Q4 2024 Tenet Healthcare Corp Earnings Call
Good morning, welcome to Tenet Healthcare's fourth quarter 2024 earnings conference call.
After the Speakers' remarks, there'll be a question and answer session for industry analysts.
At that time, if you'd like to ask a question. Please press star one on your telephone keypad.
Respectfully ask that analysts limit themselves to one question each.
I'll now turn the call over to your host Mr will Mcdowell, Vice President of Investor Relations. Mr. Mcdonald you may begin.
Good morning, everyone and thank you for joining today's call I am will Mcdowell, Vice President of Investor Relations with <unk>.
Pleased to have you join us for a discussion of Tennant's fourth quarter 2024 results as well as a discussion of our financial outlook.
Dr. <unk>: Tenant senior management participating in today's call will be Dr. <unk>, <unk>, Chairman and Chief Executive Officer, and Sun Park, Executive Vice President and Chief Financial Officer.
Dr. <unk>: A webcast. This morning includes a slide presentation, which has been posted to the Investor Relations section of our website tenant health Dot com.
Dr. <unk>: Listeners to this call are advised that certain statements made during our discussion today are forward looking and represent managements expectations based on currently available information actual results and plans could differ materially.
Dr. <unk>: It is under no obligation to update any forward looking statements based on subsequent information investors should take note of the cautionary statement slide included in today's presentation as well as the risk factors discussed in our most recent Form 10-K, and other filings with the Securities and Exchange Commission.
Tom: I'll turn the call over to Tom.
Dr. <unk>: Yeah.
Dr. <unk>: Thank you will and good morning, everyone. We.
Speaker Change: We delivered outstanding performance in 2024 are characterized by strong same store revenue growth disciplined operations and effective capital deployment.
Speaker Change: In addition, the year was highlighted by portfolio transactions that have transformed our franchise to be well positioned for long term growth with strategic flexibility in a deleveraged balance sheet.
Speaker Change: We reported 2024 net operating revenues of $27 billion and consolidated adjusted EBITDA of $4 billion, which represents 13% growth over 2023.
Speaker Change: Full year adjusted EBITDA margin of 19, 3% improved over 200 basis points from prior year.
Speaker Change: Our fourth quarter results were above our expectations driven by continued same store revenue strength high acuity growth as well as effective cost management.
Speaker Change: Our disciplined approach has enabled us to consistently exceed our performance expectations each quarter. This year furthering our track record.
Speaker Change: I would note that our full year adjusted EBITDA ended the year over 600 million higher than the midpoint of our initial expectations driven by strong growth and operational performance.
Speaker Change: U S. P. I had a fantastic year in 'twenty 'twenty four we generated 1.81 billion and adjusted EBITDA, which represents 17% growth over 2023, and adjusted EBITDA margins of 40%.
Speaker Change: Same facility revenues grew 7.8% in 2020 for another years substantially above our long term goals.
Speaker Change: High acuity volume growth was highlighted by total joint replacements in the ASC is up 19% over prior year.
Speaker Change: Importantly, customer service levels in our centers remain quite high as we earned a 96.6 overall patient experience score in 2024.
Speaker Change: Turning to our hospital segment. Despite the sale of 14 hospitals during the year, we generated 2.1 $85 billion of adjusted EBITDA in 'twenty 'twenty four.
Speaker Change: Which represents 9% growth over prior year.
Speaker Change: Same store hospital admissions were up four 7% as we continue to open up capacity to respond to a strong utilization environment.
Speaker Change: Acuity and payer mix was strong throughout 2024 and drove a 4.6% increase in same store revenue per adjusted admission over prior year.
Speaker Change: This was an important year for tenet as we transformed our portfolio of businesses through the multiple through multiple high multiple sales of 14 hospitals and related operations generating $5 billion in gross proceeds and enabling significant balance sheet deleveraging.
Speaker Change: In addition, we added nearly 70 ambulatory surgical centers to the portfolio in 2024, as we were very active in both M&A and de Novo development.
Speaker Change: And finally over the past two years, we have returned capital to shareholders via share repurchase retiring approximately 14% of our outstanding shares for $1.12 billion since our repurchase program began in the fourth quarter of 2022.
Speaker Change: Going forward, we plan to be active repurchases re purchasers of our shares, particularly at our current valuation multiples.
Speaker Change: These actions have resulted in a portfolio of businesses 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.
Speaker Change: In summary, we're very pleased with our team's performance in 2024, and we believe that we will carry this momentum into the new year.
Speaker Change: Turning to 2025 guidance, we are projecting full year 'twenty 25, adjusted EBITDA of 3.9 hundred 75 to 4.1 $75 billion, which is an attractive 7% growth rate at the midpoint on a normalized basis.
Speaker Change: We anticipate adjusted EBITDA growth at U S. P. I of approximately eight 5% at the midpoint of our guidance for 25 based on our expectation of three months to 6% growth in same facility revenue fueled by ongoing strength in demand and acuity continuing effective operational execution and additional sites of care.
Speaker Change: Joining the portfolio.
Speaker Change: We intend to invest approximately $250 million each year towards M&A in the ambulatory space and the pipeline of opportunities remains strong.
Speaker Change: We anticipate adding 10 to 12 de Novo centers in 2025.
Speaker Change: Our ability to consistently scale our platform to create additional low cost sites of care for patients and physicians continues to pay dividends as it improves our overall growth profitability and capital efficiency and resiliency in this regulatory environment.
Turning to our hospital segment, we are expecting adjusted EBITDA growth of approximately 5.7% on a normalized basis at the midpoint for 2025.
Speaker Change: This projected growth is expected to be driven by 2% to 3% adjusted admissions growth and strong operating discipline that our team has now demonstrated for many years.
Speaker Change: The hospital segment's performance will be enhanced by strategic capital deployment expanded service lines and further contributions from the new West over Hills facility, which opened in the third quarter of 2024.
