Community Health Systems, Inc. (NYSE: CYH) (the “Company”) today
announced financial and operating results for the three and six
months ended June 30, 2019.
The following highlights the financial and
operating results for the three months ended June 30, 2019.
- Net operating revenues totaled $3.302 billion.
- Net loss attributable to Community Health Systems, Inc.
common stockholders was $(167) million, or $(1.47) per share
(diluted), compared with net loss of $(110) million, or $(0.97) per
share (diluted), for the same period in 2018. Excluding the
adjusting items as presented in the table in footnote (e) on page
15, net loss attributable to Community Health Systems, Inc. common
stockholders was $(0.47) per share (diluted), compared with net
loss of $(0.01) per share (diluted) for the same period in
2018.
- Adjusted EBITDA was $402 million.
- Net cash provided by operating activities was $132 million,
compared with net cash used in operating activities of $(12)
million for the same period in 2018.
- On a same-store basis, admissions increased 2.3 percent and
adjusted admissions increased 1.8 percent, compared with the same
period in 2018.
Net operating revenues for the three months ended June 30, 2019,
totaled $3.302 billion, a 7.3 percent decrease, compared with
$3.562 billion for the same period in 2018.
Net loss attributable to Community Health Systems, Inc. common
stockholders was $(167) million, or $(1.47) per share (diluted),
for the three months ended June 30, 2019, compared with $(110)
million, or $(0.97) per share (diluted), for the same period in
2018. Excluding the adjusting items as presented in the table in
footnote (e) on page 15, net loss attributable to Community Health
Systems, Inc. common stockholders was $(0.47) per share (diluted),
for the three months ended June 30, 2019, compared with net loss of
$(0.01) per share (diluted) for the same period in 2018.
Weighted-average shares outstanding (diluted) were 114 million for
the three months ended June 30, 2019, and 113 million for the three
months ended June 30, 2018.
Adjusted EBITDA for the three months ended June 30, 2019, was
$402 million compared with $411 million for the same period in
2018, representing a 2.2 percent decrease.
The consolidated operating results for the three months ended
June 30, 2019, reflect an 11.5 percent decrease in total
admissions, and a 12.3 percent decrease in total adjusted
admissions, compared with the same period in 2018. On a same-store
basis, admissions increased 2.3 percent and adjusted admissions
increased 1.8 percent for the three months ended June 30, 2019,
compared with the same period in 2018. On a same-store basis, net
operating revenues increased 4.9 percent for the three months ended
June 30, 2019, compared with the same period in 2018.
Net operating revenues for the six months ended June 30, 2019,
totaled $6.679 billion, a 7.9 percent decrease, compared with
$7.251 billion for the same period in 2018.
Net loss attributable to Community Health Systems, Inc. common
stockholders was $(285) million, or $(2.51) per share (diluted),
for the six months ended June 30, 2019, compared with $(135)
million, or $(1.20) per share (diluted), for the same period in
2018. Excluding the adjusting items as presented in the table in
footnote (e) on page 15, net loss attributable to Community Health
Systems, Inc. common stockholders was $(1.00) per share (diluted),
for the six months ended June 30, 2019, compared with net income of
$0.12 per share (diluted) for the same period in 2018.
Weighted-average shares outstanding (diluted) were 114 million for
the six months ended June 30, 2019, and 113 million for the six
months ended June 30, 2018.
Adjusted EBITDA for the six months ended June 30, 2019, was $793
million compared with $851 million for the same period in 2018,
representing a 6.8 percent decrease.
The consolidated operating results for the six months ended June
30, 2019, reflect a 12.5 percent decrease in both total admissions
and total adjusted admissions, compared with the same period in
2018. On a same-store basis, admissions increased 1.1 percent and
adjusted admissions increased 1.3 percent for the six months ended
June 30, 2019, compared with the same period in 2018. On a
same-store basis, net operating revenues increased 4.0 percent for
the six months ended June 30, 2019, compared with the same period
in 2018.
Commenting on the results, Wayne T. Smith, chairman and chief
executive officer of Community Health Systems, Inc., said, “The
second quarter results reflect continued improvements in key
operating metrics. Our hospital leadership teams are making
progress across our strategic imperatives – including Safety and
Quality, Operational Excellence, Connected Care, and Competitive
Position. We believe strategic investments in our transfer program,
Accountable Care Organizations, service lines, and access points
are driving stronger same-store volume and net revenue performance.
We also believe that continued execution of these strategic
initiatives, along with effective expense management, will lead to
incremental growth in the back half of the year.”
The Company completed seven hospital divestitures during the six
months ended June 30, 2019 (including two divestitures that
preliminarily closed on December 31, 2018) and completed the
divestiture of an additional two hospitals on August 1, 2019. In
addition, the Company has entered into definitive agreements to
sell three additional hospitals, which divestitures have not yet
been completed. The Company intends to continue its portfolio
rationalization strategy during the remainder of 2019 and is
pursuing additional interests for sale transactions, which are
currently in various stages of negotiation with potential buyers.
There can be no assurance that these potential divestitures (or the
potential divestiture currently subject to a definitive agreement)
will be completed, or if they are completed, the ultimate timing of
the completion of these divestitures. The Company continues to
receive interest from potential acquirers for certain of its
hospitals.
Financial and statistical data for 2018 and the three and six
months ended June 30, 2019 presented in this press release includes
the operating results of divested hospitals through the effective
closing date of each respective divestiture. Same-store operating
results exclude the results of the hospitals divested or closed in
2018 and during the six months ended June 30, 2019.
