Tenet Reports Fourth Quarter and FY 2023 Results; Provides 2024 Financial Outlook

• Net income from continuing operations available to common shareholders in fourth quarter 2023 was $244 million, or $2.30 per diluted share
• Adjusted diluted earnings per share from continuing operations¹ was $2.68 in fourth quarter 2023
• Consolidated Adjusted EBITDA¹ in fourth quarter 2023 of $1.012 billion increased 12.8% over fourth quarter 2022
• Fourth quarter 2023 Ambulatory Care Adjusted EBITDA of $464 million increased 14.0% over fourth quarter 2022
• Same-facility system-wide ambulatory surgical cases increased 3.9% versus fourth quarter 2022; Same-hospital admissions increased 1.0% versus fourth quarter 2022, with non-Covid admissions up 2.6%
• FY 2024 Adjusted EBITDA Outlook is expected to be in the range of $3.285 billion to $3.485 billion and reflects the closing of the South Carolina hospital sale as of January 31, 2024 and assumes the closing of the California hospital sale on March 31, 2024

Tenet Healthcare Corporation (Tenet) (NYSE: THC) today announced its results for the quarter and year ended December 31, 2023.

"Our businesses performed exceptionally well in 2023, driven by strong same facility revenue growth and disciplined operating management," said Saum Sutaria, M.D., Chairman and Chief Executive Officer of Tenet. "We carry momentum into 2024 and are focused on continuing to expand access to care and investing in cutting edge technology for our patients and physician partners, while strategically reducing our debt and growing our ambulatory care and hospital businesses."

Tenet’s results for fourth quarter 2023 versus fourth quarter 2022 are as follows:

• Net income from continuing operations available to the Company’s common shareholders in the fourth quarter 2023 was $244 million, or $2.30 per diluted share, versus $102 million, or $0.92 per diluted share, in fourth quarter 2022.
• Fourth quarter 2023 included COVID-related stimulus grant income of $2 million pre-tax ($2 million after-tax, or $0.02 per diluted share) versus $40 million pre-tax ($30 million after-tax, or $0.28 per diluted share) in fourth quarter 2022.
• The Company recognized additional income tax expense for the three and twelve months ended December 31, 2023 of approximately $15 million, or $0.14 per diluted share, and $73 million, or $0.70 per diluted share, respectively, as a result of interest expense limitations. During 2022, the Company recognized additional income tax expense for the three and twelve months ended December 31, 2022 of approximately $7 million, or $0.07 per diluted share, and $123 million, or $1.11 per diluted share, respectively, as a result of interest expense limitations.
• Adjusted EBITDA¹ excluding grant income in fourth quarter 2023 was $1.010 billion compared to $857 million in fourth quarter 2022, reflecting strong volume growth in our Ambulatory Care and Hospital Operations segments, favorable payer mix, as well as improved contract labor costs. Additionally, in the fourth quarter of 2023, the Company recognized a $52 million aggregate favorable pre-tax impact associated with Medicaid supplemental revenue program adjustments in California and Texas.

Balance Sheet and Cash Flows

• Cash flows provided by operating activities for the year ended December 31, 2023 were $2.374 billion versus $1.083 billion for the year ended December 31, 2022 (or $2.091 billion excluding $880 million of repayments associated with Medicare advances and $128 million of payroll tax deferrals from FY 2020).
• The Company produced free cash flow¹ of $1.623 billion for the year ended December 31, 2023 versus $321 million for the year ended December 31, 2022 (or $1.329 billion excluding repayments of Medicare advances and deferred payroll tax payments).
• In the three months ended December 31, 2023, the Company repurchased 1,626,208 shares of common stock for $110 million. In the year ended December 31, 2023, the Company repurchased 3,112,191 shares of common stock for $200 million.
• The Company’s ratio of net debt to Adjusted EBITDA¹ was 3.89x at December 31, 2023 compared to 4.10x at December 31, 2022.

Recent Transactions

• On February 1, 2024, the Company announced the completion of the sale of three hospitals and related operations in South Carolina to Novant Health for approximately $2.4 billion (approximately $1.75 billion after-tax).
• On February 1, 2024, the Company announced it had signed a definitive agreement to sell four hospitals and related operations in Orange County and Los Angeles County, California to UCI Health for approximately $975 million (approximately $800 million after-tax). The transaction is expected to be completed in the spring of 2024, subject to customary regulatory approvals, clearances, and closing conditions.
• The Company estimates that as a result of the pre-tax book gains from these two transactions, the Company's income tax expense would be favorably impacted in 2024 by approximately $190 million due to a reduction in interest expense limitations.

