.7 percent.
Conifer Segment
During 2018, Conifer’s revenue decreased 4.0 percent to $1.533 billion, primarily due to client attrition following divestitures by Tenet and other customers, down from $1.597 billion in 2017. Revenue from third party customers declined 3.7 percent to $943 million in 2018.
Conifer generated $357 million of Adjusted EBITDA in 2018, up 26.1 percent from $283 million in 2017, with Adjusted EBITDA margins increasing 560 basis points to 23.3 percent.
Net Income and Earnings Per Share
Tenet reported net income from continuing operations attributable to Tenet common shareholders of $108 million, or $1.04 per diluted share, in 2018 compared to a net loss of $704 million, or $7.00 per diluted share, in 2017.
After adjusting for the items listed on Table #2, Tenet produced Adjusted net income from continuing operations available to Tenet common shareholders of $193 million, or $1.86 per diluted share, in 2018, compared to Adjusted net income from continuing operations attributable to Tenet common shareholders of $82 million, or $0.81 per diluted share, in 2017.
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 $411 million at December 31, 2018 compared to $500 million at September 30, 2018. The Company had no outstanding borrowings on its $1 billion credit line as of December 31, 2018. Accounts receivable days outstanding from continuing operations were 56.8 at December 31, 2018 compared to 56.3 at September 30, 2018 and 55.8 at December 31, 2017.
Net cash provided by operating activities was $1.049 billion in 2018, representing a $151 million decrease compared to $1.200 billion in 2017. After subtracting $617 million and $707 million of capital expenditures in 2018 and 2017, respectively, Free Cash Flow was $432 million in 2018, a decrease of $61 million compared to $493 million in 2017. Adjusted Free Cash Flow was $600 million in 2018, representing a $23 million decrease from $623 million in 2017.
Net cash used in investing activities was $115 million in 2018 compared to $21 million of net cash provided by investing activities in 2017. The 2018 period included $742 million of proceeds from the sales of facilities, long-term investments and other assets (note that Company received an additional $42 million in the first quarter of 2019 from the sale of three Chicago-area hospitals, which represents the completion of the previously announced divestiture program). The 2018 period also included $240 million of purchases of businesses, joint ventures and equity investments, primarily related to USPI’s acquisition program.
Net cash used in financing activities was $1.134 billion in 2018 compared to $1.326 billion in 2017. The 2018 period included $647 million in purchases of noncontrolling interests (including approximately $630 million in the second quarter of 2018 to increase Tenet’s ownership in USPI to 95 percent, up from 80 percent), $288 million of distributions paid to noncontrolling interests and $145 million of cash to retire $150 million of debt through open market purchases.
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 first quarter of 2019 includes:
The Outlook for the first quarter assumes equity in earnings of unconsolidated affiliates of $30 million to $35 million, depreciation and amortization expense of $200 million to $205 million, interest expense of $250 million to $260 million, net income available to noncontrolling interests of $80 million to $90 million, and an average diluted share count of 104 million.
Additional details on Tenet’s Outlook for both the first 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 Fourth Quarter Results
Tenet management will discuss the Company’s fourth quarter 2018 results on a webcast scheduled for 10:00 a.m. Eastern Time (9:00 a.m. Central Time) on February 26, 2019. Investors can access the webcast through the Company’s website at www.tenethealth.com/investors. A set of slides, which will be referred to on the conference call, will be available on the Quarterly Results section of the Company’s website.
Additional information regarding Tenet’s quarterly results of operations is contained in its Form 10-K report for the period ended December 31, 2018, which will be filed with the Securities and Exchange Commission and posted on the Company’s website.
This press release includes certain non-GAAP measures, such as Adjusted EBITDA, Adjusted net income available (loss attributable) from continuing operations to Tenet common shareholders, Adjusted diluted earnings (loss) per share from continuing operations, Free Cash Flow and Adjusted Free Cash Flow. Reconciliations of these measures to the most comparable GAAP measures are contained in the tables at the end of this release.
