Quorum Health Corporation (NYSE: QHC) (the “Company”) today
announced its operating and financial results for the three and
nine months ended September 30, 2017.
Net operating revenues for the three months ended September 30,
2017 decreased $44.6 million to $499.3 million, compared to $543.9
million for the same period in 2016. Net operating revenues for the
quarter decreased $32.5 million from the two hospitals divested in
December 2016 and the four hospitals divested in the first nine
months of 2017, and decreased $11.5 million resulting from the
Company’s inability to accrue in the 2017 period for the California
Hospital Quality Assurance Fee (“HQAF”) program revenues for the
2017-2019 program period pending approval by Centers for Medicare
& Medicaid Services (“CMS”). Excluding these amounts, net
operating revenues decreased $0.6 million for the three months
ended September 30, 2017 compared to the same period in 2016. Net
loss attributable to Quorum Health Corporation for the three months
ended September 30, 2017 was $(29.2) million, or $(1.03) per share,
compared to $(7.0) million, or $(0.24) per share, for the same
period in 2016. The net loss for the three months ended September
30, 2017 was impacted by an $8.8 million decrease, net of provider
taxes, related to the California HQAF program and $5.3 million of
impairment charges related to certain hospitals intended for
divestiture. On a same-facility basis, as defined in footnote (k),
the Company’s operating results for the three months ended
September 30, 2017 reflect a 0.2% decrease in admissions and a 0.5%
increase in adjusted admissions compared to the same period in
2016. Excluding the six divested hospitals and the eight hospitals
intended for divestiture as of September 30, 2017, admissions and
adjusted admissions increased 1.3% and 3.2%, respectively, for
these same periods.
Adjusted EBITDA for the three months ended September 30, 2017
was $32.3 million, compared to $46.7 million for the same period in
2016. Adjusted EBITDA was negatively impacted by the Company’s
inability to accrue for the California HQAF program in the 2017
period, as stated above. Adjusted EBITDA for the three months ended
September 30, 2016 included $8.8 million related to this program.
The divested hospitals negatively impacted EBITDA by $4.7 million
and $7.0 million for the three months ended September 30, 2017 and
2016, respectively. As a result, Adjusted EBITDA, Adjusted for
Divestitures, was $36.9 million and $53.8 million for the three
months ended September 30, 2017 and 2016, respectively.
Net operating revenues for the nine months ended September 30,
2017 decreased $66.1 million to $1,557.1 million, compared to
$1,623.2 million for the same period in 2016. Net operating
revenues decreased $63.6 million related to the two hospitals
divested in December 2016 and the four hospitals divested in the
first nine months of 2017, and decreased $33.9 million due to the
inability to accrue revenues related to the California HQAF
program. Excluding these amounts, net operating revenues increased
$31.4 million for the nine months ended September 30, 2017 compared
to the same period in 2016, primarily due to favorable volume and
payor rate variances. Net loss attributable to Quorum Health
Corporation for the nine months ended September 30, 2017 was
$(87.4) million, or $(3.11) per share, compared to $(257.0)
million, or $(9.05) per share, for the same period in 2016. The
2017 period included impairment charges of $21.5 million related to
hospitals held for sale or identified for potential divestiture and
a net gain of $5.1 million on the sale of hospitals. The 2016
period included $250.4 million of impairment charges, $5.4 million
of transaction costs related to the Spin-off and $25.7 million in
revenues, net of provider taxes, related to the California HQAF
program. On a same-facility basis, the Company’s operating results
for the nine months ended September 30, 2017 reflect a 0.9%
decrease in admissions and a 0.2% increase in adjusted admissions
compared to the same period in 2016. Excluding divested hospitals
and hospitals intended for divestiture, admissions and adjusted
admissions increased 0.7% and 2.0%, respectively, for these same
periods.
Adjusted EBITDA for the nine months ended September 30, 2017 was
$92.8 million, compared to $132.2 million for the same period in
2016. Adjusted EBITDA was negatively impacted by the Company’s
inability to accrue for the California HQAF program in the 2017
period, as stated above. Adjusted EBITDA for the nine months ended
September 30, 2016 included $25.7 million related to the California
HQAF program. The divested hospitals negatively impacted EBITDA by
$13.6 million and $18.5 million for the nine months ended September
30, 2017 and 2016, respectively. As a result, Adjusted EBITDA,
Adjusted for Divestitures, was $106.4 million and $150.7 million
for the nine months ended September 30, 2017 and 2016,
respectively.
