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CH

COMMUNITY HEALTH SYSTEMS INC (CYH)·Q1 2024 Earnings Summary

Executive Summary

  • Q1 2024 delivered solid operational progress: net operating revenues were $3.140B, Adjusted EBITDA was $378M, and Adjusted EBITDA margin expanded 120 bps year-over-year to 12.0% as rate improvements, supplemental reimbursements, and lower contract labor offset inflationary pressures .
  • Diluted EPS was $(0.32); non-GAAP adjusted EPS improved to $(0.14) vs $(0.43) in Q1 2023 on fewer noncash and restructuring items; cash from operations rose to $96M from $5M in the prior year quarter .
  • Management reaffirmed full‑year 2024 guidance (revenue $12.3–$12.7B; Adjusted EBITDA $1,475–$1,625M; diluted loss per share $(0.65) to $(0.05); CFO $500–$650M; capex $350–$400M), citing volume momentum, cost controls, and Mississippi Medicaid funding tailwinds .
  • Near-term stock narrative catalysts: scaling in‑sourcing of hospital-based specialists (29 ED/hospitalist programs, two anesthesia) with measurable operational benefits; signed agreement to divest Tennova Cleveland (~$160M, ~10x trailing EBITDA); ongoing portfolio optimization potentially exceeding $1B in proceeds .

What Went Well and What Went Wrong

  • What Went Well

    • Same-store demand remained robust: same-store net revenue +5.7%, admissions +3.8%, adjusted admissions +1.9%; CEO: “We were pleased with our first quarter performance compared to both prior year and prior quarter” .
    • Margins expanded year-over-year by 120 bps to 12.0% on rate improvements, supplemental reimbursements, and lower contract labor; contract labor spend fell to ~$48M vs ~$85M in Q1 2023; CFO expects further margin expansion through cost controls and leverage .
    • In‑sourcing hospital-based specialties showed tangible benefits: “better quality metrics, improved throughput, lower premium pay utilization and greater patient satisfaction… we now manage 29 ED and hospitalist programs,” with anesthesia insourcing underway .
    • Strategic pharma procurement: CHS is the first health system purchasing sterile injectables (epinephrine, norepinephrine) from Mark Cuban Cost Plus Drugs; “potential to generate significant advantages… addressing rising drug cost and drug shortages” .

  • What Went Wrong

    • Payer pressure persisted: “denials still continue to increase” across MA and commercial; 2‑midnight rule may help but impact not yet quantifiable .
    • Sequentially, Adjusted EBITDA was nearly flat vs Q4 (seasonal headwinds: unemployment taxes, deductible resets; lower recognition of Mississippi Medicaid vs Q4); margin dipped modestly vs Q4 .
    • Non‑cash impairment expense of $17M related to idled/disposed assets weighed on reported EPS; adjusted EPS excludes this .
    • Calendar effects softened March volumes (fewer business days, Good Friday/Easter moved into March, spring breaks) .

Financial Results

  • Sequential trend (oldest → newest)
MetricQ3 2023Q4 2023Q1 2024
Net operating revenues ($USD Billions)$3.086 $3.181 $3.140
Adjusted EBITDA ($USD Millions)$360 $386 $378
Adjusted EBITDA Margin (%)11.7% 12.1% 12.0%
Diluted EPS ($)$(0.69) $0.35 $(0.32)
Adjusted EPS (Non-GAAP, $)$(0.33) $(0.41) $(0.14)
  • Year-over-year
MetricQ1 2023Q1 2024
Net operating revenues ($USD Billions)$3.108 $3.140
YoY change (%)1.0%
Diluted EPS ($)$(0.40) $(0.32)
Adjusted EPS (Non-GAAP, $)$(0.43) $(0.14)
Adjusted EBITDA ($USD Millions)$335 $378
Adj. EBITDA margin (%)10.8% 12.0%
Cash from operations ($USD Millions)$5 $96
  • Segment/Revenue Mix
MetricQ3 2023Q4 2023Q1 2024
Net inpatient revenues as % of net operating revenues46.5% 46.0% 48.4%
Net outpatient revenues as % of net operating revenues53.5% 54.0% 51.6%
  • KPIs
KPIQ1 2023Q1 2024
Admissions (Consolidated)109,624 107,055
Adjusted admissions (Consolidated)245,883 236,109
Admissions (Same‑store)103,172 107,055
Adjusted admissions (Same‑store)231,625 236,113
Occupancy rate (avg beds in service)51.9% 53.9%
Average length of stay (days)4.6 4.6
  • Non‑GAAP adjustments (Q1 2024): impairment and (gain) loss on sale $0.10 per share; business transformation costs $0.08 per share; adjusted diluted EPS $(0.14) vs reported $(0.32) .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net operating revenues ($B)FY 2024$12.3 – $12.7 Reaffirmed $12.3 – $12.7 Maintained
Adjusted EBITDA ($M)FY 2024$1,475 – $1,625 Reaffirmed $1,475 – $1,625 Maintained
Diluted net loss per share ($)FY 2024$(0.65) to $(0.05) Reaffirmed $(0.65) to $(0.05) Maintained
Weighted avg diluted shares (M)FY 2024132 – 133 Reaffirmed 132 – 133 Maintained
Capital expenditures ($M)FY 2024$350 – $400 Reaffirmed $350 – $400 Maintained
Net cash provided by operating activities ($M)FY 2024$500 – $650 Reaffirmed $500 – $650 Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 & Q4)Current Period (Q1 2024)Trend
AI/tech/ERPLaunch of “Project Empower” ERP; Oracle ERP/shared services; Cerner integration benefits envisioned Second wave live Apr 1; improved visibility; expected cost savings later in 2024 Scaling, execution progressing
In‑sourcing hospital‑based specialtiesRapid in‑sourcing post‑APP; breakeven economics with subsidy drag removed 29 ED/hospitalist programs and 2 anesthesia in‑house; better quality/throughput/patient satisfaction Expanding and operationally accretive
Supply chain/costsContract labor down; supply costs managed Avg hourly +~3% YoY; contract labor ~$48M; supply down per adjusted admission; ERP enabling mgmt Improving cost discipline
Payer mix & denialsUnfavorable mix in 2023; MA growth outpaced commercial MA growth ~2:1 vs commercial; denials elevated; 2‑midnight rule potential benefit (early days) Cautious improvement possible
Portfolio/divestituresMultiple 2023 divestitures; FTC litigation on NC Signed Tennova Cleveland sale (~$160M, ~10x EBITDA); >$1B potential proceeds across markets Active optimization
Capacity expansionsKnoxville tower near completion; Baldwin County expansion planned Knoxville tower opened; Baldwin County on schedule Capacity additions supporting volume
Pharma procurement innovation—Expanded partnership with Mark Cuban Cost Plus Drugs; initial savings expected; addressing shortages New savings channel