Tenet Healthcare Corporation (THC) is a national diversified healthcare services company headquartered in Dallas, TX, with 110,000 employees. Through an expansive care network that includes United Surgical Partners International, we operate 65 hospitals and approximately 500 other healthcare facilities, including surgical hospitals, ambulatory surgery centers, urgent care and imaging centers and other outpatient facilities. We also operate Conifer Health Solutions, which provides revenue cycle management and value-based care services to hospitals, health systems, physician practices, employers and other customers. At the center of everything we do is a commitment to deliver the right care, in the right place, at the right time, and to continually improve and advance the healthcare delivery system in the markets we serve. For more information, please visit www.tenethealth.com.
The terms “THCâ€, “Tenet Healthcare Corporationâ€, “the companyâ€, “weâ€, “us†or “our†refer to Tenet Healthcare Corporation or one or more of its subsidiaries or affiliates as applicable.
This release contains “forward-looking statements†- that is, statements that relate to future, not past, events. In this context, forward-looking statements often address our expected future business and financial performance and financial condition, and often contain words such as “expect,†“anticipate,†“assume,†“believe,†“budget,†“estimate,†“forecast,†“intend,†“plan,†“predict,†“project,†“seek,†“see,†“target,†or “will.†Forward-looking statements by their nature address matters that are, to different degrees, uncertain. Particular uncertainties that could cause our actual results to be materially different than those expressed in our forward-looking statements include, but are not limited to, the factors disclosed under “Forward-Looking Statements†and “Risk Factors†in our Form 10-K for the year ended December 31, 2018, and subsequent Form 10-Q filings and other filings with the Securities and Exchange Commission.
Tenet uses its Company website to provide important information to investors about the Company including the posting of important announcements regarding financial performance and corporate developments.
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TENET HEALTHCARE CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) |
||||||||||||||||||||||
| (Dollars in millions except per share amounts) | Three Months Ended December 31, | |||||||||||||||||||||
| 2018 | % | 2017 | % | Change | ||||||||||||||||||
| Net operating revenues: | ||||||||||||||||||||||
| Net operating revenues before provision for doubtful accounts | $ | 5,303 | ||||||||||||||||||||
| Less: Provision for doubtful accounts | 325 | |||||||||||||||||||||
| Net operating revenues | $ | 4,619 | 100.0 | % | 4,978 | 100.0 | % | (7.2 | )% | |||||||||||||
| Equity in earnings of unconsolidated affiliates | 53 | 1.1 | % | 49 | 1.0 | % | 8.2 | % | ||||||||||||||
| Operating expenses: | ||||||||||||||||||||||
| Salaries, wages and benefits | 2,156 | 46.7 | % | 2,284 | 45.9 | % | (5.6 | )% | ||||||||||||||
| Supplies | 756 | 16.4 | % | 800 | 16.1 | % | (5.5 | )% | ||||||||||||||
| Other operating expenses, net | 1,078 | 23.3 | % | 1,104 | 22.1 | % | (2.4 | )% | ||||||||||||||
| Electronic health record incentives | (2 | ) | — | % | (1 | ) | — | % | 100.0 | % | ||||||||||||
| Depreciation and amortization | 200 | 4.3 | % | 208 | 4.2 | % | ||||||||||||||||
