Community Health Systems (CYH)

Q2 2012 Earnings Call

July 26, 2012 11:00 am ET


Lizbeth R. Schuler - Vice President of Investor Relations

Wayne T. Smith - Chairman, Chief Executive Officer and President

W. Larry Cash - Chief Financial Officer, Executive Vice President and Director


Whit Mayo - Robert W. Baird & Co. Incorporated, Research Division

Frank G. Morgan - RBC Capital Markets, LLC, Research Division

Albert J. Rice - UBS Investment Bank, Research Division

Ralph Giacobbe - Crédit Suisse AG, Research Division

Kevin M. Fischbeck - BofA Merrill Lynch, Research Division

Steven Silver - S&P Equity Research

John W. Ransom - Raymond James & Associates, Inc., Research Division

Gary Lieberman - Wells Fargo Securities, LLC, Research Division

Colleen Lang - Lazard Capital Markets LLC, Research Division

Christian Rigg - Susquehanna Financial Group, LLLP, Research Division

Brian Zimmerman



Good morning. My name is Candace, and I will be your conference operator today. At this time, I would like to welcome everyone to the Community Health Systems Second Quarter Ending June 30, 2012 Conference Call. [Operator Instructions] Ms. Lizbeth Schuler, Vice President of Investor Relations, you may begin your call.

Lizbeth R. Schuler

Thank you, Candace. Good morning, and welcome to Community Health Systems' Second Quarter Conference Call. Before we begin the call, I would like to read the following disclosure statement.

This presentation contains forward-looking statements including all statements that do not relate solely to historical or current facts. These forward-looking statements are subject to a number of known and unknown uncertainties and risks, which are described in headings such as risk factors and our annual report on Form 10-K and other reports filed with the Securities and Exchange Commission. As a consequence, actual results may differ significantly from those expressed in any forward-looking statements in today's presentation. We do not intend to update any of these forward-looking statements. With that said, I'd like to turn the call over to Mr. Wayne Smith, Chairman, President and Chief Executive Officer. Mr. Smith?

Wayne T. Smith

Thank you, Liz. Good morning. Our Executive Vice President and Chief Financial Officer, Larry Cash is with me on the call today. The purpose of this call is to review our financial and operating results for the second quarter and 6 months ended June 30, 2012. After market closed yesterday, we issued an 8-K, including the press release with our financial statements.

For those of you listening to the live broadcast of this conference call on the web, a slide presentation accompanies our remarks. I would like to begin the call with some comments about the quarter then turn it over to Larry, who will follow with additional detail of our financial results.

Community Health Systems has delivered another quarter of solid financial and operating results. The results are in spite of the continuing weakness in inpatient volume and challenges in the economy.

Net operating revenues for the quarter ended June 30, 2012, totaled $3.2 billion compared to $3 billion for the same period last year, an increase of 8.1%. Consolidated EBITDA increased 4.5% from $483 million to $462 million. Earnings per share from continuing operations was $0.93 versus $0.81 per share for the same period a year ago, an increase of 14.8%.

Net operating revenue for the 6 months ended June 30, 2011, was $6.5 billion, and EBITDA was $1 billion, including certain unusual items.

Earnings per shares from continuing operations for the 6 months ended June 30, 2012, was $1.79 compared to $1.62 for the same period a year ago, an increase of over 10%.

With that, I'd like to recap a few of the significant accomplishments for the quarter. The company recruited 855 new physicians for the first 6 months of the year, this compares to 658 physicians recruited in the same period a year ago. Additionally, we've added 39 mid-level practitioners during the first 6 months of this year. Physician recruiting remains a very strong [indiscernible] of our operating strategy.

Our acquisition process has been very robust this year. We've acquired 4 facilities with trailing revenue over $550 million. Our acquisition of assets in Memorial Hospital in York, Pennsylvania was completed on July 1, 2012. The assets include 110 bed hospital as other, as well as other outpatient ancillary services.

The price for the fixed assets was $45 million or 40% of trailing revenue of $115 million. The hospital's trading margin is below single digits. While we've agreed to replace a placement hospital, it will not start construction for several years, and this is our 17th hospital in Pennsylvania.

The seller has disclosed a letter of intent for 2 hospital system with hospitals located in Wheeling, West Virginia and Martins Ferry, Ohio. This system has a total of 636 licensed beds and trailing revenue of approximately $170 million.

We continue to look for strategic opportunities and have a very strong and active pipeline.

As I mentioned last quarter, our patient safety organization has completed Phase I of our higher liability [ph] safety plan. We have initiated Evidence Based Order Set standardization. This standardization will help us prepare for stage 2 of meaningful use to produce computerized physician order entry requirements.

The company's updating guidance provided the first quarter earnings release. We have increased the lower end of our EBITDA about $5 million to $1.975 billion. We've also increased the low end of our 2012 EPS to $3.90 from $3.85. The high end of the range remains the same, and our 2012 EPS guidance ranges from $3.90 to $4.10.

I have a little of updates on the pending litigation investigation from what was discussed in April. And in New Mexico key time [ph] case, both sides have fully briefed their motions for summary judgment. We're waiting for their scheduling from the District Court. As for the group of investigations that involve medical necessity of inpatient admissions, we continue to cooperate by providing documents and making witnesses available, as well as participating in meetings with the government to discuss the cases. We had hoped to be in the process on the probe audit we described in April. A third-party review of sample medical records had a small number of our hospitals. That review has not begun yet. We hope that, that review will begin soon and hopefully, it will be underway by the time our next quarterly -- for the next quarterly update.

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