Community Health Systems, Inc. Announces Fourth Quarter and Year Ended December 31, 2023 Results

Community Health Systems, Inc. (NYSE: CYH) (the “Company”) today announced financial and operating results for the three months and year ended December 31, 2023.

Commenting on the results, Tim L. Hingtgen, chief executive officer of Community Health Systems, Inc., said, "Operational and financial results improved in 2023 as patient demand for our services increased, resulting in growth in same-store admissions, adjusted admissions, surgeries and ER visits. Our staff recruitment and retention initiatives generated solid gains in the number of bedside nurses and other patient care positions in our hospitals, which significantly reduced contract labor utilization. We also experienced growth that is directly attributable to our investments in facility expansions, physician recruitment and service line development. We expect this progress and momentum to continue in 2024.”

The following highlights the financial and operating results for the three months ended December 31, 2023.

• Net operating revenues totaled $3.181 billion.
• Net income attributable to Community Health Systems, Inc. stockholders was $46 million, or $0.35 per share (diluted), compared to $414 million, or $3.18 per share (diluted), for the same period in 2022. Excluding the adjusting items as presented in the table in footnote (e) on page 15, net loss attributable to Community Health Systems, Inc. stockholders was $(0.41) per share (diluted), compared to net income of $1.50 per share (diluted) for the same period in 2022.
• Adjusted EBITDA was $386 million.
• Net cash provided by operating activities was $90 million for the three months ended December 31, 2023, compared to $9 million for the same period in 2022.
• Approximately $402 million principal amount of notes outstanding were extinguished via repurchases during the three months ended December 31, 2023.
• Completed offering of $1.000 billion Senior Secured Notes due 2032 and used proceeds to purchase $985 million of Senior Secured Notes due 2026 via a tender offer.
• On a same-store basis, admissions increased 1.9 percent and adjusted admissions increased 3.6 percent, compared to the same period in 2022.

Three Months Ended December 31, 2023

Net operating revenues for the three months ended December 31, 2023, totaled $3.181 billion, a 1.2 percent increase compared to $3.142 billion for the same period in 2022. On a same-store basis, net operating revenues increased 4.1 percent for the three months ended December 31, 2023, compared to the same period in 2022. Net operating revenues for the three months ended December 31, 2023, reflect a 0.7 percent increase in admissions and a 1.9 percent increase in adjusted admissions, compared to the same period in 2022. On a same-store basis, admissions increased 1.9 percent and adjusted admissions increased 3.6 percent for the three months ended December 31, 2023, compared to the same period in 2022.

Net income attributable to Community Health Systems, Inc. stockholders was $46 million, or $0.35 per share (diluted), for the three months ended December 31, 2023, compared to $414 million, or $3.18 per share (diluted), for the same period in 2022. Excluding the adjusting items as presented in the table in footnote (e) on page 15, net loss attributable to Community Health Systems, Inc. stockholders was $(0.41) per share (diluted) for the three months ended December 31, 2023, compared to net income of $1.50 per share (diluted) for the same period in 2022. Pandemic relief funds did not materially impact net income attributable to Community Health Systems, Inc. stockholders during the three months ended December 31, 2023 and 2022.

Adjusted EBITDA for the three months ended December 31, 2023, was $386 million compared to $404 million for the same period in 2022. Pandemic relief funds did not materially impact Adjusted EBITDA during the three months ended December 31, 2023 and 2022.

The decrease in net income attributable to Community Health Systems, Inc. stockholders and the decrease in Adjusted EBITDA for the three months ended December 31, 2023, compared to the same period in 2022, are primarily due to higher costs for supplemental reimbursement programs, increased rates for outsourced medical specialists, and higher costs for professional liability insurance, partially offset by stronger inpatient volumes, increased reimbursement rates and reduced expense for contract labor.

