Community Health Systems, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; unaudited. The company’s affiliates operated 71 hospitals and more than 1,000 other care sites in 15 states. Financial amounts below are in millions unless stated otherwise.
Financial results and liquidity
| Metric | Q1 2024 | Q1 2023 / comparison |
|---|---|---|
| Net operating revenue | $3,140 | $3,108; up 1.0% consolidated and 5.7% same-store |
| Income from operations | $231; 7.4% of revenue | $210; 6.8% of revenue |
| Net loss | $(6) | $(20) |
| Net loss attributable to CHS stockholders | $(41); $(0.32) per diluted share | $(51); $(0.40) per diluted share |
| Interest expense, net | $211 | $207 |
| Cash from operating activities | $96 | $5 |
| Cash used in investing activities | $(99) | $(19) |
| Cash from financing activities | $13 | $40 |
Operating costs, excluding depreciation and amortization and impairment or sale gains/losses, were 88.4% of revenue, down from 89.7%. Salaries and benefits were $1,368, supplies $487, other operating expenses $845, and lease cost and rent $77. The filing does not provide an EBITDA figure.
At March 31, cash was $48 (up from $38 at year-end), current assets were $3,175 and current liabilities were $2,136; reported working capital was approximately $1.0 billion. Total debt was approximately $11.6 billion, including $302 outstanding under the ABL facility. A further $618 of ABL borrowing capacity was available after letters of credit. Approximately $34 of debt was due within 12 months. Stockholders’ deficit was $1,207.
Changes and operating trends
- Same-store revenue rose $170, or 5.7%, primarily from higher reimbursement rates and supplemental reimbursement programs. Non-same-store revenue fell $138, principally reflecting 2023 hospital divestitures.
- Consolidated inpatient admissions declined 2.3% and adjusted admissions declined 4.0%; same-store admissions increased 3.8% and same-store adjusted admissions increased 1.9%.
- Consolidated operating results included a $17 impairment charge in Q1 2024, versus a $22 net gain in Q1 2023. Q1 2024 also included a $10 after-tax charge for technology modernization and consolidation. Q1 2023 included an $8 after-tax legal-matter charge and a $14 after-tax benefit from a hospital sale and impairment activity.
- Operating cash flow improved by $91, attributed mainly to higher patient-receivable collections and lower payments for professional liability claims and interest. Cash interest paid was $149, versus $197 a year earlier.
Outlook, risks and contingencies
- No earnings or revenue guidance was provided. Management expects 2024 capital expenditures of approximately $350–$400, compared with $93 in Q1, and states that cash, operating cash flow, ABL availability, expected capital-market access and potential disposition proceeds should fund needs through the next 12 months and the foreseeable future. This assessment is subject to risks.
- The FTC is seeking to block the proposed sale of Lake Norman Regional and Davis Regional hospitals to Novant; the administrative hearing was scheduled to begin May 1, 2024. Completion and timing are uncertain. On April 18, 2024, the company agreed to sell Tennova Healthcare–Cleveland; that transaction is also subject to completion risk.
- Healthcare reimbursement, Medicaid coverage and supplemental-payment programs are key exposures. The company says the Medicare outpatient payment adjustment related to the 340B remedy adversely affected Q1 results and expects future outpatient payment reductions beginning in 2026.
- Other stated risks include substantial debt and refinancing/covenant compliance, elevated interest rates and inflation, labor availability and costs, patient collections, regulatory and legal matters, and potential asset impairments. The company reported approximately $4.0 billion of goodwill and cautioned that adverse operating or market changes could cause future impairment.
- Management reported $6 of accrued probable contingencies and said pending matters are not expected to materially affect consolidated financial position or liquidity, while an adverse outcome could materially affect results or cash flows in a particular period. A new DOJ information demand concerns utilization review, inpatient admissions and inpatient dialysis; the company says it is cooperating. It also disclosed a tentative settlement in an appealed qui tam matter.
- Revenue and receivable estimates are sensitive: a 1% change in estimated contractual reimbursement percentages would have changed Q1 net loss by approximately $102 and receivables by $131; a 1% change in estimated collections would have changed net loss by $37 and receivables by $48.
Most important facts for investors to verify
- Whether same-store revenue and volume trends persist, and whether reported revenue growth translates into sustained cash flow and lower losses.
- ABL availability, debt maturities, interest burden, covenant headroom and access to refinancing or capital markets.
- The status and expected proceeds/timing of the Novant and Tennova transactions, including FTC litigation outcomes and intended use of proceeds.
- Actual capital spending against the $350–$400 annual expectation and the company’s ability to maintain liquidity while funding operations and investment.
- Changes in patient collections, payor mix and supplemental reimbursement, including sensitivity of estimates and the impact of Medicaid disenrollment and Medicare payment changes.
- Developments in the DOJ inquiry, other litigation and professional-liability reserves, plus indicators of goodwill or long-lived-asset impairment.