Community Health Systems, Inc. (NYSE: CYH) (the “Company”) today
announced financial and operating results for the three months
ended March 31, 2020.
The following highlights the financial and operating results for
the three months ended March 31, 2020.
- Net operating revenues totaled $3.025 billion.
- Net income attributable to Community Health Systems, Inc.
common stockholders was $18 million, or $0.15 per share (diluted),
compared with net loss of $(118) million, or $(1.04) per share
(diluted), for the same period in 2019. Excluding the adjusting
items as presented in the table in footnote (e) on page 13, net
loss attributable to Community Health Systems, Inc. common
stockholders was $(1.59) per share (diluted), compared to $(0.53)
per share (diluted) for the same period in 2019.
- Adjusted EBITDA was $309 million.
- Net cash provided by operating activities was $57 million,
compared with $133 million for the same period in 2019.
- On a same-store basis, admissions decreased 5.2 percent and
adjusted admissions decreased 4.8 percent, compared with the same
period in 2019.
- As discussed further below, developments related to the
emergence and spread of a novel strain of coronavirus (“COVID-19”)
resulted in a decline in patient volumes and increases in operating
costs.
Net operating revenues for the three months ended March 31,
2020, totaled $3.025 billion, a 10.4 percent decrease, compared
with $3.376 billion for the same period in 2019.
Net income attributable to Community Health Systems, Inc. common
stockholders was $18 million, or $0.15 per share (diluted), for the
three months ended March 31, 2020, compared with net loss of $(118)
million, or $(1.04) per share (diluted), for the same period in
2019. Excluding the adjusting items as presented in the table in
footnote (e) on page 13, net loss attributable to Community Health
Systems, Inc. common stockholders was $(1.59) per share (diluted),
for the three months ended March 31, 2020, compared to $(0.53) per
share (diluted) for the same period in 2019. The change in tax
valuation allowance (which was one of the adjusting items
referenced above) had a positive impact of $240 million, or $2.10
per share (diluted), on net income attributable to Community Health
Systems, Inc. common stockholders, and arose from the discrete tax
benefits related to the release of federal and state valuation
allowances on IRC Section 163(j) interest carryforwards as a result
of an increase to the deductible interest expense allowed for 2019
and 2020 under the Coronavirus Aid, Relief and Economic Security
Act (the “CARES Act”) that was enacted during the three months
ended March 31, 2020. Weighted-average shares outstanding (diluted)
were 114 million for the three months ended March 31, 2020, and 113
million for the three months ended March 31, 2019.
Adjusted EBITDA for the three months ended March 31, 2020, was
$309 million compared with $391 million for the same period in
2019, representing a 21.0 percent decrease.
The consolidated operating results for the three months ended
March 31, 2020, reflect a 13.3 percent decrease in admissions and a
12.8 percent decrease in adjusted admissions, compared with the
same period in 2019. On a same-store basis, admissions decreased
5.2 percent and adjusted admissions decreased 4.8 percent for the
three months ended March 31, 2020, compared with the same period in
2019. On a same-store basis, net operating revenues decreased 3.5
percent for the three months ended March 31, 2020, compared with
the same period in 2019.
Commenting on the results, Wayne T. Smith, chairman and chief
executive officer of Community Health Systems, Inc., said, “We are
all grateful for the courage and commitment of our nation’s
healthcare workers as they put the care of their patients above all
else in confronting COVID-19. Across our hospitals, physicians,
nurses, and everyone else on the front lines have helped to save
lives. Our organization has leveraged its resources to provide a
rapid, coordinated and effective response to the pandemic. Now, we
are also focused on reopening services where we can, especially for
patients who have deferred important surgeries, procedures and
other appointments. As we continue to manage our operations through
the COVID-19 pandemic, our organization is doing everything
possible to limit the spread of COVID-19 and to ensure our
communities continue to have access to safe, quality
healthcare.”
COVID – 19 Pandemic:
Due to the decline in patient volumes as a result of the
COVID-19 pandemic beginning during the second half of March, the
impact from the COVID-19 pandemic on the Company’s operations and
financial results for the three months ended March 31, 2020
included decreases in net operating revenues and increases in
expenses related to supply chain and other expenditures.