Ambulatory Care (Ambulatory) Segment

Tenet’s Ambulatory business segment is comprised of the operations of United Surgical Partners International (USPI). As of December 31, 2023, USPI had interests in 461 ambulatory surgery centers (322 consolidated) and 24 surgical hospitals (eight consolidated) in 35 states. For all periods prior to June 30, 2022, the Company owned 95% of the voting stock of USPI and now owns 100%.

• Fourth quarter 2023 net operating revenues increased 15.4% compared to fourth quarter 2022 driven by strong same-facility net surgical case growth, acquisitions and opening of de novo facilities, service line growth and improved pricing yield.
• Surgical business same-facility system-wide net patient service revenues increased 9.5% in fourth quarter 2023 compared to fourth quarter 2022, with cases up 3.9% and net revenue per case up 5.4%. The Company believes this strong volume growth is due in part to patient care deferred as a result of the pandemic.
• Fourth quarter 2023 Adjusted EBITDA increased 14.0% relative to fourth quarter 2022, due to strong same-facility system-wide surgical case growth, contributions from acquisitions and de novo facilities, and improved pricing yield.

Hospital Operations and Services (Hospital) Segment

Tenet’s Hospital business segment is primarily comprised of acute care and specialty hospitals, imaging centers, ancillary outpatient facilities, micro-hospitals and physician practices. It also provides comprehensive end-to-end and focused point services, including hospital and physician revenue cycle management, patient communications and engagement support and value-based care solutions. We have combined Conifer with the former Hospital Segment and all prior periods have been revised for this change.

• Fourth quarter 2023 net operating revenues increased 6.0% from fourth quarter 2022 primarily due to increased adjusted admissions, favorable payer mix, and improved pricing yield.
• Same-hospital net patient service revenue per adjusted admission increased 6.5% year-over-year for fourth quarter 2023 primarily due to improved pricing yield and our focus on growing higher acuity services. Fourth quarter non-COVID inpatient admissions increased 2.6% over fourth quarter 2022.
• Adjusted EBITDA excluding grant income in fourth quarter 2023 was $546 million compared to $450 million in fourth quarter 2022, reflecting strong non-COVID adjusted admissions growth, favorable payer mix and improved contract labor costs, partially offset by higher other operating expenses. Additionally, in the fourth quarter of 2023, the Company recognized a $52 million aggregate favorable pre-tax impact associated with Medicaid supplemental revenue program adjustments in California and Texas.

2024 Outlook¹

Tenet’s Outlook for full year 2024 (consolidated and by segment) and first quarter 2024 follows. This outlook reflects the completion of the sale of our Coastal South Carolina hospitals on January 31, 2024 and assumes that the sale of our four California hospitals will be completed on March 31, 2024.

Management’s Webcast Discussion of Results

Tenet management will discuss the Company’s fourth quarter 2023 results in a webcast scheduled for 10:00 a.m. Eastern Time (9:00 a.m. Central Time) on February 8, 2024. Investors can access the webcast through the Company’s website at www.tenethealth.com/investors.

The slide presentation associated with the webcast referenced above, a copy of this earnings press release, and a related supplemental financial disclosures document will be available on the Company’s Investor Relations website on February 8, 2024.

Cautionary Statement

This release contains “forward-looking statements” - that is, statements that relate to future, not past, events. In this context, forward-looking statements often address the Company’s 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 the Company’s actual results to be materially different than those expressed in the Company’s 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, 2022 and other filings with the Securities and Exchange Commission.

Footnotes

1. Tables and discussions throughout this earnings release include certain financial measures, including those related to our first quarter and full year 2024 Outlook, 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 #1-6 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.
2. 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. 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.
3. For 2023, 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, 2022 through December 31, 2023. Amounts associated with physician practices are excluded.
4. 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.
5. 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: pretax income less GAAP facility level NCI expense plus permanent differences, and non-deductible interest expense.
6. For 2024, Outlook for net cash provided by operating activities, Adjusted net cash provided by operating activities, Free cash flow - continuing operations and Adjusted free cash flow - continuing operations include an estimated $635 million of income tax payments associated with the gains on sale of the three hospitals and related operations in South Carolina and the four hospitals and related operations in California.
7. Change versus prior year is presented on a same-facility system-wide basis for USPI Ambulatory surgical cases and on a same-hospital basis for hospital statistics.

About Tenet Healthcare

Tenet Healthcare Corporation (NYSE: THC) is a diversified healthcare services company headquartered in Dallas. Our care delivery network includes United Surgical Partners International, the largest ambulatory platform in the country, which operates or has ownership interests in more than 480 ambulatory surgery centers and surgical hospitals. We also operate 58 acute care and specialty hospitals, approximately 160 other outpatient facilities, a network of leading employed physicians and a global business center in Manila, Philippines. Our Conifer Health Solutions subsidiary provides revenue cycle management and value-based care services to hospitals, health systems, physician practices, employers and other clients. Across the Tenet enterprise, we are united by our mission to deliver quality, compassionate care in the communities we serve. For more information, please visit www.tenethealth.com.

