Dive Brief:
- Tenet disclosed a $229 million loss in net income attributable to shareholders for the fourth quarter, compared with a loss of $79 million during the same time period in 2016.
- For the full year 2017, the Dallas-based hospital operator posted a loss of $704 million in net income attributable to shareholders, compared with net loss of $196 million for full year 2016.
- Despite the losses, the company increased its 2018 guidance and reported Q4 revenue above expectations. Tenet disclosed $4.97 billion in net operating revenue in Q4, a 2.4% increase over the same time period in 2016. Analysts had expected $4.87 billion for the period. Tenet's common stock rose 8.1% at the open of business on Tuesday.
Dive Insight:
Tenet remains in restructuring mode as it attempts to pare its debt and finds itself facing investor pressure and headwinds from the industry-wide trend of declining admissions.
The company reported long-term debt of $14.79 billion as of Dec. 31, 2017, down from $15 billion in 2016.
Long-time former CEO Trevor Fetter stepped down and resigned last October, sooner than expected amid a broad management shake-up. Executive Chairman Ronald Rittenmeyer is serving as CEO while the company searches for a permanent successor.
Also, last fall, two board members from Glenview Management — Tenet's largest shareholder — stepped down.
Tenet created the two board seats for Glenview as part of an arrangement in January 2016. The agreement came in exchange for Glenview not challenging the company’s board of management at the annual meeting. That arrangement included an option for Glenview to proposed two additional board members.
Tenet has identified $1 billion for divestitures of non-core markets and assets. The company is already in the process to sell Conifer, its revenue cycle arm. Tenet in January completed the sale of its Philadelphia properties and announced a definitive agreement to divest Des Pres Hospital to St. Luke's Hospital.
On a quarterly basis, the company experienced a net loss of $366 million in Q3 and $56 million in Q2.
A large portion of the net loss for the 74-hospital system was due to the tax overhaul passed at the end of last year, which dealt a $252 million non-cash partial write-down of the company's deferred tax assets and a $22 million increase in interest expense.
Still, Tenet increased its 2018 revenue guidance to a range of $17.9 billion to $18.3 billion, up from a previous estimate of $17.8 billion to $18.2 billion. The increase reflects “net income from continuing operations,” the company stated.
The disclosures come as the company is in the middle of an aggressive activist investor effort.
Glenview hasn't been silent on its opinions on Tenet's growth. The hedge fund and holder of nearly 18% of shares submitted a proposal this month to allow all shareholders to take action by written consent without a physical meeting.
Such actions could include removing members of the board.
"We believe action by written consent is necessary and appropriate when a company exhibits long-term underperformance operationally, as well as financially," Glenview CEO Larry Robbins wrote earlier this month.
Tenet amended the company's bylaws in January to provide shareholders representing a majority of the company shares with the ability to call a special meeting.
Tenet this month said it is reviewing Glenview's proposal. "We will make a recommendation to shareholders in due course. Tenet shareholders are not required to take any action at this time," the company responded.
Shareholders will vote on the proposal at Tenet's annual meeting, expected to be held in May.
The system reported 758,875 total admissions in 2017, a 4.2% decrease from 2016's 792,143 total admissions.
Overall, volume was mixed. Emergency department admissions increased 2.8% in Q4, though they were down 1.3% in 2017. Executives on the company's earnings call attributed the reversal in admission declines in part to flu admissions.
Inpatient and outpatient surgery admissions were both down in Q4 and for FY2017 overall. An executive noted "surgical volumes aren't where they need to be" on the earnings call Tuesday morning. The executive added high deductible plans have an impact on the timing of when patients seek surgery services.
Surgery admissions are vital to the company as they yield a higher-revenue-per-yield over lower acuity admissions.
Outpatient admissions were up 1.9% for the quarter.
Tenet is focusing on increasing its access points and developing a network to meet the patients’ care needs where they are. Seven to eight Tenet hospitals are looking to raise their trauma levels and the system acquired seven surgery centers as it sees growth opportunities in the ambulatory sector. Currently, the company is in development to add urgent care and imaging centers to its portfolio, executives noted on the earnings call.
“[T]the strength of THC's business across all its segments, including its first positive adjusted admission performance in four quarters (+1.3%, 20 bps flu benefit), translated to a 2% revenue beat and EBITDA outpacing consensus by 6%.," wrote Brian Tanquilut at Jefferies. "The combination of flu-driven volumes in Q1 and seeming stabilization in broader volume trends, coupled with the cost cuts and efficiency initiatives mgmt. has put in place, should yield good NT results and translate into incremental positive stock momentum.”
“While a modest ‘shortfall’ vs. our model, SS vols improved nicely (+0.2% SS admits; +1.3% SS AA) and controllable costs impressed. Clear progress appears evident,” wrote Whit Mayo at Baird.
Overall, data published this year from the American Hospital Association found total admissions in all U.S. registered hospitals increased 0.3% while total expenses for the same cohort increased 5.6%.