As previously announced in a Current Report on Form 8-K filed by
the Company on April 6, 2020 (the “April 6 Form 8-K”), the Company
is not able to fully quantify the impact that COVID-19 will have on
its financial results during 2020, but expects developments related
to COVID-19 to materially affect the Company’s financial
performance in 2020. Moreover, as a result of the continuously
changing and unpredictable environment related to COVID-19, as
disclosed in the April 6 Form 8-K, the Company withdrew its 2020
financial guidance previously issued in its earnings release dated
February 19, 2020 and is not providing further guidance in this
earnings release.
Federal and state governments have passed legislation,
promulgated regulations, and taken other administrative actions
intended to assist healthcare providers in providing care to
COVID-19 and other patients during the public health emergency.
Sources of relief include the CARES Act, which was enacted on March
27, 2020, and the Paycheck Protection Program and Health Care
Enhancement Act (the “PPPHCE Act”), which was enacted on April 24,
2020. The CARES Act includes $100 billion in funding to be
distributed to eligible providers through the Public Health and
Social Services Emergency Fund (the “PHSSEF”) as well as an
expansion of the Medicare Accelerated and Advance Payment Program.
The PPPHCE Act includes additional emergency appropriations for
COVID-19 response, including $75 billion to be distributed to
eligible providers through the PHSSEF.
In April 2020, the Company received approximately $245 million
in payments through the PHSSEF and received accelerated Medicare
payments of approximately $1.2 billion via the Medicare Accelerated
and Advance Payment Program. These payments did not qualify for
recognition in the three months ended March 31, 2020. PHSSEF
payments (both under the CARES Act and the PPPHCE Act) are intended
to compensate healthcare providers for lost revenues and
incremental expenses incurred in response to the COVID-19 pandemic
and are not required to be repaid provided that recipients attest
to and comply with certain terms and conditions, including (in the
case of payments under the CARES Act) limitations on balance
billing and not using funds received from the PHSSEF to reimburse
expenses or losses that other sources are obligated to reimburse
(terms and conditions with respect to payments under the PPPHCE Act
have not been finalized). In contrast, the payments under the
Medicare Accelerated and Advance Payment Program are advances that
providers must repay. The accelerated Medicare payments are
interest free for up to 12 months and the program currently
requires that CMS recoup the accelerated payments beginning 120
days after receipt by the provider, by withholding future Medicare
fee-for-service payments for claims until such time as the full
accelerated payment has been recouped. The program currently
requires that any outstanding balance remaining after 12 months
must be repaid by the provider or be subjected to a 10.25% interest
rate.
The PHSSEF payments and accelerated payments received to date
and which the Company may receive in the future under the CARES Act
and the PPPHCE Act as noted above, or other legislation, will be
beneficial in addressing the impact of the COVID-19 pandemic on its
results of operations and financial position. However, the Company
is unable to assess the extent to which anticipated negative
impacts on the Company arising from the COVID-19 pandemic will be
offset by amounts and benefits received, and which the Company may
receive in the future, under the CARES Act, the PPPHCE Act or other
legislation.
On January 1, 2020, the Company completed the divestiture of
three hospitals (in respect of which the Company received proceeds
at a preliminary closing on December 31, 2019). In addition, since
January 1, 2020 the Company has entered into several definitive
agreements to sell a total of seven hospitals, for which the
Company expects to receive aggregate proceeds of approximately $400
million. These divestitures, which are expected to be completed at
various times during the second and third quarters of 2020, will
mark the end of the formal portfolio rationalization strategy,
which commenced in 2017. There can be no assurance that these
potential divestitures subject to definitive agreements 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, and
may, from time to time, consider selling additional hospitals
following the completion of the Company’s formal portfolio
rationalization strategy.
Financial and statistical data for 2019 and 2020 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 a
hospital acquired in 2019 and the hospitals divested in 2019 and
2020.
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 loss (gain)
from early extinguishment of debt, impairment and loss on sale of
businesses, expense related to government and other legal
settlements and related costs, expense related to employee
termination benefits and other restructuring charges, expense from
settlement and fair value adjustments on the CVR agreement
liability related to the Health Management Associates, Inc. (“HMA”)
legal proceedings and related legal expenses, 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 income (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 income
(loss) attributable to Community Health Systems, Inc. common
stockholders per share (diluted), a non-GAAP financial measure, to
reflect the impact on net income (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 income
(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.
