Tenet Healthcare beat on earnings but landed well short on revenue expectations for the fourth quarter of 2024, fueling a drop in trading on Wednesday.
At the same time, executives touted the for-profit hospital and ambulatory surgery center (ASC) company’s “outstanding” full-year performance, which saw a $3.2 billion net income that landed above updated guidance issued midway through the year.
They also shared a 2025 outlook with net operating revenues between $20.6 billion and $21 billion, net income between $1.04 billion and $1.12 billion and an adjusted EBITDA between $3.98 billion and $4.18 billion.
During an investor call, CEO Saum Sutaria, M.D., outlined progress on the company’s ongoing portfolio transformation—14 sales of hospitals and related operations that generated billions in gross proceeds as well as 70 new ASCs.
This “significant balance sheet deleveraging” has given Tenet “a portfolio of business that is more predictable, capital efficient and able to operate in a variety of environments with better margins and ample free cash flow for the benefit of shareholders,” Sutaria said.
Sutaria said the company plans on repurchasing more of its shares, “particularly at our current valuation multiples."
Otherwise, Chief Financial Officer Sun Park said Tenet will focus its 2025 capital investments on merger and acquisition growth within United Surgical Partners International (USPI), its ASC business; pursue “key hospital growth opportunities, including our focus on higher acuity service offerings"; and evaluate whether it is worthwhile to retire or refinance debts that won’t be coming due for a couple years.
Speaking to investors Wednesday, Sutaria also stressed that the portfolio shift and other factors of Tenet’s business should help insulate it from potential political and regulatory changes being hashed out in Washington.
Rising calls for site-neutral payments, for instance, would exclude much of USPI due to its facilities operating under freestanding ASC rates, he said. USPI also has negligible Medicaid exposure, with the exchanges contributing less to the segment’s growth than what’s seen in the hospital segment, he said.
“So, from a USPI perspective, this is all about an important tailwind of moving things into a lower cost setting in an expensive portion of the healthcare industry—which is surgical care—and doing so in a way where we’re constantly increasing the acuity of the work at USPI because it creates more value for the purchaser,” he told investors.
As for the hospital segment, Sutaria acknowledged that operating discipline and granular insights into different market characteristics, such as dependencies on supplemental payments or areas with higher growth from exchanges, will be necessary as Tenet navigates policy uncertainties and pivots accordingly.
Reiterating commentary from last year, the executive described advocacy as “the No. 1 adaptive action” Tenet can take for its hospital segment. The company needs to help state and federal government understand that program cuts would harm “basic access” to care for their constituents, he said.
“The broader question of Medicaid policy and other things is an important one,” Sutaria said in response to an investor question on projecting the policy changes. “But look, the focus is articulated … on reducing fraud and abuse, including in some of the public comments made yesterday all the way in the Oval Office."
“I think one thing that people may find is that Medicaid redetermination over the last couple of years have probably done a lot to reduce the number of people eligible or noneligible who happen to be on Medicaid. So again, no way to predict for sure, but I’m somewhat comforted by the fact that some of that work has already been done," he said.
Tenet beats on earnings, misses Q4 operating revenues by $100M
Tenet Healthcare’s Wednesday morning earnings report outlined, for the quarter, $5.07 billion in net operating revenues, $318 million net income ($3.32 per share) and adjusted EBITDA of $1.05 billion. This was roughly a $300 million revenue cutback from the same period in 2023 but an improvement on income and earnings.
For the year, Tenet logged $20.67 billion in net operating revenues, $3.2 billion in net income ($32.70 per share) and $4 billion in adjusted EBITDA.
Cash flows provided by operating activities across the year were $2.05 billion (inclusive of $855 million of income taxes paid due to gains on asset sales), down from the prior year’s $2.37 billion.
Tenet’s hospitals segment saw its fourth-quarter revenues fall 11.4% year over year, largely due to the facility sales but offset by favorable payer mix, improved pricing yield and same-hospital admissions growth. Same-hospital net patient service revenue per adjusted admission rose 0.6% year over year for the fourth quarter.
In USPI, the company touted a 16.9% year-over-year rise in net operating revenues due to per-case revenue growth plus added ASCs and service lines.
Looking ahead to 2025, Tenet said it expects net operating revenues in the range of $20.6 billion and $21 billion, net income between $1.04 billion and $1.12 billion and an adjusted EBITDA between $3.98 billion and $4.18 billion.
For its hospitals segment, the company expects inpatient admissions and adjusted admissions alike to rise between 2% and 3%. Within USPI, it projects same-facility systemwide revenue to grow between 3% and 6%.
Tenet’s shares were trading about 7.5% below open as of early Wednesday afternoon, with analyses juxtaposing the company's higher-than-expected fourth-quarter earnings against a roughly $100 million miss on revenues.