Speaker Change: Additionally, as we have noted we have expanded the relationships that conifer has with acquirers of hospitals, we've sold and this should contribute to growth in 2025.
Speaker Change: Finally, we acknowledged that there is currently a great deal of focus on the impact of potential regulatory changes in our space.
Speaker Change: We have demonstrated an ability to perform well in a variety of operating environments and believed we are differentiated from our peer set as we navigate potential changes going forward.
Speaker Change: For example, our E S. CS operate with freestanding ASC rates, which insulates that important part of our business from potential changes in site neutrality rules.
Speaker Change: In summary, we had an outstanding year in 'twenty 'twenty four and believe that we are in a great position for another strong year in 2025 our.
Speaker Change: Our guidance reflects the opportunities before us and the momentum that we carry into the new year.
Speaker Change: Our established management team stands ready to execute our focused strategy and deliver value for patients physician partners and in turn shareholders.
Speaker Change: And with that Sun will now provide a more detailed review of our financial results son.
Sun: Thank you Tom and good morning, everyone.
Sun: We are very pleased with the strong finish to the year in the fourth quarter. We generated total net operating revenues of $5 1 billion and consolidated adjusted EBITDA of $1.048 billion.
Sun: Which represented an adjusted EBITDA margin of 27% up almost 200 basis points from fourth quarter of 'twenty three.
Sun: For full year 'twenty, four we generated $20 $7 billion of told net operating revenues and consolidated adjusted EBITDA of $3 99 5 billion.
These results were driven by strong same store revenue growth continued high patient acuity favorable payer mix and effective cost controls.
Sun: I would now like to highlight some key items for each of our segments beginning with U S. P I, which again delivered strong operating results.
Sun: In the fourth quarter U S. <unk> adjusted EBITDA grew 14% over last year with adjusted EBITDA margin at 42, 1%.
Sun: USPI delivered an eight 6% increase in same facility system wide revenues, driven by high acuity levels and favorable payer mix.
Sun: Same facility system wide surgical case volume grew slightly over last year.
Sun: And turning to our hospital segment.
Sun: Fourth quarter, adjusted EBITDA was $518 million with margins up 90 basis points over last year at 13, 6%.
Sun: Normalized for the divestiture that hospitals.
Sun: Adjusted EBITDA grew 13% over fourth quarter of 'twenty three.
Sun: Same hospital inpatient admissions increased 5% and revenue per adjusted admission grew <unk>, 6%.
Sun: Our consolidated salary wages and benefits in fourth quarter of 24 was 41, 3% of net revenues and our consolidated contract labor expense was two 1% of S. W. B.
Sun: Both substantially lower than the 43% and the two 8% respectively that we reported in the fourth quarter of 'twenty three.
Sun: Yes.
Sun: Next we will discuss our cash flow balance sheet and capital structure. Our cash flow performance was very strong in 'twenty four with $1 $1 billion of free cash flow for the year.
Sun: This includes the payment of $875 million in income taxes related to our completed divestitures.
Sun: Excluding these tax payments. This represents nearly $2 billion of free cash flow for the year were $1 $3 billion of free cash flow after distributions to noncontrolling interests or NCI.
Sun: For full year 2024, we repurchased five 6 million shares of our stock for $672 million.
Sun: We finished the year with over $3 billion of cash on hand, with no borrowings outstanding under our $1 $5 billion line of credit facility.
Sun: Our year end leverage ratio was two five times EBITDA or three two times EBITDA less NCI, a substantial improvement over the past year, reflecting the proceeds that we received from our hospital divestitures as well as our outstanding operational performance.
Sun: We are very pleased with our ongoing cash flow generation and have a commitment to a deleveraged balance sheet we.
Sun: We believe we have significant financial flexibility to support our capital allocation priorities and drive shareholder value.
Sun: Let me now turn to our outlook for 2025.
Sun: We expect consolidated net operating revenues in the range of 26 to 21.0 billion.
Our projected consolidated adjusted EBITDA.
Sun: Is in the range of $3 975 to $4 $1 75 billion.
Sun: As a reminder, there are two normalizing items that I would call out when comparing our 25 of adjusted EBITDA to the prior year.
Sun: First we reported $114 million of adjusted EBITDA from facilities that we divested in 'twenty, four and will not recur.
Sun: Additionally, we reported $74 million of out of period supplemental Medicaid payments, Michigan and Texas in 'twenty four.
Sun: After normalizing for these items, our 25 adjusted EBITDA is expected to grow 7% at the midpoint of our range.
Sun: Our twenty-five outlook assumes continued growth in same store volumes and effective pricing as well as strong operational efficiencies and disciplined cost controls.
Sun: Additionally, we anticipate further contributions from recent investments and partnerships in the hospital segment as well as from M&A and Dino of center openings at USPI.
Sun: In addition, we are also assuming the following.
Sun: Same hospital admissions growth of 2% to 3%.
Sun: And adjusted admissions growth of two 3%.
Sun: And for U S. P. I same facility revenue growth of 3% to 6%.
Sun: On a normalized basis, we expect adjusted EBITDA to grow eight 5% at USPI.
Sun: And five 7% for our hospital segment at the respective mid points of our guidance ranges.
Sun: Our outlook also assumes $35 million of net revenues from the Tennessee supplemental Medicaid programs.
Sun: About one third of this increase is related to the second half of 'twenty four and is expected to be recorded in the first quarter of this year.
Sun: Finally, we would expect first quarter 2025, consolidated adjusted EBITDA to be in the range of 24% to 25% of our full year consolidated EBITDA at the midpoint.
Sun: We anticipate that Uspi's EBITDA in the first quarter. This year will be 21% to 22% of our full year U S. P. I EBITDA at the midpoint.
Sun: Turning to our cash flows for 25, we expect cash flow from operations in the range of two five to $2 $85 billion.
Sun: Capital expenditures in the range of $700 million to $800 million.
