Earnings call transcript Q1 2023

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Operator

Good morning, everyone, and welcome to the Community Health Systems First Quarter 2023 Earnings Conference Call. [Operator Instructions]. Please also note that today's call is being recorded. At this time, I'd like to hand the floor over to Shelly Schussele, Senior Director of Investor Relations. Ma'am, please go ahead.

Shelly Schussele

Jamie. you, Thank welcome Conference and Health First Systems' Good to XXXX Call. Quarter morning, Community

on Tim and Joining Officer; call and today's me are Officer. President President Clinical Chief Chief Simon, Medical Kevin Hingtgen, and Financial Lynn Officer; Dr. of Operations Hammons, Executive Chief

I unknown to which current relate not XX-K to and annual we are may or are historical -- and or call These remind solely this forward-looking reports headings subject known do as Risk our the in Exchange with of begin, Before in such report certain number statements a Securities risks furnished forward-looking that to filed everyone conference facts. and statements described contain statements, would Commission. Factors like including all to Form on other

from actual in do not As results expressed statements today's of significantly any statements. update differ may these discussion. those in consequence, forward-looking intend We forward-looking any a to

a and financial issued our press with adjusted we EPS. adjusted of afternoon, and calculations Yesterday release definitions and statements EBITDA

We our as will restructuring losses expense website. slide termination and call related extinguishment All presentation other charges. as from of sale expense or the costs, have expense businesses, well and of governments other on debt, exclude legal early gains and we on today's impairment discuss supplemental on calculations posted from related benefits also or gain loss a matters employee to

Executive I said, Officer. chief that will With Hingtgen, over turn call Tim the to

Tim Hingtgen

and welcome morning, our Good call. Shelly. you, quarter Thank to first conference

our are metrics services with initiatives returning demonstrate demand care core solid progress Our is capture investments first to that quarter we that for results and volume. and other indicators growth promising include and health making

earnings and ability mix as such controllable affected specialist dynamics manage despite our to challenging more quarter the fees payer expenses. increased other changes in medical favorably other Some our

and and expenses quarters, the we advanced updates safety accelerate designed include priorities, near-term which few on quality. specific and past strengthen workforce, sharing been control our resources have tactics to the Over growth,

I accelerate want are today, priorities remarks to the my results on starting these growth. and to During determination touch achieving, our we with

strong X.X% return to health metrics the increased they Key volume admissions year-over-year. quarter a admissions substantially center continued case mix GI, the gains sequentially We the that and index fourth acuity as in positive subsided. gains strength, urology broad-based from these XX.X% growth gynecology. first volume in sequentially, trends experienced surgery Same-store improved increased during and in our X.X%, of Growth basis, continuing showed particular care service year-over-year orthopedics, now has improvements COVID-XX surgical improved impact and and with cardiovascular, and quarter. setting consumers specialties, transfer by in along non-COVID medical resulted Same-store increasing with on positive increasingly adjusted year-over-year.

further of Health the further growth XXXX year. continue to fuel and Foley, outpatient designed examples to in as as across the freestanding other opening are a positively Tennessee. opening recruitment remains our Lutheran the Recent Major of system develop and of of ambulatory expansion XXX-bed strongest strong favorable recruitment is portfolio. very impacting our expansions of improvements we full key a Network such as new markets continue number center markets. Indiana, the post in to well Knoxville, are service underway heels to market. To investments Alabama Alabama; end, ER part health growth Provider in bed facility A Warsaw, that our on in inpatient Birmingham, that expansion of and other a services. designed investments growth surgery markets lines which Capital and gains our both are in include Florida Naples, a our and

the perform centralized are constant this full area. extremely continues of in After strong its operation, well a is our our to with Strengthening gains and year of in with the end first higher recruitment progress workforce pleased compared last just our we to priority continued centralized to success mid-single-digit the Due function nurse in include all year. positions, recruitment hiring of quarter resources, the of the of clinical sourcing nurses quarter first the and nursing. of not fourth scope process to expanding in we are

of Our partnership College initiative, through graduate when Jersey retention this again of opens we rates focused strengthen Nursing year. program will X,XXX programs with expand remain expect East to And later month. every in Tennessee a to nurses Eventually, our our Tennova on new well. School as this eighth market designed variety we

