tenet healthcare Q208Slides_FINAL

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tenet healthcare Q208Slides_FINAL

  1. 1. Q2’08 Earnings Call August 5, 2008
  2. 2. Forward-Looking Statements Certain statements contained in this presentation constitute forward-looking statements. Such forward-looking statements are based on management's current expectations and involve known and unknown risks, uncertainties and other factors that may cause the Company’s actual results to be materially different from those expressed or implied by such forward-looking statements. Such factors include, among others, the following: general economic and business conditions, both nationally and regionally; industry capacity; demographic changes; changes in, or the failure to comply with, laws and governmental regulations; the ability to enter into managed care provider arrangements on acceptable terms; changes in Medicare and Medicaid payments or reimbursement, including those resulting from a shift from traditional reimbursement to managed care plans; liability and other claims asserted against the Company; competition, including the Company’s failure to attract patients to its hospitals; the loss of any significant customers; technological and pharmaceutical improvements that increase the cost of providing, or reduce the demand for, health care; a shortage of raw materials, a breakdown in the distribution process or other factors that may increase the Company’s cost of supplies; changes in business strategy or development plans; the ability to attract and retain qualified personnel, including physicians, nurses and other health care professionals, including the impact on the Company’s labor expenses resulting from a shortage of nurses or other health care professionals; the significant indebtedness of the Company; the availability of suitable acquisition opportunities and the length of time it takes to accomplish acquisitions; the Company's ability to integrate new businesses with its existing operations; and the availability and terms of capital to fund the expansion of the Company's business, including the acquisition of additional facilities. Certain additional risks and uncertainties are discussed in the Company’s filings with the Securities and Exchange Commission, including the Company’s annual report on Form 10-K and quarterly reports on Form 10-Q. Do not rely on any forward-looking statement, as we cannot predict or control many of the factors that ultimately may affect our ability to achieve the results estimated. We make no promise to update any forward-looking statement, whether as a result of changes in underlying factors, new information, future events or otherwise. Non-GAAP Information This document includes certain financial measures and statistics, including measures such as adjusted EBITDA, which are not calculated in accordance with Generally Accepted Accounting Principles (GAAP). Management recommends that you focus on the GAAP numbers as the best indicator of financial performance. These alternative measures are provided only as a supplement to aid in analysis of the Company. Reconciliation between non-GAAP measures and related GAAP measures can be found in our quarterly earnings release issued on August 5, 2008. 2
  3. 3. Trevor Fetter President and Chief Executive Officer
  4. 4. “Same-hospital” (1) vs. “Core same-hospital” (2) stats Core Growth rates are Q2’08 over Q2’07 Same-Hospital Same-Hospital Admissions growth (%) 1.9 2.2 Paying admissions growth (%) 1.8 2.2 Outpatient visit growth (%) (0.3) 0 Paying O/P visit growth (%) 0.4 0.6 Adjusted admissions growth (%) 2.8 3.2 Surgeries growth (%) 2.3 3.0 Commercial Admit growth (%) (2.2) (1.7) Commercial O/P visit growth (%) (1.8) (1.5) Commercial admit growth in 8 1.3 1.9 TGI service lines (%) Commercial revenue growth (%) 7.5 8.1 Adjusted EBITDA ($mm) 171 171 (1) Same-hospital excludes Coastal Carolina Medical Center and Sierra Providence East Medical Center (2) Core same-hospital also excludes Irvine Regional Hospital and Medical Center and Community Hospital of Los Gatos from same-hospital data 4