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 99 affiliated hospitals in 17 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, April 29, 2020, at 10:00 a.m. Central, 11:00 a.m.
Eastern, to review financial and operating results for the first
quarter ended March 31, 2020. 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
March 31,
2020
2019
Net operating revenues
$
3,025
$
3,376
Net income (loss) (f), (g)
34
(101
)
Net income (loss) attributable to Community Health Systems, Inc.
stockholders
18
(118
)
Adjusted EBITDA (c)
309
391
Net cash provided by operating activities
57
133
Earnings (loss) per share attributable to Community Health
Systems, Inc. common stockholders: Basic (f), (g)
$
0.15
$
(1.04
)
Diluted (e), (f), (g)
0.15
(1.04
)
Weighted-average number of shares outstanding (d): Basic
114
113
Diluted
114
113
____ For footnotes, see pages 11, 12 and
13.
COMMUNITY HEALTH SYSTEMS, INC.
AND SUBSIDIARIES
Condensed Consolidated
Statements of Income (Loss) (a)(b)
(In millions, except per share
amounts)
(Unaudited)
Three Months Ended March
31,
2020
2019
% of Net
% of Net
Operating
Operating
Amount
Revenues
Amount
Revenues
Net operating revenues
$
3,025
100.0
%
$
3,376
100.0
%
Operating costs and expenses: Salaries and benefits
1,408
46.4
%
1,542
45.7
%
Supplies
498
16.5
%
558
16.5
%
Other operating expenses
737
24.4
%
811
24.1
%
Government and other legal settlements and related costs (g)
2
0.1
%
5
0.1
%
Lease cost and rent
81
2.7
%
80
2.4
%
Depreciation and amortization
144
4.8
%
153
4.5
%
Impairment and loss on sale of businesses, net (f)
45
1.5
%
38
1.1
%
Total operating costs and expenses
2,915
96.4
%
3,187
94.4
%
Income from operations (f), (g)
110
3.6
%
189
5.6
%
Interest expense, net
262
8.7
%
257
7.6
%
Loss from early extinguishment of debt
4
0.1
%
31
0.9
%
Equity in earnings of unconsolidated affiliates
(7
)
(0.3
)
%
(5
)
(0.1
)
%
Loss before income taxes
(149
)
(4.9
)
%
(94
)
(2.8
)
%
(Benefit from) provision for income taxes
(183
)
(6.0
)
%
7
0.2
%
Net income (loss) (f), (g)
34
1.1
%
(101
)
(3.0
)
%
Less: Net income attributable to noncontrolling interests
16
0.5
%
17
0.5
%
Net income (loss) attributable to Community Health Systems, Inc.
stockholders
$
18
0.6
%
$
(118
)
(3.5
)
%
Earnings (loss) per share attributable to Community Health
Systems, Inc. common stockholders: Basic (f), (g)
$
0.15
$
(1.04
)
Diluted (e), (f), (g)
$
0.15
$
(1.04
)
Weighted-average number of shares outstanding (d): Basic
114
113
Diluted
114
113
____ For footnotes, see pages 11, 12 and
13.
COMMUNITY HEALTH SYSTEMS, INC.
AND SUBSIDIARIES
Condensed Consolidated
Statements of Comprehensive Income (Loss)
(In millions)
(Unaudited)
Three Months Ended
March 31,
2020
2019
Net income (loss)
$
34
$
(101
)
Other comprehensive income (loss), net of income taxes: Net change
in fair value of interest rate swaps, net of tax
-
(2
)
Net change in fair value of available-for-sale debt securities, net
of tax
2
2
Other comprehensive income
2
-
Comprehensive income (loss)
36
(101
)
Less: Comprehensive income attributable to noncontrolling interests
16
17
Comprehensive income (loss) attributable to Community Health
Systems, Inc. stockholders
$
20
$
(118
)
____ For footnotes, see pages 11, 12 and
13.
COMMUNITY HEALTH SYSTEMS, INC.
