Community Health Systems, Inc. Announces First Quarter 2019 Results

FRANKLIN, Tenn.--(BUSINESS WIRE)-- Community Health Systems, Inc. (NYSE: CYH) (the “Company”) today announced financial and operating results for the three months ended March 31, 2019.

The following highlights the financial and operating results for the three months ended March 31, 2019.

• Net operating revenues totaled $3.376 billion.
• Net loss attributable to Community Health Systems, Inc. common stockholders was $(118) million, or $(1.04) per share (diluted), compared with net loss of $(25) million, or $(0.22) per share (diluted), for the same period in 2018. Excluding the adjusting items as presented in the table in footnote (e) on page 12, net loss attributable to Community Health Systems, Inc. common stockholders was $(0.53) per share (diluted), compared with net income of $0.13 per share (diluted) for the same period in 2018.
• Adjusted EBITDA was $391 million.
• Net cash provided by operating activities was $133 million, compared with $106 million for the same period in 2018.
• On a same-store basis, admissions decreased 0.1 percent and adjusted admissions increased 0.8 percent, compared with the same period in 2018.

Net operating revenues for the three months ended March 31, 2019, totaled $3.376 billion, an 8.5 percent decrease, compared with $3.689 billion for the same period in 2018.

Net loss attributable to Community Health Systems, Inc. common stockholders was $(118) million, or $(1.04) per share (diluted), for the three months ended March 31, 2019, compared with $(25) million, or $(0.22) per share (diluted), for the same period in 2018. Excluding the adjusting items as presented in the table in footnote (e) on page 12, net loss attributable to Community Health Systems, Inc. common stockholders was $(0.53) per share (diluted), for the three months ended March 31, 2019, compared with net income of $0.13 per share (diluted) for the same period in 2018. Weighted-average shares outstanding (diluted) were 113 million for the three months ended March 31, 2019, and 112 million for the three months ended March 31, 2018.

Adjusted EBITDA for the three months ended March 31, 2019, was $391 million compared with $440 million for the same period in 2018, representing an 11.1 percent decrease.

The consolidated operating results for the three months ended March 31, 2019, reflect a 13.4 percent decrease in total admissions, and a 12.8 percent decrease in total adjusted admissions, compared with the same period in 2018. On a same-store basis, admissions decreased 0.1 percent and adjusted admissions increased 0.8 percent for the three months ended March 31, 2019, compared with the same period in 2018. On a same-store basis, net operating revenues increased 3.1 percent for the three months ended March 31, 2019, compared with the same period in 2018.

Commenting on the results, Wayne T. Smith, chairman and chief executive officer of Community Health Systems, Inc., said, “We continued to see incremental improvements in same-store net revenue and volume across our key markets in the first quarter of 2019, as well as a strengthening of our overall portfolio as additional divestitures have occurred. We believe our recent investments, including physician recruitment, employment and alignment strategies, and the development of new access points, will drive continued improvement in our performance moving forward. We remain focused on all aspects of operational excellence, with a high priority on the efficient use of our resources, diligent efforts to continuously improve processes and results, and consistent execution of our growth initiatives. Finally, we remain committed to continuing to provide high-quality, safe care across our continuum of services.”

The Company completed seven hospital divestitures during the three months ended March 31, 2019 (including two divestitures that preliminarily closed on December 31, 2018). In addition, the Company has entered into a definitive agreement to sell one additional hospital, which divestiture has not yet been completed. The Company intends to continue its portfolio rationalization strategy during the remainder of 2019 and is pursuing additional interests for sale transactions, which are currently in various stages of negotiation with potential buyers. There can be no assurance that these potential divestitures (or the potential divestiture currently subject to a definitive agreement) will be completed, or if they are completed, the ultimate timing of the completion of these divestitures. The Company continues to receive interest from potential acquirers for certain of its hospitals.

Financial and statistical data for 2018 and the three months ended March 31, 2019 presented in this press release includes the operating results of divested hospitals through the effective closing date of each respective divestiture. Same-store operating results exclude the results of the hospitals divested or closed in 2018 and during the three months ended March 31, 2019.