The Company had combined proceeds from these six divestitures of
$43.1 million, of which $40.4 million was utilized to pay down the
Company’s term loan under its credit facility. In addition, in
October 2017, the Company received $30.9 million from the State of
California related to the 2015-2016 HQAF Program, a portion of
which was utilized to pay down additional principal on the
Company’s secured debt.
On October 31, 2017, the Company completed the divestiture of
L.V. Stabler Memorial Hospital, located in Greenville, Alabama, and
received proceeds of $2.8 million. The Company paid down an
additional $18.2 million of secured debt in October and November of
2017.
Commenting on the results, Thomas D. Miller, President and Chief
Executive Officer of Quorum Health Corporation, said, “We continue
our efforts to improve our core operations as we restructure our
hospital portfolio. As we execute our strategy to divest
underperforming hospitals, we have completed six transactions
through the third quarter with another already completed in the
fourth quarter. We expect more divestiture completions in 2018 as
we remain dedicated to reducing our debt, managing our costs and
increasing our profitability.”
Financial Outlook
The Company’s updated financial outlook for the year ending
December 31, 2017 is discussed below. These projections update
selected guidance issued on August 9, 2017 and are based on the
Company’s historical operating performance, current economic,
demographic and regulatory 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 “Forward-Looking Statements” below for a list of
factors that could affect the future results of the Company or the
healthcare industry generally.
The Company expects net operating revenues for the year ending
December 31, 2017 to range from $2.055 billion to $2.065 billion.
The Company expects Adjusted EBITDA for the year ending December
31, 2017 to range from $140 million to $150 million and Adjusted
EBITDA, Adjusted for Divestitures through December 31, 2017 to
range from $160 million to $170 million. The guidance for Adjusted
EBITDA gives effect to: (i) the approval of the California
Department of Health Care Services’ HQAF Program by CMS, which we
estimate to be approved in the fourth quarter of 2017 at
approximately $22 million, approximately $13 million less than
2016, (ii) the reduction of approximately $7 million in electronic
health records incentives earned in 2017 compared to the 2016
amounts, (iii) the inclusion of approximately $11 million to $13
million of non-cash stock-based compensation and other non-cash
benefits expense and approximately $20 million to $25 million of
non-cash insurance expense, and (iv) no estimate for the effects of
any changes to the Affordable Care Act, its interpretation or its
implementation. The guidance for Adjusted EBITDA, Adjusted for
Divestitures through December 31, 2017 includes the same
assumptions above, in addition to excluding the negative EBITDA of
hospitals divested and expected to be divested through December 31,
2017, including the completed divestiture of L.V. Stabler Memorial
Hospital on October 31, 2017.
A reconciliation of the Company’s projected 2017 Adjusted
EBITDA, and Adjusted EBITDA, Adjusted for Divestitures, each a
forward-looking non-GAAP financial measure, to net income (loss),
the most directly comparable U.S. GAAP financial measure, is
omitted from this press release because the Company is unable to
provide such reconciliation without unreasonable effort. This
inability results from the inherent difficulty in forecasting
generally and in quantifying certain projected amounts that are
necessary for such reconciliation. In particular, sufficient
information is not available to calculate certain adjustments
required for such reconciliation without unreasonable effort,
including interest expense, provision for (benefit from) income
taxes and other adjustments that would be necessary to prepare a
forward-looking statement of net income (loss) in accordance with
U.S. GAAP. For the same reasons, the Company is unable to address
the probable significance of the unavailable information.
About Quorum Health Corporation
The principal business of Quorum Health Corporation is to
provide hospital and outpatient healthcare services in its markets
across the United States. As of September 30, 2017, the Company
owned or leased 32 hospitals in rural and mid-sized markets located
across 15 states and licensed for 3,051 beds. Through Quorum Health
Resources LLC, a wholly-owned subsidiary, the Company provides
hospital management advisory and healthcare consulting services to
non-affiliated hospitals across the country. Over 95% of the
Company’s net operating revenues are attributable to its hospital
operations business.
The Company’s headquarters are located in Brentwood, Tennessee,
a suburb south of Nashville. Shares in Quorum Health Corporation
are traded on the NYSE under the symbol “QHC.” More information
about the Company can be found on its website at
www.quorumhealth.com.
