Community Health Systems, Inc.

Ladies and gentlemen, thank you for standing by and welcome to Community Health System's fourth quarter and year-end 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 0. 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.

Thank you, Mike. Good morning and welcome to Community Health Systems' fourth quarter and 2020 year-end conference call. Joining me on today's call are Tim Henschen, Chief Executive Officer, Dr. Lynn Simon, President of Clinical Operations and Chief Medical Officer, and Kevin Hammonds, Executive Vice President and Chief Financial Officer. Before we get started, I'd like to remind everyone that 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 followed 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, and 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, income and expenses from government and other legal settlements and related costs, expense from the settlement of professional liability claims for which the third party insures obligation to insure the company for the underlying loss is being litigated, expenses from settlement and 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. With that said, I'd like to turn the call over to Tim Henschen, Chief Executive Officer.

Thank you, Ross, and good morning, everyone, and welcome to our fourth quarter and year-end 2020 conference call. 2020 was a year like no other. COVID-19 has had a profound impact on our lives. and the pandemic has certainly impacted the healthcare industry. I'm incredibly proud of the essential care provided for the communities we serve, the professionalism and compassion of our frontline healthcare workers, and for the leadership, resourcefulness, and considerable efforts of our hospital and corporate teams that support them. We were later focused on managing COVID throughout 2020, but we were also able to move other important strategic priorities forward. Because of this, we entered 2021 with meaningful opportunities in front of us and a sense of excitement regarding the future. Let me start with just a few comments about our experience during the pandemic. We provided care for more than 25,000 COVID-19 inpatient admissions last year. The majority of those patients were in our hospitals during the back half of the year with more than 14,000 COVID inpatient admissions in the fourth quarter alone. COVID volumes increased each month throughout the quarter, eventually peaking into January. In turn, this negatively impacted elective volumes and non-COVID healthcare demand, as well as certain expense categories. During the course of the pandemic, in addition to support from the CARES Act for the hospital industry, we believe our ability to recover from the negative impact of COVID-19 has been due to three factors. First, we implemented a dual track operating philosophy in which we prioritize care for COVID-19 patients, but we also committed to rapidly restoring and maintaining other essential health services. Our hospital teams were very proactive regarding the reopening of services, balancing the demands of both COVID and non-COVID patients' care in a safe and effective manner. Second, we continuously monitored and adjusted operational activities throughout the year in real time to ensure effective cost management. And third, we worked hard to provide the necessary support and resources for our medical staff and employees who, again, have been very courageous and committed during the challenges of the pandemic. Physician alignment was particularly important this year, and we are grateful for strong partnerships between our hospitals and their medical staff and their work together to care for patients especially following various shelter-in-place orders and required shutdowns of certain medical services. While managing the pandemic, we also continued to execute across our most important priorities and strategies throughout the year. We completed our formally announced investiture plan with proceeds coming in above our expectations. Investments in our core portfolio showed promising returns, and we identified more opportunities for network expansion. Many of our company-wide initiatives continue to add value. For example, our accountable care organizations, or ACOs, continue to perform very well. In partnership with nearly 5,000 providers across our market, we care for approximately 250,000 Medicare fee-for-service patients with a focus on quality and value. We have continued to increase our shared savings from the program each year since its inception. Our telehealth program continues to provide convenient virtual access to our providers with more than 500,000 telehealth visits in 2020. And our transfer center expanded again, delivering more admissions from non-CHS hospitals as patients requiring higher levels of care are transferred into our facilities. Our strategic market improvement program produced strong results and significant savings, and we are confident it will generate incremental results going forward as well. And in 2020, we significantly improved our capital structure due to a number of successful transactions. In summary, as a result of our focused execution across both operational and strategic priorities, the company had a strong finish to the year. Our 2020 fourth quarter same store net revenue increased 4.5%. Adjusted EBITDA was $614 million in the quarter, up from $447 million last year. Including pandemic relief funds, adjusted EBITDA was $461 million, up 3% over the prior year quarter. While showing sequential improvement in admissions and adjusted admissions, COVID continued to impact our volumes during the fourth quarter, particularly on the surgery line, as more patients deferred care as COVID cases in their community surged. Looking forward, we have strategic opportunities that should produce growth on both the inpatient and outpatient sides of the business. Our portfolio of hospitals is now primarily concentrated in Sunbelt State with attractive demographics, higher population growth, and economic opportunity. Our stronger portfolio, coupled with high return investments, positions the company for growth going forward. Across our core portfolio, we are continuing to utilize the detailed planning process in each market that leverages multiple data sources, along with market intelligence, to pinpoint and then prioritize the most effective investment strategies within each particular market. This enables effective allocation of capital and other resources to drive growth. Through this process, we've added 250 incremental beds to our system over the past few years and 50 new surgical and procedural suites. These capital investments have helped meet demand and bolster positive volume trends in markets like Birmingham, Tucson, Naples, Knoxville, Northwest Arkansas, Huntsville, Fort Wayne, and others. In 2020, we opened a new micro-hospital in Tucson and a replacement hospital in La Porte, Indiana. We will open another replacement hospital in Fort Wayne later this year and add another de novo hospital in Tucson in early 2022. We continue our emphasis on the development of service lines, thereby further increasing our acuity levels on the inpatient side. And our investments on the outpatient side are designed to expand entry points into our networks, providing more convenient out-of-hospital care environments, and to satisfy evolving consumer expectations about the availability and accessibility of healthcare services. In 2020, we opened three new ambulatory surgery centers and three new freestanding emergency departments. More ASCs, freestanding EVs, urgent care centers, along with further expansion of our physician practice locations are in the pipeline and under active development. With our stronger portfolio, we are on a path to successfully develop and grow both acute care services and our ambulatory networks moving forward. Healthcare consumerism continues to be in sharp focus and a development area for the company. We continue to implement digital tools that help us interact with our patients, and these interactions help close gaps in care, elevate kept appointment rates, and improve patient communication and experience, as well as quality. And telehealth, which I mentioned before, continues to be an opportunity for further development. We have also been focused on leveraging processes and technologies that connect patients from one care setting to the next, which helps them navigate across network services and further builds brand loyalty. Going forward, our hospital leadership teams are enthusiastic about the opportunities in their markets. And our corporate teams continue to support strategic, clinical, and operational initiatives designed to enhance patient care and increase market share so that we continue to provide enhanced value for our patients in the communities we serve. We are focused on driving incrementally higher net revenue, EBITDA, and EBITDA margin, improving positive free cash flow, and lowering our leverage. In the medium term, we are targeting 15% plus EBITDA margins and reducing our leverage below six times. As we advance all of these strategies in 2021, we are doing so as a stronger and even more resolute organization. Our portfolio is strong and our entire organization is excited about the future. I could not be more proud of where CHS is today, responding to the needs of patients throughout this pandemic, while also achieving marked progress on our greatest strategic and operational priorities throughout the year. As a result, I remain confident that we are continuing to position and strengthen the company to build long-term value for all of our stakeholders. With that, I'd like to turn the call over to Kevin.