  5. 5. Growth strategies and performance improvement initiatives are working 2.2% growth in core, same-hospital admissions Extends recent admissions growth trends Strongest growth in four years 2.2% increase in paying admissions 0.6% increase in paying outpatient visits Commercial admissions declined by 1.7% (core, same-hospital) Over 90% of commercial decline in OB admissions, which is generally de- emphasized under TGI 1.9% increase in commercial admissions in eight primary TGI service lines (core, same-hospital) 3.2% increase in same-hospital controllable operating expense per adjusted patient day 2.6% increase on a core, same-hospital basis 3.0% increase in core, same-hospital surgeries 5
  6. 6. 2008 - 2009 Outlook updated only for USC sale California concentration reduced USC plus four other hospital divestitures and/or lease expirations Encino and Tarzana sales (already in disc ops) reduces cash drain Broadlane investment to be monetized $155mm MOB sale of 31 buildings continues to move forward $750mm to $950mm in cash expected to be raised in next 18 months Including $650mm to $850mm in 2008 Approx $50mm raised through 6/30/08 6
  7. 7. 2009 P & L impact of actions to enhance balance sheet efficiencies (1) $50 million = approximate full run rate(2) reduction in EBITDA $80 million = approximate full year reduction of net interest expense, depreciation, and other items Up to $30 million = net positive future impact on pre-tax income and free cash flow And, $50mm in seismic requirements eliminated $40mm annual cash flow consumption at Encino-Tarzana curtailed (1) Tenet has not yet made a final decision on use of cash proceeds. Analysis is illustrative, for modeling purposes only. (2) Results for 2008 are not fully impacted as $10mm to $15mm still in 2008 results 7
  8. 8. Stephen L. Newman, M.D. Chief Operating Officer
  9. 9. Key strategies are working Supporting evidence visible in: Admissions growth Commercial volume growth in TGI service lines Net growth of active medical staff 9
  10. 10. Admissions growth is accelerating Admissions increased by 2.2% (core, same-hospital) Every region up by 2.5%, or greater, with exception of Southern States Region Florida admissions increased by 3.0% Philadelphia admissions increased by 5.1% Philadelphia’s Q3’08 growth will be reduced by pre-admission review diverting incremental patients to observation status While Florida and Philadelphia are not large commercial markets, their volume growth is solidly profitable 10
  11. 11. Commercial admissions growth in TGI service lines(1) TGI exceeds total commercial admissions growth Core, same-hospital commercial admissions 4% TGI Service lines (1) 1.9% 2% All service lines 0% Y-o-Y Growth Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 -2% -4% -6% 2008 2007 -8% 2006 (1) 8 service lines which are typically emphasized by TGI: general surgery, major trauma, neonatal, neurological medicine, neurosurgery, open heart, orthopedic surgery, and Cath/EP. 11
  12. 12. Physician Relationship Program driving PRP continued growth in medical staffs 3,836 visits to 2,109 new physicians in Q2’08 354 net new physicians added in Q2’08 to active medical staff Includes 119 physicians added to new El Paso hospital 14,657 visits to 7,642 current medical staff members Admissions from these 7,642 physicians increased by 5.0% in Q2’08 over Q2’07 admissions 12
  13. 13. Outpatient Visits 0.6% increase in paying core O/P visits 28% increase in freestanding ASC volumes 13
  14. 14. Surgeries 3.0% increase in core surgeries 1.4% inpatient growth 4.2% outpatient growth 14
  15. 15. Growing evidence that inflection point has been passed Admissions up 2.2% Paying outpatient visits up 0.6% Medical staff up by 354, or 2.8%, in Q2’08 Cost efficiency enhanced 15
  16. 16. Biggs C. Porter Chief Financial Officer
  17. 17. “Same-hospital” (1) vs. “Core same-hospital” (2) stats Q2’08 Y-T-D Actual 6/30/08 Growth rates: Q2’08 versus Q2’07 Core Core Same- Same- Same- Same- Hospital Hospital Hospital Hospital Admissions growth (%) 1.9 2.2 1.4 1.6 Paying admissions growth (%) 1.8 2.2 1.4 1.6 Outpatient visit growth (%) (0.3) 0 (0.6) (0.5) Paying O/P visit growth (%) 0.4 0.6 0 0.1 Adjusted admissions growth (%) 2.8 3.2 2.2 2.4 Surgeries growth (%) 2.3 3.0 0.3 0.8 Commercial Admit growth (%) (2.2) (1.7) (3.1) (2.8) Commercial O/P visit growth (%) (1.8) (1.5) (1.8) (1.6) Commercial admit growth in 8 1.3 1.9 0.4 0.8 TGI service lines (%) Commercial revenue growth (%) 7.5 8.1 6.0 6.4 Adjusted EBITDA ($mm) 171 171 398 392 (1) “Same-hospital” excludes Coastal Carolina Medical Center and Sierra Providence East Medical Center (2) “Core same-hospital” also excludes Irvine Regional Hospital and Medical Center and Community Hospital of Los Gatos from same-hospital data 17
