Community Health Systems, Inc. (NYSE: CYH) (the “Company”) today
announced financial and operating results for the three and nine
months ended September 30, 2019.
The following highlights the financial and operating results for
the three months ended September 30, 2019.
- Net operating revenues totaled $3.246 billion.
- Net loss attributable to Community Health Systems, Inc.
common stockholders was $(17) million, or $(0.15) per share
(diluted), compared with net loss of $(325) million, or $(2.88) 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 $(0.29) per share (diluted), compared with $(1.64)
per share (diluted) for the same period in 2018.
- Adjusted EBITDA was $388 million.
- Net cash used in operating activities was $(74) million,
compared with net cash provided by operating activities of $346
million for the same period in 2018. Due to the timing of two note
payments moving from the three months ended June 30, 2019 to the
three months ended September 30, 2019 (due to June 30 occurring on
a Sunday), cash outflows for interest were approximately $151
million higher during the three months ended September 30, 2019,
when compared to the same period in 2018.
- On a same-store basis, admissions increased 2.4 percent and
adjusted admissions increased 3.6 percent, compared with the same
period in 2018.
Net operating revenues for the three months ended September 30,
2019, totaled $3.246 billion, a 5.9 percent decrease, compared with
$3.451 billion for the same period in 2018.
Net loss attributable to Community Health Systems, Inc. common
stockholders was $(17) million, or $(0.15) per share (diluted), for
the three months ended September 30, 2019, compared with $(325)
million, or $(2.88) 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 $(0.29) per share (diluted),
for the three months ended September 30, 2019, compared with
$(1.64) per share (diluted) for the same period in 2018.
Weighted-average shares outstanding (diluted) were 114 million for
the three months ended September 30, 2019, and 113 million for the
three months ended September 30, 2018.
Adjusted EBITDA for the three months ended September 30, 2019,
was $388 million compared with $372 million for the same period in
2018, representing a 4.3 percent increase.
The consolidated operating results for the three months ended
September 30, 2019, reflect a 9.2 percent decrease in admissions,
and an 8.4 percent decrease in adjusted admissions, compared with
the same period in 2018. On a same-store basis, admissions
increased 2.4 percent and adjusted admissions increased 3.6 percent
for the three months ended September 30, 2019, compared with the
same period in 2018. On a same-store basis, net operating revenues
increased 4.1 percent for the three months ended September 30,
2019, compared with the same period in 2018.
Net operating revenues for the nine months ended September 30,
2019, totaled $9.925 billion, a 7.3 percent decrease, compared with
$10.702 billion for the same period in 2018.
Net loss attributable to Community Health Systems, Inc. common
stockholders was $(302) million, or $(2.66) per share (diluted),
for the nine months ended September 30, 2019, compared with $(460)
million, or $(4.08) 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 $(1.29) per share (diluted),
for the nine months ended September 30, 2019, compared with $(1.52)
per share (diluted) for the same period in 2018. Weighted-average
shares outstanding (diluted) were 114 million for the nine months
ended September 30, 2019, and 113 million for the nine months ended
September 30, 2018.
Adjusted EBITDA for the nine months ended September 30, 2019,
was $1.181 billion compared with $1.223 billion for the same period
in 2018, representing a 3.4 percent decrease.
The consolidated operating results for the nine months ended
September 30, 2019, reflect an 11.4 percent decrease in admissions,
and an 11.2 percent decrease in adjusted admissions, compared with
the same period in 2018. On a same-store basis, admissions
increased 1.7 percent and adjusted admissions increased 2.3 percent
for the nine months ended September 30, 2019, compared with the
same period in 2018. On a same-store basis, net operating revenues
increased 4.3 percent for the nine months ended September 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, “We
delivered a strong same-store performance across key metrics during
the third quarter. Continued execution of our transfer program,
Accountable Care Organizations, capital investments, and strategic
plans have driven these improved results. We believe these
investments, along with recent divestitures and ongoing operating
efficiency initiatives, have positioned the Company for continued
improved performance. As we move forward, we expect a good finish
to this year and believe we are well-positioned to deliver a strong
performance in 2020.”