Quorum Health Corporation will hold a conference call on
Thursday, November 9, 2017, at 10:00 a.m. Central time, 11:00 a.m.
Eastern, to review operating and financial results for the three
and nine months ended September 30, 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.quorumhealth.com. To listen to the live
call, please go to the website at least 15 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 the
Company’s Current Report on Form 8-K (including this press release)
are available on the Company’s website at www.quorumhealth.com.
QUORUM HEALTH CORPORATION
UNAUDITED CONDENSED CONSOLIDATED AND
COMBINED STATEMENTS OF INCOME (LOSS)
(In Thousands, Except Earnings per
Share and Shares)
Three Months Ended September 30,
2017 2016 % of
% of $ Amount Revenues $
Amount Revenues Operating revenues, net of
contractual allowances and discounts (a) $ 557,847 $ 612,551
Provision for bad debts 58,545 68,612
Net operating revenues 499,302 100.0 %
543,939 100.0 % Operating costs and expenses:
Salaries and benefits(b) 251,780 50.4 % 266,812 49.1 % Supplies
58,657 11.7 % 64,013 11.8 % Other operating expenses (a) 145,357
29.2 % 154,878 28.3 % Depreciation and amortization 20,735 4.2 %
28,234 5.2 % Rent 12,377 2.5 % 12,823 2.4 % Electronic health
records incentives earned (287 ) (0.1 )% (1,336 ) (0.2 )% Legal,
professional and settlement costs 2,050 0.4 % 488 0.1 % Impairment
of long-lived assets and goodwill 5,261 1.1 % — — % Loss (gain) on
sale of hospitals, net 79 — % — — % Transaction costs related to
the Spin-off 173 — % 532 0.1 % Total
operating costs and expenses 496,182 99.4 %
526,444 96.8 % Income (loss) from operations 3,120 0.6 %
17,495 3.2 % Interest expense, net 32,216 6.4 %
28,028 5.1 % Income (loss) before income taxes
(29,096 ) (5.8 )% (10,533 ) (1.9 )% Provision for (benefit from)
income taxes (542 ) (0.1 )% (4,081 ) (0.7 )% Net
income (loss) (c) (28,554 ) (5.7 )% (6,452 ) (1.2 )% Less: Net
income (loss) attributable to noncontrolling interests 637
0.1 % 507 0.1 % Net income (loss) attributable
to Quorum Health Corporation $ (29,191 ) (5.8 )% $ (6,959 ) (1.3 )%
Earnings (loss) per share attributable to Quorum Health
Corporation stockholders: Basic and diluted (d) $ (1.03 ) $ (0.24 )
Weighted-average shares outstanding: Basic and diluted (e)
28,245,833 28,413,532
QUORUM HEALTH CORPORATION
UNAUDITED CONDENSED CONSOLIDATED AND
COMBINED STATEMENTS OF INCOME (LOSS)
(In Thousands, Except Earnings per
Share and Shares)
Nine Months Ended September 30,
2017 2016 % of
% of $ Amount Revenues $
Amount Revenues Operating revenues, net of
contractual allowances and discounts (a) $ 1,731,007 $ 1,825,198
Provision for bad debts 173,919 201,971
Net operating revenues 1,557,088 100.0
% 1,623,227 100.0 % Operating costs and expenses:
Salaries and benefits(b) 781,691 50.2 % 788,560 48.6 % Supplies
186,591 12.0 % 191,810 11.8 % Other operating expenses (a) 466,394
29.9 % 482,526 29.8 % Depreciation and amortization 63,441 4.1 %
90,854 5.6 % Rent 36,631 2.4 % 37,917 2.3 % Electronic health
records incentives earned (4,516 ) (0.3 )% (9,791 ) (0.6 )% Legal,
professional and settlement costs 6,519 0.4 % 6,176 0.4 %
Impairment of long-lived assets and goodwill 21,461 1.4 % 250,400
15.4 % Loss (gain) on sale of hospitals, net (5,112 ) (0.3 )% — — %
Transaction costs related to the Spin-off 204 — %
5,444 0.3 % Total operating costs and expenses
1,553,304 99.8 % 1,843,896 113.6 % Income
(loss) from operations 3,784 0.2 % (220,669 ) (13.6 )% Interest
expense, net 90,204 5.8 % 84,756 5.2 %
Income (loss) before income taxes (86,420 ) (5.6 )% (305,425 )
(18.8 )% Provision for (benefit from) income taxes (86 )
(0.1 )% (50,320 ) (3.1 )% Net income (loss) (c) (86,334 )
(5.5 )% (255,105 ) (15.7 )% Less: Net income (loss) attributable to
