Tenet Healthcare Q1 2010 Earnings Call Transcript - TheStreet

Tenet Healthcare Q1 2010 Earnings Call Transcript

Tenet Healthcare Q1 2010 Earnings Call Transcript
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Tenet Healthcare (THC)

Q1 2010 Earnings Call

May 04, 2010 10:00 am ET

Executives

Biggs Porter - Chief Financial Officer

Thomas Rice - Senior Vice President of Investor Relations

Trevor Fetter - President, Director and Member of Executive Committee

Stephen Newman - Chief Operating Officer

Analysts

Sheryl Skolnick - CRT Capital

Doug Simpson - Morgan Stanley

John Ransom - Raymond James & Associates

Thomas Gallucci - Lazard Capital Markets LLC

Justin Lake - UBS Investment Bank

Ralph Giacobbe - Crédit Suisse First Boston, Inc.

Whit Mayo - Robert W. Baird & Co. Incorporated

Adam Feinstein - Barclays Capital

John Rex - JP Morgan Chase & Co

Shelley Gnall-Sazenski - Goldman Sachs Group Inc.

Presentation

Operator

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Good day, ladies and gentlemen, and welcome to the Q1 2010 Tenet Healthcare Earnings Conference Call. My name is Caitlin, and I will be your operator for today. [Operator Instructions] I would now like to turn the conference over to your host for today's call, Mr. Thomas Rice, Senior Vice President of Investor Relations. Please proceed.

Thomas Rice

Thank you, operator, and good morning, everyone. Tenet's management will be making forward-looking statements on this morning's call. These statements are based on management's current expectation and are subject to risks and uncertainties that may cause those forward-looking statements to be materially incorrect. Management cautions you not to rely on and makes no promises to update any of the forward-looking statements. During the Q&A portion of the call, callers are requested to limit themselves to one question and one follow-up question.

At this time, I will turn the call over to Trevor Fetter, Tenet's President and CEO.

Trevor Fetter

Thanks, Tom, and good morning, everyone. I said on our February conference call that we're making changes to our Investor Relations program for 2010. As you've already noticed, we shorted our earnings release significantly. Our intention is to narrow the focus to the key items driving our performance in the quarter. Let me assure all of you, we value the extent of our disclosures, that we're still completely committed to transparency. All of the information you're used to seeing in our earnings release is still in our 10-Q.

We're also going to streamline this call. Biggs and I will be the only speakers making prepared remarks, but Steve Newman and others are here to answer questions. We've cut the length of our remarks to 10 minutes, so that we'll have plenty of time for Q&A and can still finish the call within one hour. So in the spirit of being concise, let me jump right into a discussion of our results.

I'm very pleased with our adjusted EBITDA for the first quarter, which grew more than 7% over last year's first quarter and reached a margin of 12.7%, our highest quarterly margin in seven years. Our adjusted EBITDA in the first quarter was greater than in any first quarters in 2003, and we achieved it with half the number of hospitals we had then. On the basis of the strong start to the year, we are confirming our existing full year outlook for adjusted EBITDA in a range of $985 million to $1,050,000,000.

While we achieved our earnings objective for the quarter, volumes were soft, but our performance was excellent in the other key economic drivers of acuity, pricing and cost control. Our proven ability to control cost has significant positive implications for our longer-term operating leverage. Once we achieve a meaningful and sustained recovery in volumes, we now had to turn the resulting revenue growth into attractive growth on the bottom line. This quarter, for example, we took a decline of 2% in admissions, turned it into 3.4% growth in revenues and into more than double that rate of growth in EBITDA. We should be able to do better than that with some volume growth.

While volumes for the first quarter were disappointing, the month-by-month trajectory of volumes was encouraging. To be specific, January and February were weak but the trend was better in March. On the outpatient side, the year-over-year growth rates in March were more than 500 basis points stronger than February, indicating one of the strongest snap backs we've ever seen.

The trend in admissions through the first 28 days in April was similar to March, although commercial is trending a bit stronger and outpatient visits are trending a bit weaker. This shows the kind of short-term volatility in patient volumes that we've talked about on prior calls.

Other companies have mentioned that bad weather, lack of flu, declining birthrates and bad economic conditions depressed volumes. And although we agree that they had an effect, it's difficult to quantify precisely.

Our admissions through the emergency department continue to achieve positive year-over-year growth in the quarter. This indicates that our soft volumes are primarily limited to our Elective business. This should not surprising as elective procedures are most directly impacted by a slow economy.

Strong growth in revenues per unit continues to make a significant contribution to our earnings momentum. In patient revenue per admission ran 160 basis points stronger than the midpoint of our outlook assumption, and the favorable variance was more than 400 basis points on the outpatient side. Our pricing was enhanced by higher acuity, particularly in our commercial business. And given that 80% of our contract volume is negotiated for 2010 and more than 60% for 2011, we are confident this strength will continue to help drive our earnings growth.

As I mentioned earlier, cost control was once against stellar in the quarter. Total controllable costs increased by only 1.3%. Now practice expense continue to decline, and we even picked up $2 million in savings in the quarter from reduced rent at our new corporate headquarters.

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