a caregivers, I for support safety health and first safety gains the improvement among ended to day significant gratitude their the on approximately past XX% an our responsiveness the customer. U.S. ensure with quality with top decade Last work improvement top services, the health XXXX. reduction XX professionals, our the quality was voice that they an to every safety to since safe a event for to care noting result level nursing my in systems care for reduce of of and one the care medical positive We XXXX. along of events our established And for moment serious #X ratings distinction rates commitment most serious in ranked That of teams patients. quarter express our leaders. and now take recently health baseline and remains of testament to XX.X% to impressive quarter, over want online a a our do is online rate the system important. and high Advancing and in what CHS points the we turnover of the XXX is of basis reputation, reviews highlighted providers

We online earlier innovative in interventions achieve patient acquisition investments know second remote a in patient with high positive current delivery to This loyalty. enables include strong year reputation improve and of that when sitters use this for a virtual row outcomes, monitoring risk experience. health and programs for we the patients rollout monitoring in individuals and quality is we customer fetal see chronic new continuously maternal cultivate Through labor needed conditions. clinical at-home ranking. results improve to our technologies technology and for targeted those falls, to continue helps These and top insights to in at

also that are care technologies in returns potential with patient the company years that and in to We for innovation have offer our ahead. clinical to the generate further advance potential partners discussions other

summary, health upon the long-term and persistent of margins, the In improve continues organization to operations prioritize despite pressures initiatives on growth, the near-term deliver position to position advance our competitive our systems. and successfully team for key

make result, throughout year As expect a we longer-term. for the progress the incremental and both to

Kevin, I'll now you. to over the turn call

Kevin Hammons

good and everyone. Tim, you, morning, Thank

some the with expenses top comp results about adjusted first while line were Year-over-year, and by remain our we mentioned, volume pleased nonlabor and the pressured thereafter. by sequentially and EBITDA. Tim optimistic the our increases As very was XXXX quarter achieved mix, impacted we in payer in COVID

are improvements for However, in have services health to return and care of improvements in move core Further, our a impact as moderate sequential the on through key seen volume the inflation. in we as focused management XXXX. we demand expense And we see metrics. we encouraging workforce what remain

revenue of revenue result growth. result prevalence of and of basis, decrease Now of the compared noted, On a and higher let quarter adjusted COVID growth first sequential mix net to net a caused per payer by in Net results. revenue as of On consolidated Medicare adjusted was was admission, adjusted compared governmental and outsized a first an XXXX X.X% growth shift care per by only me This volumes. X.X% in the at quarter as for million basis, adjusted a in also the was decreased sequential of XXXX. during admission increase which, discuss in to admissions primarily the same-store XX in first basis. commercial came volume admissions the up accounted net X.X% was $X,XXX basis of admissions operating a quarter points on a net revenues a managed all

Adjusted of adjusted EBITDA with margin $XXX an EBITDA was million XX.X%.

relief quarter, the we recorded compared to of immaterial prior the amount first During an pandemic in recognized million year period. $XX the funds

forward, to and contract the expense expenses, $XX labor contract a With pandemic combined expect sequential government. by funds regard basis basis, and a million. on the labor increased On side, salaries, approximately material Going combined wages improved recognize $XX do we any from receive million. relief benefits to and approximately or expense labor on SWB year-over-year not

employee an rate experienced of for increase on in X.X% average year-over-year Specifically hourly a our related we basis. employees costs, to

Compared expense of and total salary progress in a increased prior demonstrating of cost to the benefit 'XX, our reducing labor amount year However, quarter and over to expense, inflation expenses of contract $XX gains. in XX%. the X.X% million quarter made ability on offset with lesser On we fourth first by our expense million to productivity increased $XX significant quarter. same-store labor hiring a from basis the increased over slightly by fourth contract the the

million $XXX was labor contract quarter our XXXX. the reminder, of a As in first

anticipate advances continued nurse With to labor the make expect of with we progress contract reducing we XXXX. throughout the additional hiring, remainder