noncontrolling interests 1,048 0.1 % 1,917
0.1 % Net income (loss) attributable to Quorum Health
Corporation $ (87,382 ) (5.6 )% $ (257,022 ) (15.8 )%
Earnings (loss) per share attributable to Quorum Health Corporation
stockholders: Basic and diluted (d) $ (3.11 ) $ (9.05 )
Weighted-average shares outstanding: Basic and diluted (e)
28,068,085 28,412,552
QUORUM HEALTH CORPORATION
UNAUDITED CONSOLIDATED AND COMBINED
SELECTED OPERATING DATA
Three Months Ended September 30,
2017 2016 Variance
% Variance Consolidated and combined:
Number of licensed beds at end of period (f) 3,051 3,578 (527 )
(14.7 )% Admissions (g) 21,646 23,503 (1,857 ) (7.9 )% Adjusted
admissions (h) 54,350 59,333 (4,983 ) (8.4 )% Emergency room visits
(i) 163,986 184,166 (20,180 ) (11.0 )% Medicare case mix index (j)
1.43 1.37 0.06 4.4 % Same-facility: (k) Number of licensed
beds at end of period (f) 3,051 3,051 — — % Admissions (g) 21,155
21,195 (40 ) (0.2 )% Adjusted admissions (h) 52,755 52,471 284 0.5
% Emergency room visits (i) 158,337 162,608 (4,271 ) (2.6 )%
Medicare case mix index (j) 1.43 1.38 0.05 3.6 %
Nine Months Ended September 30, 2017 2016
Variance % Variance Consolidated and combined:
Number of licensed beds at end of period (f) 3,051 3,578 (527 )
(14.7 )% Admissions (g) 67,572 72,113 (4,541 ) (6.3 )% Adjusted
admissions (h) 166,841 178,062 (11,221 ) (6.3 )% Emergency room
visits (i) 504,500 551,401 (46,901 ) (8.5 )% Medicare case mix
index (j) 1.42 1.37 0.05 3.6 % Same-facility: (k) Number of
licensed beds at end of period (f) 3,051 3,051 — — % Admissions (g)
64,347 64,906 (559 ) (0.9 )% Adjusted admissions (h) 157,440
157,171 269 0.2 % Emergency room visits (i) 475,062 487,286 (12,224
) (2.5 )% Medicare case mix index (j) 1.42 1.38 0.04 2.9 %
QUORUM HEALTH CORPORATION
UNAUDITED CONDENSED CONSOLIDATED AND
COMBINED BALANCE SHEETS
(In Thousands, Except Par Value per
Share and Shares)
September 30, December
31, 2017 2016 ASSETS Current assets: Cash
and cash equivalents $ 15,736 $ 25,455 Patient accounts receivable,
net of allowance for doubtful accounts of $337,141 and $360,796 at
September 30, 2017 and December 31, 2016, respectively 393,559
380,685 Inventories 55,125 58,124 Prepaid expenses 24,393 23,028
Due from third-party payors 98,778 116,235 Current assets of
hospitals held for sale 9,202 1,502 Other current assets
40,920 57,942 Total current assets
637,713 662,971 Property and equipment, at
cost 1,419,827 1,519,975 Less: Accumulated depreciation and
amortization (717,754 ) (786,075 ) Total property and
equipment, net 702,073 733,900 Goodwill
409,229 416,833 Intangible assets, net 70,993 84,982 Long-term
assets of hospitals held for sale 12,782 6,851 Other long-term
assets 105,405 88,833 Total assets $
1,938,195 $ 1,994,370
LIABILITIES AND EQUITY
Current liabilities: Current maturities of long-term debt $ 1,887 $
5,683 Accounts payable 157,102 169,684 Accrued liabilities: Accrued
salaries and benefits 81,300 98,803 Accrued interest 27,350 19,915
Due to third-party payors 37,311 42,537 Current liabilities of
hospitals held for sale 2,767 492 Other current liabilities
39,447 53,268 Total current liabilities
347,164 390,382 Long-term debt 1,276,874 1,241,142 Deferred income
tax liabilities, net 31,087 31,474 Other long-term liabilities
145,559 108,996 Total liabilities
1,800,684 1,771,994 Redeemable
noncontrolling interests 1,578 6,807
Equity:
Quorum Health Corporation stockholders’
equity:
Preferred stock, $0.0001 par value per share, 100,000,000 shares
authorized, none issued — — Common stock, $0.0001 par value per
share, 300,000,000 shares authorized; 30,249,502 shares issued and
outstanding at September 30, 2017, and 29,482,050 shares issued and
outstanding at December 31, 2016 3 3 Additional paid-in capital
546,609 537,911 Accumulated other comprehensive income (loss)
