Q4 2019 Earnings Call
[music].
It is now my pleasure to introduce your host Regina Nethery, Vice President Investor Relations. Please go ahead.
Thank you.
Please go ahead be join us for a discussion of Kinnick fourth quarter and full year 2019 result, as well as the company's outlook for 2020.
Participating in today's prepared remarks, we'll be wrong, written Meyers executive Chairman and Chief Executive Officer, and Dan Cancelmi Executive Vice President and Chief Financial Officer.
I'm, sorry, I, President and Chief operating Officer will also be joining Ron and Dan for the question and answer portion of today's call.
Our webcast. This morning includes an accompanying slide presentation, which has been posted to the Investor Relations section of our website Tenet health dotcom.
Our fourth quarter earnings press release, and then news supplemental financial disclosure documents have also been posted to our website.
Listeners to this call are advised that certain statements made during our discussion today are forward looking and represent tenant management's expectations based on currently available information.
Actual results and plans could differ materially.
And it is under no obligation to update any forward looking statements based on subsequent information.
Investors should take noted the cautionary statement slide included in today's presentation.
Well as the risk factors discussed in our most recent form 10-K, and other filings with the Securities and Exchange Commission.
Now I'll turn the call overdrawn.
Thank you Regina good morning, everyone.
Oh, let's take a few minutes to recap 20, Nike and focus on our 2020 priorities before Dan discusses the quarter in the or greater detail.
Slide four captures our results for the fourth quarter in all 29 team.
We view the fourth quarter is a solid performance across the enterprise, we were very aware of the skepticism of the guidance.
Of our guidance at the third quarter called and we realize there were some concerns as to our ability to make the ended the year as we had projected.
This result represents the energy and dedication of our team demonstrating the sustainable changes, we're making the rigor of our discipline and the consistent follow through on our commitments.
Enterprise performance was very strong.
Several key financial metrics up significantly year over year adjusted EBITDA by segment was up over 15% in our hospitals over 24% in our ambulatory centers and over 8% of conifer with a 490 basis point improvement Conifer's EBITDA margin.
The uptick in patient volumes at our care delivery platform was particularly notable.
Across admissions adjusted admissions and ambulatory surgical cases, we produced an increase a bit of roughly 2% to 3.5%.
This was a solid results in line with our expectations and a continuation of the changes we've made over the last two years.
Combined with the will maintain cost and other activities to drive performance on the bottom line, we had a really solid quarter for kind of overall.
Consolidated adjusted EBITDA grew more than 70%, which was above the midpoint of the outlook, we provided roughly 12 months ago.
Well I thought it has a quick snapshot of the key elements that when taken together all work to support sustainable performance and build a solid foundation for the continuous improvement we established as our objectives.
The bullet points highlighted our 2019 accomplishment, reflecting the top priorities, we outlined at the outset other year.
I have spoken many times over the course of my time as CEO about the changes in tenant in terms of culture accountability ownership and analytical rigor and the importance of embedding change as part of our fabric to usher in a new performance trajectory.
We have and we will continue to implement change aligned with our general goals to focus on our patients our people our portfolio and our performance, we remain consistent and true to our objectives as we have in the past and well into the future we will affect changed to operationalize the business measure.
And our so warm methodically quantitatively and empirically, it's how we will meet our objectives and how we will stay accountable.
Volume performance was strong in each quarter 2019, and also broad based across our care delivery platform. We've worked hard to maintain quality environments for our caregivers to practice medicine and in turn enhance the patient experience, we improved overall hospitals scores for public we read.
Sported CMS quality measures in our increased internal measures also demonstrated improvements in quality and experience or ambulatory business had a strong patient experience score and our H CAPHS results for our surgical hospitals were very good with all but one of those facilities, achieving a five or four.
Star rating.
The real time data. We've recently spoke about is particularly important on these topics of quality service and volume performance.
We have seen a meaningful difference in the ability to course, correct quickly and to take action immediately when there's an issue so for and I want to point out it's not just about addressing problems, but identifying patterns and trends that can help us to capture opportunities earlier.
When we had it previously done.
The decision support and pursue a tax free spin off of conifer was announced in late July.
Transaction that we believe will both enhanced shareholder value and reduced the level of debt on tenet to a tax free depth were debt exchange.
In terms of the timeline to spin last year, we initiated various work streams to achieve related milestones between now and the expected completion date of the first half of 2021, we remain on track with those plants, one of which was identified a new CEO to lead the company through the spin and post completion.
Last month following the national search of highly qualified candidates, we announced a Joe Easer has been named President and CEO of Conifer, Joe has decades of experience working and customer facing and leadership roles at public and private companies and he has a well rounded skill set that's been strategy customer survey.
Yes, and sport product development and global sales.
