DALLAS--(BUSINESS WIRE)--
Tenet Healthcare Corporation (THC) reported a net loss from continuing operations attributable to Tenet common shareholders of $27 million in the first quarter of 2019 compared to net income of $98 million in the first quarter of 2018. Adjusted EBITDA was $613 million in the first quarter of 2019 above the midpoint of the Company’s Outlook range of $575 million to $625 million.
Ronald A. Rittenmeyer, Executive Chairman and CEO, said, “We had a solid start to the year, building on the many positive changes we made across the enterprise in 2018. These changes include the continued addition of new leadership as well as an infusion of fresh thinking, which are helping to transform our approach to operations and overall enterprise culture. In the first quarter, we continued to make progress in each of our business segments through rigorous implementation of our strategic initiatives, and we were pleased with our performance, both operationally and financially. As we move through the year, we remain focused on revenue growth and expense management to sharpen operations and our competitive position.â€
Results for the Quarter Ended March 31, 2019
Adjusted EBITDA was $613 million in the first quarter of 2019 compared to $665 million in the first quarter of 2018. The decline was primarily attributable to: (i) a $38 million increase in malpractice expense; (ii) $11 million of losses generated by a risk-based contracting business in California in the first quarter of 2019; (iii) $7 million due to the divestiture of Aspen Healthcare, the Company’s former operations in the United Kingdom; and (iv) $10 million of contract termination fees received by Conifer in the first quarter of 2018 which did not occur again in the first quarter of 2019. These four items were substantially anticipated in the Company’s Outlook range provided in February.
Hospital Operations and Other Segment
Net operating revenues in the Hospital Operations and other segment were $3.862 billion in the first quarter of 2019, down 2.2 percent from the first quarter of 2018. The decline in revenue was due to hospital divestitures, partially offset by same-hospital revenue growth.
On a same-hospital basis, net patient service revenues were $3.559 billion in the first quarter of 2019, up 1.9 percent from the first quarter of 2018. Admissions declined 0.1 percent on a same-hospital basis, adjusted admissions increased 0.6 percent and revenue per adjusted admission increased 1.3 percent. A decline in flu cases lowered admissions and adjusted admissions by 80 basis points and 60 basis points, respectively.
Adjusted EBITDA in Tenet’s hospital segment was $337 million in the first quarter of 2019 compared to $402 million in the first quarter of 2018. The $65 million decline was primarily due to a $38 million increase in malpractice expense (comprised of a $21 million increase to settle various claims and $17 million of discount rate adjustments), $11 million of losses generated by a risk-based contracting business in California in the first quarter of 2019 and a stronger flu season in the first quarter of 2018.
Selected operating expenses in the Hospital Operations and other segment increased 4.0 percent on a per adjusted admission basis in the first quarter of 2019 and increased 2.5 percent excluding the $38 million increase in malpractice expense as well as the $11 million of losses generated by a risk-based contracting business in California. Selected operating expenses include salaries, wages and benefits, supplies and other operating expenses and exclude the costs of the Company’s health plan businesses. Salaries, wages and benefits increased 2.8 percent per adjusted admission in the first quarter of 2019 and supply expense remained substantially the same. Other operating expenses increased 9.4 percent per adjusted admission in the first quarter of 2019 and increased 3.6 percent per adjusted admission excluding the increase in malpractice expense and risk-based contracting losses in California mentioned above.
Ambulatory Care Segment
The Ambulatory Care segment produced net operating revenues of $480 million in the first quarter of 2019, a decrease of 3.6 percent compared to $498 million in the first quarter of 2018. The decline in revenue was due to the divestiture of Aspen Healthcare in the third quarter of 2018. Aspen generated $49 million of revenue and $7 million of Adjusted EBITDA and Adjusted EBITDA less facility-level noncontrolling interest in the first quarter of 2018. After normalizing for the divestiture of Aspen, the Ambulatory Care segment generated Adjusted EBITDA of $177 million in the first quarter of 2019, up 12.0 percent from $158 million in the first quarter of 2018 and Adjusted EBITDA less facility-level noncontrolling interest was $112 million, up 9.8 percent from $102 million in the first quarter of 2018.
The results of many of the facilities in which the Ambulatory Care segment has an investment are not consolidated by Tenet (of the 334 facilities at March 31, 2019, the results of 108 were accounted for under the equity method for unconsolidated affiliates). To help analyze the segment’s results of operations, management uses system-wide measures, which include revenues and cases of both consolidated and unconsolidated facilities. On a same-facility system-wide basis, revenue in the Ambulatory Care segment increased 4.2 percent in the first quarter of 2019, with cases increasing 0.9 percent and revenue per case increasing 3.3 percent. In the surgical business, which represents the majority of the revenue in the Ambulatory segment, same-facility system-wide revenue grew 4.2 percent in the first quarter of 2019, with cases up 2.8 percent and revenue per case up 1.4 percent.