(2,395 ) (2,760 ) Accumulated deficit (421,408 )
(334,026 )
Total Quorum Health Corporation
stockholders’ equity
122,809 201,128 Nonredeemable noncontrolling interests
13,124 14,441 Total equity 135,933
215,569 Total liabilities and equity $
1,938,195 $ 1,994,370
QUORUM HEALTH CORPORATION
UNAUDITED CONDENSED CONSOLIDATED AND
COMBINED STATEMENTS OF CASH FLOWS
(In Thousands)
Three Months Ended September 30,
Nine Months Ended September 30, 2017
2016 2017 2016
Cash flows from operating activities: Net income (loss) $ (28,554 )
$ (6,452 ) $ (86,334 ) $ (255,105 ) Adjustments to reconcile net
income (loss) to net cash provided by (used in) operating
activities: Depreciation and amortization 20,735 28,234 63,441
90,854 Non-cash interest expense, net 1,793 1,257 3,223 1,986
Provision for (benefit from) deferred income taxes (642 ) (4,081 )
(387 ) (51,532 ) Stock-based compensation expense 2,374 2,781 7,702
4,678 Impairment of long-lived assets and goodwill 5,261 — 21,461
250,400 Loss (gain) on sale of hospitals, net 79 — (5,112 ) —
Changes in reserves for self-insurance claims, net of payments
4,999 11,208 16,253 28,099 Changes in reserves for legal,
professional and settlement costs, net of payments — — (3,651 )
4,642 Other non-cash expense (income), net 233 54 238 (533 )
Changes in operating assets and liabilities, net of acquisitions
and divestitures: Patient accounts receivable, net 9,156 (9,586 )
(21,193 ) (16,797 ) Due from and due to third-party payors, net
(3,176 ) (7,528 ) 12,231 (2,173 ) Inventories, prepaid expenses and
other current assets 9,756 (14,689 ) 2,024 (12,412 ) Accounts
payable and accrued liabilities (12,002 ) (2,505 ) (10,710 ) 26,624
Long-term assets and liabilities, net (268 ) 880
1,603 (7,965 ) Net cash provided by
(used in) operating activities 9,744 (427 )
789 60,766 Cash flows from
investing activities: Capital expenditures for property and
equipment (11,525 ) (23,241 ) (50,667 ) (56,448 ) Capital
expenditures for software (3,005 ) (1,454 ) (6,174 ) (5,258 )
Acquisitions, net of cash acquired (33 ) (26 ) (1,920 ) (26 )
Proceeds from the sale of hospitals 9,084 — 29,240 — Other
investing activities — (346 ) —
1,056 Net cash provided by (used in) investing
activities (5,479 ) (25,067 ) (29,521 )
(60,676 ) Cash flows from financing activities: Borrowings
(repayments) of revolving credit facilities, net (5,000 ) — 45,000
— Borrowings of long-term debt 175 36 247 1,255,556 Repayments of
long-term debt (4,670 ) (3,165 ) (16,517 ) (7,442 ) Increase
(decrease) in Due to Parent, net — — — 25,183 Payments of debt
issuance costs (181 ) (1,136 ) (3,119 ) (29,139 ) Cash paid to
Parent related to the Spin-off — — — (1,217,336 ) Cancellation of
restricted stock awards for payroll tax withholdings on vested
shares (14 ) (39 ) (1,503 ) (12 ) Cash distributions to
noncontrolling investors — (181 ) (3,851 ) (2,828 ) Purchases of
shares from noncontrolling investors (1,244 ) (88 )
(1,244 ) (100 ) Net cash provided by (used in)
financing activities (10,934 ) (4,573 ) 19,013
23,882 Net change in cash and cash
equivalents (6,669 ) (30,067 ) (9,719 ) 23,972 Cash and cash
equivalents at beginning of period 22,405
55,145 25,455 1,106 Cash and
cash equivalents at end of period $ 15,736 $ 25,078 $
15,736 $ 25,078
FOOTNOTES TO UNAUDITED FINANCIAL
STATEMENTS AND SELECTED OPERATING DATA
(a) The California Department of Health Care Services
implemented the HQAF program, imposing a fee on certain general and
acute care California hospitals. Revenues generated from these fees
provide funding for the non-federal supplemental payments to
California hospitals that serve California’s Medicaid (“Medi-Cal”)
and uninsured patients. Under Phase IV of the program, covering the
period January 2014 through December 2016, the Company recognized
