Tenet Reports Second Quarter 2021 Results; Raises 2021 Financial Guidance

Net income from continuing operations available to common shareholders in Q2’21 of $120 million versus net income from continuing operations of $88 million in Q2’20

Consolidated Adjusted EBITDA in Q2’21 of $834 million ($810 million excluding $24 million of COVID stimulus grant income) versus $732 million in Q2’20 ($209 million excluding $523 million of grant income)

Diluted earnings per share from continuing operations available to common shareholders in Q2’21 of $1.11 compared to $0.83 in Q2’20; Adjusted diluted earnings per share from continuing operations of $1.59 in Q2’21 compared to $1.26 in Q2’20

Same-hospital adjusted admissions increased 23.9% versus Q2’20; same-hospital net patient service revenue per adjusted admission up 7.4%

Same-facility system-wide ambulatory surgical cases up 68.2% versus Q2’20

Q2’21 achievements included:
- Signed definitive agreement to sell certain Miami-area facilities for ~$1.1 billion
- Refinanced ~$1.4 billion of 5.125% secured notes due 2025 with new 4.25% secured notes due 2029 lowering future annual cash interest payments by ~$13 million
- Completed previously announced divestiture of urgent care platform for $80 million

FY 2021 Outlook again increased in light of continued growth and operational improvements as well as grant income:
- Net income from continuing operations available to common shareholders Outlook range now $6.25 to $7.17 per diluted share (previously $2.98 to $4.69 per diluted share); Current Outlook includes anticipated pre-tax gain of $400 million ($269 million after-tax, or $2.47 per diluted share) associated with the anticipated divestiture of our Miami-area hospitals in Q3’21
- Adjusted EBITDA Outlook range now $3.150 billion to $3.250 billion (previously $3.000 billion to $3.200 billion), which excludes the projected gain on the sale of the Miami-area hospitals
- Adjusted diluted earnings per share Outlook range now $5.23 to $5.73 (previously $4.12 to $5.46 per diluted share)

DALLAS–(BUSINESS WIRE)–Tenet Healthcare Corporation (Tenet) (NYSE: THC) today announced its results for the quarter ended June 30, 2021 (Q2’21). Tenet’s results for Q2’21 versus the quarter ended June 30, 2020 (Q2’20) and for the six months ended June 30, 2021 (YTD Q2’21) versus the six months ended June 30, 2020 (YTD Q2’20) are as follows:

($ in millions, except per share results)	Q2’21	Q2’20	YTD Q2’21	YTD Q2’20
Net income from continuing operations available to Tenet common shareholders	$120	$88	$217	$182
Net income from continuing operations available to Tenet common shareholders per diluted share	$1.11	$0.83	$2.00	$1.72
Adjusted EBITDA excluding grant income	$810	$209	$1,550	$794
Adjusted EBITDA	$834	$732	$1,611	$1,317
Adjusted diluted earnings per share from continuing operations	$1.59	$1.26	$2.89	$2.54
The table above as well as tables and discussions throughout this earnings release include certain financial measures that are not in accordance with accounting principles generally accepted in the United States of America (GAAP). Reconciliations of GAAP measures to the Adjusted (non-GAAP) measures used are detailed in Tables #1-3 included at the end of this earnings release. Management’s reasoning for the use of these non-GAAP measures and descriptions of the various non-GAAP measures are included in the Non-GAAP Financial Measures section of this earnings release.

“Our second quarter results continue to reflect our long-term strategy and transformation progress, resulting in our ability to adapt and perform on a consistent and sustainable trajectory,” said Ron Rittenmeyer, Executive Chairman and CEO. “We continued to focus our efforts on the expansion of healthcare access in alignment with community need, including investments in high-acuity service lines for patients with chronic conditions and the addition of lower cost ambulatory settings in key locations around the country. We also took steps to further evolve our portfolio and operating model by exiting our urgent care business and entering into an agreement to divest our Miami-area hospital operations, which we anticipate will be completed during the third quarter.”

Rittenmeyer continued, “The cornerstone of our strategy remains our commitment to our four pillars of compliance, quality, service and safety. These have created a strong foundation which we have used to execute the transformational strategy resulting in this continued performance trajectory. And, as with prior quarters, we remain vigilant with COVID-safety protocols and continue to add highly qualified, skilled physicians to our medical staffs, both in our hospitals and ambulatory facilities, as we work to more closely support service line needs in each community we serve. The state of the enterprise today reflects our continuous effort to foster top-quality environments for our patients and the communities we serve, as well as our dedicated professionals, whose continued commitment and hard work is carried out at every corner of the organization.”

