Community Health Systems, Inc. (NYSE: CYH) (the “Company”) today
announced financial and operating results for the three months
ended March 31, 2017.
The following highlights the financial and operating results for
the three months ended March 31, 2017, that are further discussed
below:
- Net operating revenues totaled
$4.486 billion.
- Net loss attributable to Community
Health Systems, Inc. common stockholders was $(199) million, or
$(1.79) per share (diluted), compared with net income of $11
million, or $0.10 per share (diluted) for the same period in
2016.
- Adjusted EBITDA was $527
million.
- Loss from continuing operations
attributable to Community Health Systems, Inc. common stockholders
was $(1.78) per share (diluted).
- Adjusted for certain items discussed
below, income from continuing operations attributable to Community
Health Systems, Inc. common stockholders was $0.08 per share
(diluted).
- Cash flow from operations was $242
million, compared with $294 million for the same period in 2016,
representing a 17.7 percent decrease.
- On a same-store basis, admissions
decreased 1.5 percent and adjusted admissions decreased 1.4
percent, compared with the same period in 2016.
Financial and statistical data reported in this earnings release
for 2016 include the following in operating results through the
effective date of each respective transaction:
- On April 29, 2016, the Company
completed the spin-off of Quorum Health Corporation (“QHC”),
comprised of 38 affiliated hospitals and related outpatient
services in 16 states, together with Quorum Health Resources, LLC,
a subsidiary providing management advisory and consulting services
to non-affiliated hospitals. Same-store operating results and
statistical data exclude information for the hospitals divested in
the spin-off of QHC in the comparable period in 2016.
- On April 29, 2016, the Company sold its
unconsolidated minority equity interests in Valley Health System,
LLC and Summerlin Hospital Medical Center, LLC, both joint ventures
with Universal Health Systems, Inc. comprising a total of five
hospitals in Las Vegas, Nevada.
- On December 31, 2016, the Company sold
an 80% majority ownership interest in its home care division to a
subsidiary of Almost Family, Inc. Same-store operating results
exclude the home care division in the comparable period in
2016.
Net operating revenues for the three months ended March 31,
2017, totaled $4.486 billion, a 10.3 percent decrease, compared
with $4.999 billion for the same period in 2016. Loss from
continuing operations attributable to Community Health Systems,
Inc. common stockholders was $(198) million, or $(1.78) per share
(diluted), for the three months ended March 31, 2017, compared with
income from continuing operations of $12 million, or $0.11 per
share (diluted), for the same period in 2016. During the three
months ended March 31, 2017, the Company recorded a non-cash
expense totaling $250 million related to impairment charges to
reduce the value of long-lived assets, primarily allocated
goodwill, at hospitals that the Company has identified for sale.
The impairment charges do not have an impact on the calculation of
the Company’s financial covenants under the Company’s Credit
Facility.
The results for the three months ended March 31, 2017, included
the loss of $(1.92) per share (diluted) related to impairment and
(gain) loss on sale of businesses, loss of $(0.12) per share
(diluted) from early extinguishment of debt, and loss of $(0.04)
per share (diluted) related to expense from fair value adjustments
on the CVR agreement liability accounted for at fair value related
to the HMA legal proceedings, and related legal expenses. These
expenses were partially offset by income of $0.23 per share
(diluted) related to government and other legal settlements, net of
related legal expenses, primarily as a result of the previously
announced settlement of the shareholder derivative action in
January 2017. Excluding these items, income from continuing
operations was $0.08 per share (diluted).
Net loss attributable to Community Health Systems, Inc. common
stockholders was $(199) million, or $(1.79) per share (diluted) for
the three months ended March 31, 2017, compared with net income of
$11 million, or $0.10 per share (diluted) for the same period in
2016. Discontinued operations for the three months ended March 31,
2017, consisted of $(0.01) per share (diluted) of losses from
operations of entities sold or held for sale for an after-tax loss
of approximately $(1) million. Weighted-average shares outstanding
(diluted) were 111 million for the three months ended March 31,
2017, and 110 million for the three months ended March 31, 2016.
Adjusted EBITDA for the three months ended March 31, 2017, was $527
million compared with $633 million for the same period in 2016,
representing a 16.7 percent decrease.
The consolidated operating results for the three months ended
March 31, 2017, reflect an 11.5 percent decrease in total
admissions, and a 12.5 percent decrease in total adjusted
admissions, compared with the same period in 2016. On a same-store
basis, admissions decreased 1.5 percent and adjusted admissions
decreased 1.4 percent during the three months ended March 31, 2017,
compared with the same period in 2016. On a same-store basis, net
operating revenues increased 0.7 percent during the three months
ended March 31, 2017, compared with the same period in 2016.