Certain significant adjustments impacting reported amounts for
the three and six months ended June 30, 2019, which have been taken
into account in connection with the calculation of Adjusted EBITDA
and non-GAAP adjusted net loss attributable to Community Health
Systems, Inc. common stockholders per share (diluted) are further
discussed below:
(i) Valuation Allowance Recorded for
Promissory Note
During the year ended December 31, 2017, the Company sold two of
its hospitals in the state of Washington to a buyer where a portion
of the proceeds were paid through the issuance of a promissory note
for the benefit of CHS/Community Health Systems, Inc., a
wholly-owned subsidiary of the Company. During the three months
ended June 30, 2019, the buyer of these hospitals, which was the
maker of the note filed for Chapter 11 bankruptcy protection, which
caused the Company to reserve the outstanding balance of the note.
The Company has petitioned the bankruptcy court for the full amount
owed under the note, but based on management’s assessment of the
ability of this entity to make payment in connection with these
bankruptcy court proceedings, the full amount of the note was
reserved during the three months ended June 30, 2019 through a
non-cash operating expense of $23 million included in other
operating expenses on the condensed consolidated statement of
loss.
The non-cash expense recorded for this valuation allowance does
not have an impact on the calculation of the Company’s financial
covenants under the Company’s Credit Facility.
(ii) Change in Estimate for Professional
Liability Claims Accrual
During the six months ended June 30, 2019, the Company
experienced a significant increase in the amounts paid to settle
outstanding professional liability claims, compared to the same
period in the prior year and to previous actuarially determined
estimates. This increase in claims paid related to claims incurred
in 2016 and prior years and was primarily related to divested
hospitals. The settlement of these claims at amounts greater than
the previously determined actuarial estimates resulted in the
Company recording a $70 million change in estimate during the three
months ended June 30, 2019.
This change in estimate is not expected to have a material
impact on professional liability expense on a prospective basis and
does not have an impact on the calculation of the Company’s
financial covenants under the Company’s Credit Facility.
Information About Non-GAAP Financial Measures
This earnings release presents Adjusted EBITDA, a non-GAAP
financial measure, which is EBITDA adjusted to add back net income
attributable to noncontrolling interests and to exclude the effect
of discontinued operations, loss (gain) from early extinguishment
of debt, impairment and (gain) loss on sale of businesses, expense
incurred related to the sale of a majority ownership interest in
the Company’s home care division, expense (income) related to
government and other legal settlements and related costs, expense
related to employee termination benefits and other restructuring
charges, expense (income) from settlement and fair value
adjustments on the CVR agreement liability related to the HMA legal
proceedings and related legal expenses, the overall impact of the
change in estimate related to net patient revenue recorded in the
fourth quarter of 2017 resulting from the increase in contractual
allowances and the provision for bad debts, the impact of a change
in estimate to increase the professional liability claims accrual
recorded during the second quarter of 2019 with respect to claims
incurred in 2016 and prior years and expense related to the
valuation allowance recorded in the second quarter of 2019 to
reserve the outstanding balance of a promissory note received from
the buyer in connection with the sale of two of the Company’s
hospitals in 2017 as noted above. For information regarding why the
Company believes Adjusted EBITDA provides useful information to
investors, and for a reconciliation of Adjusted EBITDA to net
(loss) income attributable to Community Health Systems, Inc.
stockholders, see footnote (c) to the Financial Highlights,
Financial Statements and Selected Operating Data below.
Additionally, this earnings release presents adjusted net (loss)
income attributable to Community Health Systems, Inc. common
stockholders per share (diluted), a non-GAAP financial measure, to
reflect the impact on net (loss) income attributable to Community
Health Systems, Inc. common stockholders per share (diluted) from
the selected items used in the calculation of Adjusted EBITDA. For
information regarding why the Company believes this non-GAAP
financial measure provides useful information to investors, and for
a reconciliation of this non-GAAP financial measure to net (loss)
income attributable to Community Health Systems, Inc. common
stockholders per share (diluted), see footnote (e) to the Financial
Highlights, Financial Statements and Selected Operating Data
below.
Included on pages 16, 17, 18 and 19 of this press release are
tables setting forth the Company’s 2019 updated annual earnings
guidance. The 2019 guidance is based on the Company’s historical
operating performance, current trends and other assumptions that
the Company believes are reasonable at this time, and reflects the
impact of planned divestitures in 2019.
Community Health Systems, Inc. is one of the largest publicly
traded hospital companies in the United States and a leading
operator of general acute care hospitals in communities across the
country. The Company, through its subsidiaries, owns, leases or
operates 105 affiliated hospitals in 18 states with an aggregate of
approximately 17,000 licensed beds.
The Company’s headquarters are located in Franklin, Tennessee, a
suburb south of Nashville. Shares in Community Health Systems, Inc.
are traded on the New York Stock Exchange under the symbol “CYH.”
More information about the Company can be found on its website at
www.chs.net.
Community Health Systems, Inc. will hold a conference call on
Tuesday, August 6, 2019, at 10:00 a.m. Central, 11:00 a.m. Eastern,
to review financial and operating results for the second quarter
ended June 30, 2019. Investors will have the opportunity to listen
to a live internet broadcast of the conference call by clicking on
the Investor Relations link of the Company’s website at
www.chs.net. To listen to the live call, please go to the website
at least fifteen minutes early to register, download and install
any necessary audio software. For those who cannot listen to the
live broadcast, a replay will be available shortly after the call
and will continue to be available for approximately 30 days. Copies
of this press release and conference call slide show, as well as
the Company’s Current Report on Form 8-K (including this press
release), will be available on the Company’s website at
www.chs.net.