Sun: Resulting in free cash flows in the range of one eight to 2.05 billion.
Sun: In addition, we're also assuming distributions to NCI in the range of $750 to $800 million.
Sun: Which would result in free cash flow after NCI in the range of 1.05 to $1 25 billion.
Sun: And finally as a reminder, our capital deployment priorities have not changed first we will continue to prioritize capital investments to grow USPI through M&A.
Sun: We expect to continue to invest in key hospital growth opportunities, including our focus on higher acuity service offerings.
Sun: Third we will evaluate opportunities to retire <unk> refinance debt.
Sun: And finally, we'll have a balanced approach to share repurchases, depending on market conditions and other investment opportunities.
Sun: Given our attractive free cash flow profile and current valuations we plan to be active re purchasers of shares in 2025.
Sun: In conclusion, we had an outstanding year in 2024 with effective operational execution robust growth and a transformed portfolio of businesses.
Sun: We're confident in our ability to deliver on our outlook for 'twenty, five and continue to drive value for patients physician partners and shareholders.
Sun: And with that we're ready to begin our Q&A operator.
Sun: Thank you.
Sun: At this time well be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
Sun: As a reminder, we ask that you please limit to one question.
Sun: A confirmation tone will indicate your line is in the question queue.
Sun: Press Star two if you'd like to remove your question from the Q1 moment. Please while we poll for questions.
Speaker Change: Our first question comes from Pedro checking with Deutsche Bank. Please proceed with your question.
Pedro: Good morning, guys. Thanks for taking my question.
Speaker Change: So looking at tenants drove it in the last few years. The biggest change has been the cash flows and your deleveraging.
Speaker Change: <unk> guidance for this year is up 90% year over year with nearly $1 billion more cash flow from operations. So looking at your cash flow guidance for this year. After NCI. It's about 1.15 billion at the midpoint, if we pull out $250 million for M&A, it's about $900 million left to deploy with the leverage.
Speaker Change: 032 times EBITDA less NCI can you refresh us on what your ideal target our leverage ratios are and should we be modeling the rest of that go into share repo at this point. Thank you.
Speaker Change: Have you paid out some first.
Speaker Change: First of all I appreciate it.
Speaker Change: We reiterate in the improvements that we've made.
Speaker Change: [noise] in generating free cash flow from this business from operations Ah. It's obviously been a very important part of our.
Speaker Change: Our our goal over the last few years and getting to this point probably earlier than we thought.
Speaker Change: We're very comfortable with the leverage that we operate at today and importantly, it gives US you know we we look at it and say it gives us significant strategic flexibility with respect to the business both in terms of.
Speaker Change: Activity that we may pursue in growing and scaling USPI as I noted in my comments.
Speaker Change: But also also from the perspective, especially as I said at these valuation multiples.
Speaker Change: You know in terms of share repurchase in both Sun and I noted that we would plan to be active re purchasers of our shares at these multiples.
Speaker Change: It makes complete sense, we don't have debt coming due for a couple of years right. I mean, so we're not in any situation of urgency.
Speaker Change: They are regardless and I think the return on share repurchase at this point would be higher anyway. So.
Speaker Change: Our thinking is a relatively clear about that in the coming years, obviously, we need to continue executing operationally with the track record that we've built to generate that free cash flow, but as we've talked about in the last couple of years, we've really hard wired our approach there.
Speaker Change: The last thing I would point out you know and in addition to what I said about USPI in my comments.
Speaker Change: We don't USPI does not have a tremendous amount of Medicaid exposure. So.
Speaker Change: You know when you when you think about utilization of our cash flows.
Speaker Change: And you know regulatory risks that may be out there I mean, the reality is half our EBITDA is generated in this segment.
Speaker Change: That isn't really facing risk from any scenario out there related to Medicaid.
Speaker Change: Grams, and that's very helpful. That's very different.
Speaker Change: Then it might have looked five or six years ago. So we feel confident about the valuation opportunities for the company.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: Our next question comes from Jamie Paris with Goldman Sachs. Please proceed with your question.
Jamie Paris: Hey, good morning, Thanks for taking the question.
Jamie Paris: Can you maybe spend a minute on just the volume environment that youre seeing today, obviously 2023, and 2024 were pretty strong years, some of that recovery and normalization post the pandemic.
Jamie Paris: Where do you think we're at from a volume perspective today.
Jamie Paris: And how do you expect volumes to progress throughout the course of the year.
Speaker Change: Yes, Thanks Jeremy.
Speaker Change: I mean, the simple statement I would make a.
Speaker Change: Right now as that.
Speaker Change: You know we've anticipated the volume environment.
Speaker Change: <unk> to be strong coming into 2025.
Speaker Change: It's the simplest summary statement I would make.
Speaker Change: There arent obvious trends.
Speaker Change: From December 31 to January one that appear to have changed I mean, the coverage environment looks good the employment environment looks good.
Speaker Change: Demographics, both in terms of areas, where at least our portfolio is now positioned relative to where it was has attractive demographics.
Speaker Change: And you know.
Speaker Change: As we've noted.
Speaker Change: We've had opportunity to expand capacity and take on that capacity without excessive cost to do so and we're doing it in a deliberate deliberate way so.
Speaker Change: We you know I mean, our guidance reflects that we feel pretty good about you know going into 2000 2025.
Speaker Change: Okay. Thank you.
Speaker Change: Our next question comes from Brian <unk> with Jefferies. Please proceed with your question.
Brian: Hey, good morning, guys and congrats on the quarter.
Speaker Change: Maybe some as I think about your comments on Medicaid and USPI, just curious how youre thinking about the risk overall for the company from all of the political headlines that are out there and what the Republicans are trying to do with changes to healthcare policy and what youre doing to prepare for that.
Just for that potential.
Speaker Change: Change, whether it's Medicaid or health insurance exchanges across both business lines. Thanks.