  18. 18. 2008 Outlook Summary Prior 2008 Revised 2008 Outlook Outlook Investor Same- Core Same- Day Hospital (2) Hospital 6/3/08 Admissions - growth (1) (%) 1-2 no change no change Outpatient visits – growth (1) (%) 1-2 (0.5) – 0.5 no change Net inpatient revenue per admit - growth (1) (%) 3.5 – 4.25 3.0 – 4.0 no change Net outpatient revenue per visit – growth (1) (%) 4.5 - 5.25 7.0 – 8.0 no change Pricing – managed care increment (1) ($mm) 47 no change no change Net revenue ($ bil) 9.3 – 9.4 8.8 – 8.9 8.6 – 8.7 Bad debt ratio (%) 6.5 - 7.0 no change no change Controllable operating expenses PAPD – Growth (1) (%) 3.0 – 3.5 1.5 – 2.5 no change EBITDA ($mm) 775 - 850 750 – 825 no change Adjusted cash flow from operations ($mm) 400 - 500 375 – 475 no change Capital expenditures ($mm) 600 - 650 no change no change Cash balance at 12/31/08 ($mm) 850 –1,150 no change no change (1) Growth 2007 to 2008 (2) Excludes Irvine and Los Gatos 18
  19. 19. Volume trends are building momentum (core, same-hospital growth) 3% 2.2% Admissions Outpatient Visits 2% 1% 0.9% 0.0% 1% 0.1% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 -1% 0% -1.0%-1.2% -1.0% Q1 Q2 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 -1.9% -3% -2.7% -0.6% -1% -2.8% -0.7% -1.1% -3.9% -5% -2% -1.8% -2.2% -7% -6.4% -3% -2.7% -2.9% -7.6% 2006 2007 2008 -9% -4% 2006 2007 2008 Commercial Managed Care Admissions 2% Q3 0% Q1 Q2 Q3 Q4 Q1 Q2 Q4 Q1 Q2 -0.4% -1.0% -2% -1.7% -1.8% -2.7% -3.0% -4% -3.8% -4.4% -6% -5.8%-5.7% 2006 2007 2008 19
  20. 20. Volume Trends are Favorable (core, same-hospital) 4.0% Total Admits 2.5% Paying Admits (1) 1.0% Annual Growth -0.5% Q206 Q306 Q406 Q107 Q207 Q307 Q407 Q108 Q208 O/P Visits -2.0% Paying O/P Visits (1) -3.5% -5.0% -6.5% -8.0% (1) Paying volumes are defined as total volumes less charity and uninsured volumes. 20
  21. 21. Improving trend in non-paying patients (core, same-hospital) 13.5% 12.0% 10.5% 9.0% Annual Growth 7.5% 6.0% Uninsured + Charity Admissions 4.5% 3.0% 1.5% 0.0% Q206 Q306 Q406 Q107 Q207 Q307 Q407 Q108 Q208 -1.5% -3.0% 21
  22. 22. Pricing has Strengthened (Core, same-hospital) Net Inpatient Revenue per Admission Net Outpatient Revenue per Visit $700 $687 $11,500 11.1% CAGR $653 3.2% CAGR $647 $642 $11,000 $628 $10,792 $10,740 $10,680 $10,667 $601 $10,513 $10,500 $600 $10,286 $10,261 $582 $581 $575 $10,072 $10,003 $10,000 $9,883 $542 $9,500 $500 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 $9,000 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2006 2007 2008 2006 2007 2008 22
  23. 23. Revenue, Costs and Adjusted EBITDA also showing favorable trends (core, same-hospital) Growth in Controllable Expense Growth Growth Net Revenue Per Adjusted Patient Day 6.8% without 8% CMS adjustment 7.7% 8% 6.6% 6.3% 6.2% 6.1% 6% 6% 6.1% 5.1% 4.8% 4.2% 3.8% 4% 3.9% 4.0% 3.9% 3.0% 4% 3.5% 1.9% 2.6% 2% 0.9% 1.8% 2% 0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 -0.7% 0% -2% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2006 2007 2008 2006 2007 2008 -4% Adjusted EBITDA $ in millions $250 $221 $200 $187 without CMS adjustment $200 $181 $181 $164 $158 $156 $171 $150 $136 $104 $100 $50 $0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2006 2007 2008 23
  24. 24. Core, Same-Hospital Adjusted EBITDA and EBITDA Margins Have Been Expanding ($ in millions) Adjusted EBITDA Adjusted EBITDA Margin $250 12.0% 10.0% $200 Without CMS Adjustment 8.0% $150 6.0% $100 4.0% $50 2.0% $0 0.0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2006 2007 2008 24
