Tenet Healthcare Corporation ( THC) Preliminary FY 2010 Earnings Call Transcript January 11, 2011 8:30 am ET Executives Thomas Rice – SVP, IR Trevor Fetter – President and CEO Steve Newman – COO Biggs Porter – CFO Analysts Tom Gallucci – Lazard Capital Adam Feinstein – Barclays Capital Sheryl Skolnick – CRT Capital Group John Ransom – Raymond James Ann Hynes – Caris & Company Doug Simpson – Morgan Stanley Gary Taylor – Citigroup Justin Lake – UBS A.J. Rice – Susquehanna Financial Group Shelley Gnall – Goldman Sachs Presentation Operator
The presentation Tenet is making today includes non-GAAP financial information. A reconciliation of this information to GAAP can be found in the Appendix to the presentation. Finally, we note that Tenet will be filing a proxy statement in connection with its 2011 Annual Meeting of Shareholders and urge shareholders to read these materials once filed with the SEC.During the question-and-answer portion of the call, callers are requested to limit themselves to one question and one follow-up question. At this time, I would turn the call over to Trevor Fetter, Tenet's President and CEO. Trevor? Trevor Fetter Thank you, Tom. And good morning, everyone, and thanks for joining us. We decided to hold this call, instead of attending the JP Morgan Conference, in order to have sufficient time to cover more topics. We also wanted to allow the analyst community to ask questions. To those of you on the West Coast, I‘m sorry to hold the call so early, but since we are issuing preliminary results for 2010 and an EBITDA outlook for 2011 and beyond, we wanted to complete the call before the market opens. Before I start with our results and outlook, I want to briefly address the unsolicited proposal we received in November from Community Health. As you know, in December, our Board of Directors unanimously determined that the Community Health proposal of $6 per share in cash and stock grossly undervalued Tenet and was not in the best interests of Tenet or its stockholders. The Tenet Board believes that Community Health‘s proposal does not reflect the value of our compelling growth prospects and that Tenet‘s stockholders, not Community‘s stockholders, deserve to benefit from Tenet‘s growth. At the conclusion of my prepared remarks today, my colleagues and I are happy to take your questions. Let‘s now turn to the presentation. The slides we are using are at both tenethealth.com and streetevents.com.
Many of you know us very well. But for those of you who are new to the Tenet story, let me take just a minute to provide some background. I‘d like to start with some brief comments about our industry, so please turn to slide three. With large barriers to entry, a lack of foreign competition, and limited risk of substitution, this has always been viewed as a stable industry. The industry has suffered a bit during the recession, but is now at a positive inflection point as we begin the New Year. 2011 is when the baby boomers begin to enter the Medicare program, and they do so at the rate of a new beneficiary every eight seconds.The growth rate of the population of 65 and over will double, from 1.5% to more than 3%, between 2010 and 2012. And per-capita spending on healthcare nearly doubles between age 50 and age 65. In addition to aging, the population is becoming increasingly obese. While this poses challenges for our country, these are secular trends that will drive higher growth in demand for hospital services compared with the last decade. The Affordable Care Act, enacted last year, also changes the landscape for our industry in a positive way. In addition to these powerful forces, as the economy pulls out of the recession, we should see positive cyclical trends as well. Rising unemployment has contributed to a cyclical decrease in utilization and an increase in bad debt expense. These factors have put recent pressure on hospital industry margins and growth rates. Slide four provides a brief overview of Tenet. The company consists of 49 acute care hospitals and 81 freestanding outpatient centers in 11 states. We also provide services, mainly in the revenue cycle, to hospitals outside of Tenet. In 2010, these three businesses, inpatient, outpatient and services, together generated more than $9 billion in annual revenue and approximately $1,050 million in EBITDA. We anticipate EBITDA will increase in 2011 to a range between $1,150 million to $1,250 million.
In terms of corporate governance, we believe we have one of the finest boards in the industry. Collectively, our directors have an impressive professional history with personal accomplishments in healthcare, government, or in corporate management. I am the only insider on the Board, and no two board members serve together on any other boards or have any other interlocks. Please refer to Appendix C for a more complete description of our board.While it would be premature to provide a pre-release of Q4 results, we do know enough about our performance in the quarter to make some preliminary statements. The information on slide five and Appendix A provides the highlights and a starting point for the longer term outlook I‘ll discuss in a moment. First, it‘s important to note that we now expect to recognize in 2011 the $64 million from the California Provider Fee program that we had expected to recognize in 2010. The conditions necessary to record that income in 2010 were not met. And as of yesterday, official approval of the program from CMS had yet to be granted, although it is expected within days. Setting aside this item, our operations performed very well in 2010. For the full year 2010, we estimate that we will achieve EBITDA of $1,050 million, approximately $280 million of which we generated in the fourth quarter. As you can see from the slide, these core operating results exceeded the high end of the relevant range reflected in our November outlook. Read the rest of this transcript for free on seekingalpha.com