Adjusted EBITDA, a non-GAAP financial measure, is EBITDA
adjusted to add back net income attributable to noncontrolling
interests and to exclude the effect of discontinued operations,
loss from early extinguishment of debt, impairment and (gain) loss
on sale of businesses, gain on sale of investments in
unconsolidated affiliates, expense incurred related to the spin-off
of QHC, expense incurred related to the sale of a majority
ownership interest in the Company’s home care division, (income)
expense related to government and other legal settlements and
related costs, and expense from fair value adjustments on the CVR
agreement liability accounted for at fair value related to the HMA
legal proceedings, and related legal expenses. For information
regarding why the Company believes Adjusted EBITDA presents useful
information to investors, and for a reconciliation of Adjusted
EBITDA to net income attributable to Community Health Systems, Inc.
stockholders, see footnote (e) to the Financial Highlights,
Financial Statements and Selected Operating Data below.
Commenting on the results, Wayne T. Smith, chairman and chief
executive officer of Community Health Systems, Inc., said, “We
continue to make good progress on our strategic and operational
initiatives, and we are pleased to see these efforts reflected in
our first quarter results. We are focused on performance
improvements that we believe will yield additional efficiencies as
we move through 2017. At the same time, we are making progress with
our portfolio rationalization strategy as we work to create a
stronger, more sustainable company for the future and further
reduce our debt.”
Included on pages 14, 15, 16 and 17 of this press release are
tables setting forth the Company’s 2017 annual earnings guidance.
The updated 2017 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 that the Company expects to occur in
2017.
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 146 affiliated hospitals in 21 states with an aggregate of
approximately 24,000 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
Tuesday, May 2, 2017, at 11:00 a.m. Central, 12:00 noon Eastern, to
review financial and operating results for the first quarter ended
March 31, 2017. 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 through May 9, 2017. 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.
COMMUNITY HEALTH SYSTEMS,
INC. AND SUBSIDIARIES Financial Highlights (a)(b)(c)(d)
(In millions, except per share amounts) (Unaudited)
Three Months Ended March 31,
2017 2016 Net operating revenues
$ 4,486 $ 4,999 (Loss) income from continuing operations (f), (i)
(176 ) 37
Net (loss) income attributable to
Community Health Systems, Inc. stockholders
(199 ) 11 Adjusted EBITDA (e) 527 633 Net cash provided by
operating activities 242 294
Basic (loss) earnings per share
attributable to Community Health Systems, Inc. common
stockholders:
Continuing operations (f), (i) $ (1.78 ) $ 0.11 Discontinued
operations (0.01 ) (0.01 ) Net (loss) income $ (1.79
) $ 0.10
Diluted (loss) earnings per share
attributable to Community Health Systems, Inc. common
stockholders:
Continuing operations (f), (h), (i) $ (1.78 ) $ 0.11 Discontinued
operations (0.01 ) (0.01 ) Net (loss) income (h) $
(1.79 ) $ 0.10 Weighted-average number of shares
outstanding (g): Basic 111 110 Diluted 111 110
________________For footnotes, see pages
10, 11, 12 and 13.