Well, Joe leading the company, we remain steadfast in our efforts to continue to build upon operational improvements and it has enhanced product offerings, which we believe will help with client acquisition initiatives.
In terms of changes in additions to our care delivery platform. We acquired nine surgical center centers, one surgical hospital, we opened five de Novo centers, we added five urgent care clinics and took on the management responsibility for for imaging centers. We also added six new health partners.
Health system partners.
Well, the 2019 calendar year acquisitions, and overspend was lighter than in previous years, we still plan to deploy roughly 150 to 175 billion of capital on an annual basis. As you may recall, we spent well above that in 2018 at around 240 million because of the quality in the size of the available.
Ambulatory opportunities.
We are very deliberate about the transactions, we elect to pursue and related diligence process. As we continue to build out our offerings. We're pleased with the robust pipeline ahead as well as our progress. So far is the first quarter of 2020, which includes the completion of several transactions.
We also announced divestiture of our Memphis based hospitals and operations to local health system, which we believe will continue the excellent stewardship, we've had of these facilities.
These are really great facilities with a significant potential in a terrific team and we're working with the buyer to affect a seamless transfer of ownership upon completion of the transaction.
We will continue to optimize and evaluate our care delivery platform and this process will continue to come in different forms including regular reviews of our assets service lines et cetera to ensure we aren't best position to meet the community needs.
As I noted earlier.
Costs were well managed companywide our operators continue to apply more stringent controls and we also introduced new policies and procedures to more appropriately aligned team members under one cohesive effort.
We achieved 300 million in savings by the end to 29 team delivering on our cost savings initiatives and staying true to our commitment to ramp up efficiency efforts as part of tenants ongoing transformation.
Our global business Center in Manila. It is a significant part of that plan, while supporting our efforts to provide a 24 seven support system to our care facilities.
Investing in our leaders remains core to our organization.
We added or promoted several individuals to new roles to round out our talent bench at the executive level. We've also named two multi talented and experienced directors to the board.
Our commitment to fresh perspectives, and a new way of thinking is down much part much more a part of our go forward mentality.
And as it relates to culture, we recently moved to our new corporate offices, we brought together teams from across the enterprise into a single headquarters location and for the first time, our associates from various functions the tenant and USPI are sitting on the same for working together to Corp.
The team of Conifer also just recently joined the building last week.
Beyond eliminating duplication it increases communication renews reduces time from decision to action.
And builds a stronger more focused team to support the field operations.
The guiding principle behind all of these strategies and the execution sporty NIM will result in solid performance and a good trajectory for continued growth.
We believe slide six is an example of how we've taken these priorities in immerse them into our business to deliver results over the last few years on the left adjusted EBITDA has steadily increased from 2017 forward was 2018 and 29 can strong performance and ultimately resulting in our 2020.
Guidance of roughly two point.
Athree 5 billion or just under 5% at the midpoint.
The path of adjusted EPS. Since 2017 is also important to highlight and in particular, the three year compounded annual growth rate of 55% at the midpoint.
Slide seven is our view of where we've come in the last two plus years with stronger hospital admissions improving from a negative 1.2% to a positive 1.9% in 2019, our target for 2020 is 1.5% to 2.5% and we will narrow that as we get past.
The first six months with our intention to press it over 2% in 2020.
Our ambulatory surgical growth we have moved this on a consistent trend from a negative 0.5 to a positive 3.3 in 2019 setting arranged for 2022, a positive 3% to 3.5% with the same emphasis on continued improvement.
Finally conifer.
He used to have solid margin performance at 28.1% in 2019, representing growth of around 1000 basis points in the last two years.
We plan to maintain that impressed when improvement but are quite satisfied with this level given the changes in play.
Our goals for this year are outlined on slide eight and a continue embrace the significant enablers of future performance enabled on.
Changes driven by taking advantage of opportunity and not waiting a portfolio of core operations that is well positioned to meet community needs and flexible when necessary to just direction in size.
Thoughtful decisive actions in real time, with a mindset for efficiency and quality.
Alignment of strategy and execution.
With transparency and the facts.
And finally, a commitment to high performance culture, Valuate valuing our patients associates suppliers shareholders debtholders than others by prioritizing our actions to drive the best of the best in our approach every day with accountability.
So with those comments I'd now like to turn it over for Dan today Dan.
Thanks, Ron and good morning, everyone as Ron mentioned in his remarks, we produced a strong quarter.
Slide 10 provides several highlights.
On a consolidated basis, our fourth quarter adjusted EBITDA was up nearly 18%.
This was primarily driven by double digit growth in both the hospital and ambulatory segments.
With our hospital segment up nearly 16%.
And the ambulatory segment up about 24%.
Conifer also performed well growing adjusted EBITDA by 8% and increasing its margins by 490 basis points year over year.
A key factor driving the results from both the hospital and ambulatory businesses was the continuation of our patient volume growth and solid pricing and revenue yield.
