Community Health Systems, Inc.

Ladies and gentlemen, thank you for standing by and welcome to Community Health System's third quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Mr. Ross Como, Vice President of Investor Relations. Thank you. Please go ahead, sir.

Thank you, Mike. Good morning and welcome to Community Health Systems' third quarter conference call. Before we begin the call, I'd like to read the following disclosure statement. This conference call may contain certain forward-looking statements, including all statements that do not relate solely to historical, or current facts. These forward-looking statements are subject to a number of known and unknown risks, which are described in headings such as risk factors in our annual report on Form 10-K and other reports filed with or furnished to the Securities and Exchange Commission. As a consequence, actual results may differ significantly from those expressed in any forward-looking statements in today's discussion. We do not intend to update any of these forward-looking statements. Yesterday afternoon, we issued a press release with our financial statements and definitions and calculations of adjusted EBITDA and adjusted EPS. For those of you listening to the live broadcast of this conference call, a supplemental slide presentation has been posted to our website. We will refer to those slides during this earnings call. All calculations we will discuss also exclude gain or loss from early extinguishment of debt, impairment expense as well as gains or losses on the sale of businesses, expenses from government and other legal settlements and related costs, expenses from settlement to legal expenses related to cases covered by the CVR, expenses related to employee termination benefits and other restructuring charges, change in valuation allowances recorded for promissory notes, change in estimate for professional liability claims accrual, tax effects related to HMA legal settlement, change in tax valuation allowance. With that said, I'd like to turn the call over to Wayne Smith, Chairman and Chief Executive Officer. Mr. Smith.

Thank you, Ross, and good morning, and welcome to our third quarter conference call. I'm joined today on the call with Tim Henderson, our President and Chief Operating Officer, Dr. Lynn Simon, President of Clinical Operations and Chief Medical Officer, and Kevin Hammons, Executive Vice President and Chief Financial Officer. We're pleased with the strong results reported in the third quarter, especially as we managed to recover the 19th pandemic while also advancing strategies designed to build on the company's recent progress and ensure their long-term success. I want to credit our hospital leaders, corporate management, other support teams, and especially the frontline caregivers who continue to meet the challenge of a global pandemic with commitment, professionalism, and a level of human compassion that truly impresses me every single day. Before we get into the quarter's results, I hope you will indulge me just a minute to comment on the other press release that we issued yesterday announcing my decision to transition from CEO of the company into the new role of Executive Chairman of the Board of Directors at the beginning of 2021. Tim will become our new Chief Executive Officer, and I'm completely confident that Tim will be strategic, energetic, and an outstanding CVO. You've gotten to know him over the past few years in his role as President and COO. I trust that you have seen his strong leadership capabilities, his deep knowledge and experience in our industry, and his intense personal commitment to this company. We've certainly seen the results of his labor and good work he has done to advance strategic and operational initiatives that are driving growth in our markets. I could not be more pleased that Tim will be our next CEO. Let me say again that I and our board are completely confident in Tim's ability to ensure quality healthcare to increase the services we provide in our communities and reduce value for our shareholders. Please join me in congratulating Tim on his new job and responsibilities. It's been my pleasure and privilege, and I'm very grateful to have served as the CEO of Community Health Systems for more than two decades. CHS is a great company with great people and great opportunities ahead. I'm deeply grateful for the support of our board, our investors, and all the people who have been part of our organization. And more than that, a part of our effort to always provide safe, quality care for our patients. Over 20 plus years, a lot has changed in this industry. Certainly our company has changed a lot as well. But our purpose and our commitment, our resilience and our ability to keep things moving forward remain constant. I'm extremely optimistic about the future of community health systems. I believe we have the right strategies and the right people and we're executing and we're moving forward as we continue to drive positive results. As Executive Chairman of the Board, I'll remain involved in setting the strategic course of the company and I'll continue to fulfill certain executive level management responsibilities. Now let me turn to COVID-19 and then I'll briefly discuss the quarter results and give Tim and Kevin and Lynn an opportunity to share more detail. COVID-19 currently remains manageable in our markets. Our teams are doing an extraordinary job of caring for patients with coronavirus as well as those who have other health care needs. You can see the COVID-19 cases are climbing in many areas across the country and we're seeing a rising number of inpatient cases in some of our markets. I think we have learned a lot over the past several months about how to keep essential services open and safely operating and we will continue to do all we can to protect frontline care givers and patients while also working to ensure all services remain available for the patients who need them. Of course, We monitor COVID activity constantly, and I think we have proven we are agile and adept at navigating change should that become necessary in our response. Now I'd like to provide some brief highlights on the third quarter. It was a strong quarter. Our investments in volume driving initiatives, the strategic margin improvement program, and the targeted capital investments produced very good results. Our ability to quickly and effectively resume services after some services closures in early phases of the pandemic have turned out to be very productive. Our efforts to secure a stronger go-forward portfolio of hospitals has produced improved results. All these things should continue to drive positive results over time. It's worth noting that we delivered improved metrics across a number of categories during the third quarter compared to the second quarter. As a reminder, The shelter-in-place recommendations and the government restrictions on elective surgeries negatively impacted our volumes, net revenues, and performance during the second quarter. In the third quarter, our admissions, surgeries, and ER visits improved sequentially. Our same-store volumes and net revenue growth remained below pre-pandemic run rates, and in a number of markets, we did see COVID-19 hotspots during the quarter, which negatively impacted non-COVID health care demand, including elective procedures in some areas. Despite these issues, the third quarter net revenue was approximately $3.1 billion, which was up $2.9 on the same story year-over-year basis. Adjusted EBITDA was $4.31, which increased 11% versus last year. And I want to point out that no provider relief funds from the CARES Act were recognized in the quarter. Adjusted EBITDA margin was 13.8%, up 180 basis points. versus last year. In terms of expenses, percentage net revenue, we made progress across SWB and other operating expense lines while supply costs were up. And finally, as it relates to our capital structure during the quarter, we reduced our total debt, lowered our debt to EBITDA ratio from a combination of EBITDA growth and repayment of debt. Finally, I'd like to comment on the portfolio. Our strategy for the past several years has been to intentionally and strategically reshape our portfolio into a stronger group of hospitals and healthcare systems. This enabled us to make targeted investments in markets where we see the most potential to drive long-term growth. We are now finishing that work with the divestitures completed in the third quarter and in expectation that we will complete the rest of our pending divestitures before the end of the year, we will end our formal portfolio optimization strategy. We're pleased with our remaining markets and confident that we can effectively produce value with this portfolio. Our singular focus is on market development and long-term growth in the markets where we now operate. With accelerated investments and high return CapEx opportunities on both the inpatient and outpatient side of the business, many are completed and many more are in the pipeline to strengthen services and increase access points across these markets. I'm proud of all our company's accomplishments during the first three quarters of the year. I'm very proud of the people who work across this organization. And I want to, again, recognize the physicians, the nurses, and other employees who continue to improve their work. To continue to prove their work is essential and heroic. Again, I want you to know I am very optimistic about our future and how grateful I am for my experience as the CEO community health systems and how appreciative I am for all of your support through the years. I look forward to serving as the Executive Chairman of the Board of Directors and now I'd like to turn the call over to Dr. Lynn Simon.