Dive Brief:
- Tenet Healthcare surged past analysts’ expectations in the first quarter for revenue and adjusted earnings before interest, taxes, depreciation and amortization on strong patient volumes, according to its earnings results reported Tuesday.
- CEO Saum Sutaria told investors on a Tuesday earnings call that Tenet was “essentially a new company” after deleveraging its balance sheet through nine hospital sales and investing further in Tenet’s highly profitable ambulatory care business.
- The Dallas-based operator was the only major for-profit health system this quarter to raise its full year revenue and adjusted EBITDA forecasts following first quarter results.
Dive Insight:
Tenet is entering a new era, according to its CEO.
The company notched $5.4 billion in operating revenue in the first quarter and increased its adjusted EBITDA by 23% year over year. Net income reached $2.2 billion, up from $143 million in the same period last year.
The CEO attributed the results to broad volume growth across Tenet’s hospital and ambulatory care segments, as well as multiquarter efforts to address the health system’s debt load.
In the hospital market, adjusted EBITDA grew 28% year over year to total $630 million. Same store hospital admissions grew 4.2% year over year in what Sutaria said was a continuation of last year’s trend toward utilization recovery. Same-facility revenue grew 8.8% year over year due to a more favorable payer mix and Tenet’s focus on growing higher acuity services.
Like its peers, the health system has also invested in capacity management, which helped meet demand in key markets, according to Sutaria.
However, Tenet’s primary focus is growing its ambulatory care division, the CEO said.
First quarter net operating ambulatory service revenue increased nearly 10% compared to the same period in 2023, driven by net revenue per case growth, acquisitions, opening facilities and increased service lines.
Tenet has steadily grown its ambulatory care arm through mergers and acquisitions over recent years, and now operates 535 ambulatory surgery centers through its United Surgical Partner International business line, according to Sutaria. During the quarter, Tenet invested $450 of capital to further expand its ambulatory business, executives said.
“We are pleased to deploy capital to provide more lower cost access points to the communities in which we operate that also generate very attractive returns,” Sutaria said.
Newly acquired USPI centers are expected to deliver approximately $80 million of EBITDA within the first year of ownership, according to Tenet.
Meanwhile, the operator is trimming hospitals in a continued bid to de-leverage its portfolio.
During the quarter, Tenet sold nine hospitals over three transactions for combined pre-tax proceeds of $4 billion. CFO Sun Park said the deals helped Tenet retire $2.1 billion of secured first liens debt this quarter and end March with nearly $2.5 billion of cash on hand.
“A repositioned portfolio of businesses is more predictable and capital efficient with attractive margins and free cash flow,” Sutaria said. “Our balance sheet which was once a challenging part of the Tenet story has been de-leveraged. This provides us with a strong foundation and a significant amount of capital and financial flexibility for the future.”
Contributions from planned USPI M&A are also expected to “to essentially replace lost EBITDA” from the hospital asset sales, Sutaria added.
Tenet raised its full year revenue and adjusted EBITDA forecast to account for its recent asset sales.
The operator now expects to earn between $20 billion and $20.40 billion in annual revenue for 2024 and $3.5 and $3.7 billion in adjusted EBITDA. Previously, Tenet expected to draw in between $19.9 billion and $20.3 billion in revenue and between $3.3 to $3.5 billion in adjusted EBITDA.
Tenet’s stock rose nearly 11% on Tuesday morning following the results.