The Company completed 11 hospital divestitures during the nine
months ended September 30, 2019 (including two divestitures that
preliminarily closed on December 31, 2018) and completed the
divestiture of one additional hospital on October 1, 2019. In
addition, the Company has entered into a definitive agreement 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 divestitures 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 nine
months ended September 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 nine months ended September 30,
2019.
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 changes
in estimate to increase the professional liability claims accrual
recorded during the second quarter of 2019 (which estimate was
further revised in the third quarter of 2019 based on updated
actuarial analysis) 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 well as income
from a reduction of the valuation allowance on the outstanding
balance of a promissory note from the buyer of another hospital.
For information regarding why the Company believes Adjusted EBITDA
provides useful information to investors, and for a reconciliation
of Adjusted EBITDA to net loss 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
attributable to Community Health Systems, Inc. common stockholders
per share (diluted), a non-GAAP financial measure, to reflect the
impact on net loss 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 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 102 affiliated hospitals in 18 states with an aggregate of
approximately 16,000 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
Wednesday, October 30, 2019, at 10:00 a.m. Central, 11:00 a.m.
Eastern, to review financial and operating results for the third
quarter ended September 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
Nine Months Ended
September 30,
September 30,
2019
2018
2019
2018
Net operating revenues
$
3,246
$
3,451
$
9,925
$
10,702
Net income (loss) (f), (g)
2
(308)
(244)
(405)
Net loss attributable to Community Health Systems, Inc.
stockholders
(17)
(325)
(302)
(460)
Adjusted EBITDA (c)
388
372
1,181
1,223
Net cash (used in) provided by operating activities
(74)
346
191
440
Loss per share attributable to Community Health Systems,
Inc. common stockholders: Basic (f), (g)
$
(0.15)
$
(2.88)
$
(2.66)
$
(4.08)
Diluted (e), (f), (g)
(0.15)
(2.88)
(2.66)
(4.08)
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 September
30,
2019
2018
% of Net
% of Net
Operating
Operating
Amount
Revenues
Amount
Revenues
Net operating revenues
$
3,246
100.0
%
$
3,451
100.0
%
Operating costs and expenses: Salaries and benefits
1,469
45.3
%
1,585
45.9
%
Supplies
526
16.2
%
565
16.4
%
Other operating expenses
812
24.9
%
858
24.9
%
Government and other legal settlements and related costs (g)
26
0.8
%
2
0.1
%
Electronic health records incentive reimbursement
-
-
%
(1)
-
%
Lease cost and rent
79
2.4
%
83
2.4
%
Depreciation and amortization
151
4.7
%
173
5.0
%
Impairment and (gain) loss on sale of businesses, net (f)
(1)
-
%
112
3.2
%
Total operating costs and expenses
3,062
94.3
%
3,377
97.9
%
Income from operations (f), (g)
184
5.7
%
74
2.1
%
Interest expense, net
259
8.0
%
256
7.3
%
Loss from early extinguishment of debt
-
-
%
27
0.8
%
Equity in earnings of unconsolidated affiliates
(3)
(0.1)
%
(5)
(0.1)
%
Loss before income taxes
(72)
(2.2)
%
(204)
(5.9)
%
(Benefit from) provision for income taxes
(74)
(2.3)
%
104
3.0
%
Net income (loss) (f), (g)
2
0.1
%
(308)
(8.9)
%
Less: Net income attributable to noncontrolling interests
19
0.6
%
17
0.5
%
Net loss attributable to Community Health Systems, Inc.