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES Financial
Highlights (a)(b) (In millions, except per share amounts)
(Unaudited)
Three Months Ended
Six Months Ended
June 30,
June 30,
2019
2018
2019
2018
Net operating revenues
$
3,302
$
3,562
$
6,679
$
7,251
Net loss (f), (g)
(146
)
(91
)
(246
)
(98
)
Net loss attributable to Community Health Systems, Inc.
stockholders
(167
)
(110
)
(285
)
(135
)
Adjusted EBITDA (c)
402
411
793
851
Net cash provided by (used in) operating activities
132
(12
)
265
94
Loss per share attributable to Community Health Systems,
Inc. common stockholders: Basic (f), (g)
$
(1.47
)
$
(0.97
)
$
(2.51
)
$
(1.20
)
Diluted (e), (f), (g)
(1.47
)
(0.97
)
(2.51
)
(1.20
)
Weighted-average number of shares outstanding (d): Basic
114
113
114
113
Diluted
114
113
114
113
____
For footnotes, see pages 13, 14 and
15.
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES Condensed
Consolidated Statements of Loss (a)(b) (In millions, except per
share amounts) (Unaudited)
Three Months Ended June
30,
2019
2018
% of Net
% of Net
Operating
Operating
Amount
Revenues
Amount
Revenues
Net operating revenues
$
3,302
100.0
%
$
3,562
100.0
%
Operating costs and expenses: Salaries and benefits
1,488
45.1
%
1,617
45.4
%
Supplies
539
16.3
%
592
16.6
%
Other operating expenses
893
27.0
%
879
24.7
%
Government and other legal settlements and related costs (g)
4
0.1
%
1
-
%
Electronic health records incentive reimbursement
-
-
%
-
-
%
Lease cost and rent
81
2.5
%
85
2.4
%
Depreciation and amortization
153
4.6
%
177
5.0
%
Impairment and (gain) loss on sale of businesses, net (f)
33
1.0
%
174
4.9
%
Total operating costs and expenses
3,191
96.6
%
3,525
99.0
%
Income from operations (f), (g)
111
3.4
%
37
1.0
%
Interest expense, net
265
8.0
%
235
6.6
%
Loss (gain) from early extinguishment of debt
-
-
%
(64
)
(1.8
)%
Equity in earnings of unconsolidated affiliates
(5
)
(0.1
)%
(5
)
(0.2
)%
Loss before income taxes
(149
)
(4.5
)%
(129
)
(3.6
)%
Benefit from income taxes
(3
)
(0.1
)%
(38
)
(1.0
)%
Net loss (f), (g)
(146
)
(4.4
)%
(91
)
(2.6
)%
Less: Net income attributable to noncontrolling interests
21
0.7
%
19
0.5
%
Net loss attributable to Community Health Systems, Inc.
stockholders
$
(167
)
(5.1
)%
$
(110
)
(3.1
)%
Loss per share attributable to Community Health Systems,
Inc. common stockholders: Basic (f), (g)
$
(1.47
)
$
(0.97
)
Diluted (e), (f), (g)
$
(1.47
)
$
(0.97
)
Weighted-average number of shares outstanding (d): Basic
114
113
Diluted
114
113
____
For footnotes, see pages 13, 14 and
15.
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES Condensed
Consolidated Statements of Loss (a)(b) (In millions, except per
share amounts) (Unaudited)
Six Months Ended June
30,
2019
2018
% of Net
% of Net
Operating
Operating
Amount
Revenues
Amount
Revenues
Net operating revenues
$
6,679
100.0
%
$
7,251
100.0
%
Operating costs and expenses: Salaries and benefits
3,030
45.4
%
3,265
45.0
%
Supplies
1,097
16.4
%
1,208
16.7
%
Other operating expenses
1,704
25.5
%
1,789
24.7
%
Government and other legal settlements and related costs (g)
9
0.1
%
7
0.1
%
Electronic health records incentive reimbursement
-
-
%
(1
)
-
%
Lease cost and rent
162
2.4
%
173
2.4
%
Depreciation and amortization
305
4.6
%
358
4.9
%
Impairment and (gain) loss on sale of businesses, net (f)
71
1.1
%
202
2.8
%
Total operating costs and expenses
6,378
95.5
%
7,001
96.6
%
Income from operations (f), (g)
301
4.5
%
250
3.4
%
Interest expense, net
522
7.8
%
464
6.4
%
Loss (gain) from early extinguishment of debt
31
0.5
%
(59
)
(0.8
)%
Equity in earnings of unconsolidated affiliates
(9
)
(0.2
)%
(12
)
(0.2
)%
Loss before income taxes
(243
)
(3.6
)%
(143
)
(2.0
)%
Provision for (benefit from) income taxes
3
0.1
%
(45
)
(0.6
)%
Net loss (f), (g)
(246
)
(3.7
)%
(98
)
(1.4
)%
Less: Net income attributable to noncontrolling interests
39
0.6
%
37
0.5
%
Net loss attributable to Community Health Systems, Inc.
stockholders
$
(285
)
(4.3
)%
$
(135
)
(1.9
)%
Loss per share attributable to Community Health Systems,
Inc. common stockholders: Basic (f), (g)
$
(2.51
)
$
(1.20
)
Diluted (e), (f), (g)
$
(2.51
)
$
(1.20
)
Weighted-average number of shares outstanding (d): Basic
114
113
Diluted
114
113
____
For footnotes, see pages 13, 14 and
15.