Information About Non-GAAP Financial Measures

This earnings release presents Adjusted EBITDA, a non-GAAP financial measure, which is EBITDA adjusted to add back net income attributable to noncontrolling interests and to exclude the effect of discontinued operations, loss (gain) from early extinguishment of debt, impairment and (gain) loss on sale of businesses, expense incurred related to the sale of a majority ownership interest in the Company’s home care division, expense (income) related to government and other legal settlements and related costs, expense related to employee termination benefits and other restructuring charges, expense (income) from settlement and fair value adjustments on the CVR agreement liability related to the HMA legal proceedings and related legal expenses, and the overall impact of the change in estimate related to net patient revenue recorded in the fourth quarter of 2017 resulting from the increase in contractual allowances and the provision for bad debts.

For information regarding why the Company believes Adjusted EBITDA provides useful information to investors, and for a reconciliation of Adjusted EBITDA to net income attributable to Community Health Systems, Inc. stockholders, see footnote (c) to the Financial Highlights, Financial Statements and Selected Operating Data below.

Additionally, this earnings release presents adjusted net (loss) income attributable to Community Health Systems, Inc. common stockholders per share (diluted), a non-GAAP financial measure, to reflect the impact on net (loss) income attributable to Community Health Systems, Inc. common stockholders per share (diluted) from the selected items used in the calculation of Adjusted EBITDA. For information regarding why the Company believes this non-GAAP financial measure provides useful information to investors, and for a reconciliation of this non-GAAP financial measure to net (loss) income attributable to Community Health Systems, Inc. common stockholders per share (diluted), see footnote (e) to the Financial Highlights, Financial Statements and Selected Operating Data below.

Included on pages 13, 14, 15 and 16 of this press release are tables setting forth the Company’s 2019 updated annual earnings guidance. The 2019 guidance is based on the Company’s historical operating performance, current trends and other assumptions that the Company believes are reasonable at this time, and reflects the impact of planned divestitures in 2019.

Community Health Systems, Inc. is one of the largest publicly traded hospital companies in the United States and a leading operator of general acute care hospitals in communities across the country. The Company, through its subsidiaries, owns, leases or operates 106 affiliated hospitals in 18 states with an aggregate of approximately 17,000 licensed beds.

The Company’s headquarters are located in Franklin, Tennessee, a suburb south of Nashville. Shares in Community Health Systems, Inc. are traded on the New York Stock Exchange under the symbol “CYH.” More information about the Company can be found on its website at www.chs.net.

Community Health Systems, Inc. will hold a conference call on Wednesday, May 1, 2019, at 10:00 a.m. Central, 11:00 a.m. Eastern, to review financial and operating results for the first quarter ended March 31, 2019. Investors will have the opportunity to listen to a live internet broadcast of the conference call by clicking on the Investor Relations link of the Company’s website at www.chs.net. To listen to the live call, please go to the website at least fifteen minutes early to register, download and install any necessary audio software. For those who cannot listen to the live broadcast, a replay will be available shortly after the call and will continue to be available for approximately 30 days. Copies of this press release and conference call slide show, as well as the Company’s Current Report on Form 8-K (including this press release), will be available on the Company’s website at www.chs.net.

Footnotes to Financial Highlights, Financial Statements and Selected Operating Data (Continued)

The following table reflects the reconciliation of Adjusted EBITDA, as defined, to net loss attributable to Community Health Systems, Inc. stockholders as derived directly from the condensed consolidated financial statements (in millions):

The Company generated a net loss attributable to Community Health Systems, Inc. common stockholders for the three months ended March 31, 2019 and 2018, so the effect of dilutive securities is not considered because their effect would be antidilutive. If the Company had generated net income, the effect of restricted stock awards on the diluted shares calculation would have been an increase of 59,261 shares and 73,361 shares during the three months ended March 31, 2019 and 2018, respectively.

