Community Health Systems, Inc. Previews Second Quarter 2017 Operating Results
07/26/17
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 ofQuorum Health Corporation (“QHC”), comprised of 38 affiliated hospitals and related outpatient services in 16 states, together withQuorum 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 inValley Health System, LLC andSummerlin Hospital Medical Center, LLC , both joint ventures withUniversal Health Systems, Inc. comprising a total of five hospitals inLas Vegas, Nevada . -
On
December 31, 2016 , the Company sold an 80% majority ownership interest in its home care division to a subsidiary ofAlmost 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 effectiveJune 30, 2017 andJuly 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
The anticipated results for the three months ended
Net cash provided by operating activities for the three months ended
The consolidated operating results for the three months ended
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
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
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
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
About
The Company’s headquarters are located in
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 andMedicaid 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 orMedicaid 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
Information on Non-GAAP Financial Measures
EBITDA is a non-GAAP financial measure which consists of net loss
attributable to
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
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
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
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Source:
Community Health Systems, Inc.
Thomas J. Aaron, 615-465-7000
Executive
Vice President and Chief Financial Officer