01—Abstract
Summary
Summary of the 10-K filed February 24, 2020. Cited figures are marked; the original filing is the authoritative source.
Tenet Healthcare Corporation operates a diversified healthcare services network that at December 31, 2019 included 65 hospitals and over 500 other healthcare facilities, organized into three segments: Hospital Operations and other, Ambulatory Care (USPI, 95%a owned), and Conifer (revenue cycle management, 76.2% owned, subject to a targeted tax-free spin-off by the end of the second quarter of 2021).
Net operating revenues were $18.48 billionb in 2019 versus $18.31 billion in 2018, while operating income declined to $1.513 billion from $1.647 billion. Net loss attributable to Tenet common shareholders was $(232) million in 2019 compared with net income of $111 million in 2018, and interest expense was $985 million. Adjusted EBITDA rose to $2.706 billion from $2.560 billion, and the company reported an Adjusted EBITDA margin of 14.6%.
The company's balance sheet carried approximately $14.8 billionc of total long-term debt at year end, and the ratio of long-term debt, net of cash, to Adjusted EBITDA was 5.35x. During 2019 Tenet sold $5.7 billion of notes to refinance maturing debt, recording a $227 million loss on early extinguishment. Net cash provided by operating activities increased to $1.233 billion from $1.049 billion.
Management also disclosed a deferred federal NOL carryforward of approximately $600 milliond, a Non-Prosecution Agreement whose term was extended to November 1, 2020, and a pending agreement in principle to resolve a qui tam matter for approximately $66 million. Investors should weigh the spin-off timing and uncertainty for Conifer, the high leverage and interest burden relative to operating income, the reliance on managed care payers (managed care represented 66% of net patient service revenues from hospitals and related outpatient facilities), and the ongoing regulatory exposures, including the ACA litigation and the 340B and Medicaid DSH matters described in the filing.
02—Key points
Key Highlights
- Net operating revenues of $18.48 billion in 2019, up from $18.31 billion in 2018; Hospital Operations and other revenues rose to $15.52 billion.
- Operating income fell to $1.513 billion from $1.647 billion, while Adjusted EBITDA increased to $2.706 billion from $2.560 billion (14.6% Adjusted EBITDA margin).
- Net loss attributable to Tenet common shareholders of $(232) million in 2019, compared with net income of $111 million in 2018; loss from continuing operations per diluted share was $(2.35).
- Total long-term debt of approximately $14.8 billion at December 31, 2019; interest expense of $985 million; loss from early extinguishment of debt of $227 million.
- Pursuing a tax-free spin-off of Conifer, targeted for completion by the end of the second quarter of 2021, with no assurance of timing or completion.
- Net cash provided by operating activities of $1.233 billion in 2019, compared with $1.049 billion in 2018.
- Non-Prosecution Agreement extended by nine months to November 1, 2020 after the DOJ determined certain reporting obligations were breached.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 24, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $18.48B$18.31B | +0.9% |
| Operating Income | $1.54B$1.64B | −6.1% |
| Interest Expense | $985.00M$1.00B | −1.9% |
| Net Income | -$215.00M$104.00M | −306.7% |
| EPS (Basic) | $-2.08$1.02 | −303.9% |
| EPS (Diluted) | $-2.08$1.00 | −308.0% |
| Shares Outstanding (Basic) | 103.40M102.11M | +1.3% |
| Shares Outstanding (Diluted) | 103.40M103.88M | −0.5% |
05—Questions
Frequently Asked Questions
What is driving the change from net income in 2018 to a net loss in 2019?
The filing shows operating income declining to $1.513 billion from $1.647 billion, interest expense of $985 million, a $227 million loss from early extinguishment of debt, and income tax expense of $153 million. Net income available to noncontrolling interests was $386 million, which further reduced the amount attributable to Tenet common shareholders.
What is the status of the Conifer spin-off?
Tenet announced in July 2019 its intention to pursue a tax-free spin-off of Conifer and is targeting completion by the end of the second quarter of 2021. Completion is subject to conditions including tax-free treatment, execution of a restructured services agreement with Tenet, finalization of Conifer's capital structure, SEC filings, and final board approval. The filing states there can be no assurance on timing or that the spin-off will be completed.
How much debt does Tenet carry and how did it manage refinancing in 2019?
At December 31, 2019, long-term debt was approximately $14.8 billion, and the ratio of long-term debt net of cash to Adjusted EBITDA was 5.35x. During 2019 Tenet sold a total of $5.7 billion of senior secured and unsecured notes and used the proceeds, with cash on hand and revolver borrowings, to redeem existing notes. The Credit Agreement provides up to $1.5 billion of revolving loans, with $1.499 billion available at year end.
What regulatory and legal risks does the filing highlight?
The filing describes the Non-Prosecution Agreement, extended to November 1, 2020, under which any breach could lead to prosecution or exclusion from federal healthcare programs. It also discusses uncertainty around the Affordable Care Act after the individual mandate penalty was eliminated, 340B payment reductions in litigation, Medicare DSH litigation, and an agreement in principle with the DOJ to resolve the Oklahoma surgical hospital qui tam matter for approximately $66 million.
How concentrated is Tenet's revenue among payers?
Managed care net patient service revenues were approximately $9.5 billion in 2019, representing about 66% of net patient service revenues from hospitals and related outpatient facilities. The top ten managed care payers generated 62% of managed care net patient service revenues, and Medicare accounted for approximately 20% and Medicaid approximately 8% of net patient service revenues excluding managed care programs.
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