stockholders
$
(17)
(0.5)
%
$
(325)
(9.4)
%
Loss per share attributable to Community Health Systems,
Inc. common stockholders: Basic (f), (g)
$
(0.15)
$
(2.88)
Diluted (e), (f), (g)
$
(0.15)
$
(2.88)
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)
Nine Months Ended September
30,
2019
2018
% of Net
% of Net
Operating
Operating
Amount
Revenues
Amount
Revenues
Net operating revenues
$
9,925
100.0
%
$
10,702
100.0
%
Operating costs and expenses: Salaries and benefits
4,499
45.3
%
4,850
45.3
%
Supplies
1,623
16.4
%
1,773
16.6
%
Other operating expenses
2,516
25.3
%
2,646
24.7
%
Government and other legal settlements and related costs (g)
35
0.4
%
9
0.1
%
Electronic health records incentive reimbursement
-
-
%
(2)
-
%
Lease cost and rent
240
2.4
%
257
2.4
%
Depreciation and amortization
456
4.6
%
531
5.0
%
Impairment and (gain) loss on sale of businesses, net (f)
70
0.7
%
314
2.9
%
Total operating costs and expenses
9,439
95.1
%
10,378
97.0
%
Income from operations (f), (g)
486
4.9
%
324
3.0
%
Interest expense, net
782
7.9
%
720
6.7
%
Loss (gain) from early extinguishment of debt
31
0.3
%
(32)
(0.3)
%
Equity in earnings of unconsolidated affiliates
(12)
(0.1)
%
(17)
(0.2)
%
Loss before income taxes
(315)
(3.2)
%
(347)
(3.2)
%
(Benefit from) provision for income taxes
(71)
(0.7)
%
58
0.6
%
Net loss (f), (g)
(244)
(2.5)
%
(405)
(3.8)
%
Less: Net income attributable to noncontrolling interests
58
0.5
%
55
0.5
%
Net loss attributable to Community Health Systems, Inc.
stockholders
$
(302)
(3.0)
%
$
(460)
(4.3)
%
Loss per share attributable to Community Health Systems,
Inc. common stockholders: Basic (f), (g)
$
(2.66)
$
(4.08)
Diluted (e), (f), (g)
$
(2.66)
$
(4.08)
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
Nine Months Ended
September 30,
September 30,
2019
2018
2019
2018
Net income (loss)
$
2
$
(308)
$
(244)
$
(405)
Other comprehensive (loss) income, net of income taxes: Net change
in fair value of interest rate swaps, net of tax
(1)
2
(3)
26
Net change in fair value of available-for-sale securities, net of
tax
1
-
5
(2)
Amortization and recognition of unrecognized pension cost
components, net of tax
-
-
-
1
Other comprehensive income
-
2
2
25
Comprehensive income (loss)
2
(306)
(242)
(380)
Less: Comprehensive income attributable to noncontrolling interests
19
17
58
55
Comprehensive loss attributable
to Community Health Systems, Inc. stockholders
$
(17)
$
(323)
$
(300)
$
(435)
____
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 September
30,
Consolidated
Same-Store
2019
2018
% Change
2019
2018
% Change
Number of hospitals (at end of period)
103
118
102
102
Licensed beds (at end of period)
16,332
19,684
16,151
16,265
Beds in service (at end of period)
14,537
17,294
14,462
14,380
Admissions
136,926
150,730
-9.2
%
133,863
130,718
2.4
%
Adjusted admissions
302,805
330,681
-8.4
%
296,089
285,795
3.6
%
Patient days
593,746
669,035
581,078
574,386
Average length of stay (days)
4.3
4.4
4.3
4.4
Occupancy rate (average beds in service)
43.4
%
41.7
%
43.7
%
43.4
%
Net operating revenues
$
3,246
$
3,451
-5.9
%
$
3,185
$
3,061
4.1
%
Net inpatient revenues as a % of net operating revenues
46.1
%
47.1
%
45.9
%
47.0
%
Net outpatient revenues as a % of net operating revenues
53.9
%
52.9
%
54.1
%
53.0
%
Income from operations (f), (g)
$
184
$
74
148.6
%
Income from operations as a % of net operating revenues
5.7
%
2.1
%
Depreciation and amortization
$
151
$
173
Equity in earnings of unconsolidated affiliates
$
(3
)
$
(5
)
Net loss attributable to Community Health Systems, Inc.