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES Condensed
Consolidated Statements of Comprehensive Loss (In millions)
(Unaudited)
Three Months Ended
Six Months Ended
June 30,
June 30,
2019
2018
2019
2018
Net loss
$
(146
)
$
(91
)
$
(246
)
$
(98
)
Other comprehensive income (loss), net of income taxes: Net change
in fair value of interest rate swaps, net of tax
-
7
(2
)
25
Net change in fair value of available-for-sale securities, net of
tax
2
(1
)
4
(2
)
Amortization and recognition of unrecognized pension cost
components, net of tax
-
1
-
1
Other comprehensive income
2
7
2
24
Comprehensive loss
(144
)
(84
)
(244
)
(74
)
Less: Comprehensive income attributable to noncontrolling interests
21
19
39
37
Comprehensive loss attributable to Community Health Systems, Inc.
stockholders
$
(165
)
$
(103
)
$
(283
)
$
(111
)
____
For footnotes, see pages 13, 14 and
15.
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES Selected
Operating Data (a) (Dollars in millions) (Unaudited)
Three Months Ended June
30,
Consolidated
Same-Store
2019
2018
% Change
2019
2018
% Change
Number of hospitals (at end of period)
107
119
106
106
Licensed beds (at end of period)
17,062
20,123
16,881
17,044
Beds in service (at end of period)
15,206
17,753
15,131
15,132
Admissions
139,400
157,509
-11.5
%
139,229
136,085
2.3
%
Adjusted admissions
302,964
345,374
-12.3
%
302,479
297,257
1.8
%
Patient days
622,046
697,213
621,404
599,765
Average length of stay (days)
4.5
4.4
4.5
4.4
Occupancy rate (average beds in service)
45.1
%
42.1
%
45.1
%
43.6
%
Net operating revenues
$
3,302
$
3,562
-7.3
%
$
3,297
$
3,144
4.9
%
Net inpatient revenues as a % of net operating revenues
47.0
%
47.0
%
47.0
%
46.8
%
Net outpatient revenues as a % of net operating revenues
53.0
%
53.0
%
53.0
%
53.2
%
Income from operations (f), (g)
$
111
$
37
200.0
%
Income from operations as a % of net operating revenues
3.4
%
1.0
%
Depreciation and amortization
$
153
$
177
Equity in earnings of unconsolidated affiliates
$
(5
)
$
(5
)
Net loss attributable to Community Health Systems, Inc.
stockholders
$
(167
)
$
(110
)
-51.8
%
Net loss attributable to Community Health Systems, Inc.
stockholders as a % of net operating revenues
-5.1
%
-3.1
%
Adjusted EBITDA (c)
$
402
$
411
-2.2
%
Adjusted EBITDA as a % of net operating revenues
12.2
%
11.5
%
Net cash provided by (used in) operating activities
$
132
$
(12
)
1200.0
%
____
For footnotes, see pages 13, 14 and
15.
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES Selected
Operating Data (a) (Dollars in millions) (Unaudited)
Six Months Ended June
30,
Consolidated
Same-Store
2019
2018
% Change
2019
2018
% Change
Number of hospitals (at end of period)
107
119
106
106
Licensed beds (at end of period)
17,062
20,123
16,881
17,044
Beds in service (at end of period)
15,206
17,753
15,131
15,132
Admissions
287,288
328,189
-12.5
%
283,662
280,702
1.1
%
Adjusted admissions
612,829
700,738
-12.5
%
604,578
596,989
1.3
%
Patient days
1,299,127
1,481,518
1,279,882
1,261,772
Average length of stay (days)
4.5
4.5
4.5
4.5
Occupancy rate (average beds in service)
46.5
%
44.6
%
46.7
%
46.1
%
Net operating revenues
$
6,679
$
7,251
-7.9
%
$
6,603
$
6,351
4.0
%
Net inpatient revenues as a % of net operating revenues
47.9
%
48.1
%
47.8
%
47.9
%
Net outpatient revenues as a % of net operating revenues
52.1
%
51.9
%
52.2
%
52.1
%
Income from operations (f), (g)
$
301
$
250
20.4
%
Income from operations as a % of net operating revenues
4.5
%
3.4
%
Depreciation and amortization
$
305
$
358
Equity in earnings of unconsolidated affiliates
$
(9
)
$
(12
)
Net loss attributable to Community Health Systems, Inc.
stockholders
$
(285
)
$
(135
)
-111.1
%
Net loss attributable to Community Health Systems, Inc.
stockholders as a % of net operating revenues
-4.3
%
-1.9
%
Adjusted EBITDA (c)
$
793
$
851
-6.8
%
Adjusted EBITDA as a % of net operating revenues
11.9
%
11.7
%
Net cash provided by operating activities
$
265
$
94
181.9
%
____
For footnotes, see pages 13, 14 and
15.