| Impairment and restructuring charges, and acquisition-related costs | 86 | 1.9 | % | 138 | 2.8 | % | ||||||||||||||||
| Litigation and investigation costs | 10 | 0.2 | % | 11 | 0.2 | % | ||||||||||||||||
| Net gains on sales, consolidation and deconsolidation of facilities | (16 | ) | (0.4 | )% | (2 | ) | — | % | ||||||||||||||
| Operating income | 404 | 8.7 | % | 485 | 9.7 | % | ||||||||||||||||
| Interest expense | (246 | ) | (253 | ) | ||||||||||||||||||
| Other non-operating expense, net | (3 | ) | (8 | ) | ||||||||||||||||||
| Gain (loss) from early extinguishment of debt | 3 | — | ||||||||||||||||||||
| Income from continuing operations, before income taxes | 158 | 224 | ||||||||||||||||||||
| Income tax expense | (56 | ) | (324 | ) | ||||||||||||||||||
| Income (loss) from continuing operations, before discontinued operations | 102 | (100 | ) | |||||||||||||||||||
| Discontinued operations: | ||||||||||||||||||||||
| Income from operations | 1 | 1 | ||||||||||||||||||||
| Income tax benefit (expense) | (1 | ) | — | |||||||||||||||||||
| Income (loss) from discontinued operations | — | 1 | ||||||||||||||||||||
| Net income (loss) | 102 | (99 | ) | |||||||||||||||||||
| Less: Net income available to noncontrolling interests | 107 | 130 | ||||||||||||||||||||
| Net loss attributable to Tenet Healthcare Corporation common shareholders | $ | (5 | ) | $ | (229 | ) | ||||||||||||||||
| Amounts attributable to Tenet Healthcare Corporation common shareholders | ||||||||||||||||||||||
| Loss from continuing operations, net of tax | $ | (5 | ) | $ | (230 | ) | ||||||||||||||||
| Income (loss) from discontinued operations, net of tax | — | 1 | ||||||||||||||||||||
| Net loss attributable to Tenet Healthcare Corporation common shareholders | $ | (5 | ) | $ | (229 | ) | ||||||||||||||||
| Earnings (loss) per share attributable to Tenet Healthcare Corporation common shareholders: | ||||||||||||||||||||||
| Basic | ||||||||||||||||||||||
| Continuing operations | $ | (0.05 | ) | $ | (2.28 | ) | ||||||||||||||||
| Discontinued operations | — | 0.01 | ||||||||||||||||||||
| $ | (0.05 | ) | $ | (2.27 | ) | |||||||||||||||||
| Diluted | ||||||||||||||||||||||
| Continuing operations | $ | (0.05 | ) | $ | (2.28 | ) | ||||||||||||||||
| Discontinued operations | — | 0.01 | ||||||||||||||||||||
| $ | (0.05 | ) | $ | (2.27 | ) | |||||||||||||||||
| Weighted average shares and dilutive securities outstanding (in thousands): | ||||||||||||||||||||||
| Basic | 102,501 | 100,945 | ||||||||||||||||||||
| Diluted* | 102,501 | 100,945 | ||||||||||||||||||||
| * | Had we generated income from continuing operations in the three months ended December 31, 2018 and 2017 the effect of employee stock options, restricted stock units and deferred compensation units on the diluted shares calculation would have been an increase of 1,617 thousand and 908 thousand shares, respectively. | |
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TENET HEALTHCARE CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) |
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| (Dollars in millions except per share amounts) | Years Ended December 31, | |||||||||||||||||||||
| 2018 | % | 2017 | % | Change | ||||||||||||||||||
| Net operating revenues: | ||||||||||||||||||||||
| Net operating revenues before provision for doubtful accounts | $ | 20,613 | ||||||||||||||||||||
| Less: Provision for doubtful accounts | 1,434 | |||||||||||||||||||||
| Net operating revenues | $ | 18,313 | 100.0 | % | 19,179 | 100.0 | % | (4.5 | )% | |||||||||||||