Conifer Segment
During the first quarter of 2019, Conifer’s revenue declined 13.6 percent to $349 million, primarily due to client attrition following divestitures by Tenet and other customers, down from $404 million in the first quarter of 2018. Revenue from third party customers declined 20.1 percent to $203 million in the first quarter of 2019. The year-over-year revenue and EBITDA comparisons were also impacted by $10 million of contract termination fees received by Conifer in the first quarter of 2018, which did not occur again in the first quarter of 2019.
Conifer generated $99 million of Adjusted EBITDA in the first quarter of 2019, up 1.0 percent from $98 million in the first quarter of 2018 and up 12.5 percent after adjusting for the $10 million of contract termination fees in the first quarter of 2018. Adjusted EBITDA margins increased 410 basis points to 28.4 percent, reflecting the ongoing improvement in Conifer’s cost structure.
Net Income and Earnings Per Share
Tenet reported a net loss from continuing operations attributable to Tenet common shareholders of $27 million, or $0.26 per diluted share, in the first quarter of 2019 compared to net income of $98 million, or $0.95 per diluted share, in the first quarter of 2018. The net loss in the first quarter of 2019 included a $47 million pre-tax loss from the early extinguishment of debt; net income in the first quarter of 2018 included $110 million of pre-tax gains on sales, consolidation and deconsolidation of facilities, primarily comprised of a $98 million gain from the sale of MacNeal Hospital and other operations affiliated with the hospital and a gain of $13 million from the sales of the Company’s minority interests in four North Texas hospitals.
After adjusting for the items listed on Table #2, Tenet produced Adjusted net income from continuing operations available to Tenet common shareholders of $56 million, or $0.54 per diluted share, in the first quarter of 2019, compared to $59 million, or $0.57 per diluted share, in the first quarter of 2018.
A reconciliation of GAAP net income available (loss attributable) to Tenet common shareholders to Adjusted net income available (loss attributable) from continuing operations and Adjusted diluted earnings (loss) per share from continuing operations is contained in Table #2 at the end of this release.
Cash Flow and Liquidity
Cash and cash equivalents were $252 million at March 31, 2019 compared to $411 million at December 31, 2018. The Company had $190 million of outstanding borrowings on its $1 billion credit line as of March 31, 2019. Accounts receivable days outstanding from continuing operations were 58.6 at March 31, 2019 compared to 56.5 at December 31, 2018.
Net cash provided by operating activities was $10 million in the first quarter of 2019, representing a $103 million decrease compared to $113 million in the first quarter of 2018. After subtracting $192 million and $143 million of capital expenditures in the first quarters of 2019 and 2018, respectively, Free Cash Flow was an outflow of $182 million in the first quarter of 2019, a decrease of $152 million compared to an outflow of $30 million in the first quarter of 2018. Adjusted Free Cash Flow was an outflow of $148 million in the first quarter of 2019, representing a $152 million decrease from an inflow of $4 million in the first quarter of 2018.
Net cash used in investing activities was $139 million in the first quarter of 2019 compared to $373 million of net cash provided by investing activities in the first quarter of 2018. Results in the first quarter of 2019 included $62 million of proceeds from the sales of facilities, long-term investments and other assets compared to $559 million in the first quarter of 2018.
Net cash used in financing activities was $30 million in the first quarter of 2019 compared to $123 million used in the first quarter of 2018.
Reconciliations of net cash provided by operating activities to both Free Cash Flow and Adjusted Free Cash Flow are contained in Table #3 at the end of this release.
Outlook
The Company’s Outlook for 2019 includes:
The Outlook for 2019 assumes equity in earnings of unconsolidated affiliates of $180 million to $190 million, depreciation and amortization expense of $805 million to $825 million, interest expense of $985 million to $995 million, net income available to noncontrolling interests of $425 million to $445 million and an average diluted share count of 106 million.
The Company’s Outlook for the second quarter of 2019 includes:
The Outlook for the second quarter assumes equity in earnings of unconsolidated affiliates of $40 million to $45 million, depreciation and amortization expense of $200 million to $210 million, interest expense of $240 million to $250 million, net income available to noncontrolling interests of $100 million to $110 million, and an average diluted share count of 104 million.
Additional details on Tenet’s Outlook for both the second quarter and calendar year 2019 are available in Tables #4, #5 and #6 at the end of this press release and in an accompanying slide presentation that will be accessible through the Company’s website at www.tenethealth.com/investors.
Management’s Webcast Discussion of First Quarter Results
Tenet management will discuss the Company’s first quarter 2019 results on a webcast scheduled for 9:00 a.m. Eastern Time (8:00 a.m. Central Time) on April 30, 2019. Investors can access the webcast through the Company’s website at www.