Speaker Change: Yeah. Thanks, Brian a few things so I mean first of all the fundamental underpinnings of success in an environment with any kind of uncertainty in our view is operating discipline in what we do right and the other.
Speaker Change: Important underpinning is having.
Speaker Change: A clear understanding.
Speaker Change: Of the economics of our business internally, meaning we understand clearly our service lines, our markets et cetera that may have greater dependency or less dependency upon certain types of supplemental payments.
Speaker Change: Where for example, the strength in the exchanges has contributed to earnings et cetera. So the combination of the operating discipline and the insights about the business.
Speaker Change: Probably give us an opportunity to manage and pivot as needed depending on what happens you are right. The segments are different I mean.
Speaker Change: We've taken the opportunity over the past few years to create resiliency and USPI by making sure that the ambulatory surgery centers as a part of USPI are on freestanding rates. The Medicaid exposure is de minimis in that business and that's very helpful from that perspective.
Speaker Change: In the exchange business, there has had less impact than it has had on the acute care segment in terms of the exchange growth from from that perspective. So from USPI perspective look this is all about an.
Speaker Change: An important tailwind of moving things into a lower cost setting in in an expensive portion of the healthcare industry, which is surgical care right and doing so in a way where we're constantly increasing the acuity of the work at USPI because it creates more value for them.
Speaker Change: Purchaser on the acute care hospital side.
Speaker Change: I think it's important to continue to search for efficiencies that allow us to generate margins. You know, we always talk about the concept of Medicare profitability right can you generate margins on Medicare reimbursement.
Speaker Change: In order to have a metric out there for efficiency goals that you would that you would create because it's important to be able to operate in that type of environment, specifically on the on the acute care side.
The number one adaptive action today is helping the regulators understand the importance that these programs provide for basic access for people that wouldn't otherwise have access to care and that's that's really important because if.
Speaker Change: If that shapes.
Speaker Change: Or is a factor in shaping policy.
Speaker Change: I think that what comes out of that policy.
Speaker Change: We will likely be manageable.
Speaker Change: You know for us and and something that we can get behind.
Speaker Change: Aye.
Speaker Change: I'm not sure that right now taking a bunch of actions to restructure the business is the right thing to do I think theres, a very strong case to be made that many of these things are really critical to providing access and it happens to be that that access is also being provided in states with voters that really matter to this administration.
Speaker Change: And that's an important supporting factor as well.
Speaker Change: Our next question comes from Andrew Mok with Barclays. Please proceed with your question.
Andrew Mok: Hi, good morning, when I looked at the ASC case mix from 23 to 24. It doesn't look like there are significant mix changes, we actually we actually see <unk> down one percentage point in ophthalmology up one percentage point, but youre, increasing acuity significantly to the point, where youre seeing high single digit same store revenue growth without meaningful case growth.
Speaker Change: So can you speak to the types of cases, driving acuity higher because it's not obvious from the case mix disclosures.
Speaker Change: Yeah, No problem I mean, just to clarify the orthopedics.
Speaker Change: Line item has a lot of things in there.
Speaker Change: That's why we call out the highest acuity work in joint cases for example, which is you know where where you have the hips knees, obviously the shoulder expansion.
Speaker Change: That's where.
Speaker Change: The acuity is actually growing I mean remember well.
Speaker Change: When you look at certain low acuity procedures that we may do an ASC is the revenue per case.
Speaker Change: Is.
Speaker Change: Eighth or ninth of a single joint case total joint case from that perspective. So I mean, we're doing exactly what we wanted with the business, which is we're growing the acuity we're growing the net revenue per case.
Speaker Change: You know, we are reducing exposure to high volume low revenue cases in some cases things that could also be done in offices that that further strengthen the resiliency and value of what USPI is building so.
Speaker Change: That orthopedics line item has a lot of things in there from high acuity to low acuity cases, and it's the reason we call out the really high acuity work.
It's a fundamental driver of the net revenue per case strength, which youre seeing.
Speaker Change: Great. Thanks for the color.
Speaker Change: Sure.
Speaker Change: Our next question comes from Justin Lake with Wolfe Research. Please proceed with your question.
Justin Lake: Thanks, Good morning.
Speaker Change: Couple of things just numbers wise.
Justin Lake: Maybe you could tell us.
Justin Lake: You mentioned, Tennessee.
Justin Lake: The tail weighted in that 35 million you match.
Justin Lake: For instance, Michigan market.
Justin Lake: Have a little bit of a onetime headwind there, but when you think about ex those issues kind of core D. P. P dollars year over year can you tell us what's assumed in the guidance and then same for exchanges like what kind of exchange growth.
Justin Lake: Or do you kind of expect in your markets exchange volume growth we.
Justin Lake: We did that guidance. Thanks.
Us: Hey, Justin it's us on and thanks for the question on your question your question about supplemental payments.
Us: Yes, I think you called out the kind of the one timers that we.
Us: We've referenced.
Us: The other point in fiscal 'twenty, four we still had a little bit of value from hospitals that were there.
Us: <unk> divested during the course of the year, but.
Us: That's mostly in Q1. So there are a couple of those moving factors, but in fiscal 'twenty four we generated about 1.1 dollars 6 billion of.
Us: Net Medicaid supplemental payments going into 25, our guidance assumes something pretty consistent with that.
Us: You mentioned, the tenancy, one timer, but excluding that.
Us: Pretty consistent year over year.
Us: On your question about exchange.
Us: <unk>.
Us: As we've said multiple times.
Us: Total admissions and revenues from exchange population was a strong growth driver in 2024, we expect that to continue per <unk> earlier comments around the overall volume environment the enrollment.
Us: The renewal cycle seems to have been positive we will see how much of that turns into actual.
Us: Admissions, but we certainly won't see that the 40% to 50% growth that we saw in 'twenty four but we still continue to see a strong environment.
Us: Just as an example, where our strategy long term strategy is always to be.