| Equity in earnings of unconsolidated affiliates | 150 | 0.8 | % | 144 | 0.8 | % | 4.2 | % | ||||||||||||||
| Operating expenses: | ||||||||||||||||||||||
| Salaries, wages and benefits | 8,634 | 47.1 | % | 9,274 | 48.4 | % | (6.9 | )% | ||||||||||||||
| Supplies | 3,004 | 16.4 | % | 3,085 | 16.1 | % | (2.6 | )% | ||||||||||||||
| Other operating expenses, net | 4,259 | 23.3 | % | 4,570 | 23.8 | % | (6.8 | )% | ||||||||||||||
| Electronic health record incentives | (3 | ) | — | % | (9 | ) | — | % | (66.7 | )% | ||||||||||||
| Depreciation and amortization | 802 | 4.4 | % | 870 | 4.5 | % | ||||||||||||||||
| Impairment and restructuring charges, and acquisition-related costs | 209 | 1.1 | % | 541 | 2.8 | % | ||||||||||||||||
| Litigation and investigation costs | 38 | 0.2 | % | 23 | 0.1 | % | ||||||||||||||||
| Net gains on sales, consolidation and deconsolidation of facilities | (127 | ) | (0.7 | )% | (144 | ) | (0.7 | )% | ||||||||||||||
| Operating income | 1,647 | 9.0 | % | 1,113 | 5.8 | % | ||||||||||||||||
| Interest expense | (1,004 | ) | (1,028 | ) | ||||||||||||||||||
| Other non-operating expense, net | (5 | ) | (22 | ) | ||||||||||||||||||
| Gain (loss) from early extinguishment of debt | 1 | (164 | ) | |||||||||||||||||||
| Income (loss) from continuing operations, before income taxes | 639 | (101 | ) | |||||||||||||||||||
| Income tax expense | (176 | ) | (219 | ) | ||||||||||||||||||
| Income (loss) from continuing operations, before discontinued operations | 463 | (320 | ) | |||||||||||||||||||
| Discontinued operations: | ||||||||||||||||||||||
| Income (loss) from operations | 4 | — | ||||||||||||||||||||
| Income tax benefit (expense) | (1 | ) | — | |||||||||||||||||||
| Income (loss) from discontinued operations | 3 | — | ||||||||||||||||||||
| Net income (loss) | 466 | (320 | ) | |||||||||||||||||||
| Less: Net income available to noncontrolling interests | 355 | 384 | ||||||||||||||||||||
| Net income available (loss attributable) to Tenet Healthcare Corporation common shareholders | $ | 111 | $ | (704 | ) | |||||||||||||||||
| Amounts available (attributable) to Tenet Healthcare Corporation common shareholders | ||||||||||||||||||||||
| Income (loss) from continuing operations, net of tax | $ | 108 | $ | (704 | ) | |||||||||||||||||
| Income (loss) from discontinued operations, net of tax | 3 | — | ||||||||||||||||||||
| Net income available (loss attributable) to Tenet Healthcare Corporation common shareholders | $ | 111 | $ | (704 | ) | |||||||||||||||||
| Earnings (loss) per share attributable to Tenet Healthcare Corporation common shareholders: | ||||||||||||||||||||||
| Basic | ||||||||||||||||||||||
| Continuing operations | $ | 1.06 | $ | (7.00 | ) | |||||||||||||||||
| Discontinued operations | 0.03 | — | ||||||||||||||||||||
| $ | 1.09 | $ | (7.00 | ) | ||||||||||||||||||
| Diluted | ||||||||||||||||||||||
| Continuing operations | $ | 1.04 | $ | (7.00 | ) | |||||||||||||||||
| Discontinued operations | 0.03 | — | ||||||||||||||||||||
| $ | 1.07 | $ | (7.00 | ) | ||||||||||||||||||
| Weighted average shares and dilutive securities outstanding (in thousands): | ||||||||||||||||||||||
| Basic | 102,110 | 100,592 | ||||||||||||||||||||
| Diluted* | 103,881 | 100,592 | ||||||||||||||||||||
| * | Had we generated income from continuing operations in the twelve months ended December 31, 2017, the effect of employee stock options, restricted stock units and deferred compensation units on the diluted shares calculation would have been an increase of 788 thousand shares. | |
