Community Health Systems, Inc. (NYSE: CYH) (the “Company”) today
announced preliminary financial and operating results for the three
months ended June 30, 2017. These results are based on information
available to management as of the date of this press release and
are subject to revision upon finalization of the Company’s
quarterly accounting and financial reporting procedures.
Financial and statistical data 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.
- On May 1, 2017, the Company sold 11
hospitals as part of its ongoing portfolio rationalization efforts.
Same-store operating results exclude the results of these hospitals
divested in 2017 and the comparable period in 2016. An additional
nine hospitals were sold effective June 30, 2017 and July 1, 2017.
Actual and same-store operating results include the results of
these hospitals in 2017 and the comparable period in 2016.
The Company anticipates net operating revenues for the three
months ended June 30, 2017, will be approximately $4.144 billion,
compared with $4.590 billion for the same period in 2016. Loss from
continuing operations attributable to Community Health Systems,
Inc. common stockholders for the three months ended June 30, 2017,
is expected to be approximately $(131) million, or $(1.17) per
share (diluted), compared with a loss of $(1.431) billion, or
$(12.90) per share (diluted) for the three months ended June 30,
2016. Net loss attributable to Community Health Systems, Inc.
common stockholders is expected to be approximately $(137) million,
or $(1.22) per share (diluted) for the three months ended June 30,
2017, compared with $(1.432) billion, or $(12.91) per share
(diluted) for the same period in 2016. Adjusted EBITDA for the
three months ended June 30, 2017, is expected to be approximately
$435 million, compared with $563 million for the same period in
2016.
The anticipated results for the three months ended June 30,
2017, include a loss of $(0.77) per share (diluted) related to
impairment and (gain) loss on sale of businesses, loss of $(0.06)
per share (diluted) from early extinguishment of debt, loss of
$(0.04) per share (diluted) related to government and other legal
settlements, loss of $(0.01) per share (diluted) related to
employee termination benefits and other restructuring charges, 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. Excluding these items, the Company anticipates the loss
from continuing operations attributable to Community Health
Systems, Inc. common stockholders to be a loss of $(0.25) per share
(diluted) for the three months ended June 30, 2017.
Net cash provided by operating activities for the three months
ended June 30, 2017, is expected to be approximately $261 million,
with total net cash provided by operating activities for the six
months ended June 30, 2017 expected to be approximately $503
million. This compares with $338 million for the three months ended
June 30, 2016, and $632 million for the six months ended June
30, 2016.
The consolidated operating results for the three months ended
June 30, 2017, reflect a 10.8 percent decrease in total admissions
and an 11.2 percent decrease in total adjusted admissions, compared
with the same period in 2016. On a same-store basis, both
admissions and adjusted admissions decreased 2.5 percent during the
three months ended June 30, 2017, compared with the same period in
2016. On a same-store basis, net operating revenues decreased 0.7
percent during the three months ended June 30, 2017, compared with
the same period in 2016.
Same-store consolidated salaries and benefits expense is
expected to decrease as a percentage of consolidated net operating
revenues from 46.3 percent for the three months ended June 30,
2016, to approximately 46.2 percent for the three months ended June
30, 2017. Same-store consolidated supplies expense as a percentage
of consolidated net operating revenues is expected to be unchanged
at 16.9 percent for both of the three months ended June 30, 2017
and June 30, 2016. Same-store consolidated other operating expenses
are expected to increase as a percentage of consolidated net
operating revenues from 22.2 percent for the three months ended
June 30, 2016, to approximately 24.0 percent for the three months
ended June 30, 2017.
The lower than anticipated results were primarily caused by
lower than expected volume and the resulting lower net operating
revenues. The results were also impacted by increases in medical
specialist fees, purchased services and information systems
expense.
The Company completed its divestitures of one hospital on June
30, 2017 and eight hospitals on July 1, 2017, bringing its total
completed divestitures to 20, out of the previously announced 30
hospitals subject to definitive agreements. The Company expects to
complete the sale of the remaining 10 hospitals subject to
definitive agreements by September 30, 2017.
