Tenet Healthcare Corporation — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; filed February 16, 2024. Although the request identifies 2023 Q4, this is an annual filing. Dollar amounts are in millions unless stated otherwise.
Business context and reporting period
Tenet operates acute-care and specialty hospitals, outpatient facilities, physician practices, revenue-cycle and value-based care services through Conifer, and ambulatory surgery centers and surgical hospitals through USPI. At year-end, it operated 61 hospitals and held interests in 461 ASCs and 24 surgical hospitals.
In Q4 2023, Tenet combined its former Hospital Operations and Conifer reporting segments into Hospital Operations and Services, leaving two segments: Hospital Operations and Ambulatory Care. Prior-period segment information was recast.
Key financial metrics
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Net operating revenue | $20.548 billion | $19.174 billion | +7.2% |
| Operating income | $2.510 billion | $2.333 billion | +7.6% |
| Operating margin | 12.2% | 12.2% | Flat |
| Net income | $1.311 billion | $1.001 billion | +31.0% |
| Net income attributable to Tenet common shareholders | $611 million | $411 million | +48.7% |
| Diluted EPS | $5.71 | $3.78 | +51.1% |
| Adjusted EBITDA (non-GAAP) | $3.541 billion | $3.469 billion | +2.1% |
| Adjusted EBITDA margin (non-GAAP) | 17.2% | 18.1% | -0.9 percentage points |
| Net cash from operating activities | $2.374 billion | $1.083 billion | +$1.291 billion |
| Capital expenditures | $751 million | $762 million | -$11 million |
Hospital Operations revenue was $16.683 billion, up 4.8%; Ambulatory Care revenue was $3.865 billion, up 19.0%. Segment operating income was $1.135 billion for Hospital Operations (down from $1.142 billion) and $1.375 billion for Ambulatory Care (up from $1.191 billion).
Q4: Revenue was $5.379 billion, up 7.8% year over year: Hospital Operations $4.302 billion (+6.0%) and Ambulatory Care $1.077 billion (+15.4%). Hospital admissions rose 1.3%, while Ambulatory Care consolidated cases increased 14.5%. The filing text provided here does not give a clear Q4 consolidated net income or full-quarter operating cash flow value.
Debt and liquidity: Year-end cash and cash equivalents were $1.228 billion; total long-term debt was $15.002 billion, including $120 million current. Net debt to trailing Adjusted EBITDA was 3.89x. The company had no cash borrowings under its revolving credit facility and reported $1.5 billion available; it was in compliance with debt covenants. All long-term debt was fixed-rate except potential revolver borrowings. Interest expense was $901 million, or 36% of operating income.
Accounts receivable were $2.914 billion, compared with $2.943 billion a year earlier. Hospital Operations’ AR days were 55.4, improved from 58.3 but above the company’s target of less than 55 days.
Material changes versus prior periods
- Revenue growth reflected higher patient volumes, improved payer mix, commercial rate increases, and Ambulatory Care acquisitions. Same-hospital admissions rose 2.2% and adjusted admissions rose 2.5% for the year.
- Adjusted EBITDA increased modestly, but its margin declined. Hospital Operations’ same-hospital other operating expenses rose 11.5%, including higher medical fees, malpractice expense, software, and repair and maintenance costs. Malpractice expense for continuing operations was $369 million versus $276 million.
- Operating cash flow increased substantially, in part because 2022 included $880 million of Medicare advance repayments/recoupments and $128 million of deferred payroll-tax payments; 2023 included neither. Pandemic-related cash grants fell to $10 million from $196 million.
- Interest expense increased to $901 million from $890 million. Tenet issued $1.350 billion of 6.75% secured notes due 2031 and used proceeds, with cash, to redeem $1.345 billion of 2024 notes.
- Tenet repurchased $200 million of common stock in 2023, versus $250 million in 2022, and paid $594 million in distributions to noncontrolling interests.
Outlook, commentary, risks, and unusual items
- Management expects 2024 capital expenditures of approximately $775–$875 million and interest payments of approximately $850–$860 million. It cited a long-term objective of reducing leverage through cash generation, capital allocation, and divestitures; no overall earnings guidance is stated in the provided filing text.
- Management targets ownership and operation of 575–600 ASCs by year-end 2025. It plans to invest in outpatient growth and higher-acuity services. A San Antonio campus was expected to open in mid-2024; a Port St. Lucie campus is expected to be completed in late 2025.
- After year-end, Tenet completed the sale of three South Carolina hospitals for approximately $2.4 billion of pre-tax proceeds. It also agreed to sell four hospitals in Orange and Los Angeles counties, with closing subject to customary approvals and conditions. The proposed sale of San Ramon Regional Medical Center was abandoned after FTC action challenging the transaction.
- Key risks include dependence on managed-care contracts and payer collections; labor shortages, wage inflation and California staffing requirements; government reimbursement and Medicaid supplemental-payment changes; regulatory investigations and litigation; and cybersecurity threats. The 2022 cyber incident disrupted some hospital operations and involved exfiltration of company and patient information; Tenet received $41 million in insurance recoveries in 2023.
- Other notable items: impairment, restructuring and acquisition-related charges totaled $137 million in 2023 versus $226 million in 2022. The 2023 total included $43 million of impairment charges and $79 million of restructuring charges. No goodwill impairment was recorded. The auditor issued an unqualified opinion, and management and the auditor concluded internal control over financial reporting was effective at year-end.
Important facts for investors to verify
- Whether the reported cash-flow improvement is sustainable after the unusually large 2022 Medicare advance repayments and other timing differences.
- Whether Ambulatory Care growth and acquisition integration can offset margin pressure and rising operating costs, particularly malpractice, supplies and other expenses.
- Progress in reducing leverage, use of the South Carolina sale proceeds, and the impact of the planned California hospital divestiture on revenue, earnings and debt.
- Managed-care contract renewals, payer concentration, collections and AR days, along with exposure to Medicaid supplemental-payment changes.
- Developments in material legal matters, professional liability reserves, and cybersecurity remediation, insurance recoveries and remaining coverage.