have year. managing $XX year-over-year effectively million we these experienced while last over of expenses, increase been a nonlabor-related expenses first quarters, increased medical a which the X of items Sequentially, nonlabor $XX we fees in an several in fees during million prior XXXX, quarter and specialist specialist On $XX by the These expense, increase expenses increase contributed liability medical the year-over-year reductions. professional mitigated not were to million. over approximately other in X.X%

nonlabor-related management on program execute expenses to margin continue chain manage our including supply prudently cost forward. and initiatives, reduction improvement We our to going

quarter of of by provided flows. certain the the XXXX operations first including liability to quarter. for $XXX were compensation, cash incentive first $X to the led payable flows million payments, to compared The and certain lower Moving professional of during claims the flows accounts cash quarter for Cash timing of XXXX. million settlement

cash We future these expect quarters. we will recapture in flows

CapEx. to Turning

disruptive million of For timing million to XXXX, mostly trailing prior EBITDA, to from was due increase our $XX prior Company's the year year. are of related projects in the periods the lower several first in is was first that flight. and The still includes due net period. the to the which payments currently $XXX of growth care primarily quarter to CapEx in quarter of XXXX compared X.Xx debt-to-EBITDA XX-month

environment, our focused leverage under $XXX cash available on of of base this ABL. million balance of lowering first at longer-term the retained through capacity our of free flow. cash our have sheet quarter, the $XXX borrowing increasing on remain and our we the million We goals end approximately manage we we As and

to have such, we forward. As meet our adequate needs liquidity going

success, our outside portfolio we the our assess as interest opportunities to to related As evolve and growth from we parties to continue considering well for as potential evaluate portfolio. divestitures opportunities expand

and we leverage opportunities assets profile earnings potential emerge, have on analyze our financial of these growth of free EBITDA, generation. the and future and cash flow specific assess the future impact As would transactions

last X, April XXXX. sale on which quarter, million proceeds remaining the closed facility $XX in of our the cash of we During from West Virginia, received

to Carolina, signed which North also subject We regulatory agreement in an facilities X sell approval. remains to our

of agreement fruition, down the accelerate in could end reinvest the quarter, we provide following about portfolio areas Arkansas. in to pay remain as they to well definitive growth long-term opportunities We come In our Dorado, facility as debt allow of signed sell if in transactions, discussions to to other further addition, potential El a resources to earnings. our opportunities engaged which to their continuing

summary, remain about XXXX. In optimistic we

encouraged our demonstrate by on in indicators that on are is committed success for core seeing growth demand executing objectives progress our returning. that the the focused We sustainable we for are position for services long-term to opportunities are the and company and We care to markets. remain and health

point, the call back to you. Kelly, I'll at turn this

Shelly Schussele

ready Kevin. call Thank we're to the for open Jamie, questions. you,

Operator

[Operator Instructions].

from Hendrix Our question Ben first from RBC Capital comes Markets. today

Benjamin Hendrix

recovery could you reaffirmed what think should progression kind guidance? the saw and how dig we for expectations, believe divergence you the sequentially I any if commercial what accounts wonder to in the versus you about your of had of into of the we pace mix

Kevin Hammons

Sure. Yes, absolutely.

to to So payer Certainly, a economic the expected that the first has pressures, and on mix bit. some we expect some of we as anticipated largely the we due shift, incomes. pressure -- little inflation that household quarter step of backwards some

patients household patients, high often Those deductibles have commercial whereas lower think you by X patients about and would deductibles are deductible. co-pay be patients and co-pays and government If and the that income. with on co-pays MA have the pressure most impacted

to What did some was the -- we we be MA towards saw was sequentially in quarter. that MA plans from pressure weighted of So and there. increase the first it in we much patients, all the expect that did expect volume substantially not

Operator

Tanquilut Brian from comes question Jefferies. next from Our

Brian Tanquilut

can you okay? me Guys, hear

Kevin Hammons

Yes, we now. can

Brian Tanquilut

for bit see go guess Yes, we picked around surrounds labor something All right, I item. a bill And question in that. What QX, -- little staff the that labor, rate mean higher-than-expected that had the that I about down about a in contemplate bring specific just right? in rates just contract down, that or further. taking QX. it about line obviously, should sorry would thinking is just know even my maybe we step inflation a up here, be temp QX as think I over we on as labor of trends, I year? you course a

Kevin Hammons

Sure.