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES Condensed
Consolidated Balance Sheets (In millions, except share data)
(Unaudited)
June 30, 2019
December 31, 2018
ASSETS Current assets Cash and cash equivalents
$
207
$
196
Patient accounts receivable
2,356
2,352
Supplies
378
402
Prepaid income taxes
-
3
Prepaid expenses and taxes
177
196
Other current assets
366
400
Total current assets
3,484
3,549
Property and equipment
10,120
10,301
Less accumulated depreciation and amortization
(4,186
)
(4,162
)
Property and equipment, net
5,934
6,139
Goodwill
4,494
4,559
Deferred income taxes
57
69
Other assets, net (i)
2,163
1,543
Total assets
$
16,132
$
15,859
LIABILITIES AND STOCKHOLDERS’ DEFICIT Current
liabilities Current maturities of long-term debt
$
206
$
204
Current operating lease liabilities (i)
133
-
Accounts payable
812
887
Accrued liabilities: Employee compensation
549
627
Accrued interest
388
206
Other
415
468
Total current liabilities
2,503
2,392
Long-term debt (h)
13,393
13,392
Deferred income taxes
26
26
Long-term operating lease liabilities (i)
479
-
Other long-term liabilities
987
1,008
Total liabilities
17,388
16,818
Redeemable noncontrolling interests in equity of consolidated
subsidiaries
503
504
STOCKHOLDERS’ DEFICIT Community Health Systems, Inc. stockholders’
deficit: 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; 118,051,975 shares issued and outstanding at June 30,
2019, and 116,248,376 shares issued and outstanding at December 31,
2018
1
1
Additional paid-in capital
2,002
2,017
Accumulated other comprehensive loss
(8
)
(10
)
Accumulated deficit
(3,828
)
(3,543
)
Total Community Health Systems, Inc. stockholders’ deficit
(1,833
)
(1,535
)
Noncontrolling interests in equity of consolidated subsidiaries
74
72
Total stockholders’ deficit
(1,759
)
(1,463
)
Total liabilities and stockholders’ deficit
$
16,132
$
15,859
____
For footnotes, see pages 13, 14 and
15.
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES Condensed
Consolidated Statements of Cash Flows (In millions) (Unaudited)
Six Months Ended June
30,
2019
2018
Cash flows from operating activities Net loss
$
(246
)
$
(98
)
Adjustments to reconcile net loss to net cash provided by operating
activities: Depreciation and amortization
305
358
Government and other legal settlements and related costs (g)
9
7
Stock-based compensation expense
6
7
Impairment and (gain) loss on sale of businesses, net (f)
71
202
Loss (gain) from early extinguishment of debt
31
(59
)
Other non-cash expenses, net
101
23
Changes in operating assets and liabilities, net of effects of
acquisitions and divestitures: Patient accounts receivable
(7
)
(21
)
Supplies, prepaid expenses and other current assets
72
(15
)
Accounts payable, accrued liabilities and income taxes
27
(308
)
Other
(104
)
(2
)
Net cash provided by operating activities
265
94
Cash flows from investing activities Acquisitions of
facilities and other related businesses
(13
)
(10
)
Purchases of property and equipment
(212
)
(295
)
Proceeds from disposition of hospitals and other ancillary
operations
161
88
Proceeds from sale of property and equipment
1
4
Purchases of available-for-sale securities and equity securities
(39
)
(38
)
Proceeds from sales of available-for-sale securities and equity
securities
52
63
Increase in other investments
(97
)
(53
)
Net cash used in investing activities
(147
)
(241
)
Cash flows from financing activities Repurchase of
restricted stock shares for payroll tax withholding requirements
(1
)
(1
)
Deferred financing costs and other debt-related costs
(28
)
(54
)
Proceeds from noncontrolling investors in joint ventures
2
1
Redemption of noncontrolling investments in joint ventures
(2
)
(6
)
Distributions to noncontrolling investors in joint ventures
(57
)
(52
)
Borrowings under credit agreements
23
26
Issuance of long-term debt
2,034
-
Proceeds from ABL facility
25
587
Repayments of long-term indebtedness
(2,103
)
(709
)
Net cash used in financing activities
(107
)
(208
)
Net change in cash and cash equivalents
11
(355
)
Cash and cash equivalents at beginning of period
196
563
Cash and cash equivalents at end of period
$
207
$
208
____
For footnotes, see pages 13, 14 and
15.
Footnotes to Financial Highlights, Financial
Statements and Selected Operating Data
(a)
Both financial and statistical results
include the operating results of divested hospitals through the
effective closing date of each respective divestiture. Same-store
operating results and statistical information exclude the results
of the hospitals divested or closed in 2018 and during the six
months ended June 30, 2019. There were no discontinued operations
reported for 2018 and the six months ended June 30, 2019.
(b)
The following table provides information
needed to calculate loss per share, which is adjusted for income
attributable to noncontrolling interests (in millions):
Three Months Ended
Six Months Ended
June 30,
June 30,
2019
2018
2019
2018
Net loss attributable to Community Health Systems, Inc. common
stockholders: Net loss
$
(146)
$
(91)
$
(246)
$
(98)
Less: Income attributable to noncontrolling interests, net of taxes
21
19
39
37
Net loss attributable to Community Health Systems, Inc. common
stockholders — basic and diluted
$
(167)
$
(110)
$
(285)
$
(135)
(c)
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 (gain) from early extinguishment of debt,
impairment and (gain) loss on sale of businesses, expense incurred
related to the sale of a majority ownership interest in the
Company’s home care division, expense (income) related to
government and other legal settlements and related costs, expense
related to employee termination benefits and other restructuring
charges, expense (income) from settlement and fair value
adjustments on the CVR agreement liability related to the HMA legal
proceedings and related legal expenses, the overall impact of the
change in estimate related to net patient revenue recorded in the
fourth quarter of 2017 resulting from the increase in contractual
allowances and the provision for bad debts, the impact of a change
in estimate to increase the professional liability claims accrual
recorded during the second quarter of 2019 with respect to claims
incurred in 2016 and prior years, and expense related to the
valuation allowance recorded in the second quarter of 2019 to
reserve the outstanding balance of a promissory note received from
the buyer in connection with the sale of two of the Company’s
hospitals in 2017. During the six months ended June 30, 2019, the
Company experienced a significant increase in the amounts paid to
settle outstanding professional liability claims, compared to the
same period in the prior year and to previous actuarially
determined estimates. This increase in claims paid related to
claims incurred in 2016 and prior years and was primarily related
to divested hospitals. The settlement of these claims at amounts
greater than the previously determined actuarial estimates resulted
in the Company recording a $70 million change in estimate during
the three months ended June 30, 2019. Additionally, the expense
related to the valuation allowance was recorded by the Company in
the second quarter of 2019 following the filing of Chapter 11
bankruptcy proceedings by the buyer of these hospitals based on
management’s assessment of the buyer’s ability to make payments
under the promissory note in these bankruptcy court proceedings.