AND SUBSIDIARIES
Selected Operating Data
(a)
(Dollars in millions)
(Unaudited)
Three Months Ended March
31,
Consolidated
Same-Store
2020
2019
% Change
2020
2019
% Change
Number of hospitals (at end of period)
99
106
98
98
Licensed beds (at end of period)
15,620
16,956
15,439
15,614
Beds in service (at end of period)
13,757
15,195
13,682
13,915
Admissions
128,248
147,888
-13.3
%
127,845
134,882
-5.2
%
Adjusted admissions
270,156
309,875
-12.8
%
268,965
282,530
-4.8
%
Patient days
579,937
677,081
578,220
613,141
Average length of stay (days)
4.5
4.6
4.5
4.5
Occupancy rate (average beds in service)
46.1
%
48.0
%
46.3
%
49.0
%
Net operating revenues
$ 3,025
$ 3,376
-10.4
%
$ 3,016
$ 3,125
-3.5
%
Net inpatient revenues as a % of net operating revenues 47.9 % 48.7
% 47.8 % 48.5 % Net outpatient revenues as a % of net operating
revenues 52.1 % 51.3 % 52.2 % 51.5 % Income from operations (f),
(g)
$ 110
$ 189
-41.8
%
Income from operations as a % of net operating revenues 3.6 % 5.6 %
Depreciation and amortization
$ 144
$ 153
Equity in earnings of unconsolidated affiliates
$ (7
)
$ (5
)
Net income (loss) attributable to Community Health Systems, Inc.
stockholders $ 18 $ (118
)
115.3 % Net income (loss) attributable to Community Health Systems,
Inc. stockholders as a % of net operating revenues 0.6 % -3.5 %
Adjusted EBITDA (c)
$ 309
$ 391
-21.0
%
Adjusted EBITDA as a % of net operating revenues 10.2 % 11.6 % Net
cash provided by operating activities
$ 57
$ 133
-57.1
%
____ For footnotes, see pages 11, 12 and
13.
COMMUNITY HEALTH SYSTEMS, INC.
AND SUBSIDIARIES
Condensed Consolidated Balance
Sheets
(In millions, except share
data)
(Unaudited)
March 31, 2020
December 31, 2019
ASSETS Current assets Cash and cash equivalents
$
246
$
216
Patient accounts receivable
2,100
2,258
Supplies
354
354
Prepaid income taxes
47
48
Prepaid expenses and taxes
188
193
Other current assets
425
358
Total current assets
3,360
3,427
Property and equipment
9,618
9,653
Less accumulated depreciation and amortization
(4,096
)
(4,045
)
Property and equipment, net
5,522
5,608
Goodwill
4,322
4,328
Deferred income taxes
50
38
Other assets, net
2,191
2,208
Total assets
$
15,445
$
15,609
LIABILITIES AND STOCKHOLDERS’ DEFICIT Current
liabilities Current maturities of long-term debt
$
30
$
20
Current operating lease liabilities
132
136
Accounts payable
727
811
Accrued liabilities: Employee compensation
593
594
Accrued interest
180
189
Other
503
532
Total current liabilities
2,165
2,282
Long-term debt (h)
13,525
13,385
Deferred income taxes
29
200
Long-term operating lease liabilities
514
487
Other long-term liabilities
846
894
Total liabilities
17,079
17,248
Redeemable noncontrolling interests in equity of consolidated
subsidiaries
502
502
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; 119,678,238 shares issued and outstanding at March 31,
2020, and 117,822,631 shares issued and outstanding at December 31,
2019
1
1
Additional paid-in capital
2,001
2,008
Accumulated other comprehensive loss
(7
)
(9
)
Accumulated deficit
(4,200
)
(4,218
)
Total Community Health Systems, Inc. stockholders’ deficit
(2,205
)
(2,218
)
Noncontrolling interests in equity of consolidated subsidiaries
69
77
Total stockholders’ deficit
(2,136
)
(2,141
)
Total liabilities and stockholders’ deficit
$
15,445
$
15,609
____ For footnotes, see pages 11, 12 and
13.
COMMUNITY HEALTH SYSTEMS, INC.
