Community Health Systems, Inc.

Good day and thank you for standing by. Welcome to the Community Health Systems Second Quarter 2021 Earnings Call. Please be advised that today's conference is being recorded. I would now like to have the conference over to your speaker for today, Mr. Ross Como, Vice President of Investor Relations.

Thank you, Jay. Good morning and welcome to Community Health Systems Second Quarter 2021 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, President and Chief Financial Officer. Before I turn the call over to Tim, 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 filed with or furnished to the Securities and Exchange Commission. As a consequence, actual results may differ significantly from these 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 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 and legal expenses related to cases covered by the CVR, expenses related to employee termination benefits and other restructuring charges, and change in tax valuation allowance. With that said, I'd like to turn the call over to Tim Henschen, Chief Executive Officer.

Thank you, Ross. Good morning, everyone, and welcome to our second quarter 2021 conference call. We are pleased with our second quarter results, especially as we continue to see volume recovering, net revenue growth, and margin improvement. During the first half of 2021, we further advanced growth-oriented strategic initiatives that continue to strengthen the company. Before we walk through the details, we would like to thank all of our providers, nurses and caregivers, and our employee and leadership teams who continue to provide safe, high-quality care in the communities we are so fortunate to serve. And this has been great to see firsthand. With more people vaccinated and because COVID case counts had declined in the second quarter, many of our executive leaders were able to spend time visiting our markets over the past several weeks. We have had the opportunity to tour capital projects that have come online, witness operational improvements, and of course, to hear heartwarming stories of patient care and positive outcomes. There is a tremendous sense of pride across our organization, especially as we reflect on the essential services and value provided to our communities while we've worked together to fight the COVID pandemic. We are currently seeing an uptick of COVID cases in some markets, but we remain confident in our dual-track operating model and the ability of our teams to safely and effectively manage COVID surges, while also meeting the increasing demand for our services and to meet the healthcare needs of non-COVID patients. Now, switching back to the second quarter, positive COVID-19 case counts were lower than the first quarter, following the peak numbers we experienced in January. In the first quarter, we provided care for approximately 9,500 inpatient COVID admissions. In the second quarter, our inpatient COVID admissions were approximately 3,000, which represented about 3% of our total admissions. And as COVID cases declined during the second quarter, we experienced a solid rebound in non-COVID volumes, driven by our efforts to attract new patients and to reengage and retain patients who have previously used our healthcare systems. For the second quarter, on a same-store basis, net revenue increased 30.2% year-over-year, driven by the easier comp, which was the result of the government restrictions on elective procedures that impacted net revenue last year. For the full quarter, year over year, same-store admissions increased 17%, while adjusted admissions were up 28.5%. Surgeries increased 43.7%, and ER visits were up 39.2%. In terms of our patient volumes, all volume growth rates meaningfully improved sequentially compared to pre-pandemic levels. And looking at our second quarter results compared to the same period in 2019, We are pleased with the improvements we've delivered over that benchmark period. Compared to 2019, same-store surgeries were slightly higher, increasing approximately 1%. Admissions and adjusted admissions were down approximately 4% and 2%, respectively. ER visits have strengthened throughout the quarter, but continue to lag other volume metrics compared to pre-pandemic run rates, now down 6%. On a consolidated basis, second quarter adjusted EBITDA came in at $453 million with adjusted EBITDA margin of 15.1%. Compared to the second quarter of 2019, consolidated adjusted EBITDA increased to $453 million from $402 million, an increase of 12.7%, even though the company operated 23 fewer hospitals this quarter. And it's worth noting that we expanded our EBITDA margins by 290 basis points during that timeframe. The transformation we began a few years ago is continuing to drive the expected growth and development opportunities across the portfolio and with very good momentum. We have strengthened our organization in a wide variety of ways, positioning the company for incremental same-store growth going forward. To highlight some of these initiatives, we introduced the company's strategic imperatives and have made notable improvements across each area of focus, those being safety and quality, operational excellence, connected care, and competitive position. Net revenue initiatives such as the Transfer Center, investments into higher acuity and patient services, ongoing outpatient access point development, and our ACOs are generating growth. The Strategic Margin Improvement Program is adding value across the enterprise. And our current portfolio of hospitals positions us in stronger markets, primarily across the southeast, south, and southwest areas of the country, where there is population growth and economic expansion. Over the past few years, we have continued to deploy capital in our core markets to drive long-term inpatient and outpatient growth, with recent investments including bed and service line expansions in markets including Birmingham, Naples, Huntsville, and Knoxville, the opening of our 15th freestanding ED in Gulf Shores, Alabama, which is part of the fast-growing Baldwin County market, the recent opening of two new hospitals in Arizona and Indiana, and we have two more hospitals nearing completion, one in downtown Fort Wayne that is scheduled to open in the fourth quarter of this year, and another de novo hospital in Tucson, Arizona, that we plan to open in the first quarter of 2022. We are also excited about recently announced partnerships and joint ventures that will expand access to post-acute and behavioral health services. During the quarter, we opened Knoxville Rehabilitation Hospital in our Tenova East Market in partnership with Kindred. We also announced a De Novo JV project with Select Medical in Tucson, which includes acquiring a 47-bed long-term acute care hospital. And we will break ground next week on a behavioral health facility in Fort Wayne as part of a joint venture with Acadia Healthcare. And we continue to invest in joint venture ambulatory surgery center partnerships in key markets, with the DeNovo Center opening in our DeNovo East Tennessee market in just a few weeks. We will continue to invest in our considerable pipeline of inpatient and outpatient opportunities over the next several quarters, which will further strengthen our core markets for the long term. Since the start of the year, we have demonstrated progress in terms of net revenue growth, expense management, EBITDA growth, EBITDA margin expansion, as well as our capital structure. We are certainly pleased with this progress and the momentum it provides as we execute our strategies and capitalize on all of the opportunities that we see over the next several years. In the medium term, we continue to target 15% plus adjusted EBITDA margin positive annual free cash flow generation, and reducing our leverage below six times, which we believe will add value for all of the company's stakeholders. Kevin?