COVID-19 Pandemic (COVID)

As previously disclosed, the Company has been experiencing operational and financial challenges associated with COVID. Tenet continues to manage COVID and its impact on operations. COVID cases have come down from peak levels in January 2021 with the roll-out of vaccinations.

Tenet remains committed to the highest standards of safety, with protocols focused on the protection of its patients and employees, including the distribution of COVID vaccines to its caregivers and the public at large. Operational teams monitor real-time data to ensure sufficient staffing, intensive care unit bed capacity and personal protective equipment (PPE). Outpatient facilities are also safely performing elective procedures, and the Company’s hospitals and ambulatory platform continue to follow all state and local guidelines concerning elective care.

The Company’s dedicated focus on strategic cost reduction measures and corporate efficiencies continue to partially mitigate the impact of COVID, including the impact of lost revenues and higher costs related to the pandemic.

Results from Continuing Operations Available to Tenet Common Shareholders

Net income from continuing operations available to the Company’s common shareholders in Q2’21 was $120 million, or $1.11 per diluted share, versus net income from continuing operations of $88 million, or $0.83 per diluted share, in Q2’20. Q2’21 included COVID-related stimulus grant income of $24 million pre-tax ($18 million after-tax, or $0.17 per diluted share) versus $523 million of pre-tax grant income in Q2’20 ($380 million after-tax or $3.60 per diluted share).
For YTD Q2’21, the income from continuing operations available to the Company’s common shareholders was $217 million, or $2.00 per diluted share, compared to $182 million, or $1.72 per diluted share, for YTD Q2’20. YTD Q2’21 included COVID-related stimulus grant income of $61 million pre-tax ($46 million after-tax, or $0.43 per diluted share) compared to pre-tax grant income of $523 million in YTD Q2’20 ($380 million after-tax, or $3.60 per diluted share). YTD Q2’20 included a favorable income tax benefit of $88 million ($0.83 per diluted share), substantially all recorded in the first quarter of 2020, related to an increase in the deductibility of interest expense for income tax purposes as a result of the Coronavirus Aid, Relief and Economic Security (CARES) Act.

Adjusted Net Income from Continuing Operations Available to Tenet Common Shareholders

Reconciliations of net income available to Tenet common shareholders to Adjusted net income from continuing operations available to Tenet’s common shareholders are contained in Table #1 at the end of this release.

Tenet’s Q2’21 Adjusted net income from continuing operations available to its common shareholders was $173 million, or $1.59 per diluted share, compared to $133 million, or $1.26 per diluted share, in Q2’20.
Tenet’s YTD Q2’21 Adjusted net income from continuing operations available to its common shareholders was $313 million, or $2.89 per diluted share, compared to $268 million, or $2.54 per diluted share, in YTD Q2’20.

Adjusted EBITDA

Reconciliations of net income available to Tenet common shareholders to Adjusted EBITDA are contained in Table #2 at the end of this release.

Adjusted EBITDA in Q2’21 was $834 million ($810 million excluding $24 million of grant income) compared to $732 million in Q2’20 ($209 million excluding $523 million of grant income).
For YTD Q2’21, Adjusted EBITDA was $1.611 billion ($1.550 billion excluding $61 million of grant income) compared to $1.317 billion in YTD Q2’20 ($794 million excluding $523 million of grant income).

Q2’21 Events

On June 16, 2021, the Company announced it had signed a definitive agreement to sell five hospitals and related hospital operations in the Miami-Dade and Southern Broward counties of Florida to Steward Health Care, LLC (Steward). The company’s ambulatory facilities operated by United Surgical Partners International (USPI) in these counties will remain with Tenet. The Company’s Conifer Health Solutions subsidiary will continue to provide revenue cycle management services to the five hospitals following completion of the transaction, which is anticipated to close in the third quarter of 2021.
On May 18, 2021, the Company announced a private placement of $1.400 billion in aggregate principal amount of newly issued 4.250% senior secured first lien notes maturing in 2029. The Company used the net proceeds from the sale of the notes, after payment of fees and expenses, to finance, together with cash on hand, the redemption of all of its outstanding 5.125% $1.410 billion senior secured second lien notes due 2025, which will lower future annual cash interest payments by approximately $13 million.
On April 30, 2021, the Company completed the previously announced sale of its urgent care platform to FastMed for $80 million. The transaction included the sale of 87 CareSpot and MedPost centers, which were previously managed by Tenet’s USPI subsidiary.