  25. 25. Revised 2008-2009 Outlook (Continuing operations excluding Irvine and Los Gatos) 2009 2008 Adjusted Adjusted ($mm) Revenue Cost Revenue Cost Line EBITDA EBITDA # 1 Prior year (excluding Irvine & Los Gatos) 8,167 (7,510) 657 8,715 (7,890) 825 2 2007 Cost Report Adjustments (40) - (40) - - - 3 Georgia/ Florida Medicaid (56) - (56) - - - 4 Volume(1) 114 (68) 46 154 (93) 61 5 Pricing – Base Line Increase (2) 358 (21) 337 286 (22) 264 6 Managed Care (3) 47 - 47 34 - 34 7 Other Initiatives (4) 47 (16) 31 - - - 8 Costs – Base Line Inflation(5) - (274) (274) - (253) (253) 9 Cost Reduction Initiatives (6) - 92 92 - 29 29 10 Other(7) 78 (93) (15) 86 (46) 40 11 Total(8) 8,715 (7,890) 825 9,275 (8,275) 1,000 (1) 2008: assumes admissions growth of 1.5%; flat outpatient visit volumes; using 2007’s average pricing. 2009: admissions growth of 2.0%; outpatient visit growth of 1.5%; using 2008’s average pricing. Margin assumption on incremental revenues is 40%. (2) Base line pricing increases of 4.4% for 2008. These assumptions are before discrete initiatives valued in this analysis, and include certain assumptions on adverse mix change (3) Rate parity price increases in existing contracts and anticipated future increases. (4) Full-year impact of 2007’s ED acuity capture effort and incremental adjustments to chargemaster. (5) Inflation rate reflecting normal merit increases, union contract adjustments, supplies cost increases and other items before discrete initiatives valued in this analysis. (6) Full year impact of cost initiatives initiated in 2007. (7) Includes impact of Sierra Providence East Medical Center (El Paso), Coastal Carolina Hospital, physician practices and other non-acute operations. (8) Various risks including volume growth, volume mix, and bad debt create at least $75 million in uncertainties for 2008 performance, hence the adjusted EBITDA outlook range from $750 mm to $825mm. 2009 uncertainties exceed those identified for 2008. This schedule is not intended to provide a series of spot estimates or line item guidance. Other combinations of line item performance could produce the same or higher, or lower results. 25
  26. 26. Free Cash Flow Objective – 2009 ($mm) EBITDA 1,000 Stock compensation expense 40 Interest expense (net) (360) Working capital (0 - 50) Capital expenditures (550 – 600) Free Cash Flow 30 – 130 Global settlement payment (90) Net Free Cash Flow (60) - 40 Beyond 2009 Free Cash Flow is expected to improve from: Global settlement obligation is retired in 2010 40% estimated margin rate on volume growth 26
  27. 27. 2008 Cash Walk Forward Low High ($mm) December 31, 2007 Beginning Cash 572 2008 EBITDA 750 825 Add Back: Stock Compensation Charges 38 38 Changes in Cash from Operating Assets and Liabilities (17) 8 Interest Payments (396) (396) 375 475 Adjusted Net Cash Provided by Operating Activities Income Tax (payments) refunds, net (45) (45) Payments against reserves for restructuring charges, litigation costs and (100) (100) settlements Net cash used in operating activities from discontinued operations/leased (55) (30) facilities Capital Expenditures (600) (650) Other Investing Activities 58 83 Net Financing Activities (5) (5) Potential cash from initiatives and divestitures 650 850 Cash Outlook December 31, 2008 850 1,150 27
  28. 28. 2008 Cash Walk Forward High Low ($mm) June 30, 2008 Cash Balance 352 EBITDA Outlook, remainder of 2008 365 440 Add back: Stock compensation charges 19 19 Working capital timing and improvements 144 169 Interest Payments (200) (200) 328 428 Adjusted Net Cash Provided by Operating Activities Income Tax (payments) refunds, net (42) (42) Payments against reserves for restructuring charges, litigation costs and (44) (44) settlements Net cash used in operating activities from discontinued operations/leased (57) (32) facilities Capital Expenditures (301) (351) Other Investing Activities 20 45 Net Financing Activities (6) (6) Potential cash initiatives and divestitures 600 800 Cash Outlook December 31, 2008 850 1,150 28
  29. 29. Reconciliation of 2008 Outlook net loss to adjusted EBITDA ($mm) Low High Net loss (120) (20) Less: Loss from discontinued ops, net of tax (25) - Income (loss) from continuing operations (95) (20) Income tax benefit 5 5 Income (loss) from continuing operations, before income taxes (100) (25) Interest expense, net (400) (400) Operating income 300 375 Litigation and investigation costs (50) (50) Depreciation and amortization (400) (400) Adjusted EBITDA 750 825 29

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