170 milliond), and regulatory exposure from the ACA, Medicaid pass-through changes, and the monitorship under the NPA.
02—Key points
Key Highlights
- Net operating revenues were $19.62 billion in 2016, up from $18.63 billion in 2015, while the net loss attributable to Tenet common shareholders widened to $192 million from $140 million.
- Adjusted EBITDA was $2.41 billion in 2016 versus $2.28 billion in 2015, equal to 12.3% of net operating revenues.
- Interest expense rose to $979 million in 2016 from $912 million, and the filing states it represented about 80% of $1.22 billion of operating income.
- Net cash provided by operating activities declined to $558 million from $1.026 billion, citing $491 million higher payments on restructuring, acquisition-related and litigation reserves.
- The company paid approximately $517 million, including interest, to resolve the Clinica de la Mama matter, and entered a three-year Non-Prosecution Agreement with an independent compliance monitor retained February 1, 2017.
- Welsh Carson delivered a 2017 put notice for a 6.25% USPI stake, with an estimated initial payment between $159 million and $170 million; the company's ownership of USPI is 56.3%.
- The company plans to sell or wind down its health plans by the end of 2017, and it cites the ACA repeal efforts and a January 20, 2017 executive order as sources of regulatory uncertainty.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 27, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $19.62B— | — |
| Operating Income | $1.25B$1.08B | +15.8% |
| Interest Expense | $979.00M$912.00M | +7.3% |
| Net Income | -$192.00M-$140.00M | −37.1% |
| EPS (Basic) | $-1.93$-1.41 | −36.9% |
| EPS (Diluted) | $-1.93$-1.41 | −36.9% |
| Shares Outstanding (Basic) | 99.32M99.17M | +0.2% |
| Shares Outstanding (Diluted) | 99.32M99.17M | +0.2% |
05—Questions
Frequently Asked Questions
How did Tenet's profitability and cash generation change in 2016?
Net loss attributable to Tenet common shareholders was $192 million in 2016 versus $140 million in 2015. Operating income rose to $1.22 billion from $1.06 billion, but net cash from operations fell to $558 million from $1.026 billion, largely because of higher payments on restructuring, acquisition-related and litigation reserves.
How much debt does Tenet carry and how levered is it?
Long-term debt, net of current portion, was $15.06 billion at December 31, 2016. The filing states the ratio of total long-term debt, net of cash, to Adjusted EBITDA was 6.03x, and interest expense was $979 million in 2016.
What are the main regulatory and legal risks disclosed?
The company faces possible repeal or modification of the ACA, which it says could reduce volumes and raise uncompensated care. It operates under a Non-Prosecution Agreement with the DOJ through February 1, 2020, with a monitor that could extend the term. It also faces shareholder class actions and derivative lawsuits tied to the Clinica de la Mama matters.
What is the USPI joint venture's role and what obligations come with it?
USPI is a joint venture in which Tenet held a 56.3% interest at year-end 2016, with about 41% held by Welsh Carson and about 3% by Baylor. Put/call agreements allow the minority holders to require Tenet to buy shares, and the 2017 Welsh Carson put is estimated at $159 million to $170 million. Tenet expects to own about 95% of USPI between 2018 and 2020 through call options.
06—Continue