Our hospital adjusted admissions grew 1.9%, which is the fourth straight quarter of growth in this metric.
USPI produce strong surgical volume growth of 3.4% and USPI tuttle volumes, including imaging and urgent care cases grew 5.7%.
Which is the ninth straight quarter of total case growth in our ambulatory business.
Conifer continues to drive it's grown through crop cost efficiencies.
The incorporation of real time data into our decision, making in 2019, a continued focus on the basics and our culture of accountability and cohesiveness are all working together to help ensure our patients and physicians are pleased with our tenant experience furthering our prospects for additional growth.
Turning the P.S., our full year U.S. GAAP loss was $2.35 per share. However, our adjusted EPS was income of $2.68 per share, which is earnings growth of 44%.
The GAAP loss was primarily due to charges for restructuring initiatives and early debt retirement costs related to our refinancings at locked in attractive interest rates.
Which reduce interest payments and cleared out any significant debt maturities until April 2022.
Turning to cash flows we closed the year strong and we were very pleased that our net cash provided by operations during the year grew about 18%.
And our adjusted free cash flow was up nearly 27% to 760 million coming in 60 million above the midpoint of our outlook.
As we look at our outlook for this year on slide 11.
At the midpoint of the ranges, we expect to generate 2 million 835 million of adjusted EBITDA.
In adjusting PS on by $3 per share.
This equates to year over year, adjusted EBITDA growth of nearly 5%.
And adjusted EPS growth of close to 13%.
These growth rates for 2020 are shaped by our continued views that we are confident our ability to drive sustained organic volume growth in.
In both our hospital and ambulatory platforms.
We have very good visibility into pricing with 92% of our commercial book of business already under contract.
The pipeline for ambulatory acquisitions into now those remained strong.
And we expect our disciplined cost management to continue.
Slide 12 provides a more detailed view by segment again, we're projecting solid adjusted EBITDA growth rates across the operating segments with the highest growth expected to come from our ambulatory segment.
Turning to slide 13 here, we illustrate how we will grow our adjusted EBITDA compared to last year.
As you can see volume growth and pricing strength will drive incremental earnings also we expect our cost initiatives will yield approximately 150 million of additional efficiencies this year.
Which will bring our tunnel program savings to 450 million.
Since the beginning of 2018.
As we have discussed in the past one of the headwinds we face. This year is the impact of dish cuts mandated by the affordable Care Act.
And we will see on the reductions in state Medicaid funding in certain states.
However, despite these revenue reductions we expected grow our hospital EBITDA, 2.5% this year through volume growth, including higher acuity services cost management.
And revenue pricing growth.
Turning to the ambulatory segment as I said earlier, we expect USPI to continue to produce very strong growth.
By the combination of organic growth through ongoing operating discipline and acquisition and de Novo investments.
As for conifer as we continue to prepare for its spin off next year, we're making certain investments. This year in sales force to drive future revenue growth and to prepare for the spin off but these investments should ultimately drive returns.
Also hospital divestitures by Summer conference customers in prior periods will have a year over year impact on conifer's earnings growth, However, additional cost efficiencies to be realize.
We'll offset these items.
We are confident in our ability for each of our segments to take advantage of the opportunity before them and as it and to deliver solid growth this year.
Lastly, let me highlight our projected cash flows this year as shown on slide 14.
We are expecting outlook midpoint growth rates in the low to mid teens for both net cash provided by operating activities and adjusted free cash flow.
Net cash provided by operations is expected to be between one.
Early in 250 million and 1.25 billion, a two year compounded growth rate of 15%.
Adjusted free cash flow for this year is projected in the range of 775 million to 975 million.
A two year compounded growth rate of about 20% or 275 million.
In summary, we delivered a strong finish to 2019 from a volume earnings and cash flow perspective.
And we believe our progress over the past few years positions us nicely for continued growth in 2020 and beyond.
With that I'll turn the call back over to Ron Thanks, Dan I would simply add that I agree with Dan we did deliver a very solid quarter, we've taken steps.
To make our cost savings you reality, we're going to continue improving tighten our overhead.
Successfully execute a complex offshore strategy, which is well underway.
We have improved quality and care delivery, we ratified 16 labor contracts successfully.
We are planning and executing the conifer spin on schedule, while continuing to deliver good results.
And we combined our three functional headquarters into a single effective efficient location.
This was really all possible due to the culture changes that have taken hold the willingness to seek new approaches and solutions and the overall team that leads this company.
While these not declared victory we are today, an entirely different company and we are committed to continued success. So with that operator, I believe we'll open for questions.
Thank you.
At this time will be conducting a question and answer session. If he'd like to ask a question. Please press star one on your telephone keypad. We ask that you. Please limit to one question and one follow up.