Us: And broad networks from a contracting standpoint as an example, so we see.
Us: Good thing for 25, thanks for the question.
Us: Yes.
Speaker Change: Our next question comes from Benjamin Rossi with J P. Morgan Chase. Please proceed with your question.
Benjamin Rossi: Hey, good morning, Thanks for the question here so.
Speaker Change: Cross supplies were seeing some pressure here as a percentage of revenue with that category increase in about 100 bps year over year to 8.3.
Speaker Change: How would you characterize your current supply dynamics sector. During the quarter is there anything discrete occurring within there or is this largely a byproduct of your push into higher acuity just kind of curious what are you seeing that number settling out in the steady state during 'twenty 'twenty five.
Yeah, Hey, Matt, Yes, I think it's what you said on the latter piece it is.
Speaker Change: Just kind of part and parcel with our acuity strategy. So the supplies will go up as.
Speaker Change: As a percentage a little bit in Q4, but over the year, we've been pretty well balanced and we expect it to be again balanced in 'twenty five.
Speaker Change: Got it thanks.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: Our next question comes from Joanna <unk> with Bank of America. Please proceed with your question.
Joanna: Hi, good morning, Thanks, so much for taking the question so on the.
Joanna: Guidance element I'm, both very same store rather than your 3% to 6%, but that seems to be sort of more like a normalized growth rate. Because clearly you grew very nicely in 24, 8%. So is it just conservatism.
Joanna: Maybe also breakdown volumes versus pricing that's included in that range. Thank you.
Tom: Yeah, Hey, it's Tom.
Speaker Change: Look a couple of things there.
Tom: First of all you know.
Tom: No.
Speaker Change: A long term as we've learned with USPI and I think we've shared this data before we've looked at 10 years worth of Uspi's performance.
Tom: And.
Tom: Same store same store growth rates of around 4% to 6% is what we guide to now history suggests over that 10 year period, we've performed at the upper end of that range, 6%.
Tom: <unk> has looked better.
Strengthened over the last five six years actually over that average period, okay. So.
Tom: You point out this year almost or this year past year 'twenty, 478%. The prior year was nine 2%.
Tom: Growth rate, so we're running very hot.
From that perspective in terms of long term averages with respect to USPI.
Tom: So our guide just comes brings us right back to what our long term growth rate is.
Tom: In terms of the year to year as you've seen it can be lumpy right 23 huge volume growth.
Tom: For more growth in acuity and intensity and part of what we're signaling for 25 is it's definitely our plan to continue this shift to higher acuity.
Tom: Procedures I started to point out some of the.
Tom: Factors driving that in terms of the revenue intensity of some of these cases.
Tom: How efficiently, we're able to do them in our operating rooms, now and generate.
Tom: Generate margin, how we're scaling those programs into more centers, we now have robots and almost a 150 of our programs around the country. This is the direction in which we're taking the organization.
Tom: And so yes, the guidance reflects kind of our long term.
Tom: Average, but we've obviously been running quite a bit above above that.
Tom: Yes.
Speaker Change: Our next question comes from a J rice with UBS. Please proceed with your question.
Speaker Change: Hi, everybody.
J Rice: Thought I would ask maybe on the where you're at with managed care contracting.
J Rice: I know we've been in a period, where you've been getting a little bit towards the high end of historical rate updates to pay for some of the labor challenges in the last few years is 25, a year in which youll still see that type of dynamic.
J Rice: Maybe where you add in terms of signing up contracts and then also on the managed care side.
J Rice: Any update on thoughts about denial activity prior authorization challenges.
J Rice: Their term changes that youre dealing with.
J Rice: Okay.
J Rice: Yeah, why don't we take those in reverse.
J Rice: I mean, I would say that the environment is no different than it has been I mean, there's.
J Rice: You know a.
J Rice: Constant.
J Rice: Back and forth of administered.
J Rice: Administrative costs that goes into adjudicating claims that probably is unnecessary, but obviously.
J Rice: Both sides have a point of view on that.
Speaker Change: What I would say more importantly than anything else from our perspective is the work that conifer does in driving initial disputes to a very very attractive low rate of denials.
Speaker Change: Is critical and our skill set and doing that in both working collaboratively with the payers and adversely where needed.
Speaker Change: On the basis of solid documentation.
Speaker Change: Appropriate.
Speaker Change: Coding.
Speaker Change: Compliant coding and.
Speaker Change: Efficient revenue cycle operations has made a big difference, where we're seeing a gap in what we generate in terms of lower denial rates than the industry from what we're seeing with respect to initial dispute rates and that's good because that means we're doing things, we're doing things right and generating.
Speaker Change: The appropriate cash flow from the from the work we're doing some sudden maybe you want to comment on the managed care side. Thanks.
Speaker Change: Thanks, Tom.
Speaker Change: But for your first part of the question as we've said historically, we are continuing to see commercial rates increases in the 3% to 5% range and some of the contracts have been at the at or slightly above the high end of that range.
Speaker Change: As respect to the inflationary pressures that you mentioned, so I think.
Speaker Change: The overall situation there is pretty consistent.
Speaker Change: And then in terms of contracting go into 25, Whereabout, where over 90% contracted for 25 and probably about over 50% contracted for 26 as well so we have.
Speaker Change: Rate visibility into 'twenty, five and beyond thanks for your question.
Speaker Change: Okay.
Speaker Change: Yes.
Our next question comes from.
Speaker Change: Our next question comes from Stephen Baxter with Wells Fargo. Please proceed with your question.
Stephen Baxter: Hi, Thanks wanted to come back to the same store hospital volume guidance for 2025, and I appreciate you're still expecting.
Stephen Baxter: In exchange growth inside of that number to some degree would also love to hear any quantification you can offer about how much hospital capacity, you'll have online in 2025 compared to 23 people were trying to break out that 2% to 3% and maybe think about maybe what the market level growth inside of that compared to how much of it's coming from capacity. Thank you.