The Company has included these adjustments in the calculation of
Adjusted EBITDA based on our belief that the increase in the
amounts paid to settle outstanding professional liability claims as
well as the anticipated inability of such buyer to make payments
under the promissory note were outside of the ordinary course of
the Company’s operations and not reflective of the Company’s
underlying results of operations in light of the intended purpose
of Adjusted EBITDA in assessing the Company’s operational
performance and comparing the Company’s performance 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).
Footnotes to Financial Highlights, Financial
Statements and Selected Operating Data (Continued)
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
Six Months Ended
June 30,
June 30,
2019
2018
2019
2018
Net loss attributable to Community Health Systems, Inc.
stockholders
$
(167
)
$
(110
)
$
(285
)
$
(135
)
Adjustments: (Benefit from) provision for income taxes
(3
)
(38
)
3
(45
)
Depreciation and amortization
153
177
305
358
Net income attributable to noncontrolling interests
21
19
39
37
Interest expense, net
265
235
522
464
Loss (gain) from early extinguishment of debt
-
(64
)
31
(59
)
Impairment and (gain) loss on sale of businesses, net
33
174
71
202
Expense from government and other legal settlements and related
costs
4
1
9
7
Expense from settlement and fair value adjustments and legal
expenses related to cases covered by the CVR
2
4
4
9
Expense related to employee termination benefits and other
restructuring charges
1
13
1
13
Valuation allowance recorded for promissory note
23
-
23
-
Change in estimate for professional liability claims accrual
70
-
70
-
Adjusted EBITDA
$
402
$
411
$
793
$
851
(d)
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
Six Months Ended
June 30,
June 30,
2019
2018
2019
2018
Weighted-average number of shares outstanding - basic
114
113
114
113
Add effect of dilutive securities: Stock awards and options
-
-
-
-
Weighted-average number of shares outstanding - diluted
114
113
114
113
The Company generated a net loss attributable to Community
Health Systems, Inc. common stockholders for the three and six
months ended June 30, 2019 and 2018, so the effect of dilutive
securities is not considered because their effect would be
antidilutive. If the Company had generated net income, the effect
of restricted stock and stock option awards on the diluted shares
calculation would have been an increase of 30,472 shares and 47,754
shares during the three months ended June 30, 2019 and 2018,
respectively, and 44,867 shares and 60,558 shares during the six
months ended June 30, 2019 and 2018, respectively.
Footnotes to Financial Highlights, Financial
Statements and Selected Operating Data (Continued)
(e)
The following supplemental table
reconciles net loss attributable to Community Health Systems, Inc.
common stockholders, as reported, on a per share (diluted) basis,
to net (loss) income attributable to Community Health Systems, Inc.
common stockholders per share (diluted) with the adjustments
described herein (total per share amounts may not add due to
rounding). The Company believes that the presentation of non-GAAP
adjusted net (loss) income attributable to Community Health
Systems, Inc. common stockholders per share (diluted) presents
useful information to investors by highlighting the impact on net
(loss) income attributable to Community Health Systems, Inc. common
stockholders per share (diluted) of selected items used in
calculating Adjusted EBITDA which may not reflect the Company’s
underlying operating performance and assisting in comparing the
Company’s results of operations between periods.
Three Months Ended
Six Months Ended
June 30,
June 30,
2019
2018
2019
2018
Net loss, as reported
$
(1.47
)
$
(0.97
)
$
(2.51
)
$
(1.20
)
Adjustments:
Loss (gain) from early
extinguishment of debt
-
(0.44
)
0.21
(0.41
)
Impairment and (gain) loss on sale of businesses, net
0.33
1.29
0.58
1.53
Expense from government and other legal settlements and related
costs
0.03
0.01
0.06
0.05
Expense from settlement and fair value adjustments and legal
expenses related to cases covered by the CVR
0.01
0.03
0.02
0.06
Expense related to employee termination benefits and other
restructuring charges
0.01
0.08
0.01
0.09
Valuation allowance recorded for promissory note
0.15
-
0.15
-
Change in estimate for professional liabilty claims accrual
0.47
-
0.47
-
Net (loss) income, excluding adjustments
$
(0.47
)
$
(0.01
)
$
(1.00
)
$
0.12
(f)
Both income from operations and net loss
for the three and six months ended June 30, 2019, included non-cash
expense of approximately $33 million and $71 million, respectively,
related to impairment charges to reduce the value of long-lived
assets, including allocated goodwill, at hospitals that the Company
has identified for sale or has sold, and at certain underperforming
hospitals. These impairment charges do not have an impact on the
calculation of the Company’s financial covenants under the
Company’s Credit Facility. Both income from operations and net loss
for the three and six months ended June 30, 2018, included non-cash
expense of approximately $174 million and $202 million,
respectively, primarily from impairment charges to reduce the value
of long-lived assets, including allocated goodwill, at hospitals
that the Company has identified for sale or has sold, and at
certain under-performing hospitals.
(g)
The $(0.03) per share (diluted) and
$(0.06) per share (diluted) of expense for “Government and other
legal settlements and related costs” for the three and six months
ended June 30, 2019, respectively, is the net impact of several
lawsuits settled in principle during the related periods, and
related legal expenses. The $(0.01) per share (diluted) and $(0.05)
per share (diluted) of expense for “Government and other legal
settlements and related costs” for the three and six months ended
June 30, 2018, respectively, is the net impact of several lawsuits
settled in principle during the related periods, and related legal
expenses.