Management Commentary

  • CEO: “Same-store net revenue increased 5.7%… Adjusted EBITDA came in at $378 million, up 12.8%… This first quarter performance puts us very much in line with the guidance provided in February” .
  • CMO: “We recently became the first health care system to purchase injectable drugs… Through this strategic partnership… address pharmaceutical cost, avoid drug shortages, reduced waste and improved medication administration safety” .
  • CFO: “Contract labor spend… ~$48 million compared to ~$85 million in the first quarter of 2023… We expect further margin expansion through strong cost controls, continued volume growth and top‑line leverage” .

Q&A Highlights

  • Cash flow seasonality and trajectory: Q1 is typically lowest due to deductible resets and annual bonus payments; Mississippi supplemental Medicaid AR collected Q1; comfortable with full‑year CFO guidance $500–$650M .
  • Divestitures: Tennova Cleveland priced at ~10x trailing EBITDA with potential contingent consideration putting multiple in low‑teens; broader divestiture pipeline could exceed $1B in proceeds .
  • Volume cadence: Strong Jan–Feb; March softness from calendar/holidays; momentum expected to continue .
  • Labor inflation and mix: Wage inflation running ~3% YoY vs ~4% full‑year expectation; workforce mix improvements (LPNs, allied health, new‑grad nurses) aiding SWB .
  • MA/denials: Elevated denials persist; 2‑midnight rule and pre‑auth changes may help, but effect hard to isolate; CHS bolstering utilization review and physician adviser programs .

Estimates Context

  • S&P Global consensus for Q1 2024 EPS/revenue/EBITDA was unavailable at time of analysis due to provider access limits, so beat/miss vs Street cannot be assessed from S&P Global in this report. We attempted retrieval but received a daily request limit error.

Key Takeaways for Investors

  • Year-over-year margin expansion and improved adjusted EPS reflect rate increases, supplemental Medicaid funding (Mississippi), and cost controls, despite persistent payer-denial friction .
  • In‑sourcing hospital-based programs is delivering measurable operational benefits and should mitigate the prior drag from outsourced subsidies; scaling anesthesia insourcing is underway .
  • Strategic capacity additions (Knoxville open, Baldwin County later in 2024) plus outpatient site expansion support continued volume growth and acuity-driven revenue mix (inpatient share rose to 48.4%) .
  • Cash generation improved materially in Q1, and management reaffirmed robust FY24 CFO guidance ($500–$650M) alongside capex moderation to $350–$400M, supporting deleveraging and selective growth investment .
  • Portfolio actions are a key narrative catalyst: Tennova Cleveland divestiture and a pipeline potentially >$1B in proceeds can fund debt reduction and higher-return redeployment in core markets .
  • Payer mix and denial trends remain watch items; potential tailwinds from CMS’ 2‑midnight guidance and internal utilization review programs could alleviate MA revenue realization over time .
  • Supply-chain and wage management remain constructive (contract labor down; wage inflation moderating); ERP deployment (“Project Empower”) is expected to unlock incremental savings and better enterprise visibility through 2024 .