Information tell indicate your line is in the question Q you May press star to if you'd like to remove your question from the Q4 participants use a speaker equipment and may be necessary to pick up your handset before pressing the star keys.
One moment, please while we polling for questions.
My first question comes from AJ Rice with Credit Suisse. Please proceed with your question.
Hi, Thanks, Hi, everybody I'll first of all obviously on conifer since we last spoke I guess you.
Announced the CEO addition, there and that was a major milestone as you're thinking about moving towards the spin off are there any other operational milestones that need to be check or is that the focus on just moving a pace toward getting the spin off in place that mid next year and.
With his initiatives that he's going to implement how long before you think obviously you've made good progress on the cost side, but maybe before the topline starts to show growth again.
Oh. This is Ron thanks for the question I would I would just to answer it. This way I mean, he's been on board 10 days. So I can't tell you exactly what is when our next lineal hit some of those issues, but we are very well aware of him and he's very engaged in that stuff.
So I'm just going to hold that for now because setting you know some arbitrary date that we're going to all of a sudden see growth to sign contracts. We were already starting down that road, it's really up to him to build out of sales team and make sure that we continue to execute that but I can't give you a precise date when you ask about operational in there.
It is obviously growth is one of them and we see that is very important a and then there's just several other things that we believe our important operationally internally to keep doing which includes a continuing to really evaluate whether or not we've got all the right people in the right right Rolls a were.
We're going to go deep and long on that as you would expect a new leader to do.
And that was part of the plan.
And then beyond that we're going to continue down the path of some of the deals that are in play see if we get those closed and and then we've got some other things that we're working on that really is more of a competitive conversation that I.
His needs to stay internal pronounced but look I'm very excited about having a CEO on board I think this was I think hiring Joe was probably one of the most important things we had on the list to get done and it is done and so now we just got to let it play.
Play out accordingly, but the rest of the stuff, we have as a timeline and schedule or are pretty well buttoned up or we have work streams. We meet on him frequently we have a cadence to it.
All the various things you could ever think over happening.
We have teams dedicated to doing it so I'm pretty comfortable that we are we are well within the sites of getting this done as planned so I don't see any road bumps okay.
Alright, great if maybe one follow up would be a.
On the cash flow commentary, obviously as you move joy solidly.
Generating.
Meaningful free cash flow when you think about the level of capital spending on the hospital side, you think about the opportunities for de Novo an acquisition tuck ins on the U.S.T.I.s side when we see.
Increasing spending level on either of those areas or does that increase free cash flow.
Mainly go to pay down debt.
Hi, James This is Dan good morning, I'm certainly we is we continue to drive additional free cash flow, we will certainly look and I I would say the two key priorities are.
Investments and our ambulatory assets, there's the pipeline as we mentioned is incredibly strong. So we think there's a lot of good opportunities they're paying down debt also is very important.
And so as we generate free cash flow and as Weve, you know, we've announced that we will be selling our and Memphis facilities proceeds of around 350 million. So certainly I'm looking at reducing debt I'm is certainly you know a priority of the company on in terms of reducing absolute dollar.
The amount of debt as well as reducing leverage ratio, which obviously as we continue to drive earnings growth will help there as well now that doesn't mean, we won't make any investments in the hospital business, we're making very strategic investments to grow certain service lines and then I think it's.
Do you, what you're saying is starting to yields from returns in terms of volume growth and we saw this year. So yeah. We will continue to look for opportunities to allocate capital, where we think we're going to generate the highest return.
Okay. Thanks.
Our next question comes from Peto Chickering with Deutsche Bank. Please proceed with your question.
Hi, Good morning, guys. Thanks for taking my questions here.
If he wants here on the acute business.
Yeah same sort of same store I'm is here to continue to grow quite well, let's take the exchange admission growth was very high this quarter I can you sort of walk us through surgeries for it for 2020, but just wondering team and exchange emission growth in 2020 years 2018, how how thats baked into your.
Adjusted initial guidance.
Oh.
Hi, Peter its couple of couple of points first of all the exchange enrollment in 2020 and strong, especially in maybe the states in which we operate and you probably have seen some of the strongest numbers being in California. Our strategy has been consistent with Dan talks about.
With respect to our contracting in overall managed care. We've also had a you know very successful strategy over the years of being in network in many of the exchange programs and we continue to you know pursue those strategies we think.
The exchange business is one that we can serve well in our acute care and ambulatory facilities.
And so we expect to continue to perform you know in the exchange business going forward I would say that you know on the second part of your question with respect to surgeries in and frankly proceed euro based care as you know over the past year Weve been focused in virtually all of our markets on shifting some.
Of our strategic focus and deployment of clinical technology capital or to be able to expand our surgical and procedure based services, including in an environment, where some of that business is moving into the outpatient setting we want the hospitals in the acute care setting to remain competitive and we continue we will continue to make those investments and make sort of.