(h)
For the 12-month period ended June 30,
2019, the first lien net debt to consolidated EBITDA leverage ratio
financial covenant under the Company’s Credit Facility limited the
ratio of first lien net debt to consolidated EBITDA, as defined, to
less than or equal to 5.25 to 1.00. We were in compliance with all
such covenants at June 30, 2019, with a first lien net debt to
consolidated EBITDA leverage ratio of approximately 4.96 to
1.00.
(i)
On January 1, 2019, the Company adopted
the new lease accounting standard issued by the Financial
Accounting Standards Board (“FASB”) and codified in the FASB
Accounting Standards Codification (“ASC”) as topic 842 (“ASC 842”).
The lease standard in ASC 842 requires lessees to recognize most
leases on their balance sheet with a right-of-use asset and a
corresponding lease liability and classified as either finance or
operating leases, which will impact the manner and timing of
expense recognition of such leases over the lease term. Immaterial
leases and leases with an initial lease term 12 months or less are
excluded from recognition on the balance sheet.
Upon adoption, the Company recorded
operating lease liabilities and the related right-of-use assets of
approximately $673 million. The operating lease right-of-use assets
are recorded on the condensed consolidated balance sheet as a
component of other assets, net. The Company elected to adopt the
modified transition method allowed by the FASB by electing not to
recast prior comparative periods upon adoption. As a result, no
changes were made to the condensed consolidated statement of loss
for the three and six months ended June 30, 2018 or the condensed
consolidated balance sheet at December 31, 2018.
Regulation FD Disclosure
Set forth below is selected information concerning the Company’s
projected consolidated operating results for the year ending
December 31, 2019. These projections update selected guidance
provided on April 30, 2019, and are based on the Company’s
historical operating performance, current trends and other
assumptions that the Company believes are reasonable at this time.
The 2019 guidance should be considered in conjunction with the
assumptions included herein. See pages 18 and 19 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:
2019 Projection Range
Net operating revenues (in millions)
$
12,900
to
$
13,200
Adjusted EBITDA (in millions)
$
1,625
to
$
1,725
Net loss per share - diluted
$
(2.00
)
to
$
(1.65
)
Same-store hospital annual adjusted admissions growth
0.5
%
to
1.5
%
Weighted-average diluted shares
114.0
to
114.5
The following assumptions were used in developing the 2019
guidance provided above:
- The 2019 projections include the impact of completed
divestitures and the planned divestitures subject to definitive
agreements which are expected to close in 2019.
- The Company’s projections exclude the following:
- Effect of debt refinancing activities, including gains and
losses from early extinguishment of debt;
- Impairment of goodwill and long-lived assets;
- Gains or losses from the sales of businesses;
- Employee termination benefits and restructuring costs;
- Resolution of government investigations or other significant
legal settlements;
- Costs incurred in connection with divestitures; and
- Other significant gains or losses that neither relate to the
ordinary course of business nor reflect the Company’s underlying
business performance.
Other assumptions used in the above guidance:
• Same-store hospital annual adjusted admissions growth of 0.5%
to 1.5% for 2019, which does not take into account service closures
and weather-related or other unusual events.
• Expressed as a percentage of net operating revenues,
depreciation and amortization of approximately 4.7% for 2019.
Additionally, this is a fixed cost and the percentages may change
as revenue varies. Such amounts exclude the possible impact of any
future hospital fixed asset impairments.
• Interest expense, expressed as a percentage of net operating
revenues, of approximately 8.0%; however, this percentage may vary
as revenue varies. Interest expense has been adjusted to reflect
the repayment of debt with proceeds from the divestitures noted
above, based on the expected timing of those divestitures. Total
fixed rate debt, including swaps, is expected to average
approximately 95% to 99% of total debt during 2019.
• Expressed as a percentage of net operating revenues, net
income attributable to noncontrolling interests of approximately
0.6% to 0.7% for 2019.
• Expressed as a percentage of net operating revenues, provision
for income taxes of approximately 1.1% to 1.2% for 2019.
A reconciliation of the Company’s projected 2019 Adjusted
EBITDA, a forward-looking non-GAAP financial measure, to the
Company’s projected net loss attributable to Community Health
Systems, Inc. stockholders, the most directly comparable GAAP
financial measure, is shown below:
Year Ending
December 31, 2019
Low
High
Net loss attributable to Community Health Systems, Inc.
stockholders (1)
$
(228
)
$
(189
)
Adjustments: Depreciation and amortization
600
620
Interest expense, net
1,030
1,045
Provision for income taxes
143
159
Net income attributable to noncontrolling interests
80
90
Adjusted EBITDA (1)
$
1,625
$
1,725
(1)
The Company does not include in this
reconciliation the impact of certain items not included in the
Company’s forecast set forth above that would be included in a
reconciliation of historical net loss attributable to Community
Health Systems, Inc. stockholders to Adjusted EBITDA such as, but
not limited to, (gains) 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, on a forward-looking basis.
• Capital expenditures are projected as follows (in
millions):
2019
Guidance
Total
$450
to
$550
• Net cash provided by operating activities is projected as
follows (in millions):
2019
Guidance
Total
$550
to
$650
- Diluted weighted-average shares outstanding are projected to be
approximately 114.0 million to 114.5 million for 2019.