Year Ended December 31, 2023

Net operating revenues for the year ended December 31, 2023, totaled $12.490 billion, a 2.3 percent increase compared to $12.211 billion for the same period in 2022. On a same-store basis, net operating revenues increased 4.8 percent for the year ended December 31, 2023, compared to the same period in 2022. Net operating revenues for the year ended December 31, 2023, reflect a 0.3 percent increase in admissions and a 1.7 percent increase in adjusted admissions, compared to the same period in 2022. On a same-store basis, admissions increased 3.5 percent and adjusted admissions increased 5.3 percent for the year ended December 31, 2023, compared to the same period in 2022.

Net loss attributable to Community Health Systems, Inc. stockholders was $(133) million, or $(1.02) per share (diluted), for the year ended December 31, 2023, compared to net income of $46 million, or $0.35 per share (diluted), for the same period in 2022. Excluding the adjusting items as presented in the table in footnote (e) on page 15, net loss attributable to Community Health Systems, Inc. stockholders was $(1.39) per share (diluted) for the year ended December 31, 2023, compared to $(1.38) per share (diluted) for the same period in 2022. During the year ended December 31, 2023, pandemic relief funds did not materially impact net loss attributable to Community Health Systems, Inc. stockholders. During the year ended December 31, 2022, pandemic relief funds had a positive impact on net loss attributable to Community Health Systems, Inc. stockholders (both on a consolidated and adjusted basis) of approximately $133 million, or $1.02 on a per share (diluted) basis.

Adjusted EBITDA for the year ended December 31, 2023, was $1.453 billion compared to $1.466 billion for the same period in 2022. During the year ended December 31, 2023, pandemic relief funds did not materially impact Adjusted EBITDA. During the year ended December 31, 2022, pandemic relief funds had a positive impact on Adjusted EBITDA of approximately $173 million.

The increase in net (loss) income attributable to Community Health Systems, Inc. stockholders and the decrease in Adjusted EBITDA for the year ended December 31, 2023, compared to the same period in 2022, are primarily due to unfavorable changes in payor mix, a reduction in pandemic relief funds recognized, increased salaries and benefits expense, higher costs for professional liability insurance, and increased rates for outsourced medical specialists, partially offset by stronger inpatient and outpatient volumes, increased reimbursement rates, higher acuity, an increase in non-patient revenue and reduced expense for contract labor.

Financing Activity

During the three months ended December 31, 2023, the Company extinguished approximately $402 million principal amount of notes through a combination of open market purchases, and privately negotiated repurchases with a limited number of holders. Additionally, the Company completed a private offering of $1.000 billion principal amount of 10.875% Senior Secured Notes due 2032 on December 22, 2023 and used the net proceeds, together with cash on hand, to purchase $985 million aggregate principal amount of its 8.000% Senior Secured Notes due 2026 through a tender offer which was funded on December 28, 2023. Together, these transactions resulted in the recognition of a pre-tax gain from early extinguishment of debt of approximately $72 million during the three months ended December 31, 2023.

Other

During 2023, the Company completed the divestiture of eight hospitals and the sale of a majority interest in another hospital. On January 1, 2023, the Company completed the divestiture of one hospital (in respect of which the Company received proceeds at a preliminary closing on December 31, 2022). On April 1, 2023, the Company completed the divestiture of one hospital. On July 1, 2023, the Company completed the divestiture of one hospital. On September 1, 2023, the Company completed the sale of a majority interest in one hospital. On November 1, 2023, the Company completed the divestiture of two hospitals. On December 1, 2023, the Company completed the divestiture of three hospitals.

Financial and statistical data for 2023 and 2022 presented in this press release includes the operating results of divested or closed businesses for the periods prior to the consummation of the respective divestiture or closure. Same-store operating results and statistical information include operating results of businesses operated in the comparable current year and prior year periods and exclude businesses divested or closed in 2023 and 2022.