$11.5 million of net operating revenues less $2.7 million of
provider taxes for the three months ended September 30, 2016. The
Company recognized $33.9 million of net operating revenues less
$8.2 million of provider taxes for the nine months ended September
30, 2016. There were no comparative amounts recorded in the 2017
periods, as discussed below. In November 2016, California
voters approved a state constitutional amendment measure that
extends indefinitely the statute that imposes fees on California
hospitals seeking federal matching funds. However, Phase IV of the
program expired on December 31, 2016, and CMS has not yet issued
approvals, including waiver of certain healthcare-tax related
rules, for Phase V of the program. Consistent with the first four
phases of the HQAF program, the Company does not recognize any
revenues under the new program until CMS completes the approval
process. HQAF funding levels are based in part on Medi-Cal
utilization. As a result, changes in coverage of individuals under
the Medi-Cal program could affect the revenues and cash flows
related to the Company’s California hospitals under future phases
of the HQAF program. Accordingly, the Company is unable to predict
the ultimate amount of revenues and cash flows its California
hospitals may receive from or the timing of CMS’ approval of the
extended HQAF program, including its impact on the Company’s 2017
net operating results. The Company has included an estimated amount
in its 2017 projections based on currently available and historical
information. (b) Salaries and benefits were impacted by a
net decrease in discretionary employee benefits as the Company
continues to implement cost savings plans. (c) EBITDA is a
non-GAAP financial measure that consists of net income (loss)
before interest, income taxes, depreciation and amortization.
Adjusted EBITDA, also a non-GAAP financial measure, is EBITDA
adjusted to add back the effect of certain legal, professional and
settlement costs, impairment of long-lived assets and goodwill, net
loss (gain) on sale of hospitals and transaction costs related to
the Spin-off. The Company uses Adjusted EBITDA as a measure of
financial performance. Adjusted EBITDA is a key measure used by the
Company’s management to assess the operating performance of its
hospital operations business and to make decisions on the
allocation of resources. Additionally, management utilizes Adjusted
EBITDA in assessing the Company’s consolidated results of
operations and in comparing the Company’s results of operations
between periods. Adjusted EBITDA, Adjusted for Divestitures, also a
non-GAAP financial measure, is further retrospectively adjusted to
exclude the effect of EBITDA of hospitals divested in December 2016
and in the first nine months of 2017. The Company has presented
Adjusted EBITDA and Adjusted EBITDA, Adjusted for Divestitures in
this press release because it believes these measures provide
investors and other users of the Company’s financial statements
with additional information about how the Company’s management
assesses its results of operations. Adjusted EBITDA and
Adjusted EBITDA, Adjusted for Divestitures are not measurements of
financial performance under U.S. GAAP. These calculations should
not be considered in isolation or as a substitute for net income,
operating income or any other measure calculated in accordance with
U.S. GAAP. The items excluded from Adjusted EBITDA and Adjusted
EBITDA, Adjusted for Divestitures are significant components in
understanding and evaluating the Company’s 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, the Company’s calculation of Adjusted EBITDA and
Adjusted EBITDA, Adjusted for Divestitures may not be comparable to
similarly titled measures reported by other companies.