Regulation FD Disclosure

Set forth below is selected information concerning the Company’s projected consolidated operating results for the year ending December 31, 2019. These projections update selected guidance provided on February 20, 2019, and are based on the Company’s historical operating performance, current trends and other assumptions that the Company believes are reasonable at this time. The 2019 guidance should be considered in conjunction with the assumptions included herein. See pages 15 and 16 for a list of factors that could affect the future results of the Company or the healthcare industry generally.

The following is provided as guidance to analysts and investors:

The following assumptions were used in developing the 2019 guidance provided above:

• The 2019 projections include the impact of completed divestitures and the divestiture subject to a definitive agreement which is expected to close in 2019.
• The Company’s projections also exclude the following:
  • Effect of debt refinancing activities, including gains and losses from early extinguishment of debt;
  • Impairment of goodwill and long-lived assets;
  • Gains or losses from the sales of businesses;
  • Employee termination benefits and restructuring costs;
  • Resolution of government investigations or other significant legal settlements;
  • Costs incurred in connection with divestitures;
  • Insurance recoveries that may be received for property losses and business interruption coverage related to Hurricanes Florence and Michael; and
  • Other significant gains or losses that neither relate to the ordinary course of business nor reflect the Company’s underlying business performance.

Other assumptions used in the above guidance:

• Same-store hospital annual adjusted admissions growth of 0.0% to 1.0% for 2019, which does not take into account service closures and weather-related or other unusual events.

• Expressed as a percentage of net operating revenues, depreciation and amortization of approximately 4.9% for 2019. Additionally, this is a fixed cost and the percentages may change as revenue varies. Such amounts exclude the possible impact of any future hospital fixed asset impairments.

• Interest expense, expressed as a percentage of net operating revenues, of approximately 8.0%; however, this percentage may vary as revenue varies. Interest expense has been adjusted to reflect the repayment of debt with proceeds from the divestitures noted above, based on the expected timing of those divestitures. Total fixed rate debt, including swaps, is expected to average approximately 90% to 95% of total debt during 2019.

• Expressed as a percentage of net operating revenues, net income attributable to noncontrolling interests of approximately 0.6% to 0.7% for 2019.

• Expressed as a percentage of net operating revenues, provision for income taxes of approximately 0.8% to 0.9% for 2019.

A reconciliation of the Company’s projected 2019 Adjusted EBITDA, a forward-looking non-GAAP financial measure, to the Company’s projected net loss attributable to Community Health Systems, Inc. stockholders, the most directly comparable GAAP financial measure, is shown below:

• Capital expenditures are projected as follows (in millions):

• Net cash provided by operating activities is projected as follows (in millions):

• Diluted weighted-average shares outstanding are projected to be approximately 114.0 million to 114.5 million for 2019.

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995 that involve risk and uncertainties. All statements in this press release other than statements of historical fact, including statements regarding projections, expected operating results, and other events that depend upon or refer to future events or conditions or that include words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” “thinks,” and similar expressions, are forward-looking statements. Although the Company believes that these forward-looking statements are based on reasonable assumptions, these assumptions are inherently subject to significant economic and competitive uncertainties and contingencies, which are difficult or impossible to predict accurately and may be beyond the control of the Company. Accordingly, the Company cannot give any assurance that its expectations will in fact occur and cautions that actual results may differ materially from those in the forward-looking statements. A number of factors could affect the future results of the Company or the healthcare industry generally and could cause the Company’s expected results to differ materially from those expressed in this press release.