Information About Non-GAAP Financial Measures

This press release presents Adjusted EBITDA, a non-GAAP financial measure, which is EBITDA adjusted to add back net income attributable to noncontrolling interests and to exclude loss (gain) from early extinguishment of debt, impairment and (gain) loss on sale of businesses, expense related to the Business Transformation Costs (as defined in footnote (c) to the Financial Highlights, Financial Statements and Selected Operating Data below), gain on sale of equity interests in Macon Healthcare, LLC as completed during the third quarter of 2021, expense related to government and other legal matters and related costs, income during the fourth quarter of 2021 associated with the settlement of litigation for the recovery of amounts of certain professional liability claims settled in 2020 covered by third-party insurance policies, expense related to employee termination benefits and other restructuring charges, the impact of a change in estimate to increase the professional liability claims accrual recorded during the fourth quarter of 2022 with respect to claims incurred in prior years related to divested locations and the gain on sale by HealthTrust Purchasing Group, L.P. (“HealthTrust”) of a majority interest in CoreTrust Holdings, LLC (“CoreTrust”) completed during the fourth quarter of 2022. For information regarding why the Company believes Adjusted EBITDA provides useful information to investors, and for a reconciliation of Adjusted EBITDA to net income (loss) attributable to Community Health Systems, Inc. stockholders, see footnote (c) to the Financial Highlights, Financial Statements and Selected Operating Data below.

Additionally, this press release presents adjusted net (loss) income attributable to Community Health Systems, Inc. stockholders per share (diluted), a non-GAAP financial measure, to reflect the impact on net income (loss) attributable to Community Health Systems, Inc. stockholders per share (diluted) from the selected items used in the calculation of Adjusted EBITDA. For information regarding why the Company believes this non-GAAP financial measure provides useful information to investors, and for a reconciliation of this non-GAAP financial measure to net income (loss) attributable to Community Health Systems, Inc. stockholders per share (diluted), see footnote (e) to the Financial Highlights, Financial Statements and Selected Operating Data below.

The non-GAAP financial measures set forth above are not measurements of financial performance under U.S. GAAP, and should not be considered in isolation or as a substitute for any financial measure calculated in accordance with U.S. GAAP. Additionally, the calculation of these non-GAAP financial measures may not be comparable to similarly titled measures disclosed by other companies.

Included on pages 16, 17, 18, 19 and 20 of this press release are tables setting forth the Company’s 2024 annual earnings guidance. The 2024 guidance is based on the Company’s historical operating performance, current trends and other assumptions the Company believes are reasonable at this time as more specifically discussed below.

About Community Health Systems, Inc.

Community Health Systems, Inc. is one of the nation’s largest healthcare companies. The Company’s affiliates are leading providers of healthcare services, developing and operating healthcare delivery systems in 40 distinct markets across 15 states. As of February 20, 2024, the Company’s subsidiaries own or lease 71 affiliated hospitals with approximately 12,000 beds and operate more than 1,000 sites of care, including physician practices, urgent care centers, freestanding emergency departments, occupational medicine clinics, imaging centers, cancer centers and ambulatory surgery centers.

The Company’s headquarters are located in Franklin, Tennessee, a suburb south of Nashville. Shares in Community Health Systems, Inc. are traded on the New York Stock Exchange under the symbol “CYH.” More information about the Company can be found on its website at www.chs.net.

Community Health Systems, Inc. will hold a conference call on Wednesday, February 21, 2024 at 10:00 a.m. Central, 11:00 a.m. Eastern, to review financial and operating results for the fourth quarter and year ended December 31, 2023. Investors will have the opportunity to listen to a live internet broadcast of the conference call by clicking on the Investor Relations link of the Company’s website at www.chs.net. For those who cannot listen to the live broadcast, a replay will be available shortly after the call and will continue to be available for approximately 30 days. Copies of this press release and conference call slide show, as well as the Company’s Current Report on Form 8-K (including this press release), will be available on the Company’s website at www.chs.net.

