DALLAS--(BUSINESS WIRE)-- Tenet Healthcare Corporation (NYSE:THC) today reported adjusted EBITDA of $268 million for the quarter ended June 30, 2010, an increase of $22 million, or 8.9 percent, as compared to $246 million for the second quarter of 2009. Net income attributable to common shareholders for the second quarter of 2010 was $25 million, or $0.05 per diluted share, compared to a net loss of $15 million, or $0.03 per diluted share, for the second quarter of 2009. Continuing operations earned $0.07 per diluted share in the second quarter of 2010 as compared to $0.01 per diluted share in the second quarter of 2009.
“Our earnings power continued to grow as we successfully converted an admissions decline of 2.0 percent into revenue growth of 3.3 percent and adjusted EBITDA growth of 8.9 percent,” said Trevor Fetter, president and chief executive officer. “This progression demonstrates our ability to address the challenges presented by the continuing soft macroeconomic environment to produce meaningful growth in value.”
Discussion of Results (All percentage changes compare Q2’10 to Q2’09. Same hospital and total company statistics are identical.)
Second quarter 2010 performance was driven by solid revenue growth and incremental cost efficiencies which more than offset the impact from soft volumes. Admissions and outpatient visits declined by 2.0 percent and 0.8 percent, respectively. Adjusted admissions declined by 0.6 percent. Commercial managed care admissions and outpatient visits declined by 7.2 percent and 5.4 percent, respectively. Higher commercial acuity, increased unit revenues, and improved commercial payer mix produced growth in commercial managed care revenues of 2.0 percent. This growth in commercial revenues contributed to an aggregate increase in net operating revenues of $74 million, or 3.3 percent. This increase in revenues was net of unfavorable adjustments of $28 million for the estimated impact on our Medicare disproportionate share hospital payments ($20 million) as a result of estimated lower Supplemental Security Income (SSI) percentages at certain of our hospitals and the portion of bad debt that will not be reimbursed by Medicare ($8 million).
Total controllable operating expense increased by $46 million, or 2.5 percent. This increase included a 2.1 percent increase in salaries, wages and benefits, primarily the result of salary and wage increases awarded to our broad employee population on October 1, 2009. Supplies expense was unchanged and other operating expense increased by 5.5 percent.
Bad debt expense increased by $6 million, or 3.6 percent. There was no change in the ratio of bad debt expense to net operating revenues which remained at 7.5 percent. Items that contributed to the increase in bad debt expense included increases of 1.5 percent and 2.4 percent in uninsured admissions and outpatient visits, respectively, and a 130 basis point decline in the self-pay collection rate to 29.5 percent. These adverse factors were partially offset by a $28 million favorable adjustment for Medicare bad debts that will be claimed on the Company’s cost reports. The impact of providing uncompensated care, which includes charity as well as uninsured patients, was mitigated by a decline in charity volumes. This mitigating effect is evident in our estimated costs of providing care to charity and self-pay patients for the second quarters of 2010 and 2009, which were $126 million and $121 million, respectively.
Adjusted net cash provided by operating activities from continuing operations was $198 million and adjusted free cash flow from continuing operations was $121 million, reflecting capital expenditures of $77 million. Cash and cash equivalents were $711 million at June 30, 2010, an increase of $122 million from March 31, 2010. In 2009’s second quarter, adjusted net cash provided by operating activities was $202 million. Net cash provided by operating activities was $191 million in the second quarter of 2010 compared to $170 million in the second quarter of 2009.
Management’s Webcast Discussion of Second Quarter Results
Tenet management will discuss second quarter 2010 results on a webcast scheduled for 10:00 AM (ET) on August 3, 2010. This webcast may be accessed through Tenet’s website at www.tenethealth.com/investors. A set of slides, to which management intends to refer on the call, will be posted to the Company’s website at approximately 8:30 AM (ET).
Additional information regarding Tenet’s quarterly results of operations, including detailed tabular operational data, is contained in our Form 10-Q report, which will be filed with the Securities and Exchange Commission and posted on the Tenet investor relations website before today’s webcast. This press release includes certain non-GAAP measures, such as adjusted EBITDA and adjusted free cash flow. A reconciliation of these financial measures and the most directly comparable GAAP measure is included in the financial tables at the end of this release.
Tenet Healthcare Corporation is a health care services company whose subsidiaries and affiliates own and operate acute care hospitals, ambulatory surgery centers and diagnostic imaging centers. Tenet’s hospitals and related healthcare facilities are committed to providing high quality care to patients in the communities they serve. For more information, please visit www.tenethealth.com.
Some of the statements in this release may constitute forward-looking statements. Such forward-looking statements are based on our current expectations and could be affected by numerous factors and are subject to various risks and uncertainties discussed in our filings with the Securities and Exchange Commission, including our annual report on Form 10-K for the year ended Dec. 31, 2009, our quarterly reports on Form 10-Q, and periodic reports on Form 8-K. 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.
Tenet uses its company web site to provide important information to investors about the company including the posting of important announcements regarding financial performance and corporate developments.
(1) Reconciliation of Adjusted EBITDA
Adjusted EBITDA, a non-GAAP term, is defined by the Company as net income (loss) attributable to Tenet Healthcare Corporation common shareholders before (1) the cumulative effect of changes in accounting principle, net of tax, (2) net income attributable to noncontrolling interests, (3) preferred stock dividends, (4) income (loss) from discontinued operations, net of tax, (5) income tax (expense) benefit, (6) net gain (loss) on sales of investments, (7) investment earnings (loss), (8) gain (loss) from early extinguishment of debt, (9) interest expense, (10) litigation and investigation (costs) benefit, net of insurance recoveries, (11) hurricane insurance recoveries, net of costs, (12) impairment of long-lived assets and goodwill and restructuring charges, net of insurance recoveries, and (13) depreciation and amortization. The Company’s Adjusted EBITDA may not be comparable to EBITDA reported by other companies.
The Company provides this information as a supplement to GAAP information to assist itself and investors in understanding the impact of various items on its financial statements, some of which are recurring or involve cash payments. The Company uses this information in its analysis of the performance of its business excluding items that it does not consider as relevant in the performance of its hospitals in continuing operations. Adjusted EBITDA is not a measure of liquidity, but is a measure of operating performance that management uses in its business as an alternative to net income (loss) attributable to Tenet Healthcare Corporation common shareholders. Because Adjusted EBITDA excludes many items that are included in our financial statements, it does not provide a complete measure of our operating performance. Accordingly, investors are encouraged to use GAAP measures when evaluating the Company’s financial performance.
The reconciliation of net income (loss) attributable to Tenet Healthcare Corporation common shareholders, the most comparable GAAP term, to Adjusted EBITDA, is set forth in the first table below for the three and six months ended June 30, 2010 and 2009.