Release Date: February 19, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Community Health Systems Inc (NYSE:CYH) achieved record same-store volume levels for the full year 2024, with same-store admissions increasing by 3.2%, adjusted admissions by 2.7%, and surgeries by 1.3%.
• The company expanded its outpatient access significantly, including acquiring 10 urgent care clinics in Tucson, Arizona, and opening two new freestanding emergency rooms.
• Net operating revenues increased by 5.5% for the year, and adjusted EBITDA improved by 6%, reflecting strong financial performance.
• Community Health Systems Inc (NYSE:CYH) completed two major campus expansion projects, enhancing its competitive position in key markets like Knoxville, Tennessee, and Baldwin County, Alabama.
• The company reported improvements in labor and supplies as a percentage of net revenue, indicating effective cost management.

Negative Points

• Community Health Systems Inc (NYSE:CYH) faced challenges with downgrades and denials, which continue to be a troubling trend for healthcare providers.
• Medical specialist fees and subsidies, particularly in anesthesia services, remain a pressure point, with fees exceeding expectations and increasing by approximately 12% year over year.
• The company anticipates further pressure in medical specialist fees over the near term, with costs expected to grow in excess of typical inflationary trends.
• Despite strong performance, the company experienced a sharper increase in medical specialist fees during the fourth quarter, impacting margins.
• Community Health Systems Inc (NYSE:CYH) is cautious about the approval of Medicaid supplemental payment programs for 2025, which could impact financial guidance if not approved.

Q & A Highlights

• Warning! GuruFocus has detected 4 Warning Signs with CYH.

Q: Can you help us bridge the guidance from 2024 to 2025, considering the moving pieces and any specific one-time factors for Q1? A: Kevin Hammonds, CFO: The guidance excludes Tennessee and New Mexico DPP and only includes announced divestitures. Starting from 2024's $1.54 billion, we remove $40 million of DPP funds recognized in Q4 and $50-60 million related to divestitures, resulting in a $100 million reduction. Adding organic growth of $75-100 million in 2025 brings us to a midpoint of $1.525 billion. Approval of Tennessee and New Mexico DPP could add $100-125 million to the annual run rate of EBITDA.

Q: How should we think about your strategic moves, including divestitures and urgent care additions, moving forward? A: Tim Hinchin, CEO: We are pleased with our investments and growth in the core portfolio. We have ongoing capital investments, particularly in expansion projects, and are focusing on access point strategies. We see opportunities for organic growth in post-acute and behavioral health, and through our transfer center, we continue to identify service line expansion opportunities.

Q: What will it take to achieve the mid-teens EBITDA margin target, considering the current 13% margin? A: Kevin Hammonds, CFO: We expect stabilization in medical specialist fees and benefits from our ERP project. We anticipate leverage on acuity and payer mix as markets grow. Tim Hinchin, CEO: Opportunities for margin expansion include moderation in inflation, strengthening payer mix, and improved fixed cost leverage from ramping up projects.

Q: Regarding the DPP, the $40 million in New Mexico DPP recognized in Q4 was higher than expected. Does this reflect conservatism or structural changes? Also, what is your assessment of the risk of these programs under the new administration? A: Kevin Hammonds, CFO: The New Mexico DPP was not included in 2024 guidance due to timing uncertainty. It was approved in December, allowing recognition for July-December. We expect Tennessee and New Mexico programs to contribute $100-125 million annually. We anticipate approval under the new administration, as these programs have bipartisan support and are critical for Medicaid funding.

Q: Can you provide metrics around the organic growth of $75-100 million, including same-store revenues, volumes, and margins? A: Kevin Hammonds, CFO: We expect 2-3% volume growth and similar pricing in 2025, leading to mid-single-digit net revenue growth. Margins should slightly increase, with inflationary trends around 3.75% for salaries and wages, and 3% for other expenses. Medical specialist fees are expected to rise 8-12%. ERP implementation should yield $40-60 million in savings.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.