Footnotes to Financial Highlights, Financial Statements and Selected Operating Data (Continued)

The Company believes it is useful to provide investors and other users of the Company’s financial statements this performance measure to align with how management assesses the Company’s results of operations. Adjusted EBITDA also is comparable to a similar metric called Consolidated EBITDA, as defined in the Company’s asset-based loan facility (the “ABL Facility”) and the Company’s existing note indentures, which is a key component in the determination of the Company’s compliance with certain covenants under the ABL Facility and such note indentures (including the Company’s ability to service debt and incur capital expenditures), and is used to determine the interest rate and commitment fee payable under the ABL Facility (although Adjusted EBITDA does not include all of the adjustments described in the ABL Facility). Adjusted EBITDA includes the Adjusted EBITDA attributable to hospitals that were divested during the course of such year, but in each case solely to the extent relating to the period prior to the consummation of the applicable divestiture.

Adjusted EBITDA is not a measurement of financial performance under U.S. GAAP. It should not be considered in isolation or as a substitute for net income, operating income, or any other performance measure calculated in accordance with U.S. GAAP. The items excluded from Adjusted EBITDA are significant components in understanding and evaluating financial performance. The Company believes such adjustments are appropriate as the magnitude and frequency of such items can vary significantly and are not related to the assessment of normal operating performance. Additionally, this calculation of Adjusted EBITDA may not be comparable to similarly titled measures disclosed by other companies.

The following table reflects the reconciliation of Adjusted EBITDA, as defined, to net income (loss) attributable to Community Health Systems, Inc. stockholders as derived directly from the condensed consolidated financial statements (in millions):

Footnotes to Financial Highlights, Financial Statements and Selected Operating Data (Continued)

The Company generated a net loss attributable to Community Health Systems, Inc. stockholders for the year ended December 31, 2023, so the effect of dilutive securities is not considered because their effect would be antidilutive. If the Company had generated net income, the effect of stock awards and options on the diluted shares calculation would have been an increase of 422,487 shares during the year ended December 31, 2023.

Regulation FD Disclosure

Set forth below is selected information concerning the Company’s projected consolidated operating results for the year ending December 31, 2024. These projections are based on the Company’s historical operating performance, current trends and other assumptions that the Company believes are reasonable at this time. The 2024 guidance should be considered in conjunction with the assumptions included herein. See pages 18, 19 and 20 for a list of factors that could affect the future results of the Company or the healthcare industry generally. The following is provided as guidance to analysts and investors:

The following assumptions were used in developing the 2024 guidance provided above:

• The Company’s projections exclude the following:
• Effect of debt refinancing activities, including gains and losses from early extinguishment of debt;
• Impairment of goodwill and long-lived assets;
• The impact of any potential future divestitures;
• Gains or losses from the sales of businesses;
• Employee termination benefits and restructuring costs;
• Resolution of government investigations or other significant legal settlements;
• Costs incurred in connection with divestitures;
• Expense for third-party consulting costs associated with significant process and systems redesign across multiple functions as part of the Company's previously disclosed business transformation initiative; and
• Other significant gains or losses that neither relate to the ordinary course of business nor reflect the Company’s underlying business performance.

Other assumptions used in the above guidance:

• Expressed as a percentage of net operating revenues, depreciation and amortization of approximately 4.0% for 2024. Additionally, this is a fixed cost and the percentages may vary based on changes in net operating revenues. Such amounts exclude the possible impact of any future hospital fixed asset impairments.

• Interest expense is estimated to be between $820 million and $840 million while cash paid for interest, which excludes the amortization of deferred financing costs, is expected to be $730 million to $750 million. Total fixed rate debt is expected to average approximately 99% of total debt during 2024.

• Expressed as a percentage of net operating revenues, net income attributable to noncontrolling interests of approximately 1.2% to 1.3% for 2024.

• Expressed as a percentage of net operating revenues, provision for income taxes of approximately 0.8% to 0.9% for 2024.

A reconciliation of the Company’s projected 2024 Adjusted EBITDA, a forward-looking non-GAAP financial measure, to the Company’s projected net loss attributable to Community Health Systems, Inc. stockholders, the most directly comparable GAAP financial measure, is shown below (in millions):