Speaker Change: Yeah, Hey, Steven it's.
Speaker Change: It's obviously, both I mean, the majority of that is the the market level demand that we're seeing versus the selective markets in which there is still capacity that we're bringing online but it is a contributor which is why I called it out before.
Speaker Change: Before we haven't we haven't quantified what that looks like between the two numbers, but it is.
Speaker Change: It is both in the majority of it is market based demand across the board. Some of this is also related to the service line choices, we make of course, which have higher growth rates. The things the things that we're doing that are taking care of people with multiple chronic illnesses that continue to grow and prevalence.
Speaker Change: Our continuing to create more demand.
Speaker Change: Then, perhaps certain types of lower acuity work, which may be coming out of hospitals.
Speaker Change: In our environment and so that's you know that's really how we think about it.
Speaker Change: In terms of the growth rates.
Speaker Change: Yeah look it's been a it's been a very busy year in the acute care environment.
Speaker Change: And as I said I think the most important thing we're taking into the year from a mindset perspective is we're not seeing changes in the demand patterns.
Speaker Change: It was a comment.
Speaker Change: Jamie's question earlier, we're not seeing changes in the demand pattern right now and so I'm not going to go forecasting what we may see in the later part of the year, but we're not seeing that right now.
Speaker Change: Yeah.
Speaker Change: Our next question comes from Michael <unk> with Baird. Please proceed with your question.
Speaker Change: Alright. Thank you just a quick clarification first and then my real one and apologize if I missed it but youre USPI at 386% Rev growth guide, what's the volume.
Speaker Change: Questions, but on that and then my real question.
Speaker Change: To add one more question on policy.
Speaker Change: And I understand USPI is minimal Medicare exposure, but for your hospital and maybe taking a different approach if given all the news flow NIH cuts doses potential focus on Medicaid.
Speaker Change: Administrative costs at <unk> were to implement those cuts.
It might not be overly impactful, but still perhaps a couple of percent of overall Medicaid spend so I'm curious to hear your view if that were to happen. How do you think the states might react what's your view on the likelihood that states might potentially flow that Medicaid cut down to provider rates impact tenet hospitals more broadly. Thank you.
Speaker Change: Yeah.
Speaker Change: Hmm.
Speaker Change: A couple of different things, so, let's let's just start with the business side of it first.
Speaker Change: With respect to USPI as I indicated there's no there's no long term deviation from our approach of thinking about.
Half and half roughly managed care and in volume.
Speaker Change: At USPI, but because it's it's lumpy and it's proven to be lumpy.
Speaker Change: Not guiding specifically for the year with with respect to that.
Speaker Change: You can understand that I mean, we are successfully now two years in a row.
Speaker Change: Executing our strategy of increasing <unk>.
Speaker Change: Lower volume high acuity cases.
Speaker Change: Fact.
Speaker Change: As you can tell from our.
Speaker Change: Quarterly beats consistently we're exceeding what we expect from the standpoint of what we can do in same store revenue growth in that environment.
Speaker Change: And so we're pleased by that that you know we.
Speaker Change: We can do that we obviously had a little bit of fits and starts around that a few years ago in terms of how we are executing it but we got it right and it's working and.
Speaker Change: I'm really pleased with that so the long term algorithm is the same but from a short term standpoint, we're giving you the revenue guidance.
Speaker Change: With obviously the track record of it being stronger.
Speaker Change: I don't.
Speaker Change: On the policy side.
Speaker Change: I think to be clear like we don't have.
Speaker Change: You know even in our academic medical center enterprises and affiliations we don't have.
Speaker Change: Significant.
Speaker Change: NIH NSF indirect.
Speaker Change: Grant cost exposure in our business so in particular.
Speaker Change: You can imagine when we saw that we thought about that in our environment and where we had <unk> one grants and other things within our environment, but we don't have that.
Speaker Change: Significantly in our environment I think the broader question of.
Speaker Change: Medicaid policy and other things is an important one but look.
Speaker Change: The focus on that is articulated you can't tell what's going to happen, but the focus that's articulated on reducing fraud and abuse, including in some of the public comments made yesterday all the way in the in the Oval office I think one thing.
Speaker Change: 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.
Speaker Change: Or not eligible who happen to be on Medicaid.
Speaker Change: And so you know again.
Speaker Change: No way to predict for sure.
Speaker Change: But I'm.
Speaker Change: I am somewhat comforted by the fact that some of that work has already been done through this redetermination process. So we'll see where this goes and what remains to be seen finally.
Speaker Change: As to speculation.
Speaker Change: Speculating on what the states responses may be I think the states are going to be important allies across the board in advocating for.
Speaker Change: The dollars that come through these Medicaid partnerships with the federal government because again I go back to this is the only way to create access for.
Speaker Change: For the people that need it that are on Medicaid.
Speaker Change: This is not some program that's generating incredible windfalls for health systems on that basis. The unit reimbursement is still below the cost of that care and and so I think that that's going to be an important balancing factor. The states will play an important role in this.
Speaker Change: <unk>.
Speaker Change: Yes.
Speaker Change: Our next question comes from Ann Hynes with Mizuho. Please proceed with your question.
Ann Hynes: Hi, good morning, So I know, there's some big surgery center assets out there in the market can you remind us, giving you a de levered balance sheet.
Ann Hynes: What your appetite is for us is larger scale M&A.
Ann Hynes: And the surgery Center business.
Tom: Hey, Ed it's Tom.
Tom: Obviously, I am not going to comment on any kind of.
Tom: M&A opportunities, we're very aware of everything that's available in the market we've proven our ability.
Tom: Over the last few years to deploy M&A capital both on AR.
Tom: Single asset basis, and large multi center asset.
Tom: Acquisitions, I would tell you that the first year.
Tom: Post our acquisition early last year of the portfolio that we took on went better than we thought it would so that's that's good news.