Hospital Operations and Other (Hospital) Segment Results

Tenet’s Hospital business segment is primarily comprised of acute care and specialty hospitals, ancillary outpatient facilities, micro-hospitals, imaging centers and physician practices. Effective April 1, 2021, the Company’s imaging centers that were previously operated under USPI were realigned under the Hospital segment.

*Hospital segment results* ($ in millions)	Q2’21	Q2’20	YTD Q2’21	YTD Q2’20
Revenues
Net operating revenues	$4,095	$3,088	$8,042	$6,922
Grant income	$4	$474	$28	$474
Same-hospital net patient service revenues (a)	$3,749	$2,816	$7,381	$6,334
Same-Hospital Volume Changes versus the Prior-Year Period (a)
Admissions	13.7%	(20.3)%	0.1 %	(12.3)%
Adjusted admissions (b)	23.9%	(27.3)%	2.6 %	(16.0)%
Outpatient visits (including outpatient ER visits)	70.6%	(41.9)%	19.1 %	(23.1)%
Emergency Room visits (inpatient and outpatient)	35.0%	(35.9)%	(2.4)%	(18.6)%
Hospital surgeries	37.0%	(30.2)%	13.0 %	(18.7)%
Adjusted EBITDA
Adjusted EBITDA excluding grant income	$445	$18	$855	$360
Adjusted EBITDA	$449	$492	$883	$834

(a)

Same-hospital revenues and statistical data include those for hospitals and hospital-affiliated outpatient centers operated by the Company’s Hospital segment continuously from January 1, 2020 through June 30, 2021. Amounts associated with physician practices are excluded. With the exception of the historical percentage changes presented for Q2’20 and YTD Q2’20, prior period revenues and statistics have been recast to reflect only the continuously operated facilities.

(b)

Adjusted admissions represent actual patient admissions adjusted to include outpatient services provided by facilities in our Hospital segment by multiplying actual patient admissions by the sum of gross inpatient revenues and outpatient revenues, then dividing that result by gross inpatient revenues.

Revenues and Volumes

Net operating revenues (which exclude grant income) in the Hospital segment were $4.095 billion in Q2’21, growth of 32.6 percent from $3.088 billion in Q2’20. The increase in revenues was primarily due to significantly higher volumes given the impact of the pandemic in Q2’20, as well as high patient acuity and pricing yield.
Same-hospital net patient service revenues were $3.749 billion in Q2’21, growth of 33.1 percent from $2.816 billion in Q2’20.
Same-hospital net patient service revenue per adjusted admission increased 7.4 percent year-over-year for Q2’21 primarily reflecting continued high patient acuity.

Operating Expenses

Total selected operating expenses in the segment in Q2’21 increased 19.6 percent, or $578 million, from Q2’20 as volume levels rebounded from the onset of the pandemic in the prior year. Selected operating expenses include salaries, wages and benefits, supplies and other operating expenses.

Adjusted EBITDA

Adjusted EBITDA in the segment was $449 million in Q2’21 ($445 million excluding $4 million of grant income) compared to $492 million in Q2’20 ($18 million excluding $474 million of grant income). The Adjusted EBITDA margin excluding grant income was 10.9 percent in Q2’21 compared to 0.6 percent in Q2’20.

Ambulatory Care (Ambulatory) Segment Results

Tenet’s Ambulatory business segment is comprised of the operations of USPI. As of June 30, 2021, USPI had interests in 317 ambulatory surgery centers and 24 surgical hospitals in 31 states. Results for Q2’20, YTD Q2’20 and YTD Q2’21 included USPI’s imaging centers (realigned under the Hospital segment as of April 1, 2021) and its urgent care centers (sold in April 2021). The Company owns 95 percent of USPI.

*Ambulatory segment results* ($ in millions)	Q2’21	Q2’20	YTD Q2’21	YTD Q2’20
Revenues
Net operating revenues	$664	$368	$1,310	$858
Grant income excluding equity earnings impact	$15	$37	$22	$37
Grant income in equity earnings	$5	$12	$11	$12
Same-facility system-wide net patient service revenues (c)	$1,333	$888	$2,527	$2,008
Volume Changes versus the Prior-Year Period
Same-facility system-wide surgical cases (c)(d)	68.2%	(41.6)%	29.1%	(25.7)%
Same-facility system-wide surgical cases on same-business day basis (c)(d)	68.2%	(41.6)%	30.1%	(26.3)%
Adjusted EBITDA and NCI
Adjusted EBITDA excluding grant income	$275	$118	$519	$274
Adjusted EBITDA	$295	$167	$552	$323
Adjusted EBITDA less facility-level NCI excluding grant income	$176	$78	$336	$178
Adjusted EBITDA less facility-level NCI	$187	$106	$356	$206
Adjusted EBITDA less total NCI excluding grant income	$172	$77	$328	$176
Adjusted EBITDA less total NCI	$182	$104	$347	$203

(c)

Same-facility system-wide revenues and statistical information include the results of the facilities in which the Ambulatory segment has an investment that are not consolidated by Tenet (of the 341 facilities at June 30, 2021, the results of 109 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. Prior-period amounts for acquired facilities are included in analyses of same-facility system-wide growth rates.