COMMUNITY HEALTH
SYSTEMS, INC. AND SUBSIDIARIES Condensed Consolidated
Statements of Loss (Income) (a)(b)(c)(d) (In millions, except
per share amounts) (Unaudited)
Three Months Ended March 31,
2017 2016 Amount
% of Net
Operating
Revenues
Amount
% of Net
Operating
Revenues
Operating revenues (net of contractual allowances and discounts) $
5,168 $ 5,754 Provision for bad debts 682
755 Net operating revenues 4,486
100.0 % 4,999 100.0 % Operating costs and
expenses: Salaries and benefits 2,061 45.9 % 2,317 46.3 % Supplies
749 16.7 % 799 16.0 % Other operating expenses 1,057 23.5 % 1,173
23.5 % Government and other legal settlements and related costs (j)
(41 ) (0.9 )% - - % Electronic health records incentive
reimbursement (6 ) (0.1 )% (18 ) (0.4 )% Rent 109 2.4 % 119 2.4 %
Depreciation and amortization 236 5.3 % 298 6.0 % Impairment and
(gain) loss on sale of businesses, net (i) 250 5.6 %
17 0.3 % Total operating costs and expenses
4,415 98.4 % 4,705 94.1 % Income from
operations (f), (i) 71 1.6 % 294 5.9 % Interest expense, net 229
5.1 % 251 5.0 % Loss from early extinguishment of debt 21 0.5 % - -
% Equity in earnings of unconsolidated affiliates (3 ) (0.1
)% (20 ) (0.4 )%
(Loss) income from continuing operations
before income taxes
(176 ) (3.9 )% 63 1.3 % Provision for income taxes -
- % 26 0.6 % (Loss) income from continuing operations
(f), (i) (176 ) (3.9 )% 37 0.7 %
Discontinued operations, net of taxes: Loss from operations of
entities sold or held for sale (1 ) - % - - % Impairment of
hospitals sold or held for sale - - % (1 ) - %
Loss from discontinued operations, net of taxes (1 ) - %
(1 ) - % Net (loss) income (177 ) (3.9 )% 36 0.7 % Less: Net
income attributable to noncontrolling interests 22
0.5 % 25 0.5 % Net (loss) income attributable to
Community Health Systems, Inc. stockholders $ (199 ) (4.4 )% $ 11
0.2 %
Basic (loss) income per share attributable
to Community Health Systems, Inc. common stockholders:
Continuing operations (f), (i) $ (1.78 ) $ 0.11 Discontinued
operations (0.01 ) (0.01 ) Net (loss) income $ (1.79
) $ 0.10
Diluted (loss) income per share
attributable to Community Health Systems, Inc. common
stockholders:
Continuing operations (f), (h), (i) $ (1.78 ) $ 0.11 Discontinued
operations (0.01 ) (0.01 ) Net (loss) income (h) $
(1.79 ) $ 0.10 Weighted-average number of shares
outstanding (g): Basic 111 110 Diluted
111 110
________________For footnotes, see pages
10, 11, 12 and 13.
COMMUNITY HEALTH
SYSTEMS, INC. AND SUBSIDIARIES Condensed Consolidated
Statements of Comprehensive Loss (In millions) (Unaudited)
Three Months Ended
March 31, 2017 2016 Net (loss) income $
(177 ) $ 36 Other comprehensive income (loss), net of income taxes:
Net change in fair value of interest rate swaps, net of tax 5 (19 )
Net change in fair value of available-for-sale securities, net of
tax 3 2
Amortization and recognition of
unrecognized pension cost components, net of tax
- 1 Other comprehensive income (loss)
8 (16 ) Comprehensive (loss) income (169 ) 20
Less: Comprehensive income attributable to noncontrolling interests
22 25
Comprehensive loss attributable to
Community Health Systems, Inc. stockholders
$ (191 ) $ (5 )
________________For footnotes, see pages
10, 11, 12 and 13.
COMMUNITY HEALTH
SYSTEMS, INC. AND SUBSIDIARIES Selected Operating Data
(a)(c) (Dollars in millions) (Unaudited)
Three Months Ended March 31, Consolidated
Same-Store 2017 2016 % Change
2017 2016 % Change Number of hospitals (at end
of period) 155 194 154 154 Licensed beds (at end of period) 26,009
29,936 25,989 26,261 Beds in service (at end of period) 23,336
26,285 23,316 23,300 Admissions 212,242 239,700 -11.5 % 211,090
214,289 -1.5 % Adjusted admissions 449,012 513,192 -12.5 % 446,053
452,436 -1.4 % Patient days 972,885 1,076,226 969,056 973,873
Average length of stay (days) 4.6 4.5 4.6 4.5 Occupancy rate
(average beds in service) 46.5 % 45.1 % 46.5 % 46.1 % Net operating
revenues $ 4,486 $ 4,999 -10.3 % $ 4,424 $ 4,392 0.7 %
Net inpatient revenues as a % of net
patient revenues before provision for bad debts
43.9 % 43.9 % 43.9 % 44.2 %
Net outpatient revenues as a % of net
patient revenues before provision for bad debts
56.1 % 56.1 % 56.1 % 55.8 % Income from operations (f), (i) $ 71 $
294 -75.9 %
Income from operations as a % of net
operating revenues
1.6 % 5.9 % Depreciation and amortization $ 236 $ 298 Equity in
earnings of unconsolidated affiliates $ (3 ) $ (20 )
Net (loss) income attributable to
Community Health Systems, Inc. stockholders
$ (199 ) $ 11 -1909.1 %
Net (loss) income attributable to
Community Health Systems, Inc. stockholders as a % of net operating
revenues
-4.4 % 0.2 % Adjusted EBITDA (e) $ 527 $ 633 -16.7 %
Adjusted EBITDA as a % of net operating
revenues
11.7 % 12.7 % Net cash provided by operating activities $ 242 $ 294
-17.7 %
________________For footnotes, see pages
10, 11, 12 and 13.