Nickel care priority.
In the hospitals in 2020.
[noise] a great and then for a follow up Oh, you've got pushed out and leverage target for 2020, and I know that there's a lot of moving pieces like.
That's tours that can occur this year again with that around but assuming that the <unk>.
At this hospital cell can give us a range of wherever she expects leverage to to get into 2020 versus the end of 2018. Thanks, So much [noise].
Paid on a stand good morning, certainly as we.
Again, as I mentioned AJ as we have.
Saleable free cash flow or proceeds.
From divestitures, reducing that's very important.
For us and you know there we have very various tranches of notes that become callable this year it reasonable.
Premiums.
So you know we have flexibility and optionality in terms of reducing since that does your either from free cash flow or asset sales now in terms of leverage target I'm, obviously, we want to get it below five and we've we've talked about that we haven't set a specific target for the end of this year.
It certainly is we through or cash flow generation.
Proceeds that you were certain one of the first there's we're looking at is reducing debt and it again it all depends on opportunities out there from investment perspective, whether that's ambulatory opportunities or any investments in the hospital sub.
Our next question comes from Ralph Giacobbe with Citigroup. Please proceed with your question.
Thanks. Good morning, I was hoping you could talk a little bit more about the margin opportunity and media Hospital segment, and you had the entre basis points sort of expansion in the fourth quarter I know you're flat for 20 I came at the midpoint guidance. It actually looks yeah flattish maybe down a tad. So hoping you can just cost out a little bit more on.
Do you have margin target and watch the trajectory it got there. Thanks.
Hey, Ralph it's Dan Good morning in terms of the the hospital margins they did improve nicely in the fourth quarter year over year.
You know when we when we look at 2020 as you see on on our walked away from you know 19 to 20.
Yeah, I know the hospital margins are essentially flat I'm down about 10 bips.
But you know there's a couple of things there that really had an impact on that in that we called it out on you know our bridge terms of some of the you know the dish reductions and are flowing through listen we we are obviously focused on continuing to improve our margins in our hospital business.
We continue to grow volumes, we will be able to take advantage of all our operating leverage we have available capacity and most of our facility. So we can add incremental business.
And be able to spread fixed costs out over a larger book of business. So.
It's certainly what we're targeting in terms of as we move forward. We got certainly very good visibility into pricing moving forward not only a this year but into 2021.
We continue to believe that.
Yeah, we'll continue to manage cost very well and it comes down to you know can we continue to drive volume growth and in the hospital business.
Close out the are strong and you know, we're obviously looking forward to continuing to deliver this year, Yeah, Hey, Ralph the some yeah. That's the only thing I would say in addition to that is obviously, we're very focused on.
Accretive rather than dilutive growth and so we got a lot to step over in 2020 from the standpoint of the payment cuts that are described in the.
Supplemented supplementary materials, but you know the reality is that this is a year as weve reestablished acute care growth in the business. We've also got more focus on profitable acute care growth.
Or and or you know service line privatization with a little bit more depth that will hopefully yield more margin expansion.
We're very focused on it.
Okay. That's a that's helpful. And then just follow up just hoping you can talk a little more about the commercial volume trend in the quarter, maybe out compared to sort of the second and third quarter and then on top of that just any color went back in the fourth quarter and and if you're willing to discuss sort of first quarter, what you're saying Vulcan.
There's a flu and obviously a lot of headlines around corners. Thanks.
Sure let me take that in reverse order. Obviously, we're you know monitoring the current of ours situation very carefully you know we are you know there hasn't been any significant impact on the business or even clinical impact yet, but we're very well prepared across all of our facilities Uh huh.
Tween U.S.P.I. the hospitals, the physician clinics and even our global business Center, we've put a lot of effort into making sure that were.
Prepared to handle whatever may come obviously with a degree of uncertainty around how that may expand in the United States. So we'll see.
The flu has has really not been a material driver in the fourth quarter of inpatient activity.
I'm sure that you know lower acuity visits with the flu in the urgent care platform I have been helpful. In terms of you know our.
Attractive nonsurgical ambulatory numbers, but you know that's that's pretty much that's pretty much where we've seen the impact of the of the flu so far.
Within within the portfolio look on the commercial volume side.
Obviously, we're very focused on measuring our ability to attract commercial patients and our physicians ability to attract commercial patients to the services that were able to offer both elective and emergent.
Emergent services and we're pleased with the fact that you know the prior multiyear trends of significant commercial volume declines have stemmed at this point in a commercial market that's not necessarily growing it's it's a testament to the work that the that the operators are doing in their markets to make our.
Assets more accessible more attractive and provide the services, they're looking for suite, we remain very.
Optimistic about our success on the commercial volume front in 2019 and carrying that into 2020.
Next question please.
