01—Abstract
Summary
Summary of the 10-K filed February 18, 2022. Cited figures are marked; the original filing is the authoritative source.
Tenet Healthcare Corporation (THC) is a diversified healthcare services company headquartered in Dallas, Texas.
At December 31, 2021, it operated 60 hospitals and 535 other healthcare facilities, and it reports three segments: Hospital Operations, Ambulatory Care (USPI) and Conifer. For 2021, net operating revenues were $19.485 billiona, up from $17.640 billion in 2020, operating income was $2.871 billion versus $1.989 billion, and net income available to Tenet common shareholders was $914 million versus $399 million. Adjusted EBITDA was $3.483 billion versus $3.146 billion, with the company stating an Adjusted EBITDA margin of 17.9% in both years.
Operating income was helped by $445 millionb of net gains on sales and deconsolidation of facilities, including a $406 million gain on the sale of the five Miami-area hospitals in August 2021, and by $191 million of grant income, down from $882 million in 2020 as COVID-19 relief declined. Liquidity and leverage remain central to the investment case. Long-term debt was $15.646 billion at year-end, and the ratio of net long-term debt to Adjusted EBITDA was 3.81x, or 4.07x including Medicare accelerated payment advances.
Operating cash flow was $1.568 billionc, compared with $3.407 billion in 2020, reflecting lower Medicare advance receipts and grant cash. Management redeemed about $2.988 billion of notes in 2021 and called $700 million of 2025 senior secured first lien notes in February 2022. It also issued $1.4 billion of 2029 notes and $1.45 billion of 2030 notes.
The company identifies a planned tax-free spin-off of Conifer as a pending, uncertain transaction, and it has an ongoing call option to acquire additional interests in USPI from Baylor University Medical Center. Key risks include dependence on managed care payers, which generated 68%d of hospital net patient service revenues, and COVID-19 effects on volumes, staffing and supply costs. The filing also flags a Department of Justice investigation of Detroit Medical Center, for which the company says it cannot determine potential exposure, and the 340B payment litigation before the U.S. Supreme Court.
02—Key points
Key Highlights
- Net operating revenues rose to $19.485 billion in 2021 from $17.640 billion in 2020, and operating income increased to $2.871 billion from $1.989 billion.
- Net income available to Tenet common shareholders was $914 million in 2021, versus $399 million in 2020, helped by $445 million of net gains on facility sales and deconsolidations, including a $406 million gain on the Miami Hospitals sale.
- Adjusted EBITDA reached $3.483 billion, up from $3.146 billion, with an Adjusted EBITDA margin of 17.9% in both years.
- Operating cash flow fell to $1.568 billion from $3.407 billion, as 2020 benefited from $1.393 billion of Medicare advances and grant receipts declined.
- Long-term debt totaled $15.646 billion, and the net debt to Adjusted EBITDA ratio was 3.81x at year-end; the company redeemed about $2.988 billion of notes in 2021.
- The company spent $1.220 billion on business acquisitions in 2021, primarily the purchase of ownership interests in 86 SCD ambulatory surgery centers, which were acquired in December 2021 for a cash payment of $1.125 billion net of cash acquired.
- Managed care payers accounted for 68% of hospital net patient service revenues, and the top 10 managed care payers generated 61% of managed care net patient service revenues.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2021filed February 18, 2022Financial Statements
FY2021 against FY2020
| Line item | FY2021FY2020 | Change |
|---|---|---|
| Revenue | $19.48B$17.64B | +10.5% |
| Operating Income | $2.87B$1.99B | +44.3% |
| Interest Expense | $923.00M$1.00B | −8.0% |
| Net Income | $914.00M$399.00M | +129.1% |
| EPS (Basic) | $8.55$3.80 | +125.0% |
| EPS (Diluted) | $8.42$3.75 | +124.5% |
| Shares Outstanding (Basic) | 106.83M105.01M | +1.7% |
| Shares Outstanding (Diluted) | 108.57M106.26M | +2.2% |
05—Questions
Frequently Asked Questions
How did Tenet's profitability change in 2021?
Net operating revenues grew 10.5% to $19.485 billion, and operating income rose to $2.871 billion from $1.989 billion. Net income available to common shareholders was $914 million, compared with $399 million in 2020. The filing attributes much of the operating income improvement to $445 million of net gains on sales and deconsolidations, including the $406 million gain on the Miami Hospitals sale.
What is the status of the planned Conifer spin-off?
Tenet is pursuing a tax-free spin-off of Conifer, its revenue cycle management and value-based care segment, but completion is subject to conditions including a tax-free ruling, a restructured master services agreement with Tenet, finalization of Conifer's capital structure and board approval. The company states there can be no assurance on timing, the allocation of assets and liabilities, or whether the spin-off will be completed at all.
How leveraged is Tenet, and what is it doing about debt?
Long-term debt was $15.646 billion at December 31, 2021, and the ratio of net long-term debt to Adjusted EBITDA was 3.81x, or 4.07x including Medicare accelerated payment obligations. During 2021 the company issued $2.85 billion of senior secured first lien notes and redeemed about $2.988 billion of senior notes. It also called $700 million of 2025 notes in February 2022, with an expected annual cash interest saving of about $53 million.
What are the main risks flagged for Tenet's business?
The filing highlights dependence on managed care contracts, which produced 68% of hospital net patient service revenues, and the concentration of those contracts among the top 10 payers at 61%. It also cites COVID-19 effects on volumes and labor costs, a shortage of critical-care nurses, a DOJ investigation of Detroit Medical Center for which exposure cannot yet be determined, and the pending 340B payment litigation before the U.S. Supreme Court.
What is the Baylor put/call arrangement and why does it matter?
Baylor University Medical Center holds a 5% interest in USPI, and Tenet holds a put/call agreement covering it. Tenet notified Baylor in February 2021 and again in February 2022 that it intends to exercise its call option on 33.3% of the Baylor shares. The amount and timing of the payments are described as uncertain, and Tenet may settle the purchase price in cash or in common stock.
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