stockholders
$
(17
)
$
(325
)
94.8
%
Net loss attributable to Community Health Systems, Inc.
stockholders as a % of net operating revenues
-0.5
%
-9.4
%
Adjusted EBITDA (c)
$
388
$
372
4.3
%
Adjusted EBITDA as a % of net operating revenues
12.0
%
10.8
%
Net cash (used in) provided by operating activities
$
(74
)
$
346
-121.4
%
____
For footnotes, see pages 13, 14 and
15.
COMMUNITY HEALTH SYSTEMS, INC.
AND SUBSIDIARIES
Selected Operating Data
(a)
(Dollars in millions)
(Unaudited)
Nine Months Ended September
30,
Consolidated
Same-Store
2019
2018
% Change
2019
2018
% Change
Number of hospitals (at end of period)
103
118
102
102
Licensed beds (at end of period)
16,332
19,684
16,151
16,265
Beds in service (at end of period)
14,537
17,294
14,462
14,380
Admissions
424,214
478,919
-11.4
%
407,084
400,259
1.7
%
Adjusted admissions
915,514
1,031,390
-11.2
%
880,719
860,929
2.3
%
Patient days
1,892,873
2,150,553
1,813,551
1,787,592
Average length of stay (days)
4.5
4.5
4.5
4.5
Occupancy rate (average beds in service)
45.5
%
43.6
%
46.0
%
45.4
%
Net operating revenues
$
9,925
$
10,702
-7.3
%
$
9,605
$
9,205
4.3
%
Net inpatient revenues as a % of net operating revenues
47.3
%
47.8
%
47.1
%
47.6
%
Net outpatient revenues as a % of net operating revenues
52.7
%
52.2
%
52.9
%
52.4
%
Income from operations (f), (g)
$
486
$
324
50.0
%
Income from operations as a % of net operating revenues
4.9
%
3.0
%
Depreciation and amortization
$
456
$
531
Equity in earnings of unconsolidated affiliates
$
(12
)
$
(17
)
Net loss attributable to Community Health Systems, Inc.
stockholders
$
(302
)
$
(460
)
34.3
%
Net loss attributable to Community Health Systems, Inc.
stockholders as a % of net operating revenues
-3.0
%
-4.3
%
Adjusted EBITDA (c)
$
1,181
$
1,223
-3.4
%
Adjusted EBITDA as a % of net operating revenues
11.9
%
11.4
%
Net cash provided by operating activities
$
191
$
440
-56.6
%
____
For footnotes, see pages 13, 14 and
15.
COMMUNITY HEALTH SYSTEMS, INC.
AND SUBSIDIARIES
Condensed Consolidated Balance
Sheets
(In millions, except share
data)
(Unaudited)
September 30, 2019
December 31, 2018
ASSETS Current assets Cash and cash equivalents
$
157
$
196
Patient accounts receivable
2,269
2,352
Supplies
376
402
Prepaid income taxes
45
3
Prepaid expenses and taxes
194
196
Other current assets
341
400
Total current assets
3,382
3,549
Property and equipment
10,198
10,301
Less accumulated depreciation and amortization
(4,267)
(4,162)
Property and equipment, net
5,931
6,139
Goodwill
4,495
4,559
Deferred income taxes
94
69
Other assets, net (i)
1,993
1,543
Total assets
$
15,895
$
15,859
LIABILITIES AND STOCKHOLDERS’ DEFICIT Current
liabilities Current maturities of long-term debt
$
318
$
204
Current operating lease liabilities (i)
137
-
Accounts payable
743
887
Accrued liabilities: Employee compensation
592
627
Accrued interest
145
206
Other
420
468
Total current liabilities
2,355
2,392
Long-term debt (h)
13,286
13,392
Deferred income taxes
26
26
Long-term operating lease liabilities (i)
497
-
Other long-term liabilities
998
1,008
Total liabilities
17,162
16,818
Redeemable noncontrolling interests in equity of consolidated
subsidiaries
498
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; 117,858,473 shares issued and outstanding at September
30, 2019, and 116,248,376 shares issued and outstanding at December
31, 2018
1
1
Additional paid-in capital
2,004
2,017
Accumulated other comprehensive loss
(8)
(10)
Accumulated deficit
(3,845)
(3,543)
Total Community Health Systems, Inc. stockholders’ deficit