Our next question is from Kevin Fischbeck with Bank of America Merrill Lynch. Please proceed with your question.
Great. Thanks, a question on the the cost growth yeah. The guidance that you guys gave on the cost growth is that net.
A hospital side net of the $110 million of of cost savings and Ah I guess really what what's driving that Costco.
Kevin Good morning, it's Dan I'm. It is net of the the cost efficiencies that will capture this year.
As we as we close on yeah, our various actions that we talked about as part of our $450 million program.
You know in terms of you know in terms of the overall cost growth.
Manage cost very well the past several years, we expect that to continue certainly as we continue to make certain investments to grow the business. That's part of you know when we think about our cost structure for for this year and Dion so.
We're making certain investments to grow the business and we think it's already begun to yield results and we'll continue to look for those type opportunity. So yes. The you know there's cost initiatives are baked into our cost growth outlook.
Okay, and you met you outlined a few rate cuts ever kind of headwinds to to growth. This year, but I guess, even if we added those back you're still talking about cost growth that's above pricing growth. So I guess as we think about you know in the future.
How do we get to a point, where you know here here tier pricing growth is at least your cost go ahead at about improving pricing outlook or is it about improving the cost side or is it you just need to grow volumes and that's really the.
This off.
<unk> <unk>, it's really both you know the disease. The revenue reductions that you know related the dish you know that's you know if you normalize for them you have cost growth.
Pretty much in line with though with the revenue yield.
So you know listen there are some key investments.
That we began to make in 2019.
We'll make some additional investments this year and you know that gets you know included into lower cost us.
Yeah, we obviously will be looking to do better, but right now and we're where we said we think that this is a reasonable range at this point.
Next question please.
Our next question comes from Josh Raskin with Nephron Research. Please proceed with your question.
Hi, Thanks, Good morning, I'm wondering has gotten the AMC Saturday USPI side, Yeah overall, let's take the center count actually Sal and maybe just SAP the numbers right there sequentially that that let that unusual for sort of a for a Q and I know you've made some comments in the pipeline. It's just wondering if something specific happened there and then more broadly as you.
Look at surgeries in markets, where you've got a big assay crashed and sorry, you know system partnership et cetera.
Are you seeing you know a situation where youre capturing volumes that are moving out of tenet hospitals, where do you think you're actually taking share and the overall surgery volumes in those markets.
Hey, Josh This is Brad quick question to answer your questions first I'd say related to the facility count in Q4 like you know, we always kind of go through a process of looking to optimize our portfolio in Q4, we did eliminate a couple of facility.
Is that we're no longer strategic for us and we essentially either sold or close those facilities down it's a normal I'm part of our portfolio optimization process.
In terms of the pipeline overall I mean, we continue to have a very strong pipeline of acquisitions and de Novos and we had a number of deals that slipped from Q4, two Q1 since we hadn't completed due diligence and we won't close on those as you know until we're ready as a result, we feel really good.
This is Ron and.
Dan alluded to about achieving 150 million in spend in 2020. In addition, although we only invested 50 million.
For the for the year it was heavily weighted towards the knows there for the 2019 investment is projected to produce a comparable level of bernie's once that if now those ramp up to what would have occurred with a higher level of investment.
I would say to answer your second question related to share, yes, I mean, when you when you look at the business development activity that we're pursuing across that portfolio. There's a heavy emphasis on attracting physicians that are not part of our facilities not a part of our network and adding.
New facilities in new service lines.
To our portfolio just to give you. An example in 2019, a we added 70 distinct service lines to 70 of our facilities across the portfolio primarily in the areas of spine total joint cardiac and robotic assisted surgery.
Sorry.
So when you do that you not only obviously build additional business from your existing medical staff, but when you add those service lines, you're you're also attracting new physicians to your portfolio, which obviously translates into accretive accretive growth.
Thank you.
Next question. Please next question is from Matt Leroux with William Blair. Please proceed with your question.
Hi, good morning out one gas quickly about capital allocation, obviously, you've talked about.
The pipeline on and established over the last several calls we've also been talking about pivot towards patient chronic illnesses. There's my sense for how you balance count capital allocation you had 2020 and then.
What particular Heikkinen service line.
You know, we're targeting them, but in terms of tried and growth on the hospital five planes flying.
Yeah, Hey, it's a couple of a couple of different things here first of all.
I you know the strategy of continuing to pursue a service portfolio that is best suited for people with multiple chronic illness again, whether its acute.
Emergent or elective care is a is still what we're focused on in 2020.
Yeah, the balance the balance of the capital investments across the portfolio, whether it be the ambulatory segment, the acute care segment or even into specific service lines is really based upon as Ron is described a much more disciplined process of simply outlining market opportunity and and return on.