COMMUNITY HEALTH
SYSTEMS, INC. AND SUBSIDIARIES Condensed Consolidated
Balance Sheets (b) (In millions, except share data) (Unaudited)
March 31, 2017
December 31, 2016 ASSETS Current assets Cash and cash
equivalents $ 247 $ 238
Patient accounts receivable, net of
allowance for doubtful accounts of $3,729 and $3,773 at March 31,
2017 and December 31, 2016, respectively
3,164 3,176 Supplies 458 480 Prepaid income taxes 17 17 Prepaid
expenses and taxes 218 187 Other current assets 671
568 Total current assets 4,775
4,666 Property and equipment, gross 11,824 12,422 Less
accumulated depreciation and amortization (4,185 )
(4,273 ) Property and equipment, net 7,639
8,149 Goodwill 6,327 6,521 Other
assets, net 2,919 2,608 Total assets $
21,660 $ 21,944
LIABILITIES AND EQUITY
Current liabilities Current maturities of long-term debt $ 558 $
455 Accounts payable 988 995 Accrued interest 145 207 Accrued
liabilities 1,305 1,230 Total current
liabilities 2,996 2,887 Long-term debt
14,687 14,789 Deferred income taxes
415 411 Other long-term liabilities
1,469 1,575 Total liabilities
19,567 19,662 Redeemable noncontrolling
interests in equity of consolidated subsidiaries 552
554 EQUITY Community Health Systems, Inc.
stockholders’ equity: Preferred stock, $.01 par value per share,
100,000,000 shares authorized; none issued - -
Common stock, $.01 par value per share,
300,000,000 shares authorized; 114,690,205 shares issued and
outstanding at March 31, 2017, and 113,876,580 shares issued and
outstanding at December 31, 2016
1 1 Additional paid-in capital 1,980 1,975 Accumulated other
comprehensive loss (54 ) (62 ) Accumulated deficit (498 )
(299 ) Total Community Health Systems, Inc. stockholders’
equity 1,429 1,615 Noncontrolling interests in equity of
consolidated subsidiaries 112 113 Total
equity 1,541 1,728 Total liabilities
and equity $ 21,660 $ 21,944
________________For footnotes, see pages
10, 11, 12 and 13.
COMMUNITY HEALTH
SYSTEMS, INC. AND SUBSIDIARIES Condensed Consolidated
Statements of Cash Flows (b) (In millions) (Unaudited)
Three Months Ended March 31,
2017 2016 Cash flows from
operating activities Net (loss) income $ (177 ) $ 36 Adjustments to
reconcile net (loss) income to net cash provided by operating
activities: Depreciation and amortization 236 298 Government and
other legal settlements and related costs (j) (1 ) - Stock-based
compensation expense 9 14 Impairment of hospitals sold or held for
sale - 1 Impairment and (gain) loss on sale of businesses, net (i)
250 17 Loss from early extinguishment of debt 21 - Other non-cash
expenses, net 8 14 Changes in operating assets and liabilities, net
of effects of acquisitions and divestitures: Patient accounts
receivable 11 (109 ) Supplies, prepaid expenses and other current
assets (67 ) (14 ) Accounts payable, accrued liabilities and income
taxes (14 ) 64 Other (34 ) (27 ) Net cash provided by
operating activities 242 294
Cash flows from investing activities Acquisitions of facilities and
other related equipment (2 ) (99 ) Purchases of property and
equipment (146 ) (224 ) Proceeds from disposition of hospitals and
other ancillary operations - 12 Proceeds from sale of property and
equipment - 4 Purchases of available-for-sale securities (12 ) (37
) Proceeds from sales of available-for-sale securities 26 40
Increase in other investments (37 ) (67 ) Net cash
used in investing activities (171 ) (371 )
Cash flows from financing activities Repurchase of restricted stock
shares for payroll tax withholding requirements (5 ) (7 ) Deferred
financing costs and other debt-related costs (40 ) - Proceeds from
noncontrolling investors in joint ventures 5 - Redemption of
noncontrolling investments in joint ventures (4 ) (16 )
Distributions to noncontrolling investors in joint ventures (28 )
(18 ) Borrowings under credit agreements 610 1,564 Issuance of
long-term debt 2,200 - Proceeds from receivables facility 26 31
Repayments of long-term indebtedness (2,826 ) (1,480
) Net cash (used in) provided by financing activities (62 )
74 Net change in cash and cash equivalents 9
(3 ) Cash and cash equivalents at beginning of period 238
184 Cash and cash equivalents at end of period
$ 247 $ 181
________________For footnotes, see pages
10, 11, 12 and 13.