(d)

Includes volume changes for SurgCenter Development (SCD) facilities acquired in December 2020.

Revenues and Volumes

The Ambulatory segment produced net operating revenues of $664 million in Q2’21, an increase of 80.4 percent compared to $368 million in Q2’20 primarily reflecting significantly higher volumes given the impact of the pandemic in Q2’20, higher patient acuity, new service line growth and additional revenues associated with the SCD portfolio acquisition completed in December 2020, partially offset by the sale of the urgent care centers and the realignment of the imaging centers under the Company’s Hospital segment in Q2’21.
Surgical business same-facility system-wide net operating revenues increased 50.1 percent in Q2’21 compared to Q2’20, with cases up 68.2 percent and revenue per case down 10.7 percent. The decline in revenue per case reflects lower acuity cases being deferred in Q2’20 in light of the pandemic.

Adjusted EBITDA

Segment Adjusted EBITDA of $295 million in Q2’21 ($275 million excluding $20 million of grant income) compared to $167 million in Q2’20 ($118 million excluding $49 million of grant income).
Adjusted EBITDA less facility-level noncontrolling interest (NCI) in Q2’21 was $187 million ($176 million excluding grant income) compared to $106 million in Q2’20 ($78 million excluding grant income).

Conifer Segment Results

Tenet’s Conifer business segment provides comprehensive end-to-end and focused-point business process services, including hospital and physician revenue cycle management, patient communications and engagement support and value-based care solutions to hospitals, healthcare systems, physician practices, employers and other clients.

The Company continues to work on spinning off its Conifer segment. This transaction is expected to both enhance shareholder value and reduce the level of Tenet’s debt through a tax-free debt-for-debt exchange.

*Conifer segment results ($ in millions)*	Q2’21	Q2’20	YTD Q2’21	YTD Q2’20
Net operating revenues	$319	$305	$629	$637
Adjusted EBITDA	$90	$73	$176	$160

Revenues

During Q2’21, Conifer segment revenues increased 4.6 percent to $319 million, from $305 million in Q2’20, primarily due to client volume improvement versus the prior year and business expansions, partially offset by the previously disclosed revised terms associated with its contract with Tenet hospitals.

Adjusted EBITDA

Conifer generated $90 million of Adjusted EBITDA in Q2’21, up 23.3 percent compared to $73 million in Q2’20. Conifer’s Adjusted EBITDA margin increased to 28.2 percent in Q2’21 compared to 23.9 percent in Q2’20 primarily due to revenue growth and continuing expense discipline.

Balance Sheet, Cash Flows and Liquidity

Balance Sheet Highlights

($ in millions)	June 30, 2021	March 31, 2021	December 31, 2020
Cash and cash equivalents	$2,194	$2,141	$2,446
Accounts receivable days outstanding	55.2	55.8	55.6
Line-of-credit borrowings outstanding	—	—	—
Ratio of net debt plus Medicare advances liability to Adjusted EBITDA (e)	4.17	4.37	4.70

(e) Net debt is total debt less cash and cash equivalents

Cash and cash equivalents at June 30, 2021 were $252 million lower than December 31, 2020 reflecting the Company’s early retirement of $478 million of 7 percent debt in the first quarter of 2021.
In 2020, the Company received approximately $1.5 billion of Medicare advance payments from the Centers for Medicare and Medicaid Services (CMS). Repayment terms for the Medicare advance payments begin 12 months from the provider’s receipt of the advance payments. An interest rate of 4.0 percent will be assessed on any outstanding balances 29 months from the initial advance. The Company began repaying these advance payments in Q2’21 (with approximately $164 million repaid in the quarter) and expects to fully repay the advances before interest starts to accrue in September 2022.
The Company had no outstanding borrowings on its $1.9 billion line of credit as of June 30, 2021. In April 2021, the Company renewed an additional one-year commitment to continue to increase the borrowing capacity from $1.5 billion to $1.9 billion.
The Company’s ratio of net debt plus the Medicare advances liability to Adjusted EBITDA was 4.17x at June 30, 2021 compared to 4.37x at March 31, 2021 and 4.70x at December 31, 2020.