The following table reconciles Adjusted
EBITDA and Adjusted EBITDA, Adjusted for Divestitures, each as
defined above, to net income (loss), the most directly comparable
U.S. GAAP financial measure, as derived directly from the Company’s
consolidated and combined financial statements for the respective
periods (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30, 2017
2016 2017 2016 Net income
(loss) $ (28,554 ) $ (6,452 ) $ (86,334 ) $ (255,105 ) Interest
expense, net 32,216 28,028 90,204 84,756 Provision for (benefit
from) income taxes (542 ) (4,081 ) (86 ) (50,320 ) Depreciation and
amortization 20,735 28,234
63,441 90,854 EBITDA 23,855 45,729 67,225
(129,815 ) Legal, professional and settlement costs 2,050 488 6,519
6,176 Impairment of long-lived assets and goodwill 5,261 — 21,461
250,400 Loss (gain) on sale of hospitals, net 79 — (5,112 ) —
Transaction costs related to the Spin-off 173 532 204 5,444
Post-spin headcount reductions 850 —
2,543 — Adjusted EBITDA 32,268 46,749
92,840 132,205 Negative EBITDA of divested hospitals 4,670
7,023 13,563 18,468
Adjusted EBITDA, Adjusted for Divestitures $ 36,938 $
53,772 $ 106,403 $ 150,673 (d)
The following table reconciles net income (loss) attributable to
Quorum Health Corporation, as reported and on a per share basis,
with the adjustments described herein:
Three Months Ended September 30, Nine
Months Ended September 30, 2017
2016 2017 2016 (per share -
basic and diluted) Earnings (loss) per share
attributable to Quorum Health Corporation stockholders, as reported
$ (1.03 ) $ (0.24 ) $ (3.11 ) $ (9.05 ) Adjustments: Legal,
professional and settlement costs 0.07 0.01 0.23 0.18 Impairment of
long-lived assets and goodwill 0.18 — 0.76 7.36 Loss (gain) on sale
of hospitals, net — — — — Transaction costs related to the Spin-off
0.01 0.01 0.01 0.16 Post-spin headcount reductions 0.03 — 0.09 —
Net operating losses of divested hospitals 0.16
0.15 0.48 0.54 Earnings
(loss) per share attributable to Quorum Health Corporation
stockholders, excluding adjustments $ (0.58 ) $ (0.07 ) $ (1.54 ) $
(0.81 ) (e) For comparative purposes, the Company
used 28,412,054 shares as the number of weighted-average shares to
calculate basic and diluted earnings per share for periods prior to
the Spin-off. This number represents the number of shares issued on
the Spin-off date. Due to the net loss attributable to Quorum
Health Corporation in the three and nine months ended September 30,
2017, no incremental shares are included in diluted earnings per
share for these periods, because the effect of the incremental
shares would be anti-dilutive. No incremental shares were
considered for any periods prior to the Spin-off. (f)
Licensed beds are the number of beds for which the appropriate
state agency licenses a hospital, regardless of whether the beds
are actually available for patient use. (g) Admissions
represent the number of patients admitted for inpatient services.
(h) Adjusted admissions is computed by multiplying
admissions by gross patient revenues and then dividing that number
by gross inpatient revenues. (i) Emergency room visits
represent the number of patients registered and treated in the
Company’s emergency rooms. (j) Medicare case mix index is a
relative value assigned to a diagnosis-related group of inpatients
that is used in determining the allocation of resources necessary
to treat the patients in that group. Medicare case mix index is
calculated as the average case mix index for all Medicare
admissions during the period. (k) Same-facility financial
and operating data excludes hospitals that were sold prior to and
as of the end of the current reporting period. Same-facility
operating results have been adjusted to exclude the operating
results of Sandhills Regional Medical Center, Barrow Regional
Medical Center, Cherokee Medical Center, Trinity Hospital of
Augusta, Lock Haven Hospital and Sunbury Community Hospital which
were sold on December 1, 2016, December 31, 2016, March 31, 2017,
June 30, 2017, September 30, 2017 and September 30, 2017,
respectively.