Footnotes to Financial Highlights, Financial
Statements and Selected Operating Data
(a) Continuing operating results exclude discontinued operations
for the three months ended March 31, 2017 and 2016. Both financial
and statistical results exclude entities in discontinued operations
for all periods presented. Same-store operating results and
statistical data exclude information for the hospitals divested in
the spin-off of QHC in the comparable period in 2016.
(b) The contingent value right (“CVR”) entitles the holder to
receive a cash payment up to $1.00 per CVR (subject to downward
adjustment but not below zero), subject to the final resolution of
certain legal matters pertaining to HMA, as defined in the CVR
agreement. If the aggregate amount of applicable losses under the
CVR agreement exceeds a deductible of $18 million, then the amount
payable in respect of each CVR shall be reduced (but not below
zero) by an amount equal to the quotient obtained by dividing: (a)
the product of (i) all losses in excess of the deductible and (ii)
90%; by (b) the number of CVRs outstanding on the date on which
final resolution of the existing litigation occurs. Since the HMA
acquisition date of January 27, 2014, approximately $33 million in
costs have been incurred and approximately $30 million of
settlements have been paid related to certain HMA legal matters,
which collectively exceed the deductible of $18 million under the
CVR agreement. The Company previously recorded an estimated fair
value of the remaining underlying claims that will be covered by
the CVR of $284 million as part of the acquisition accounting for
HMA, which, after consideration of amounts paid and current
estimates of valuation inputs, has been adjusted to its estimated
fair value of $258 million at March 31, 2017. In addition, although
future legal fees (which are expensed as incurred) associated with
the HMA legal matters have not been accrued or included in the
table below, such legal fees are taken into account in determining
the total amount of reductions applied to the amounts owed to CVR
holders. For the CVR valuation at March 31, 2017, the change in
fair value from the previous quarter was primarily the result of a
decrease in the discount rate applied to the estimated settlement
amount.
The following table presents the impact of the recorded amounts
as described above as applied to the CVR and the $18 million
deductible and 10% co-insurance amounts (in millions):
As of March 31, 2017
Legal and other related costs incurred to date $ 33 Settlements 30
Estimated liability for probable contingencies - Estimated
liability for unresolved contingencies at fair value 258
Costs incurred plus certain estimated
liabilities for CVR-related matters
321 Allocated to: CHS deductible of $18 million (18 ) CHS
co-insurance at 10% (29 )
Recorded amounts that reduce CVR value
after giving effect to deductible and co-insurance
$ 274 CVRs outstanding 265
(c) Included in discontinued operations for the three months
ended March 31, 2017 and 2016, are three smaller hospitals that are
being actively marketed for sale. The after-tax loss for the sold
or held for sale hospitals, including an impairment charge in 2016
on certain long-lived assets sold or held for sale, was
approximately $1 million for both of the three-month periods ended
March 31, 2017 and 2016.
(d) The following table provides information needed to calculate
(loss) income per share, which is adjusted for income attributable
to noncontrolling interests (in millions):
Three Months Ended March 31,
2017 2016
(Loss) income from continuing operations
attributable to Community Health Systems, Inc. common
stockholders:
(Loss) income from continuing operations, net of taxes $ (176 ) $
37
Less: Income from continuing operations
attributable to noncontrolling interests, net of taxes
22 25
(Loss) income from continuing operations
attributable to Community Health Systems, Inc. common stockholders
— basic and diluted
$ (198 ) $ 12
Footnotes to Financial Highlights, Financial
Statements and Selected Operating Data (Continued)
Three Months Ended March 31,
2017 2016
Loss from discontinued operations
attributable to Community Health Systems, Inc. common
stockholders:
Loss from discontinued operations, net of taxes $ (1 ) $ (1 )
Less: Loss from discontinued operations
attributable to noncontrolling interests, net of taxes
- -
Loss from discontinued operations
attributable to Community Health Systems, Inc. common stockholders
— basic and diluted
$ (1 ) $ (1 )
(e) EBITDA is a non-GAAP financial measure which consists of net
(loss) income attributable to Community Health Systems, Inc. before
interest, income taxes, and depreciation and amortization. Adjusted
EBITDA, also a non-GAAP financial measure, is EBITDA adjusted to
add back net income attributable to noncontrolling interests and to
exclude the effect of discontinued operations, loss from early
extinguishment of debt, impairment and (gain) loss on sale of
businesses, gain on sale of investments in unconsolidated
affiliates, expense incurred related to the spin-off of QHC,
expense incurred related to the sale of a majority ownership
interest in the Company’s home care division, (income) expense
related to government and other legal settlements and related
costs, and expense from fair value adjustments on the CVR agreement
liability accounted for at fair value related to the HMA legal
proceedings, and related legal expenses. The Company has from time
to time sold noncontrolling interests in certain of its
subsidiaries or acquired subsidiaries with existing noncontrolling
interest ownership positions. The Company believes that it is
useful to present Adjusted EBITDA because it adds back the portion
of EBITDA attributable to these third-party interests and clarifies
for investors the Company’s portion of EBITDA generated by
continuing operations. The Company reports Adjusted EBITDA as a
measure of financial performance. Adjusted EBITDA is a key measure
used by management to assess the operating performance of the
Company’s hospital operations and to make decisions on the
allocation of resources. Adjusted EBITDA is also used to evaluate
the performance of the Company’s executive management team and is
one of the primary targets used to determine short-term cash
incentive compensation. In addition, management utilizes Adjusted
EBITDA in assessing the Company’s consolidated results of
operations and operational performance and in comparing the
Company’s results of operations between periods. The Company
believes it is useful to provide investors and other users of the
Company’s financial statements this performance measure to align
with how management assesses the Company’s results of operations.
