Community Health Systems, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone fourth-quarter filing; the supplied filing includes annual results and does not provide a clear Q4-only financial summary.
Business context and reporting period
Community Health Systems (CYH) operates general acute-care hospitals and outpatient facilities. At year-end it owned or leased 83 hospitals with approximately 13,289 licensed beds, plus more than 1,000 outpatient facilities, across 16 states. The company completed five hospital divestitures in 2021. Its largest state revenue concentrations were Indiana (16.4%), Alabama (13.0%), Florida (12.2%) and Texas (11.0%).
Key financial metrics
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net operating revenue | $12.368 billion | $11.789 billion |
| Income from operations | $1.402 billion | $1.126 billion |
| Operating margin | 11.3% | 9.6% |
| Net income | $368 million | $607 million |
| Net income attributable to CYH stockholders | $230 million | $511 million |
| Diluted earnings per share | $1.76 | $4.39 |
| Adjusted EBITDA (non-GAAP) | $1.969 billion | $1.809 billion |
| Adjusted EBITDA margin (non-GAAP) | 15.9% | 15.3% |
| Net cash from (used in) operating activities | $(131) million | $2.178 billion |
| Capital expenditures | $469 million | $440 million |
| Cash and cash equivalents at year-end | $507 million | $1.676 billion |
| Net working capital | Approximately $1.1 billion | Approximately $1.7 billion |
| Total debt, including finance leases and financing obligations | $12.140 billion | $12.216 billion |
Net operating revenue was 48.3% inpatient and 51.7% outpatient. Payor mix was 21.4% Medicare, 13.5% Medicaid, 64.2% managed care and other third-party payors, and 0.9% self-pay. Interest expense, net, was $885 million, down from $1.031 billion. Approximately $31 million of debt was due within 12 months of year-end; nearly all outstanding debt carried fixed interest rates. The ABL facility had no borrowings and $897 million of excess availability after letters of credit.
Material changes versus the prior comparable period
- Revenue increased 4.9% year over year. Same-store revenue rose 12.5%, driven principally by increased volumes and higher acuity; divestitures reduced non-same-store revenue.
- Same-store admissions increased 2.2% and adjusted admissions rose 5.9%. On a consolidated basis, admissions fell 5.9% and adjusted admissions fell 2.3%, reflecting the smaller portfolio after divestitures.
- Operating margin improved to 11.3% from 9.6%; adjusted EBITDA rose 8.8% to $1.969 billion. Salaries and benefits declined to 42.4% of revenue from 45.9%.
- Despite higher operating income, stockholder-attributable net income declined to $230 million from $511 million. FY2021 included a $79 million pretax debt-extinguishment loss, while FY2020 included a $317 million pretax gain from debt extinguishment and approximately $240 million of discrete tax benefits.
- Operating cash flow swung to a $131 million use from $2.178 billion provided in FY2020, principally due to repayment or recoupment of Medicare accelerated payments and the prior-year receipt of pandemic support. Cash paid for interest fell to $778 million from $1.039 billion.
- Cash declined by $1.169 billion during FY2021. The company received $110 million from selling its Macon Healthcare equity interest and recorded a $39 million pretax gain; it also received approximately $28 million in net proceeds from 2021 hospital divestitures.
Outlook, risks, contingencies and unusual items
- Management expects 2022 capital expenditures of approximately $500 million to $600 million. It stated that operating cash flows, ABL availability and expected capital-markets access should fund operations, capital needs and debt obligations through the next 12 months and the foreseeable future; this is management’s assessment, not earnings guidance.
- COVID-19 continued to affect patient volumes, costs, collections and staffing. Labor shortages, higher contract-labor costs, inflation and supply disruptions are significant operating risks. The company reported deterioration in uninsured-patient receivables collectability compared with pre-pandemic levels.
- The company had received approximately $763 million cumulatively in pandemic relief funds, net of repayments, and recognized $148 million as a reduction of operating expenses in FY2021, compared with $601 million in FY2020. Approximately $14 million remained unrecognized at year-end and could be returned or recognized later, depending on compliance with evolving federal requirements. All approximately $1.2 billion of Medicare accelerated payments had been repaid, recouped or assumed by divestiture buyers by year-end.
- Leverage remains substantial: approximately $12.1 billion of debt, negative stockholders’ equity and significant interest obligations. Risks include refinancing and maturity concentration, restrictive covenants, and limited capacity to raise additional secured debt. Management reported a hypothetical 1% interest-rate increase would reduce annual pretax earnings by approximately $125 million.
- Healthcare reimbursement, Medicaid supplemental-payment programs, value-based payment rules and the No Surprises Act may affect revenue and margins. The company is particularly exposed to policy and economic changes in its concentrated states.
- Legal and regulatory matters include a securities class action and related derivative cases, a Florida Medicaid Low Income Pool qui tam case, a pending hospital-sale contract dispute, and a 2021 lawsuit related to the Quorum Health spin-off. Management said it did not expect pending matters to materially affect consolidated financial position or liquidity, but acknowledged an adverse result could materially affect results or cash flows in a particular period. The company’s Corporate Integrity Agreement expired in September 2021, with final audit and reporting requirements still outstanding.
- Other notable items: a $22 million insurer recovery from settlement of professional-liability coverage litigation; a $533 million year-end professional-liability claims accrual; and no goodwill impairment recorded in 2021. Deloitte issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Whether improved same-store volumes and operating margins persist after accounting for divestitures, changing acuity and pandemic-related demand shifts.
- Whether cash generation can recover after the FY2021 operating cash outflow and fund planned capital spending while servicing approximately $12.1 billion of debt.
- Debt maturities, refinancing terms and covenant headroom, including the impact of the February 2022 refinancing disclosed as a subsequent event.
- Patient receivables quality, days revenue outstanding (55 days at year-end versus 52 days in 2020), and the assumptions behind self-pay collection reserves.
- Future labor costs and staffing availability, reimbursement changes, pandemic-relief compliance and potential exposure from legal, regulatory and insurance matters.