This press release contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as
amended, Section 21E of the Securities Exchange Act of 1934, as
amended, and the Private Securities Litigation Reform Act of 1995
that involve risk and uncertainties. All statements in this press
release other than statements of historical fact, including
statements regarding projections, expected operating results, and
other events that depend upon or refer to future events or
conditions or that include words such as “expects,” “anticipates,”
“intends,” “plans,” “believes,” “estimates,” “thinks,” and similar
expressions, are forward-looking statements. Although the Company
believes that these forward-looking statements are based on
reasonable assumptions, these assumptions are inherently subject to
significant economic and competitive uncertainties and
contingencies, which are difficult or impossible to predict
accurately and may be beyond the control of the Company.
Accordingly, the Company cannot give any assurance that its
expectations will in fact occur and cautions that actual results
may differ materially from those in the forward-looking statements.
A number of factors could affect the future results of the Company
or the healthcare industry generally and could cause the Company’s
expected results to differ materially from those expressed in this
press release.
These factors include, among other things:
• general economic and business conditions, both nationally and
in the regions in which we operate;
• the impact of current or future federal and state health
reform initiatives, including, without limitation, the Affordable
Care Act, and the potential for the Affordable Care Act to be
repealed or found unconstitutional or for additional changes to the
law, its implementation or its interpretation (including through
executive orders and court challenges);
• the extent to which states support increases, decreases or
changes in Medicaid programs, implement health insurance exchanges
or alter the provision of healthcare to state residents through
regulation or otherwise;
• the future and long-term viability of health insurance
exchanges and potential changes to the beneficiary enrollment
process;
• risks associated with our substantial indebtedness, leverage
and debt service obligations, and the fact that a substantial
portion of our indebtedness will mature and become due in the near
future, including our ability to refinance such indebtedness on
acceptable terms or to incur additional indebtedness;
• demographic changes;
• changes in, or the failure to comply with, federal, state or
local laws or governmental regulations affecting our business;
• potential adverse impact of known and unknown government
investigations, audits, and federal and state false claims act
litigation and other legal proceedings;
• our ability, where appropriate, to enter into and maintain
provider arrangements with payors and the terms of these
arrangements, which may be further affected by the increasing
consolidation of health insurers and managed care companies and
vertical integration efforts involving payors and healthcare
providers;
• changes in, or the failure to comply with, contract terms with
payors and changes in reimbursement rates paid by federal or state
healthcare programs or commercial payors;
• any potential additional impairments in the carrying value of
goodwill, other intangible assets, or other long-lived assets, or
changes in the useful lives of other intangible assets;
• changes in inpatient or outpatient Medicare and Medicaid
payment levels and methodologies;
• the effects related to the continued implementation of the
sequestration spending reductions and the potential for future
deficit reduction legislation;
• increases in the amount and risk of collectability of patient
accounts receivable, including decreases in collectability which
may result from, among other things, self-pay growth and
difficulties in recovering payments for which patients are
responsible, including co-pays and deductibles;
• the efforts of insurers, healthcare providers, large employer
groups and others to contain healthcare costs, including the trend
toward value-based purchasing;
• increases in wages as a result of inflation or competition for
highly technical positions and rising supply and drug costs due to
market pressure from pharmaceutical companies and new product
releases;
• liabilities and other claims asserted against us, including
self-insured malpractice claims;
• competition;
• our ability to attract and retain, at reasonable employment
costs, qualified personnel, key management, physicians, nurses and
other healthcare workers;
• trends toward treatment of patients in less acute or specialty
healthcare settings, including ambulatory surgery centers or
specialty hospitals;
• changes in medical or other technology;
• changes in U.S. generally accepted accounting principles;
• the availability and terms of capital to fund any additional
acquisitions or replacement facilities or other capital
expenditures;
• our ability to successfully make acquisitions or complete
divestitures, including the disposition of hospitals and
non-hospital businesses pursuant to our portfolio rationalization
and deleveraging strategy, our ability to complete any such
acquisitions or divestitures on desired terms or at all, the timing
of the completion of any such acquisitions or divestitures, and our
ability to realize the intended benefits from any such acquisitions
or divestitures;
• the impact that changes in our relationships with joint
venture or syndication partners could have on effectively operating
our hospitals or ancillary services or in advancing strategic
opportunities;
• our ability to successfully integrate any acquired hospitals,
or to recognize expected synergies from acquisitions;
• the impact of seasonal severe weather conditions, including
the timing and amount of insurance recoveries in relation to severe
weather events;
• our ability to obtain adequate levels of insurance, including
general liability, professional liability, and directors and
officers liability insurance;
• timeliness of reimbursement payments received under government
programs;
• effects related to outbreaks of infectious diseases;
• the impact of prior or potential future cyber-attacks or
security breaches;
• any failure to comply with the terms of the Corporate
Integrity Agreement;
• the concentration of our revenue in a small number of
states;
• our ability to realize anticipated cost savings and other
benefits from our current strategic and operational cost savings
initiatives;
• changes in interpretations, assumptions and expectations
regarding the Tax Cuts and Jobs Act; and
• the other risk factors set forth in our Annual Report on Form
10-K for the year ended December 31, 2018, filed with the
Securities and Exchange Commission on February 20, 2019, and our
other public filings with the Securities and Exchange
Commission.
The consolidated operating results for the three and six months
ended June 30, 2019, are not necessarily indicative of the results
that may be experienced for any future periods. The Company
cautions that the projections for calendar year 2019 set forth in
this press release are given as of the date hereof based on
currently available information. The Company undertakes no
obligation to revise or update any forward-looking statements, or
to make any other forward-looking statements, whether as a result
of new information, future events or otherwise.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190805005575/en/
Investor Contact: Thomas J. Aaron Executive Vice President and
Chief Financial Officer (615) 465-7000
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