Adjusted EBITDA also is comparable to a similar metric called
Consolidated EBITDA, as defined in the Company’s senior secured
credit facility, which is a key component in the determination of
the Company’s compliance with some of the covenants under the
Company’s senior secured credit facility (including the Company’s
ability to service debt and incur capital expenditures), and is
used to determine the interest rate and commitment fee payable
under the senior secured credit facility (although Adjusted EBITDA
does not include all of the adjustments described in the senior
secured credit facility).
Adjusted EBITDA is not a measurement of financial performance
under U.S. GAAP. It should not be considered in isolation or as a
substitute for net income, operating income, or any other
performance measure calculated in accordance with U.S. GAAP. The
items excluded from Adjusted EBITDA are significant components in
understanding and evaluating financial performance. The Company
believes such adjustments are appropriate as the magnitude and
frequency of such items can vary significantly and are not related
to the assessment of normal operating performance. Additionally,
this calculation of Adjusted EBITDA may not be comparable to
similarly titled measures reported by other companies.
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) income attributable to Community
Health Systems, Inc. stockholders as derived directly from the
condensed consolidated financial statements (in millions):
Three Months Ended March 31,
2017 2016
Net (loss) income attributable to
Community Health Systems, Inc. stockholders
$ (199 ) $ 11 Adjustments: Provision for income taxes - 26
Depreciation and amortization 236 298 Net income attributable to
noncontrolling interests 22 25 Loss from discontinued operations 1
1 Interest expense, net 229 251 Loss from early extinguishment of
debt 21 - Impairment and (gain) loss on sale of businesses, net 250
17
(Income) expense from government and other
legal settlements and related costs
(41 ) -
Expense from fair value adjustments and
legal expenses related to cases covered by the CVR
7 - Expenses related to the sale of a majority interest in home
care division 1 - Expenses related to the spin-off of QHC -
4 Adjusted EBITDA $ 527 $ 633
(f) Included in non-same-store income from operations and (loss)
income from continuing operations are pre-tax charges related to
acquisition costs of less than $1 million and $2 million for the
three months ended March 31, 2017 and 2016, respectively.
(g) The following table sets forth components reconciling the
basic weighted-average number of shares to the diluted
weighted-average number of shares (in millions):
Three Months Ended March 31,
2017 2016
Weighted-average number of shares
outstanding - basic
111 110 Add effect of dilutive securities: Stock awards and options
- -
Weighted-average number of shares
outstanding - diluted
111 110
The Company generated a loss from continuing operations
attributable to Community Health Systems, Inc. common stockholders
for the three months ended March 31, 2017, so the effect of
dilutive securities is not considered because their effect would be
antidilutive. If the Company had generated income from continuing
operations during the three months ended March 31, 2017, the effect
of restricted stock awards on the diluted shares calculation would
have been an increase of 78,773 shares.