Non-GAAP Financial Measures

The Company believes the non-GAAP measures described below are useful to investors and analysts because they present additional information on the Company’s financial performance. Investors, analysts, Company management and the Company’s Board of Directors utilize these non-GAAP measures, in addition to GAAP measures, to track the Company’s financial and operating performance and compare the Company’s performance to its peer companies, which use similar non-GAAP financial measures in their presentations and earnings releases. The Human Resources Committee of the Company’s Board of Directors also uses certain of these measures to evaluate management’s performance for the purpose of determining incentive compensation. Additional information regarding the purpose and utility of specific non-GAAP measures used in this release is set forth below.

• Adjusted EBITDA is defined by the Company as net income available (loss attributable) to Tenet common shareholders before (1) the cumulative effect of changes in accounting principles, (2) net loss attributable (income available) to noncontrolling interests, (3) income (loss) from discontinued operations, net of tax, (4) income tax benefit (expense), (5) gain (loss) from early extinguishment of debt, (6) other non-operating income (expense), net, (7) interest expense, (8) litigation and investigation benefit (costs), net of insurance recoveries, (9) net gains (losses) on sales, consolidation and deconsolidation of facilities, (10) impairment and restructuring charges and acquisition-related costs, (11) depreciation and amortization and (12) income (loss) from divested and closed businesses (i.e., health plan businesses). Litigation and investigation costs excluded do not include ordinary course of business malpractice and other litigation and related expenses.
• Adjusted diluted earnings (loss) per share from continuing operations is defined by the Company as Adjusted net income available (loss attributable) from continuing operations to Tenet common shareholders, divided by the weighted average diluted shares outstanding in the reporting period.
• Adjusted net income available (loss attributable) from continuing operations to Tenet common shareholders is defined by the Company as net income available (loss attributable) to Tenet common shareholders before (1) income (loss) from discontinued operations, net of tax, (2) gain (loss) from early extinguishment of debt, (3) litigation and investigation benefit (costs), net of insurance recoveries, (4) net gains (losses) on sales, consolidation and deconsolidation of facilities, (5) impairment and restructuring charges and acquisition-related costs, (6) income (loss) from divested and closed businesses (i.e., health plan businesses) and (7) the associated impact of these items on taxes and noncontrolling interests. Litigation and investigation costs excluded do not include ordinary course of business malpractice and other litigation and related expenses.
• Free Cash Flow is defined by the Company as (1) net cash provided by (used in) operating activities, less (2) purchases of property and equipment for continuing operations.
• Adjusted Free Cash Flow is defined by the Company as (1) Adjusted net cash provided by (used in) operating activities from continuing operations, less (2) purchases of property and equipment from continuing operations.
• Adjusted net cash provided by (used in) operating activities is defined by the Company as cash provided by (used in) operating activities prior to (1) payments for restructuring charges, acquisition-related costs and litigation costs and settlements, and (2) net cash provided by (used in) operating activities from discontinued operations.

The Company believes that Adjusted EBITDA is a useful measure, in part, because certain investors and analysts use both historical and projected Adjusted EBITDA, in addition to other GAAP and non-GAAP measures, as factors in determining the estimated fair value of shares of the Company’s common stock. Company management also regularly reviews the Adjusted EBITDA performance for each operating segment. The Company does not use Adjusted EBITDA to measure liquidity, but instead to measure operating performance.

The Company uses, and believes investors use, Free Cash Flow and Adjusted Free Cash Flow as supplemental non-GAAP measures to analyze cash flows generated from the Company’s operations. The Company believes these measures are useful to investors in evaluating its ability to fund distributions paid to noncontrolling interests or for acquisitions, purchasing equity interests in joint ventures or repaying debt.

These non-GAAP measures may not be comparable to similarly titled measures reported by other companies. Because these measures exclude many items that are included in the Company’s financial statements, they do not provide a complete measure of the Company’s operating performance. For example, the Company’s definitions of Free Cash Flow and Adjusted Free Cash Flow do not include other important uses of cash including (1) cash used to purchase businesses or joint venture interests, or (2) any items that are classified as Cash Flows from Financing Activities on the Company’s Consolidated Statement of Cash Flows, including items such as (i) cash used to repay borrowings, or (ii) distributions paid to noncontrolling interests. Accordingly, investors are encouraged to use GAAP measures when evaluating the Company’s financial performance.

See corresponding reconciliations of the non-GAAP financial measures referred to above to the most comparable GAAP financial measures in Tables #1 - 6 below.