both So Brian. I'll Thanks those, try to for of capture question. the

a little a to of couple things I'd unexpected. not last different year bit out As than it contract labor, relates maybe point

quarter the many as become began nurses. So our facilities of -- more of left We we're year, previously April. we that doing, this are recruiting just the had first Last grads. nurses who hiring which we function, the anniversaried repatriating were particularly to recruiting hiring travel nurse nurse centralized in new in past our

or new that up a And and a period get so little nurses in nurses running time. being to hired today longer graduates the more bit was time little for as bit have back lead shorter to new opposed those

taking So had us success of terms the first contract great We that delay some may during slightly quarter labor. nurse out the of in in hiring.

to our and that nurse the progress recruiting expect throughout continue function year. do with centralized make to continue or to We expect to -- continue

are which mitigate of have to additional nurses, that longer international take also able as their also transitioning fully and get we'll integrated average nurses that, contract be some lead But them up labor hourly into contract bit to little time and positions. help do that expense some rate. out to we will also We labor more a

previously inflation indicated I relates out hourly on we inflation we assumption was As the when for basis. that guidance had it mentioned, our rate put employee We did to X% year. wage average costs, an X.X% experience,

I continue as throughout think that So that. But above which we don't rate we were XXXX. the about slightly we think throughout will increases gave XXXX,

last of think we'll think be. half of point additional to we back down hiring hiring some had, X.X% our is the inflation we was I'd actual for the same-store we'll that still year. gain I productivity inflation, despite future where so be is year, so actually wage only the from that just with average gains, And up the the make the bring the the that quarters I able prior think year X% X.X% SWB on in in that and of that overpaying wage the productivity we

Operator

next Our Rice from Crédit from comes Suisse. question A.J.

A.J. Rice

any of out you The at fees. physicians, -- hospital-based of the going guess, areas? stay year? level? are point, the managed recontracting other expense then wanted anything side more what's the specifically the inflationary And X I both is at specifically bump that course little are to because for ER you're trend I that? -- otherwise in just improving to there some it's just that? Is that you labor Or to or in professional prospect this assuming this Is over elevated can pressures, ask anesthesia Where management, doing a on care this ways. you that cover you the And called seeing and you're experiencing? improve

Kevin Hammons

Tim, So jump free if in something. feel let me to start I off miss and

providers seeing we to some related kind specialist surprise well have that the as these that that now and the And to the revenue terminated industry. by some maybe been I they're of providers. their recoup seeing think from the and some medical physicians is billing of inflationary no the increases as fees kind may across of costs us looking the impact of are we're So billable from from

local profile providers. Our primarily providers kind of regional of was and

amongst do doctors skill have contracts those some change we some contracts some these of maybe So in-source even of an out and doctors. those renegotiate to to to opportunity mix

have we stay in current saw expect that plans go it to do It the up quarter. of run we kind to I at going did start that of that the can mid-'XX. do we rate first cost So not some mitigate forward,

saw increases So we third in quarter. the and fourth

opportunities of basis. a to that but headwind do anniversary not the a rate So on cost quarterly half year-over-year in to able start the see be run to continue minimum, of we at down year, half will to year, that we'll bring back a the some in be back so the of

Tim Hingtgen

few Yes. that. and I'll And to is ahead go a Tim. I'll add comments just add. This

the we alternative if hours increases. new specialist adapting is first say, would our had will, As for of I said, the We've and proportional overhead. numbers of we in also already I agreements a peak in also the think, rates as stabilizing of spend, should place Kevin skill surgeries at would better all increasing head in the vendors all mix the some be procedures should quarters. some you for of of medical the subsidies say incremental with on There favorable of pricing. their fee which the hospital-based think the their put take away would those overweight an quarter fixed continuing side. into things, change, and that terms the billable increase our I anesthesia future growth provider start service, staffing was,

more all think make things we next So combination those manageable in we the quarters. lead few into as it

Operator

from Bank question comes next America. Kevin from Fischbeck of Our

Kevin Fischbeck

rate to if remind Can is dynamic. Why to this a going an on is how forward? just shift I clear how disaggregate maybe -- because impacts? to exactly was this that then mix is continue going not it versus little would what us Can of mix is me your and between this something it's into MA, some if to you dig it COVID And particular, to want be much not how differential mentioned MA explained this the just contributed MA headwind? more Great. the fair fee-for-service? Okay. in just things exactly rates long-term pressure you the shift you pricing. is that -- bit a And