Footnotes to Financial Highlights, Financial
Statements and Selected Operating Data (Continued)
(h) The following supplemental tables reconcile (loss) income
from continuing operations and net (loss) income attributable to
Community Health Systems, Inc. common stockholders, as reported, on
a per share (diluted) basis, with the adjustments described herein
(total per share amounts may not add due to rounding):
Three Months Ended March 31,
2017 2016 (Loss) income from
continuing operations, as reported $ (1.78 ) $ 0.11 Adjustments:
Loss from early extinguishment of debt 0.12 - Impairment and (gain)
loss on sale of businesses, net 1.92 0.13
(Income) expense from government and other
legal settlements and related costs
(0.23 ) -
Expense from fair value adjustments and
legal expenses related to cases covered by the CVR
0.04 - Expense related to the spin-off of QHC -
0.02
Income from continuing operations,
excluding adjustments
$ 0.08 $ 0.27
Three Months Ended
March 31, 2017 2016 Net (loss) income,
as reported $ (1.79 ) $ 0.10 Adjustments: Loss from early
extinguishment of debt 0.12 - Impairment and (gain) loss on sale of
businesses, net 1.92 0.13
(Income) expense from government and other
legal settlements and related costs
(0.23 ) -
Expense from fair value adjustments and
legal expenses related to cases covered by the CVR
0.04 - Expense related to the spin-off of QHC -
0.02 Net income, excluding adjustments $ 0.07 $ 0.25
(i) Both income from operations and loss from continuing
operations for the three months ended March 31, 2017, included
non-cash expense of approximately $250 million related to
impairment charges to reduce the value of long-lived assets,
primarily allocated goodwill, at hospitals that the Company has
identified for sale. Included in income from operations and loss
from continuing operations for the three months ended March 31,
2016, was an impairment charge of approximately $17 million
incurred during the three months ended March 31, 2016, related to
the write-down of a portion of the goodwill allocated to the
divestitures of Lehigh Regional Medical Center and Bartow Regional
Medical Center, as well as the impairment of certain long-lived
assets at one of the Company’s smaller hospitals where the decision
was made during the quarter ended March 31, 2016, to permanently
close the hospital. These impairment charges do not have an impact
on the calculation of the Company’s financial covenants under the
Company’s Credit Facility.
(j) The $0.23 per share (diluted) of income for “Government and
other legal settlements and related costs” for the three months
ended March 31, 2017, is primarily the impact of the shareholder
derivative action settled during the three months ended March 31,
2017, net of related legal expenses. The $0.04 per share (diluted)
of expense for “Government and other legal settlements and related
costs” for the three months ended March 31, 2016, is the net impact
of several qui tam lawsuits settled in principle during the three
months ended March 31, 2016, and related legal expenses.
Regulation FD Disclosure
Set forth below is selected information concerning the Company’s
projected consolidated operating results for the year ending
December 31, 2017. These projections update selected guidance
issued on February 20, 2017, 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 2017 guidance should be considered in conjunction with the
assumptions included herein. See pages 16 and 17 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:
2017 Projection Range Net operating
revenues less provision for bad debts (in millions) $ 15,800
to $ 16,200 Adjusted EBITDA (in millions) $
2,000 to $ 2,175 Income from continuing operations per share -
diluted $ 0.25 to $ 0.90 Same-store hospital annual adjusted
admissions growth 0.0 % to 1.5 % Weighted-average diluted shares,
in millions 112.0 to 113.0
The following assumptions were used in developing the 2017
guidance provided above:
- The divestiture of 30 hospitals, in
respect of which the Company has divested or entered into a
definitive agreement or non-binding letters of intent, consisting
of ten separate contemplated transactions. These hospitals
generated approximately $3.4 billion of net revenue in 2016 with
mid-single digit Adjusted EBITDA margins. The Company assumes these
divestitures will generate approximately $2.0 billion in proceeds.
The Company assumes all of these divestitures will close at various
dates during the first nine months of 2017.
- The Company’s projections also exclude
the following:
- Gains associated with the settlement of
the shareholder derivative action in January 2017;
- Payments related to the CVRs issued in
connection with the HMA acquisition, and changes in the valuation
of liabilities underlying the CVR;
- Losses from the early extinguishment of
debt;
- Impairment of goodwill and long-lived
assets;
- Restructuring costs;
- Resolution of government investigations
or other significant legal settlements;
- Costs incurred in connection with the
planned divestitures; and
- Other significant gains or losses that
neither relate to the ordinary course of business nor reflect the
Company’s underlying business performance.
- The Company has three small hospitals
which remain held for sale for which the operating results have
been classified in discontinued operations and have been excluded
from the Company’s guidance.
Other assumptions used in the above guidance:
- Health Information Technology (HITECH)
electronic health records incentive reimbursement of approximately
$15 million to $20 million for the year ending December 31,
2017.