Tom: And.
Tom: As I said early on in my comments, our balance sheet provides us plenty of flexibility.
Tom: To approach things, but we're look we're disciplined we believe in growth businesses, we believe in areas in which we can add value.
Tom: And.
Tom: We have we have a lot of flexibility.
Tom: Given our cash flow generation and valuation multiple to deploy cash for the benefit of shareholders and multiple different avenues at this point.
Tom: Okay.
Tom: Yeah.
Speaker Change: Our next question comes from Whit Mayo with Leerink Partners. Please proceed with your question.
Whit Mayo: Hey, good morning, just to stick on USPI for a second are there any new health system partners that we may not be aware of in the last year I know you've been selective and disciplined with the financial strength of the partners that you want to work with but I'm just not sure I've I've had an update or heard an update on anything new or.
Speaker Change: The expanded relationships with any.
Speaker Change: Health systems in some time and maybe just a broader comment on the de Novo activity. The 10 to 12 this year any of those with <unk>.
Speaker Change: New partners or are those all existing partner stinks.
Speaker Change: Yeah, Hey weighted sum now we haven't provided any updates on on health system partners and other things and remember I mean, our platform is such that we work just as effectively with partners as we do without partners because of our ability to generate contract.
Speaker Change: Contract synergies managed care supply chain everything right and our.
Speaker Change: Management capacity for these assets so.
Speaker Change: We're growing the portfolio in both with both vectors and.
Speaker Change: And I don't think that's going to change I mean I think.
Speaker Change: Sure.
Speaker Change: The expansion.
Speaker Change: Of de Novo assets can occur in many different ways summer in existing markets. Some are in near what new markets summer with Msos that are.
Speaker Change: Expanding their physician side footprint and as I've said in the past have realized that there isn't a better operator of ASC is to generate margin from those investments for those doctors than USPI. So that's that's another vector of growth that that is helping to create de novo activities.
Speaker Change: It's a multi pronged growth strategy and I don't think thats really going to change looking forward.
Speaker Change: Our next question comes from John Ransom with Raymond James. Please proceed with your question.
John Ransom: Hey, good morning, so I'll not predict you'll you'll hate this question, but bear with me.
John Ransom: So we've heard from a few folks that the fourth quarter seasonal uptick is not quite what it used to be because just the fact that deductibles have gotten so high particularly in commercial plans.
John Ransom: Do you think there's any evidence of that.
John Ransom: Okay.
John Ransom: John are you are you, referring just care delivery overall, our USPI specific.
John Ransom: I meant I meant up elected so electives either in the hospital or in the <unk>.
John Ransom: USPI, yes.
John Ransom: Yes elective work well.
John Ransom: Well I mean again.
John Ransom: I'm not sure that I'm going to be able to give you a statistically significant answer, but I would say that.
John Ransom: The seasonality in Q4, and especially as that ramps into Q1 on elective surgery as it has tempered a bit I mean Q4 is still a a more productive quarter our asset utilization in our in our USPI segment does go up.
John Ransom: Still in Q4, but it has it has tempered a bit.
John Ransom: Overall and also.
John Ransom: Hum.
John Ransom: And how much of it is the deductibles versus somewhat the impact of if you look at our Q4 the impact of just some of these weather events.
John Ransom: We're relevant.
John Ransom: And so how much of it was a seasonality shift versus some of the weather events that we I don't know I don't know that we really calculated that.
John Ransom: But I mean youre picking on you are picking up on something that we've sort of said ha intuitively it feels a little bit different but the general pattern Hasnt changed.
Speaker Change: And just my follow up and thanks for that answer.
Speaker Change: If we look at 23 and 'twenty four utilization was up four and 23 I'll play a lessons in 'twenty four there was a bunch of other stuff going on like she's midnight rule.
Speaker Change: Cancer cases, and what have you do you think again, probably you can answer this question, but it seems to all slide 25, we're kind of back to a more normalized year, we're making it clear that all because of the backlog and we're kind of clear all of these kind of wonky evolves in 'twenty three 'twenty four.
Speaker Change: Is that what's implied in your guidance what.
Speaker Change: Kind of where we are.
Speaker Change: I mean.
Speaker Change: That is kind of I mean at some point, we have to get back to an environment.
Speaker Change: We're we're not explaining everything either on the basis of Covid or post COVID-19 or whatever the case may be.
Speaker Change: No one ever gets that entirely rights, but I do think that that is a little bit of what the guidance implies and as I said.
I think that's.
Speaker Change: That's a fair way to plan for the year and yet at the same time.
Speaker Change: I don't see shifts necessarily in the strength the strong demand environment that that we saw in 2004, yet in particular, so we'll see how that plays out.
Speaker Change: Thank you.
Speaker Change: Thanks.
Speaker Change: Our next question comes from Josh Raskin with Nephron Research. Please proceed with your question.
Josh Raskin: Thanks, I'm going to stick on the USPI side.
Josh Raskin: So can you speak maybe to the broader competitive landscape for ASC transactions are you seeing more competition and if you could differentiate between larger sets of assets or even the one offs or even competitors developing de novo's in your markets and then in your prepared remarks, Tom you mentioned the de Novo growth is that indicative of more.
Josh Raskin: But what sort of organic center expansions as opposed to acquired centers.
Josh Raskin: Okay.
Josh Raskin: Well.
Josh Raskin: Let me let me go in reverse look we think de Novo development activity is is really critical and we've been we've been focused on that and.
Josh Raskin: Scaling that up I mean.
Josh Raskin: Part of our thinking here Josh is that.
Josh Raskin: Consistent with our move into more high acuity ambulatory surgical work de novo's also represent a significant value shift in markets right because usually what youre doing is youre building from the ground up youre moving things into a lower cost setting.
Josh Raskin: Its value for the consumers and payers in the markets to be focused on de Novo's. In addition to everything else that we may be doing to grow the portfolio and expand the high acuity services.