Kevin Hammons

Yes.

growth of volume that, think Medicaid. versus related X/X if year-over-year And I probably governmental MA growth governmental to Medicare payers. and about of in about of year-over-year, primarily the So was kind X/X our of

kind year-over-year that's breakout of a the volume basis. kind So on of

got Of commercial. the other which best course, lift acuity our factors lift, rate and in our we rate

compared So quite of lift about were as all MA MA. increases flow proportional year-over-year, government, XX% it about with revenue, the kind payment the doesn't fee-for-service. X/X volume we're increases. And X/X volume your kind about and Sequentially, Medicare rate we get in between you seeing again to think because then patients But rate, commercial. of commercial XX% for of of question of those kind to

Tim Hingtgen

commercial was out, Yes, points first Kevin Kevin, quarter growth mix ahead is that. The the as proportionally typically the add the is Tim. in and commercial this quarter. to in governmental our I'll to the go quarter mix on lowest lighter

of kind into as I procedural So their volume hit the kind deductibles -- with commercial quarter. in of our a expected little coming kind people of lag the quarter surgery that the fourth quarter into a bit stronger putting first and of co-pays

throughout we see improvements normally and do in March quarter, look as hit we As April. the did as mix into we we some the

an we're access programs, lines, point strategies which to from OB service I very a of models. that attract, volumes, some commercial some some balanced to our trauma service better doing line guess, So on mix targeting in working MA and to again, NICU a balance that more, including through and age specific mix. normalize. cardiac I'll determined be We're of perspective. a development, in our we or have think, I contracting But strategies, in the direct-to-employer And and to approaches we also expect absolute say, better in to investments growth disciplined direct-to-employer deeper terms more tend of

in that as of kind rolling So ahead the looking well. quarters forward out to

Kevin Hammons

Tim. And for maybe add that, just point, more and to one thanks

inflation in of that's year. from on before in likewise, lowest had their that be kind reset, do Our by of more year be recovery going We quarter Part the we throughout to commercial back of year, magnified try the and grow in the backwards would in was deductibles We because their the is following that's anticipated. sequentially get that in quarter the But the think to half expectation, year again think magnified. step and year. of EBITDA We back pressure of will that that, that, also as procedures the as the would the business economy. we think an standpoint. the of half we was first co-pays people of mentioned,

Operator

question from comes from next Our Research. Josh Raskin Nephron

Joshua Raskin

low ex guidance, be there. talk Just the was the want the year-over-year XQ about XX% reiteration about of grant the the guidance, $X.XXX up Even end income. down billion would to X.X%.

plus. trying that It of issue. seem of figure like I'm doesn't the drivers rest to revenue just So XX% year, up increase. a out

even So seems these though it an on as not costs have dissipate of. to percentage on some of absolute a basis,

you first help maybe So us just there. with of buckets the some could

Kevin Hammons

certainly Yes. of big labor. is On that we're piece a -- a year-over-year basis, contract

we're we're be the demand health there that expect going year-over-year have reduction then the we runway that care working been then a and there's more still contract can moderation of cost volume below flow in couple SWB in margin then the other moderate program other revenue. taking in And an inflation we improvement to continued is expenses to of absolute leverage then -- think operating we should that So EBITDA. there's return to do seeing through. and expect be labor efforts that our And some that to services to moderation in and years, we able drive for a on for

couple in things of some worked think growth, de This of We'll years, operations. fuller that year benefit the last of a Josh. -- novo getting past benefit projects about hospital number on that over driving investment those. the of are of the that also we'll that a as we've we a have of year, year we have are up there full of opened June a And

Joshua Raskin

to Or end us point? of still you guidance comfortable prudent? feel at the lower this midpoint? with the that orient Is you Would

Kevin Hammons

and results than mix quarter. actual is No. feel the our we what had between the point, for At bigger first and results anticipated still our this The the comfortable between at consensus actual midpoint. we

where we're as think we as off to far where about we're expected be, not at So we to compared consensus would as suggest.