AND SUBSIDIARIES
Condensed Consolidated
Statements of Cash Flows
(In millions)
(Unaudited)
Three Months Ended March
31,
2020
2019
Cash flows from operating activities Net income (loss)
$
34
$
(101
)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities: Depreciation and amortization
144
153
Deferred income taxes
(184
)
6
Government and other legal settlements and related costs (g)
2
5
Stock-based compensation expense
2
3
Impairment and loss on sale of businesses, net (f)
45
38
Loss from early extinguishment of debt
4
31
Other non-cash expenses, net
49
36
Changes in operating assets and liabilities, net of effects of
acquisitions and divestitures: Patient accounts receivable
158
(10
)
Supplies, prepaid expenses and other current assets
(53
)
14
Accounts payable, accrued liabilities and income taxes
(78
)
17
Other
(66
)
(59
)
Net cash provided by operating activities
57
133
Cash flows from investing activities Acquisitions of
facilities and other related businesses
-
(4
)
Purchases of property and equipment
(99
)
(121
)
Proceeds from disposition of hospitals and other ancillary
operations
2
161
Purchases of available-for-sale debt securities and equity
securities
(17
)
(15
)
Proceeds from sales of available-for-sale debt securities and
equity securities
21
32
Increase in other investments
(16
)
(34
)
Net cash (used in) provided by investing activities
(109
)
19
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
(32
)
(25
)
Proceeds from noncontrolling investors in joint ventures
-
1
Redemption of noncontrolling investments in joint ventures
(2
)
(1
)
Distributions to noncontrolling investors in joint ventures
(30
)
(27
)
Proceeds from sale-lease back
2
-
Other borrowings
14
12
Issuance of long-term debt
1,462
1,840
Proceeds from ABL facility
540
25
Repayments of long-term indebtedness
(1,871
)
(1,895
)
Net cash provided by (used in) financing activities
82
(71
)
Net change in cash and cash equivalents
30
81
Cash and cash equivalents at beginning of period
216
196
Cash and cash equivalents at end of period
$
246
$
277
____ For footnotes, see pages 11, 12 and
13.
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 a hospital acquired
in 2019 and the hospitals divested in 2019 and 2020. There were no
discontinued operations reported for 2019 and 2020.
(b) The following table provides information needed to calculate
earnings (loss) per share, which is adjusted for income
attributable to noncontrolling interests (in millions):
Three Months Ended
March 31,
2020
2019
Net income (loss) attributable to Community Health Systems, Inc.
common stockholders: Net income (loss)
$
34
$
(101)
Less: Income attributable to noncontrolling interests, net of taxes
16
17
Net income (loss) attributable to Community Health Systems, Inc.
common stockholders — basic and diluted
$
18
$
(118)
(c) EBITDA is a non-GAAP financial measure which consists of net
income (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 loss (gain) from early extinguishment of debt, impairment
and loss on sale of businesses, expense related to government and
other legal settlements and related costs, expense related to
employee termination benefits and other restructuring charges,
expense from settlement and fair value adjustments on the CVR
agreement liability related to the HMA legal proceedings and
related legal expenses, 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 metrics used in connection with determining
short-term cash incentive compensation and the achievement of
vesting criteria with respect to performance-based equity awards.
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 asset-based loan facility (the “ABL Facility”), which is
a key component in the determination of the Company’s compliance
with some of the covenants under the ABL 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 ABL Facility (although Adjusted EBITDA does not
include all of the adjustments described in the ABL 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 income (loss) attributable to Community
Health Systems, Inc. stockholders as derived directly from the
condensed consolidated financial statements (in millions):
Three Months Ended
March 31,
2020
2019
Net income (loss) attributable to Community Health Systems, Inc.
stockholders
$
18
$
(118
)
Adjustments: (Benefit from) provision for income taxes
(183
)
7
Depreciation and amortization
144
153
Net income attributable to noncontrolling interests
16
17
Interest expense, net
262
257
Loss from early extinguishment of debt
4
31
Impairment and loss on sale of businesses, net
45
38
Expense from government and other legal settlements and related
costs
2
5
Expense from settlement and legal expenses related to cases covered
by the CVR
1
1
Adjusted EBITDA
$
309
$
391
(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
March 31,
2020
2019
Weighted-average number of shares outstanding - basic
114
113
Add effect of dilutive securities: Stock awards and options
-
-
Weighted-average number of shares outstanding - diluted
114
113
The effect of restricted stock and stock option awards on the
diluted shares calculation was an increase of 77,812 shares during
the three months ended March 31, 2020. The Company generated a net
loss attributable to Community Health Systems, Inc. common
stockholders for the three months ended March 31, 2019, so the
effect of dilutive securities is not considered because their
effect would be antidilutive. If the Company had generated net
income during the three months ended March 31, 2019, the effect of
restricted stock and stock option awards on the diluted shares
calculation would have been an increase in shares of 59,261.