Josh Raskin: So that its part of our value strategy, there and maybe that's why you're seeing more of it.
Josh Raskin: From from the de Novo side in terms of the competitive landscape no I don't think the competitive landscape has changed I mean.
Josh Raskin: The easiest way to assess the competitive landscape as to just count the center counts across different organizations and <unk>.
Josh Raskin: Some are scaling better than others and that probably more than anything reflects competitive.
Josh Raskin: The output of whatever competitive intensity exists.
Josh Raskin: We've been pretty pleased with our ability to scale wind competitive situations and processes, where we want them and maintain high high quality high profit margin centers.
Josh Raskin: We always assess that pipeline every year the pipeline still looks good for doing that.
Speaker Change: That's helpful is it is it fair to assume that that de Novo long term returns on capital are higher.
Josh Raskin: Yes of course, yes, because.
Speaker Change: Again the.
Speaker Change: It's not like building an acute care facility right. The building costs are low.
Speaker Change: A shorter timeframe once the partnership is syndicated Theres work upfront in syndicating the partnership that takes time, but thats not a capital intensive activity.
Speaker Change: Look I think it's a.
Speaker Change: At the start of this Peter pointed out one of the big changes in the organization around the generation of free cash flow. We also focus on measuring and following our overall return on invested capital.
Speaker Change: Within within the organization and obviously the more we shift into this ambulatory segment, the more that gets better and obviously the more we do de novo's, we see that that gets better.
Speaker Change: In terms of what we're doing in the business when we're deploying our cash so yes, youre absolutely picking up on what we're doing for the right reasons.
Speaker Change: Thanks.
Speaker Change: Our next question comes from Matthew Gilmore with Keybanc capital markets. Please proceed with your question.
Matthew Gilmore: Hey, Thanks, I wanted to follow up on the cost management and efficiency comments. The company has clearly made a lot of progress. The last few years and you noted the SBB.
Matthew Gilmore: Contract Labor metrics as you look ahead are there any areas of particular focus that are going to continue to drive efficiency in 2025 and beyond that you'd highlight for us.
Matthew Gilmore: Sure.
Matthew Gilmore: I think that.
Matthew Gilmore: The the cost management agenda doesn't change in terms of managing labor managing suppliers managing.
Matthew Gilmore: Purchased services.
Matthew Gilmore: Active vendor consolidation.
Matthew Gilmore: Activities.
Matthew Gilmore: Scaling our.
Matthew Gilmore: Service lines in which we've got.
Matthew Gilmore: Our cost structure that we're comfortable with obviously just that scale.
Matthew Gilmore: Creates opportunity I've said in the acute care segment I've said, all along we're really pleased with the improvements that we've made in so many of the metrics from from the standpoint of cost.
Matthew Gilmore: Labor overhead supplies purchase services.
Matthew Gilmore: Relative to <unk>.
Matthew Gilmore: Our peer set in the industry. Obviously, we always continue to note that an area that we can improve is our asset utilization.
Matthew Gilmore: And that's obviously in comparison to what we look at it as kind of a gold standard out there so.
Matthew Gilmore: That's really an area that we're continuing to work on as we expand capacity and build volumes into some of the facilities that we took capacity offline during the pandemic from an efficiency standpoint.
Matthew Gilmore: Our global business Center has contributed significantly to our cost savings. If you think about the last four or five years. The journey. We've been on of course, Theres obvious unit cost savings that you see.
Matthew Gilmore: On an immediate basis, but theres a lot of cash flow that goes into actually restructuring and in building and scaling that enterprise and what might have started with kind of commodity work in certain areas of finance or accounts receivable has expanded to 10.
Matthew Gilmore: 12 different service lines that we are now running effectively in the global business center clinical areas clinical analytics.
Matthew Gilmore: Physician Credentialing, a variety of things and that's an important part of our efficiency agenda as we look forward as well and it's now that it's obviously well past breakeven cash flow those savings materially contribute to what we're doing.
Matthew Gilmore: Yes.
Speaker Change: Got it very helpful. Thank you.
Speaker Change: Our next question is from Dan Hendrix with RBC capital markets. Please proceed with your question.
Speaker Change: Hi, This is Mike Murray on for Ben Thanks for taking my question.
Speaker Change: So ASC total joint procedures grew nicely in 2024, I wanted to hear your expectations for growth in 2025 and beyond.
Speaker Change: And then cardiology procedures have been latest slated to drive material growth in <unk> could you discuss any early progress there and when do you see these procedures really accelerating.
Speaker Change: Okay.
Speaker Change: Yes, Hey, some we obviously we anticipate.
Speaker Change: Continuing to focus on our orthopedics line of business going forward, we're not we're not going to guide.
Speaker Change: Service line level volumes from that perspective, but we still think obviously, there's a tailwind.
Speaker Change: In ambulatory surgical growth from from an orthopedic standpoint.
Speaker Change: And that's both the stuff we're doing today and expansion of the procedure set that could be done safely in an ASC same with cardiac <unk>.
Speaker Change: I've said all along.
Speaker Change: The the opportunity in a wide variety of cardiovascular procedures as there I've always been clear that I think that that opportunity will proceed more slowly than people anticipate.
Speaker Change: Because of important patient safety considerations and payer mix considerations and also the capex required to build a cardiac center is very different than building. Other types of ASC is given the equipment that you have to have in there. So the upfront investment for the physician partners and other things is.
Speaker Change: Higher.
Speaker Change: With potentially lower margin assets, so for economic reasons and patient safety reasons I think this market will evolve, but I think it will evolve slower than people like to think.
Speaker Change: And.
Speaker Change: We'll obviously be participants.
Speaker Change: And that as we are today, but we're also.
Speaker Change: We're not going to try to rush, it and sacrifice patient safety and quality in that regard.
Speaker Change: That's helpful. Thank you.
Speaker Change: This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.