still the feel And comfortable so therefore, with. back we getting midpoint, to

Joshua Raskin

opportunities? interest, Are priority you the of would getting you still asset a in And that then today? that you the sale could I last in. inbound it than additional Is I you're thinking but past? about your sales preamble in one, asset prioritizing are heard more more sneak if have

Kevin Hammons

recently. I'd than program. then for And sure did in past we went through the completed in do smaller North we interest but a one And several we I'm have have transactions say sizable. other period currently few not announced of during have very Carolina, talks a given is we years in We formalized more a which some do pause the we're that more have that about. just COVID, we

So if take those -- accretive and as cash we that do or our interest do comes in prices a to our are profile, at leverage accretive come that hard and us at look margin reduce to if allow fruition to future those generation, and/or those. are our

Operator

next Our Cassorla Jason Citi. comes from question from

Jason Cassorla

The importantly, the growth over And of out sustainability be about in in between that number talk impact inpatient mix the had drivers over you and would if there and those XX%. then and -- Great. just Can definitely quarter? growth any quarter helpful. surgery help up the surgery just bifurcate on trend? surgery the stood And durability outpatient trends

Kevin Hammons

Yes.

question let start. then I if answered. your see me So get And

of I outpatient. inpatient to We're some approximately and double-digit of outpatient, movement of of growth we that versus In inpatient surgeries. X% terms still saw seeing in growth outpatient kind think inpatient

But little increase certainly outpatient. that's and we slowing our surgery think I outpaced growth outpatient inpatient on did bit. both acuity inpatient. down see a But

Tim Hingtgen

And I'll just that, add to Jason.

that's I our approximate also a But the from we us gained seen quarter. of recruitment, the quarters some believe Medicare-aged but through a last We've say first any we key good capacity many return from, orthopedic service. growth some say, we helps the non-CHS in for investments physical senior in of of add specialists. our patient in In not about key certain It particular from of our I'll insights talked mean some yes guess, center markets, root markets to the demand And are the market, recruitment our services, we've networks. of patients we've in again, transfer several of coming we to accepting the specialists terms to tertiary I those, acuity can't into made just part that's particular. the hospital. in in volumes where taking through higher believe in age,

We almost to quarter of had beating but a very stat the surgical pre-COVID prior compared baseline every robust year, also XXXX. orthopedic to surgery

in So general, good where XXXX deliberate care of improvements surgeries, investments. to outshining think the drive certainly sequential those area comp out the are systems because I we in but just we've of built not it's

Operator

Instructions]. [Operator

Our question next Baxter from Stephen Wells from comes Fargo.

Stephen Baxter

I was think remind flow plays hoping the us could you throughout cash out you year. how

working first just You're in but a much guiding of mind what flow cash didn't else in way pretty see increase to of should cash get flow keep the in that the in from big guess year. ops, the quarter. the EBITDA throughout I dynamics terms beyond capital we improving to in performance to number?

Kevin Hammons

Sure.

of quarter claim and payments, EBITDA. the But just have, timing liability -- professional we settlements capital statement we were from year-over-year. actually of year. respect all because first So they accounts It payable previously and from yes, compensation is some anticipating some we certainly, a out. the necessarily improvement should portion paid through later that a increasing did in that of liabilities And run some standpoint working a those in recapture we income didn't should That the kind are in quarters accrued.

So that the operations should lead all flow improved end of by to the from cash year.

Operator

like I gentlemen, would over with concluding turn that, and floor session. closing remarks. Tim for the today's ladies to any we'll question-and-answer to be back And

Tim Hingtgen

work our begin organization, I and single will weekend, Jamie. this Week Week nurses them X that we across Thanks, noting XX,XXX of Hospital coming nurses and want finish to every Nurses by everywhere. appreciate Great. and all

their Thank day call. they well you what do and hospitals CHS positive entire communities impact healthier. the today's our every for and for have recognized joining also people We in thank team get that until live

can If reach at you any always XXX-XXX-XXXX. additional questions, have us you

Operator

thank presentation. call Ladies and we'll and joining. We be conference today's you gentlemen, with concluding for that,

your disconnect may lines. You now

Community Health Systems (CYH) 2 May 232023 Q1 Earnings call transcript