Investment that we expect from those investments I mean, we look at all of them a with a level of rigor now that gives us a sense of how we should prioritize those investments and at the same time take into consideration. The fact that in some markets.
We're making investments to really lead the market and in some markets, we're making investments to improve our competitive position, but we may not be in a leading position in you know you've got to make both sets of investments in order to continue to grow the business and expand the margins.
In terms of the service lines when you look at.
The patients who have chronic illness, especially those that are younger and with commercial insurance, you're really talking about a combination of bone and you know broad based bone and joint orthopedics and spine.
Cardiovascular and and by that it's a pretty broad definition of cardiovascular.
And increasingly you're seeing more demand in the Neurosciences area.
The other thing to remember is the fundamentals of our acute care hospitals, which include trauma in general surgery continue to be growth opportunities in our markets and we continue to evaluate opportunities to expand and already large pool of trauma services that we offer in order to ensure that were.
Providing.
You know the right range of emergency services that often those patients require so.
I would say that you know, it's it's a pretty focused strange I mean, the things that you know are less acute and have moved into the outpatient setting in a really growing more in our ambulatory facilities are less less the area of focus from a capital standpoint in the acute care hospitals.
It's working out way around a little tied on time, so if we could limit your questions to just one and we'll take the follow up if time allows thank you.
Our next question comes from Brian 10, Kilo with Jefferies. Please proceed with your question.
Hey, good morning, guys, Congrats and good Q4, so I guess just my question as I look at the revenue per adjusted admission guidance for 2021, an attitude half percent, that's slightly lower than where you've been trending. So is there anything to call out there.
Or is that just conservatism and then what is assumption embedded in that on California provider and timing. Thank you.
Brian It's Dan good morning, the the reductions in the disproportionate share revenue that I mentioned.
We have on our bridge or whether there was a Medicare fish reductions or the Medicaid reductions.
That's what's having an impact on our aggregate pricing growth our commercial book of business as I mentioned were almost fully contracted this year and you know the pricing a yield there should be very consistent with what we've been generating over the past several years. So we feel really good about that.
But theres just you know these reductions that they see I'm kicked in or you know related to the affordable care Act is really what's having an impact on on that.
Got it thanks, Dan.
Our next question comes from Whit Mayo with you'll be S. Please proceed with your question.
Hi, Thanks, Good morning, maybe just for for Dan or Brett I'm, I'm still struggling a little bit with U.S.T.I.s revenue growth in the quarter consolidated revenues were up over 14%, which is twice the rate at the same store revenue growth in the quarter and the consolidated segment usually grows much slower than the system.
My number so is there anything else that contributed to the strong topline growth southern living you mentioned acquisitions weren't really a factor maybe there were some de novo's I'm, just having a tough time reconciling.
The growth thanks.
Yeah, Hi, this is only Morris CFO of U.S. Guy.
We did see.
Strong organic growth in in the in the quarter you know as you see the 7.3% overall system why it's reflective of the consolidated assets.
I was going from performed really well, we also even though we had smaller volume than normal and 2020, we actually continue to grow significantly as in the in the quarter. So that was also strong contributor. So there's no real outliers and in this Q4, two oh this year so.
So what bridges that yeah, what bridges the difference between the 14% growth in the 7.5% growth.
Presumably that's some level of inorganic acquisitions or de Novos I'm, just struggling to figure out.
Yeah, exactly we had really strong actually well the acquisitions that we did do produced.
Song consolidated revenues for us and that was that was a contributor.
Okay I was wet in the fourth quarter last year, we closed some deals, but we didn't necessarily have a full quarter.
Revenue last year.
Okay.
Our next question comes from Sarah James with Piper Sandler. Please proceed with your question.
Thank you and I was hoping you could give us a little bit more color.
On what the decision process looks like when you're deciding to do this service line expansion. So what level of insight do you have on volume shifting sites of care, what type of data and analysis.
Available team to inform your decision that service line extensions. Thanks.
Yeah. This is some I mean, that's a it's a broad question and I'll try to address it this way which is.
The types of things that we tend to look at our underlying market growth the demographics in the market the utilization patterns that we see the nature of the insurance coverage. The best site of care from the standpoint of cost quality and service with respect to any particular.
Clinical program and obviously the ability to work with high quality physicians that you know are able to provide those services in an effective and safe manner.
Everywhere, we go and then obviously our own internal data helps us understand.
Our ability to provide those services in a way it its margin accretive and so there's a combination of market data demographic data competitive data and obviously internal cost accounting data that goes into helping us think about.
Where and how and in which markets to make certain types of service line investments, but again I would emphasize there's a qualitative component to this as well which is you've got to have good practitioners that are willing to sign up for the types of quality programs that you want to build who choose to affiliate with us and so.
So it's a combination of analytics and also just the on the ground legwork or trying to find those providers that are willing to build with you in that way.
Thank you.