- Same-store hospital annual adjusted
admissions growth of 0.0% to 1.5% for 2017, 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
6.0% to 6.1% for 2017. 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 and acceleration of amortization of software to be
abandoned.
- Interest expense, expressed as a
percentage of net operating revenues, of approximately 5.6% to
5.7%; however, interest expense may vary as revenue varies.
Interest expense has been adjusted to reflect the Company’s
refinancing transactions in March 2017 and the repayment of debt
with proceeds from the anticipated divestitures, based on the
expected timing of those divestitures. Projected interest expense
does not consider any future refinancing transactions. Total fixed
rate debt, including swaps, is expected to average approximately
75% to 85% of total debt during 2017.
- Expressed as a percentage of net
operating revenues, net income attributable to noncontrolling
interests of approximately 0.6% to 0.7% for 2017.
- Expressed as a percentage of income
from continuing operations before income taxes, provision for
income taxes of approximately 30.0% to 31.0% for 2017, which
includes the impact of adopting ASU 2016-09 on the tax provision
for the vesting of equity-based compensation.
A reconciliation of the Company’s projected 2017 Adjusted
EBITDA, a forward-looking non-GAAP financial measure, to the
Company’s projected net income attributable to Community Health
Systems, Inc. stockholders, the most directly comparable GAAP
financial measure, is shown below:
Year Ending December 31, 2017
Low High
Net income attributable to Community
Health Systems, Inc. stockholders (1)
$ 28 $ 101 Adjustments: Depreciation and amortization 945 970
Interest expense, net 890 910 Provision for income taxes 50 89 Net
income attributable to noncontrolling interests 87
105 Adjusted EBITDA (1) $ 2,000 $ 2,175
(1) The Company does not include in this reconciliation the
impact of certain items that would be included in a reconciliation
of historical net income attributable to Community Health Systems,
Inc. stockholders to Adjusted EBITDA such as, but not limited to,
losses from early extinguishment of debt, impairment and (gain)
loss on sale of businesses, and expense (income) related to
government and other legal settlements and related costs, in light
of the fact that such items are not determinable and/or the
inherent difficulty in quantifying such projected amounts, and are
therefore not included in the Company’s forecast shown above.
- Capital expenditures are projected as
follows (in millions):
2017 Guidance Total $625
to $775
- Net cash provided by operating
activities, excluding cash flows related to the CVR and settlement
of legal contingencies, is projected as follows (in millions):
2017 Guidance Total
$1,050 to $1,225
- Weighted-average shares outstanding are
projected to be between approximately 112 million to 113 million
for 2017.
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 the 2016 federal
elections, which may lead to the repeal of or significant changes
to the Affordable Care Act, its implementation or its
interpretation, as well as changes in other federal, state or local
laws or regulations affecting our business;
- 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, which may be affected by whether a
sufficient number of payors participate as well as the impact of
the 2016 federal elections on the Affordable Care Act;
- risks associated with our substantial
indebtedness, leverage and debt service obligations, 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, governmental regulations;
- 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;
- 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;
- 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 in states that have not expanded Medicaid and
difficulties in recovering payments for which patients are
responsible, including co-pays and deductibles;
- the efforts of insurers, healthcare
providers and others to contain healthcare costs, including the
trend toward value-based purchasing;
- our ongoing ability to demonstrate
meaningful use of certified electronic health record technology and
recognize income for the related Medicare or Medicaid incentive
payments to the extent such payments have not expired;
- 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
(including to realize the anticipated amount of proceeds from
contemplated dispositions), 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, including those of HMA, or to recognize
expected synergies from acquisitions;
- the impact of seasonal severe weather
conditions;
- 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 the external, criminal
cyber-attack suffered by us in the second quarter of 2014,
including potential reputational damage, the
outcome of our investigation and any potential governmental
inquiries, the outcome of litigation filed against us in connection
with this cyber-attack, the extent of remediation costs and
additional operating or other expenses that we may continue to
incur, and the impact of 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;
- any effects related to our previously
announced exploration of strategic alternatives; and
- the other risk factors set forth in our
other public filings with the Securities and Exchange
Commission.
The consolidated operating results for the three months ended
March 31, 2017, are not necessarily indicative of the results that
may be experienced for any future periods. The Company cautions
that the projections for calendar year 2017 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.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170501006228/en/
Community Health Systems, Inc.W. Larry Cash,
615-465-7000President of Financial Services and Chief Financial
Officer
Community Health Systems (NYSE:CYH)
Historical Stock Chart
From Mar 2024 to Apr 2024
Community Health Systems (NYSE:CYH)
Historical Stock Chart
From Apr 2023 to Apr 2024