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TENET HEALTHCARE CORPORATION CONSOLIDATED BALANCE SHEETS (Unaudited) |
||||||||||
| December 31, | December 31, | |||||||||
| (Dollars in millions) | 2018 | 2017 | ||||||||
| ASSETS | ||||||||||
| Current assets: | ||||||||||
| Cash and cash equivalents | $ | 411 | $ | 611 | ||||||
| Accounts receivable, less allowance for doubtful accounts | 2,595 | 2,616 | ||||||||
| Inventories of supplies, at cost | 305 | 289 | ||||||||
| Income tax receivable | 21 | 5 | ||||||||
| Assets held for sale | 107 | 1,017 | ||||||||
| Other current assets | 1,197 | 1,035 | ||||||||
| Total current assets | 4,636 | 5,573 | ||||||||
| Investments and other assets | 1,456 | 1,543 | ||||||||
| Deferred income taxes | 312 | 455 | ||||||||
| Property and equipment, at cost, less accumulated depreciation and amortization | 6,993 | 7,030 | ||||||||
| Goodwill | 7,281 | 7,018 | ||||||||
| Other intangible assets, at cost, less accumulated amortization | 1,731 | 1,766 | ||||||||
| Total assets | $ | 22,409 | $ | 23,385 | ||||||
| LIABILITIES AND EQUITY | ||||||||||
| Current liabilities: | ||||||||||
| Current portion of long-term debt | $ | 182 | $ | 146 | ||||||
| Accounts payable | 1,207 | 1,175 | ||||||||
| Accrued compensation and benefits | 838 | 848 | ||||||||
| Professional and general liability reserves | 216 | 200 | ||||||||
| Accrued interest payable | 240 | 256 | ||||||||
| Liabilities held for sale | 43 | 480 | ||||||||
| Other current liabilities | 1,131 | 1,227 | ||||||||
| Total current liabilities | 3,857 | 4,332 | ||||||||
| Long-term debt, net of current portion | 14,644 | 14,791 | ||||||||
| Professional and general liability reserves | 666 | 654 | ||||||||
| Defined benefit plan obligations | 521 | 536 | ||||||||
| Deferred income taxes | 36 | 36 | ||||||||
| Other long-term liabilities | 578 | 631 | ||||||||
| Total liabilities | 20,302 | 20,980 | ||||||||
| Commitments and contingencies | ||||||||||
| Redeemable noncontrolling interests in equity of consolidated subsidiaries | 1,420 | 1,866 | ||||||||
| Equity: | ||||||||||
| Shareholders’ equity: | ||||||||||
| Common stock | 7 | 7 | ||||||||
| Additional paid-in capital | 4,747 | 4,859 | ||||||||
| Accumulated other comprehensive loss | (223 | ) | (204 | ) | ||||||
| Accumulated deficit | (2,236 | ) | (2,390 | ) | ||||||
| Common stock in treasury, at cost | (2,414 | ) | (2,419 | ) | ||||||
| Total shareholders’ deficit | (119 | ) | (147 | ) | ||||||
| Noncontrolling interests | 806 | 686 | ||||||||
| Total equity | 687 | 539 | ||||||||
| Total liabilities and equity | $ | 22,409 | $ | 23,385 | ||||||
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TENET HEALTHCARE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited) |
||||||||||
| Years Ended | ||||||||||
| (Dollars in millions) | December 31, | |||||||||
| 2018 | 2017 | |||||||||
| Net income (loss) | $ | 466 | $ | (320 | ) | |||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||
| Depreciation and amortization | 802 | 870 | ||||||||
| Provision for doubtful accounts | — | 1,434 | ||||||||
| Deferred income tax expense | 150 | 200 | ||||||||
| Stock-based compensation expense | 46 | 59 | ||||||||
| Impairment and restructuring charges, and acquisition-related costs | 209 | 541 | ||||||||
| Litigation and investigation costs | ||||||||||