Community Health Systems, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Unaudited consolidated results; financial amounts below are in millions unless stated otherwise. The company operated 84 hospitals at quarter-end.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net operating revenues | $3,007 | $2,519 | $6,020 | $5,544 |
| Income from operations | $314 | $296 | $638 | $406 |
| Net income (loss) attributable to CHS stockholders | $6 | $70 | $(58) | $87 |
| Basic and diluted earnings (loss) per share | $0.04 | $0.61 | $(0.46) | $0.76 |
| Net interest expense | $219 | $260 | $449 | $523 |
- Revenue increased 19.4% in Q2 and 8.6% year to date. Same-store revenue increased 30.2% and 19.2%, respectively, largely reflecting recovery from pandemic-related volume declines in 2020. Divestitures reduced non-same-store revenue.
- Operating margin was 10.4% in Q2 versus 11.8% a year earlier, and 10.6% for the first half versus 7.3%. Despite higher operating income, Q2 parent-attributable income fell, in part reflecting much lower pandemic relief expense offsets and higher tax expense.
- Cash flow from operations was $280, compared with $1,710 in the first half of 2020. The prior-year period benefited from Medicare accelerated payments and pandemic relief funding; 2021 cash flow also included Medicare payment recoupments.
- Capital expenditures were $212. Investing cash outflow was $255 and financing cash outflow was $451. Cash declined to $1,250 from $1,676 at year-end 2020.
Balance sheet, debt and liquidity
- Total debt was $11,953 at June 30, 2021, versus $12,216 at December 31, 2020; $27 was current. Total liabilities were $16,646 and stockholders’ deficit was $1,616.
- Current assets were $4,053 and current liabilities $2,869; reported working capital was approximately $1.2 billion, down about $511 from year-end, mainly due to lower cash.
- The $1.0 billion ABL facility had $642 of excess availability, with no borrowings outstanding. The company was not subject to its fixed-charge coverage test at quarter-end.
- Refinancing transactions issued $4.31 billion of notes and repaid $4.396 billion of long-term debt during the first half. Net interest expense declined, but the company recorded a $79 loss on early debt extinguishment.
- Medicare accelerated payments received in 2020 totaled about $1.2 billion; approximately $947 remained outstanding at quarter-end, including $680 current and $267 long-term. CMS recoupments began in April 2021.
Changes, outlook and key risks
- Q2 consolidated inpatient admissions rose 4.8% and adjusted admissions rose 15.7%; same-store admissions and adjusted admissions rose 17.0% and 28.5%. For the first half, consolidated admissions declined 5.5% and adjusted admissions declined 2.0%, while same-store measures increased 5.1% and 8.7%.
- Pandemic relief funds reduced operating costs by $1 in Q2 2021 and $83 in the first half, versus $448 in Q2 and the first half of 2020. The company had recognized $63 of related benefit to parent-attributable income in the first half of 2021, versus $333 in the first half of 2020. Recognition and possible repayment remain subject to evolving HHS guidance and compliance requirements.
- Management said current cash, operating cash generation, ABL availability and expected capital-market access should fund operations and obligations over the next 12 months. This is not quantified earnings guidance. It expects the pandemic to continue affecting results and cannot fully estimate the future impact.
- Risks include renewed COVID-19 disruption, labor and supply cost inflation, weaker patient collections, changes in Medicare, Medicaid or commercial reimbursement, high leverage and covenant compliance, and legal or regulatory proceedings. Management warned that adverse outcomes in legal matters could materially affect results or cash flows in a particular period.
- Management reported no material change in previously disclosed risk factors. It noted $28 of unrecognized provider relief funds that could be recognized later or returned, and about $146 of deferred employer Social Security taxes, with half due December 2021 and half due December 2022.
- The planned sale of the company’s 38% interest in Macon Healthcare was expected to close in Q3 2021 and generate approximately $110 in cash proceeds; completion was not assured.
Important facts for investors to verify
- Whether hospital volumes and same-store revenue gains persisted after the recovery comparisons against pandemic-affected 2020 periods.
- Cash conversion and liquidity as Medicare accelerated-payment recoupments and deferred payroll-tax payments continue.
- HHS determinations on relief-fund eligibility, reporting and potential repayment or reversal of previously recognized amounts.
- Debt maturities, refinancing costs, interest burden and compliance with debt covenants.
- Patient receivable collectability, including management’s sensitivity estimates: a 1% change in estimated reimbursement or collection assumptions could materially affect receivables and earnings.
- Developments in disclosed government inquiries, litigation and the planned Macon Healthcare transaction.