Our next question comes from Justin Lake with Wolfe Research. Please proceed with your question.
Thanks, Good morning, a wants to follow up on partner for up more around the how should we think about the timing of the information flow on conifer now that you have a CEO I'm thinking about the financial structure in terms of but got assigned to the conifer span actually see filings necessary for the spend the label to contract.
What kind of et cetera.
I mean, we have a schedule you that spread out.
It's spread out over you know the next year I mean, we were talking about June 2021, so were little bit over a year out so some of what you're asking for it will not be really discussed until a actually the beginning in 2021.
You know, we're not in that position today to pay with that we'll look at you know in terms of debt for debt exchange, we got the process in place, but we're not ready to to get to that point there'll be a lot of happen between now and then relative to hopefully that's on growth and and the company itself.
It's obviously a large cash producers. So it's it's a very important consideration we get to that point, but we're not prepared to do that so in terms of releasing of information I think a other than talking about the fact that we're on schedule and that we're finishing these lines. The addition of the CEO other changes will make to the infrastructure and announced.
And any deals we do I don't see the technical things, you're asking about really coming to bear until probably sometime a right. After the first of the year.
Or certainly no no earlier than the end of year at this stage I think that's a pretty much what were targeted at this point because otherwise we're going to we're gonna debate certain points forever and we're gonna be putting out opinions not facts. So I think we'll just we'll be doing that towards the end of year. So.
Hope that answers your question I sort of color.
Thank God.
Our next question comes from Gary Taylor with JP Morgan Chase. Please proceed with your question.
Hi, good morning, when they ask a few questions about cash flow and certainly appreciate you ended up I'm hitting your cash flow.
Guidance for the year that look maybe questionable to some even through the third quarter, but you do stuff to guide you hit it so congrats on that.
A couple of questions for next year. This will be sort of the fourth year in a row, where there's a couple hundred million of restructuring litigation. So one at a little color I presume the Oklahoma settlement is that isn't that wondered what else was in that.
And then secondly are we correct that if you hit your 2020 guidance and Noel said really knows will be exhausted and you become a cash anticipate becoming cash taxpayer in 2021.
Good morning guaranteed Stan and let me address out in terms of you know free cash flow this year.
So adjusted free cash flows 875 million.
As we also disclosed in our guidance, we do have a projection for investments will make or payments will make related to either restructuring activities. As we continue to transform the business or the <unk>. The legal matter. The you mentioned the legal matter that you mentioned we.
Disclose that last quarter that is in our projection for for for you know cash outflows.
You know for for this year, So you know.
875 million, there's roughly at the midpoint, there's about 213 million of restructuring payments and litigation payments. It will make you know.
We get this question a lot you know when you know that number what's what's the anticipated levels moving down the road as weak. Good you know as we continued to go through our transformation will continue to have some of those I'm a level of payments I'm not sure they ever entirely go away, 100%, but.
Certainly you know the the legal matter that would be something that would be behind us. After this year and we anticipate that those type of investments would move 'em down as we go into 2021.
And beyond.
Next question. Please our next question comes from John Ransom with Raymond James. Please proceed with your question.
Yeah.
Okay.
Hey, Dan eminent by you and that's after this and mass and just next February.
So if we take the low to high cash flow guidance for 2020.
We back out to 25 to 225 of litigation athlete 50 to 370, a then see I and then assume 150.
For U.S.P.I. M&A, that's our estimate and then we throw in 350 million for them at this asset sale, which I know it's not in your guidance, we're getting somewhere of or yeah for hundreds of 600 million approximately of actual.
Cash available to pay down debt.
Is there something or anything you'd call out of that math that we're worried about six other.
No that's not tighter on yeah again, you I think you did the math right and you start again, you start with 875 million of adjusted free cash flow you know a little over 200 million for the restructuring investments in litigation payments, the non controlling interest payments to our partners and predominantly in our ambulatory centers, which.
We're doing incredibly well that's about 360 million at the midpoint and so and then if you take into consideration. We anticipate sales proceeds from you know seldom Memphis facilities of around 350 million I will have some now available a cash generation to be able to really.
Look hard at it reducing debt.
Yeah, absolutely I mean is yeah, I mean with its not like when you know we're gonna be selling he every facility in the company, we will and we've been very clear that 'em. We continue to look at the portfolio and if it makes sense there there may be some assets with.
In the portfolio that we would divest and obviously continue to refine the portfolio and look for those type opportunities to redeploy that capital.
We have reached the end of the question answer session. At this time I'd like to talk turn the call back over to tenant management team for closing comments.
Well I don't have much more to add this run rate married just want to say thank you for a joining us today and of course follow ups available through Gina and ER and the anything that's needed will try to be responses as timely as possible. So with that thank you very much.
This concludes todays conference you may disconnect your lines at this time and we thank you for your participation.