Hospital and ambulatory surgery center operator Tenet Healthcare continues to reap the benefits of its ongoing strategy to reshape its portfolio.
Shares of Tenet Healthcare jumped 16% Tuesday after the hospital group reported better-than-expected third-quarter financial results.
The for-profit reported Tuesday morning $472 million ($4.89 per diluted share) of net profit during the third quarter, of which $209 million reflected after-tax gains from the closed sales of five hospitals in Alabama. That compares to net profit of $101 million in the third quarter last year.
The company reported an adjusted profit of $2.93 per share in the third quarter.
Third-quarter revenue reached $5.12 billion, up 1.2% from $5.066 billion a year ago. Adjusted EBITDA for the quarter stood at $978 million, up 14.5% from the previous year.
Tenet beat Street estimates on both the top and bottom lines.
The company, once again, boosted its full-year 2024 guidance. Revenue is now projecting to reach $20.6 billion to $20.8 billion for the year. Adjusted EBITDA is forecast to be in the range of $3.9 billion to $4 billion, up $50 million from its prior range. Adjusted EPS is expected to be between $11.12 and $11.73. The company also expects to bring in net profit of $3.09 billion to $3.19 billion.
"Our businesses continue to produce strong results and generate robust free cash flow with same store revenue growth and profitability well above our expectations due to the focused execution of our strategy and disciplined operations," said Saum Sutaria, M.D., chairman and CEO of Tenet, in a statement. "We have furthered our portfolio transformation and are well-positioned to deliver enhanced value to our patients, physician partners, and shareholders."
Tenet's uplifted 2024 forecast reflects the sale of 14 hospitals over the course of 2024. Those hospital sales were worth nearly $4.8 billion combined.
The system sold nine hospitals, three in South Carolina and six in California, in the first quarter. Tenet sold three South Carolina hospitals to Novant Health for approximately $2.4 billion, it offloaded four Southern California hospitals to UCI Health for $975 million in cash and it sold two California hospitals to Adventist Health for $550 million, or after-tax proceeds of approximately $450 million.
Earlier this month, Tenet wrapped up is sale of its 70% majority ownership interest in Brookwood Baptist Health, which includes five hospitals, to Orlando Health in a $910 million cash deal.
"All of the sales that we have executed on have been at high multiples to reflect the operational improvements that we have made to each of these facilities over the last seven years," Sutaria told investors on the earnings call Tuesday. "More importantly, as a result of these sales, our current hospital portfolio has an enhanced return profile with more attractive geographies for us and our business model and higher expected returns on invested capital that should result."
Tenet’s revenue cycle management business, Conifer, also is benefiting from agreements made during the hospital sell-offs to continue providing services for their new owners.
Tenet’s hospital portfolio has been in the midst of a multiyear realignment. The company has sold off hospitals outside of its core markets while building out its local care networks and prioritizing high-acuity, high-margin procedures and specialties.
"Our transformed portfolio provides us with a high degree of capital and financial flexibility. We will continue to deploy capital to enhance growth in our industry-leading ambulatory surgical business through M&A and de novo development, increase capital spending to fuel organic growth and return excess capital to shareholders via share repurchase, given that we believe our equity continues to trade at attractive multiples relative to the market," Sutaria said. "The combination of an established management team, a focused strategy and consistent operations and discipline capital deployment positions us to drive significant value for physicians, patients and, in turn, our shareholders."
According to Tenet's website, the health system operate 48 acute care hospitals, 26 off-campus emergency departments and micro hospitals and 50 imaging centers.
The hospital segment saw net operating revenues of $3.9 billion, which declined 3.4% from the third quarter of 2023 primarily due to the impact of hospital divestitures in the first quarter of 2024, partially offset by strong same hospital admissions growth, favorable payer mix and improved pricing yield. On a same-hospital basis, net patient service per adjusted admission rose 3.3% year over year, thanks to improved pricing yield, favorable payer mix and Tenet's focus on growing higher acuity services.
Adjusted EBITDA in third quarter for the hospital segment was $539 million compared to $484 million in the third quarter of 2023, reflecting strong same-hospital admissions growth and revenue per adjusted admission, favorable payer mix and increased supplemental revenues in Michigan, partially offset by higher medical fees as well as the impact of hospital divestitures.
Tenet’s ambulatory business segment is comprised of the operations of United Surgical Partners International. As of Sept. 30, USPI had interests in 520 ambulatory surgery centers (376 consolidated) and 24 surgical hospitals (seven consolidated) in 37 states.
Third-quarter 2024 net operating revenues came to $1.14 billion, up 21% from a year ago, driven by strong net revenue per case growth, acquisitions of facilities and increased service lines.
Surgical business same-facility systemwide net patient service revenues increased 8.7% in the third quarter compared to a year ago, with cases up 1% and net revenue per case up 7.6%. Net revenue per case growth was driven by higher acuity associated with favorable case mix as well as favorable payer mix.
Third-quarter 2024 adjusted EBITDA increased 18.6% compared to the third quarter of 2023 due to strong net revenue per case growth, disciplined expense management and contributions from acquisitions and de novo facilities.
Sun Park, executive vice president and chief financial officer for Tenet Healthcare, told investors Tenet will continue to prioritize capital investments to grow USPI through M&A and will invest in key hospital growth opportunities, doubling down on the health system's focus on higher acuity service offerings.