In addition to the previously announced divestiture of 30
hospitals, the Company continues to receive interest from acquirers
for certain of its hospitals. The Company is pursuing this interest
for sale transactions involving hospitals with a combined total of
at least $1.5 billion in annual net revenue and combined mid-single
digit Adjusted EBITDA margins.
The Company is also providing a preliminary update to its 2017
annual guidance for Adjusted EBITDA to reflect changes to projected
consolidated operating results for the year ending December 31,
2017, as such guidance was previously reflected in the Company’s
earnings release issued on May 1, 2017. Adjusted EBITDA for 2017 is
now anticipated to be $1.825 billion to $2.000 billion. Same-store
hospital annual adjusted admissions for 2017 are now anticipated to
decline between (2.0) percent and (1.0) percent. The Company
anticipates providing a complete update to its 2017 annual guidance
and reporting its complete financial results for the three and six
months ended June 30, 2017, on August 1, 2017, followed by a live
earnings call at 10:00 am Central, 11:00 am Eastern, on
August 2, 2017.
About Community Health Systems, Inc.
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 137 affiliated hospitals in 21 states with an aggregate of
approximately 22,000 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.
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 potential 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; and
- the other risk factors set forth in our
other public filings with the Securities and Exchange
Commission.
The Company cautions that the preliminary results for the three
months ended June 30, 2017 set forth in this press release are
given as of the date hereof based on information currently
available to management and are subject to revision upon
finalization of the Company’s quarterly accounting and financial
reporting procedures. The expected consolidated operating results
for the three months ended June 30, 2017 are not necessarily
indicative of the results that may be experienced for any future
periods. 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.
Information on Non-GAAP Financial Measures
EBITDA is a non-GAAP financial measure which consists of net
loss 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, expense related to employee termination benefits and other
restructuring charges, and expense (income) from fair value
adjustments on the CVR agreement liability accounted for at fair
value related to the HMA legal proceedings, and related legal
expenses. This is the initial period in which the Company has
incurred a significant amount of and included an adjustment for
employee termination benefits and other restructuring charges in
Adjusted EBITDA. The Company has included this adjustment (and
intends to continue including this adjustment on a prospective
basis) based on its belief that such expense, which may differ
significantly between periods in a manner not correlated with the
Company’s ongoing operational performance, is consistent with
management’s intended use of Adjusted EBITDA to assess the
Company’s results of operations and compare operating results
between periods. 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.
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):
Three Months Ended
June 30, 2017 2016
Net loss attributable to Community Health
Systems, Inc. stockholders
$ (137 ) $ (1,432 ) Adjustments: Provision for income taxes (15 )
(138 ) Depreciation and amortization 223 276 Net income
attributable to noncontrolling interests 15 26 Loss from
discontinued operations 6 1 Interest expense, net 239 246 Loss from
early extinguishment of debt 10 30 Impairment and (gain) loss on
sale of businesses, net 80 1,639 Gain on sale of investments in
unconsolidated affiliates - (94 )
Expense (income) from government and other
legal settlements and related costs
7 -
Expense (income) from fair value
adjustments and legal expenses related to cases covered by the
CVR
5 (1 ) Expenses related to the spin-off of QHC - 10
Expenses related to employee termination
benefits and other restructuring charges
2 - Adjusted EBITDA $ 435 $ 563
The expected numbers for the period ended June 30, 2017, in the
reconciliation chart set forth above are given as of the date
hereof based on information currently available to management and
are subject to revision upon finalization of the Company’s
quarterly accounting and financial reporting procedures.
A reconciliation of the Company’s projected 2017 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, will be included in the complete updated 2017
projections provided with its August 1, 2017 press release
announcing second quarter 2017 results.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170726006282/en/
Community Health Systems, Inc.Thomas J. Aaron,
615-465-7000Executive Vice President and Chief Financial
Officer
Community Health Systems (NYSE:CYH)
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