01—Abstract
Summary
Summary of the 10-K filed February 25, 2019. Cited figures are marked; the original filing is the authoritative source.
Tenet Healthcare Corporation (THC) reported net operating revenues of $18.31 billiona for 2018, down from $19.18 billion in 2017, and operating income of $1.647 billion versus $1.113 billion.
Net income available to Tenet common shareholders was $111 millionb, compared with a loss of $704 million in 2017. Adjusted EBITDA rose to $2.56 billion from $2.44 billion, and the filing states an Adjusted EBITDA margin of 14.0% versus 12.8%. Results were shaped by divestitures of eight U.S. hospitals and all UK operations (Aspen) in 2018, and by the sale of three Chicago-area hospitals completed in January 2019.
Same-hospital net operating revenues increased 3.6%, while same-hospital admissions decreased 1.7%. The company operated 68 hospitals at December 31, 2018, with 23 surgical hospitals and approximately 475 outpatient centers, and reports three segments: Hospital Operations and other, Ambulatory Care (USPI, owned 95%), and Conifer (revenue cycle services, which Tenet is exploring selling or otherwise separating). Long-term debt was approximately $14.8 billionc, and interest expense was $1.004 billion.
The filing reports a ratio of 5.63x total long-term debt, net of cash, to Adjusted EBITDA. In February 2019 Tenet sold $1.5 billiond of 6.250% senior secured second lien notes due 2027 to refinance higher-cost debt, with an expected loss on early extinguishment of about $47 million in the first quarter of 2019.
The filing highlights ongoing regulatory and legal exposure, including the Affordable Care Act litigation, a Non-Prosecution Agreement with the DOJ (extended to November 1, 2020) that requires an independent compliance monitor, a government investigation of Detroit Medical Center, and an Oklahoma qui tam action. Management also flagged Medicaid and Medicare reimbursement pressures and the risks of managed care concentration, with the top ten managed care payers generating 65% of managed care net patient service revenues.
02—Key points
Key Highlights
- Net operating revenues were $18.31 billion in 2018, down from $19.18 billion in 2017, mainly because of hospital divestitures and closures.
- Operating income rose to $1.647 billion from $1.113 billion, and net income available to Tenet common shareholders was $111 million versus a loss of $704 million in 2017.
- Adjusted EBITDA increased to $2.56 billion from $2.44 billion, with an Adjusted EBITDA margin of 14.0% compared with 12.8% in 2017.
- Same-hospital net operating revenues increased 3.6%, driven mainly by improved managed care contract terms, while same-hospital admissions decreased 1.7%.
- Tenet is exploring strategic alternatives for Conifer, including a potential sale, merger, or tax-efficient spin-off, and there is no assurance a transaction will occur.
- Total long-term debt was approximately $14.8 billion, with interest expense of $1.004 billion, and the debt-to-Adjusted EBITDA ratio was 5.63x.
- A Non-Prosecution Agreement with the DOJ, extended to November 1, 2020, requires an independent compliance monitor and remains a key legal risk.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2018filed February 25, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $18.31B$19.18B | −4.5% |
| Operating Income | $1.64B$1.11B | +47.1% |
| Interest Expense | $1.00B$1.03B | −2.3% |
| Net Income | $104.00M-$704.00M | +114.8% |
| EPS (Basic) | $1.02$-7.00 | +114.6% |
| EPS (Diluted) | $1.00$-7.00 | +114.3% |
| Shares Outstanding (Basic) | 102.11M100.59M | +1.5% |
| Shares Outstanding (Diluted) | 103.88M100.59M | +3.3% |
05—Questions
Frequently Asked Questions
How did Tenet's profitability change in 2018?
Operating income increased to $1.647 billion from $1.113 billion, and net income available to Tenet common shareholders was $111 million, compared with a loss of $704 million in 2017. The filing attributes the improvement partly to lower impairment and restructuring charges, which were $209 million in 2018 versus $541 million in 2017, and to net gains on facility sales.
What is happening with Conifer?
Tenet is exploring strategic alternatives for Conifer, including a potential sale or merger, a tax-efficient spin-off, or a combination of transactions. The filing states there is no assurance this process will result in a consummated transaction, and Conifer continues to market its revenue cycle and value-based care services.
How much debt does Tenet carry, and what refinancing did it complete?
At December 31, 2018, Tenet had approximately $14.8 billion of total long-term debt. On February 5, 2019, it sold $1.5 billion of 6.250% senior secured second lien notes due 2027 and used the proceeds, with cash on hand and credit facility borrowings, to redeem $300 million of 6.750% notes due 2020 and $750 million of 7.500% notes due 2022, and to fund repayment of $468 million of 5.500% notes due March 1, 2019.
What are the main regulatory and legal risks disclosed?
The filing cites uncertainty around the Affordable Care Act after a December 2018 district court ruling that the individual mandate was unconstitutional, reductions to Medicare and Medicaid payments, and the Non-Prosecution Agreement with the DOJ. It also discloses an ongoing investigation of Detroit Medical Center, an Oklahoma surgical hospital qui tam action, and a shareholder derivative lawsuit that was dismissed in January 2019, with plaintiffs able to appeal.
How concentrated is Tenet's managed care revenue?
The filing states that the top ten managed care payers generated 65% of managed care net patient service revenues in 2018, and that managed care net patient service revenues were approximately $9.2 billion, representing about 65% of total net patient service revenues. At December 31, 2018, 61% of net accounts receivable for the Hospital Operations and other segment was due from managed care payers.
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