Cash flows and liquidity

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.

($ in millions)	Q2’21	Q2’20	YTD Q2’21	YTD Q2’20
Net cash provided by operating activities	$245	$2,239	$779	$2,368
Capital expenditures	$(122)	$(106)	$(243)	$(288)
Free cash flow	$123	$2,133	$536	$2,080
Adjusted free cash flow	$157	$2,179	$621	$2,194
Net cash used in investing activities	$(50)	$(85)	$(195)	$(289)
Net cash provided by (used in) financing activities	$(142)	$747	$(836)	$1,173

The Company produced positive free cash flow of $123 million in Q2’21 and $536 million YTD Q2’21. Free cash flow in the 2020 periods included approximately $2.052 billion of Medicare advance payments and grant funds associated with pandemic stimulus legislation.

Company Outlook

Reconciliations of Outlook net income available to Tenet common shareholders to Outlook Adjusted EBITDA for the year ending December 31, 2021 (FY 2021) and the quarter ending September 30, 2021 (Q3’21) are contained in Table #4 at the end of this release.
Reconciliations of Outlook net income available to Tenet common shareholders to Outlook Adjusted net income from continuing operations to common shareholders for FY 2021 and Q3’21 are contained in Table #5 at the end of this release.
Reconciliations of Outlook net cash provided by operating activities to Outlook free cash flow and Outlook Adjusted free cash flow from continuing operations for FY 2021 are contained in Table #6 at the end of this release.

Tenet’s Outlook for FY 2021 and Q3’21 on a consolidated basis and by segment follows:

*CONSOLIDATED* ($ in millions except per share amounts)	FY 2021 Outlook ^(g)	Q3’21 Outlook ^(g)
Net operating revenues	$19,250 to $19,650	$4,600 to $4,800
Net income from continuing operations available to Tenet common stockholders	$681 to $781	$335 to $375
Adjusted EBITDA	$3,150 to $3,250	$700 to $750
Adjusted EBITDA margin	16.4% to 16.5%	15.2% to 15.6%
Diluted income per common share from continuing operations	$6.25 to $7.17	$3.07 to $3.44
Adjusted net income from continuing operations	$570 to $625	$80 to $115
Adjusted diluted earnings per share from continuing operations	$5.23 to $5.73	$0.73 to $1.06
Equity in earnings of unconsolidated affiliates	$210 to $230	$45 to $55
Depreciation and amortization	$850 to $870	$205 to $215
Interest expense	$935 to $945	$225 to $235
Net income available to NCI	$565 to $585	$135 to $145
Weighted average diluted common shares	~109 million	~109 million
NCI cash distributions	$460 to $480
Effective tax rate (f)	~17%
Net cash provided by operating activities	$1,150 to $1,450
Adjusted net cash provided by operating activities	$1,300 to $1,550
Capital expenditures	$700 to $750
Adjusted free cash flow	$600 to $800

(f)

The effective tax rate is calculated as income tax expense divided by the adjusted pretax income. Income tax expense is calculated by multiplying 24% (the federal corporate tax rate of 21% plus an estimate of state taxes) by the sum of: adjusted pretax income less GAAP NCI expense plus permanent differences, non-deductible interest expense and non-cash NCI expense related to the portion of USPI the Company does not own.

(g)

Guidance assumes completion of the pending sale of Miami-area facilities to Steward during Q3’21.

*Hospital Segment* ($ in millions)	FY 2021 Outlook ^(g)
Net operating revenues	$15,805 to $16,075
Adjusted EBITDA	$1,575 to $1,645
NCI	$35 to $40
Changes versus FY 2020 (h):
Inpatient admissions	Flat to up 3%
Outpatient visits	Up 13% to 17%
Adjusted admissions	Up 2% to 5%

*Ambulatory Segment* ($ in millions)	FY 2021 Outlook
Net operating revenues	$2,700 to $2,800
Adjusted EBITDA	$1,225 to $1,245
Total NCI (Facility level and Baylor University Medical Center)	$470 to $480
Adjusted EBITDA less total NCI	$755 to $765
Changes versus FY 2020 (h):
Surgical cases volumes	Up 15% to 20%
Net revenues per surgical case	(2.5%) to 2.5%

*Conifer Segment* ($ in millions)	FY 2021 Outlook
Net operating revenues	$1,270 to $1,300
Adjusted EBITDA	$350 to $360
NCI	$60 to $65

(h) Same-hospital basis for hospital statistics; USPI surgical cases on a same-facility system-wide basis