(1,848)
(1,535)
Noncontrolling interests in equity of consolidated subsidiaries
83
72
Total stockholders’ deficit
(1,765)
(1,463)
Total liabilities and stockholders’ deficit
$
15,895
$
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)
Nine Months Ended September
30,
2019
2018
Cash flows from operating activities Net loss
$
(244)
$
(405)
Adjustments to reconcile net loss to net cash provided by operating
activities: Depreciation and amortization
456
531
Government and other legal settlements and related costs (g)
25
9
Stock-based compensation expense
8
10
Impairment and (gain) loss on sale of businesses, net (f)
70
314
Loss (gain) from early extinguishment of debt
31
(32)
Other non-cash expenses, net
140
25
Changes in operating assets and liabilities, net of effects of
acquisitions and divestitures: Patient accounts receivable
82
38
Supplies, prepaid expenses and other current assets
40
14
Accounts payable, accrued liabilities and income taxes
(315)
(47)
Other
(102)
(17)
Net cash provided by operating activities
191
440
Cash flows from investing activities Acquisitions of
facilities and other related businesses
(13)
(21)
Purchases of property and equipment
(322)
(413)
Proceeds from disposition of hospitals and other ancillary
operations
363
228
Proceeds from sale of property and equipment
1
7
Purchases of available-for-sale securities and equity securities
(58)
(50)
Proceeds from sales of available-for-sale securities and equity
securities
72
75
Increase in other investments
(146)
(76)
Net cash used in investing activities
(103)
(250)
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)
(93)
Proceeds from noncontrolling investors in joint ventures
10
2
Redemption of noncontrolling investments in joint ventures
(6)
(27)
Distributions to noncontrolling investors in joint ventures
(78)
(74)
Proceeds from sale-lease back
56
-
Borrowings under credit agreements
26
24
Issuance of long-term debt
2,489
1,033
Proceeds from ABL facility
25
587
Repayments of long-term indebtedness
(2,620)
(1,869)
Net cash used in financing activities
(127)
(418)
Net change in cash and cash equivalents
(39)
(228)
Cash and cash equivalents at beginning of period
196
563
Cash and cash equivalents at end of period
$
157
$
335
____
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 nine months ended
September 30, 2019. There were no discontinued operations reported
for 2018 and the nine months ended September 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
Nine Months Ended
September 30,
September 30,
2019
2018
2019
2018
Net loss attributable to Community Health Systems, Inc. common
stockholders: Net income (loss)
$
2
$
(308)
$
(244)
$
(405)
Less: Income attributable to noncontrolling interests, net of taxes
19
17
58
55
Net loss attributable to Community Health Systems, Inc. common
stockholders — basic and diluted
$
(17)
$
(325)
$
(302)
$
(460)
(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 changes in estimate to increase the professional
liability claims accrual recorded during the second quarter of 2019
(which estimate was further revised in the third quarter of 2019
based on updated actuarial analysis) 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 well as income from a reduction of the
valuation allowance on the outstanding balance of a promissory note
from the buyer of another hospital. 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
Nine Months Ended
September 30,
September 30,
2019
2018
2019
2018
Net loss attributable to Community Health Systems, Inc.