Footnotes to Financial Highlights, Financial
Statements and Selected Operating Data (Continued)
(e) The following supplemental table reconciles net income
(loss) attributable to Community Health Systems, Inc. common
stockholders, as reported, on a per share (diluted) basis, to net
income (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
income (loss) attributable to Community Health Systems, Inc. common
stockholders per share (diluted) presents useful information to
investors by highlighting the impact on net income (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
March 31,
2020
2019
Net income (loss), as reported
$ 0.15
$ (1.04
)
Adjustments: Loss from early extinguishment of debt
0.02
0.20
Impairment and loss on sale of businesses, net
0.31
0.26
Expense from government and other legal settlements and related
costs
0.01
0.03
Expense from settlement and legal expenses related to cases covered
by the CVR
0.01
0.01
Change in tax valuation allowance
(2.10
)
-
Net loss, excluding adjustments
$ (1.59
)
$ (0.53
)
(f) Both income from operations and net income (loss) for the
three months ended March 31, 2020 and 2019, included non-cash
expense of approximately $45 million and $38 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 ABL
Facility.
(g) The $(0.01) per share (diluted) and $(0.03) per share
(diluted) of expense for “Government and other legal settlements
and related costs” for the three months ended March 31, 2020 and
2019, respectively, is the net impact of several lawsuits settled
in principle during the related periods, and related legal
expenses.
(h) At March 31, 2020, the Company had outstanding borrowings of
$380 million and approximately $239 million of additional borrowing
capacity (after taking into consideration $150 million of
outstanding letters of credit) under the ABL Facility.
Forward-Looking Statements
This press release contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as
amended, Section 21E of the Securities Exchange Act of 1934, as
amended, and the Private Securities Litigation Reform Act of 1995
that involve risk and uncertainties. All statements in this press
release other than statements of historical fact, including
statements regarding 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:
- developments related to COVID-19, including, without
limitation, related to the length and severity of the pandemic; the
volume of canceled or rescheduled procedures; the volume of
COVID-19 patients cared for across our health systems; measures we
are taking to respond to the COVID-19 pandemic; the impact of
government and administrative regulation on us; changes in net
revenue due to patient volumes, payor mix and deteriorating
macroeconomic conditions; potential increased expenses related to
labor, supply chain or other expenditures; workforce disruptions;
and supply shortages and disruptions;
- uncertainty regarding the implementation of the CARES Act, the
PPPHCE Act, and any other future stimulus measures related to
COVID-19, including the magnitude and timing of any future payments
or benefits we may receive thereunder;
- general economic and business conditions, both nationally and
in the regions in which we operate, including economic and business
conditions resulting from the COVID-19 pandemic;
- 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 otherwise invalidated, or for
additional changes to the law, its implementation or its
interpretation (including through executive orders and court
challenges);
- the extent to and manner in 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, 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, as well as risks associated with disruptions in the
financial and capital markets as the result of the COVID-19
pandemic which could impact us from a financing and liquidity
perspective;
- demographic changes;
- changes in, or the failure to comply with, federal, state or
local laws or governmental regulations affecting our business,
including any such laws or governmental regulations which are
adopted in connection with the COVID-19 pandemic;
- 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 policies or 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 or via telehealth;
- changes in medical or other technology;
- changes in U.S. GAAP;
- 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 pandemics, epidemics, or outbreaks of
infectious diseases, including the coronavirus known as COVID-19 as
noted above;
- the impact of 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 in our Annual Report on
Form 10-K for the year ended December 31, 2019, filed with the
Securities and Exchange Commission on February 20, 2020, and other
public filings with the Securities and Exchange Commission.
The consolidated operating results for the three months ended
March 31, 2020, are not necessarily indicative of the results that
may be experienced for any future periods. The Company undertakes
no obligation to revise or update any forward-looking statements,
or to make any other forward-looking statements, whether as a
result of new information, future events or otherwise.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200428005929/en/
Investor Contact: Kevin Hammons Executive Vice President and
Chief Financial Officer (615) 465-7000
Community Health Systems (NYSE:CYH)
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