Forward-Looking Statements
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, but are not limited to, the
following:
- general economic and business
conditions, both nationally and in the regions in which the Company
operates;
- risks associated with the Company’s
substantial indebtedness, leverage and debt service obligations,
including its ability to comply with its debt covenants, including
its senior credit facility, as amended;
- the ability to achieve operating and
financial targets and to control the costs of providing services if
patient volumes are lower than expected;
- the impact of significant changes to
the Affordable Care Act, its implementation or its interpretation,
efforts to repeal the Affordable Care Act, as well as changes in
other federal, state or local laws or regulations affecting the
healthcare industry;
- the success and long-term viability of
healthcare insurance exchanges, which may be impacted by whether a
sufficient number of payors participate, the availability of
cost-sharing subsidies and actions taken by the current
administration and Congress affecting the Affordable Care Act;
- the extent to which states support or
implement changes to Medicaid programs, utilize healthcare
insurance exchanges or alter the provision of healthcare to state
residents through regulation or otherwise;
- the extent to which regulatory and
economic changes occur in Illinois, where a material portion of the
Company’s revenues are concentrated;
- demographic changes;
- the failure to comply with governmental
regulations;
- the impact of certain outsourcing
functions, and the ability of Community Health Systems, Inc., as
provider of the Company’s billing and collection services pursuant
to the transition services agreements, to timely and appropriately
bill and collect;
- the potential adverse impact of known
and unknown government investigations, internal investigations,
audits, and federal and state false claims act litigation and other
legal proceedings, including the shareholder and creditor
litigations against the Company and certain of its officers and
threats of litigation, as well as the significant costs and
attention from management required to address such matters;
- the ability, where appropriate, to
enter into, maintain and comply with provider arrangements with
payors and the terms of these arrangements, which may be further
impacted by the increasing consolidation of health insurers and
managed care companies;
- changes in reimbursement rates paid by
federal or state healthcare programs, including Medicare and
Medicaid, or commercial payors, and the timeliness of reimbursement
payments;
- the timing of any approval by CMS of
Phase V of the California HQAF Program, the recognition of any
revenues from the California program, and the timing and amount of
any related cash flows, as well as the potential for retroactive
adjustments for prior year payments;
- any potential impairments in the
carrying values of long-lived assets and goodwill or the shortening
of the useful lives of long-lived assets;
- 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 lower
collectability levels which may result from, among other things,
self-pay growth in states that have not expanded Medicaid and
difficulties in collecting payments for which patients are
responsible, including co-pays and deductibles;
- the efforts of healthcare insurers,
providers and others to contain healthcare costs, including the
trend toward treatment of patients in less acute or specialty
healthcare settings and the increased emphasis on value-based
purchasing;
- the Company’s ongoing ability to
demonstrate meaningful use of certified electronic health records
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
medical supply and drug costs due to market pressure from
pharmaceutical companies and new product releases;
- liabilities and other claims asserted
against the Company, including self-insured malpractice
claims;
- competition;
- the ability to attract and retain, at
reasonable employment costs, qualified personnel, key management,
physicians, nurses and other healthcare workers;
- changes in medical or other
technology;
- changes in U.S. generally accepted
accounting principles, including the impact of adopting newly
issued accounting standards;
- the availability and terms of capital
to fund acquisitions, replacement facilities or other capital
expenditures;
- the ability to successfully make
acquisitions or complete divestitures and the timing thereof, the
ability to complete any such acquisitions or divestitures on
desired terms or at all, and the ability to realize the intended
benefits from any such acquisitions or divestitures;
- the impact of seasonal or severe
weather conditions or earthquakes;
- the ability to obtain adequate levels
of professional and general liability and workers’ compensation
liability insurance;
- the effects related to outbreaks of
infectious diseases;
- the impact of cyber-attacks or security
breaches;
- the ability to manage effectively the
Company’s arrangements with third-party vendors for key
non-clinical business functions and services;
- the ability to maintain certain
accreditations at the Company’s existing facilities and any future
facilities the Company may acquire; and
- the other risk factors set forth in the
Company’s other public filings with the Securities and Exchange
Commission.
Although the Company believes that these forward-looking
statements are based on reasonable assumptions, these assumptions
are inherently subject to significant regulatory, economic and
competitive uncertainties and contingencies, which are difficult or
impossible to predict accurately and may be beyond its control.
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.
Given these uncertainties, prospective investors are cautioned not
to place undue reliance on these forward-looking statements. These
forward-looking statements are made as of the date of this filing.
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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version on businesswire.com: http://www.businesswire.com/news/home/20171108006638/en/
Quorum Health CorporationMichael J. Culotta,
615-221-3502Executive Vice President and Chief Financial
Officer
Quorum Health (NYSE:QHC)
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