stockholders
$
(17)
$
(325)
$
(302)
$
(460)
Adjustments: (Benefit from) provision for income taxes
(74)
104
(71)
58
Depreciation and amortization
151
173
456
531
Net income attributable to noncontrolling interests
19
17
58
55
Interest expense, net
259
256
782
720
Loss (gain) from early extinguishment of debt
-
27
31
(32)
Impairment and (gain) loss on sale of businesses, net
(1)
112
70
314
Expense from government and other legal settlements and related
costs
26
2
35
9
Expense from settlement and fair value adjustments and legal
expenses related to cases covered by the CVR
7
4
10
13
Expense related to employee termination benefits and other
restructuring charges
-
2
1
15
Change in valuation allowances recorded for promissory notes
(2)
-
21
-
Change in estimate for professional liability claims accrual
20
-
90
-
Adjusted EBITDA
$
388
$
372
$
1,181
$
1,223
(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
Nine Months Ended
September 30,
September 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 nine
months ended September 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 69,042 shares and 4,001
shares during the three months ended September 30, 2019 and 2018,
respectively, and 52,925 shares and 41,705 shares during the nine
months ended September 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
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
attributable to Community Health Systems, Inc. common stockholders
per share (diluted) presents useful information to investors by
highlighting the impact on net loss 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
Nine Months Ended
September 30,
September 30,
2019
2018
2019
2018
Net loss, as reported
$
(0.15
)
$
(2.88
)
$
(2.66
)
$
(4.08
)
Adjustments: Loss (gain) from early extinguishment of debt
0.01
0.19
0.22
(0.22
)
Impairment and (gain) loss on sale of businesses, net
0.01
0.79
0.60
2.32
Expense from government and other legal settlements and related
costs
0.18
0.01
0.24
0.06
Expense from settlement and fair value adjustments and legal
expenses related to cases covered by the CVR
0.05
0.03
0.07
0.09
Expense related to employee termination benefits and other
restructuring charges
-
0.02
0.01
0.11
Change in valuation allowances recorded for promissory notes
(0.01
)
-
0.14
-
Change in estimate for professional liabilty claims accrual
0.16
-
0.63
-
Tax effect related to HMA legal settlement
(0.13
)
0.21
(0.13
)
0.21
Reduction in tax valuation allowance
(0.42
)
-
(0.42
)
-
Net loss, excluding adjustments
$
(0.29
)
$
(1.64
)
$
(1.29
)
$
(1.52
)
(f) Both income from operations and net loss for the three and
nine months ended September 30, 2019, included non-cash income of
approximately $1 million and expense of approximately $70 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 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 nine months ended
September 30, 2018, included non-cash expense of approximately $112
million and $314 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 $(0.18) per share (diluted) and $(0.24) per share
(diluted) of expense for “Government and other legal settlements
and related costs” for the three and nine months ended September
30, 2019, respectively, and $(0.01) per share (diluted) and $(0.06)
per share (diluted) for the three and nine months ended September
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 September 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 September 30, 2019, with a first lien net debt to
consolidated EBITDA leverage ratio of approximately 5.02 to 1.00.
At September 30, 2019, the available borrowing base under the
asset-based loan credit agreement was $854 million, of which the
Company had outstanding borrowings of $673 million.
(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 nine months ended September 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 August 5, 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)
$
1,600
to
$
1,650
Net loss per share - diluted
$
(1.85)
to
$
(1.75)
Same-store hospital annual adjusted admissions growth
1.5
%
to
2.5
%
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 a definitive
agreement 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 1.5%
to 2.5% 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 0.7% to 0.8% 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)
$
(131)
$
(109)
Adjustments: Depreciation and amortization
600
620
Interest expense, net
1,030
1,045
Provision for income taxes
21
4
Net income attributable to noncontrolling interests
80
90
Adjusted EBITDA (1)
$
1,600
$
1,650
(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
$425
to
$475
- Net cash provided by operating activities is projected as
follows (in millions):
2019
Guidance
Total
$500
to
$550
- 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, 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, and our ability to
remain in compliance with debt covenants;
• 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 nine months
ended September 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/20191029006092/en/
Investor Contact: Thomas J. Aaron Executive Vice President and
Chief Financial Officer (615) 465-7000
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