These factors include, among other things:

• general economic and business conditions, both nationally and in the regions in which we operate;

• the impact of current or future federal and state health reform initiatives, including, without limitation, the Affordable Care Act, and the potential for the Affordable Care Act to be repealed or found unconstitutional or for additional changes to the law, its implementation or its interpretation (including through executive orders and court challenges);

• the extent to which states support increases, decreases or changes in Medicaid programs, implement health insurance exchanges or alter the provision of healthcare to state residents through regulation or otherwise;

• the future and long-term viability of health insurance exchanges and potential changes to the beneficiary enrollment process;

• risks associated with our substantial indebtedness, leverage and debt service obligations, and the fact that a substantial portion of our indebtedness will mature and become due in the near future, including our ability to refinance such indebtedness on acceptable terms or to incur additional indebtedness;

• demographic changes;

• changes in, or the failure to comply with, federal, state or local laws or governmental regulations affecting our business;

• potential adverse impact of known and unknown government investigations, audits, and federal and state false claims act litigation and other legal proceedings;

• our ability, where appropriate, to enter into and maintain provider arrangements with payors and the terms of these arrangements, which may be further affected by the increasing consolidation of health insurers and managed care companies and vertical integration efforts involving payors and healthcare providers;

• changes in, or the failure to comply with, contract terms with payors and changes in reimbursement rates paid by federal or state healthcare programs or commercial payors;

• any potential additional impairments in the carrying value of goodwill, other intangible assets, or other long-lived assets, or changes in the useful lives of other intangible assets;

• changes in inpatient or outpatient Medicare and Medicaid payment levels and methodologies;

• the effects related to the continued implementation of the sequestration spending reductions and the potential for future deficit reduction legislation;

• increases in the amount and risk of collectability of patient accounts receivable, including decreases in collectability which may result from, among other things, self-pay growth and difficulties in recovering payments for which patients are responsible, including co-pays and deductibles;

• the efforts of insurers, healthcare providers, large employer groups and others to contain healthcare costs, including the trend toward value-based purchasing;

• increases in wages as a result of inflation or competition for highly technical positions and rising supply and drug costs due to market pressure from pharmaceutical companies and new product releases;

• liabilities and other claims asserted against us, including self-insured malpractice claims;

• competition;

• our ability to attract and retain, at reasonable employment costs, qualified personnel, key management, physicians, nurses and other healthcare workers;

• trends toward treatment of patients in less acute or specialty healthcare settings, including ambulatory surgery centers or specialty hospitals;

• changes in medical or other technology;

• changes in U.S. generally accepted accounting principles;

• the availability and terms of capital to fund any additional acquisitions or replacement facilities or other capital expenditures;

• our ability to successfully make acquisitions or complete divestitures, including the disposition of hospitals and non-hospital businesses pursuant to our portfolio rationalization and deleveraging strategy, our ability to complete any such acquisitions or divestitures on desired terms or at all, the timing of the completion of any such acquisitions or divestitures, and our ability to realize the intended benefits from any such acquisitions or divestitures;

• the impact that changes in our relationships with joint venture or syndication partners could have on effectively operating our hospitals or ancillary services or in advancing strategic opportunities;

• our ability to successfully integrate any acquired hospitals, or to recognize expected synergies from acquisitions;

• the impact of seasonal severe weather conditions, including the timing and amount of insurance recoveries in relation to severe weather events;

• our ability to obtain adequate levels of general and professional liability insurance;

• timeliness of reimbursement payments received under government programs;

• effects related to outbreaks of infectious diseases;

• the impact of prior or potential future cyber-attacks or security breaches;

• any failure to comply with the terms of the Corporate Integrity Agreement;

• the concentration of our revenue in a small number of states;

• our ability to realize anticipated cost savings and other benefits from our current strategic and operational cost savings initiatives;

• changes in interpretations, assumptions and expectations regarding the Tax Cuts and Jobs Act; and

• the other risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission on February 20, 2019, and our other public filings with the Securities and Exchange Commission.

The consolidated operating results for the three months ended March 31, 2019, are not necessarily indicative of the results that may be experienced for any future periods. The Company cautions that the projections for calendar year 2019 set forth in this press release are given as of the date hereof based on currently available information. The Company undertakes no obligation to revise or update any forward-looking statements, or to make any other forward-looking statements, whether as a result of new information, future events or otherwise.

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Investor Contact:

Thomas J. Aaron
Executive Vice President

and Chief Financial Officer

(615) 465-7000

Source: Community Health Systems, Inc.