Quorum Jumps on Third-Quarter Numbers; Review of Spinoff From Community Underway

Shares of embattled Quorum Healthcare (QHC) rose Friday morning on the heels of better than expected third quarter performance and an optimistic outlook voiced by CEO Thomas D. Miller and other members of the management team during a conference call with analysts Thursday.

Quorum released its numbers Wednesday, revealing that net operating revenues for the three months ended September 30, 2016 totaled $543.9 million, up 0.1% from $543.1 million for the same period in 2015.

Although the company lost $7 million or 24 cents per share for the quarter compared to a loss of $5.7 million for the same period last year, Miller stressed that the company already has deals to sell two facilities that account for approximately 50% of the negative Adjusted EBITDA of a group of assets Quorum intends to divest. Quorum announced Oct. 20 that it plans to shed eight of its 38 hospitals.

As evidence of improved results, Miller said net operating revenues for the three months increased 2.7%, from $529.7 million. Operating activities added $0.4 million to net cash, compared to burning up $36.8 million for the previous three months ended June 30, 2016. Adjusted EBITDA for the three months increased 59.9%, from $29.2 million for the quarter ended in June.

Quorum shares were up almost 10% Friday from an opening of $4.20 to $4.68 through late morning trading.

Mizuho Securities USA analyst Sheryl Skolnick, who had been critical of Quorum management's performance since the company was spun off from Community Health (CYH) in April, praised Miller and his team during the call for doing a "great job."

"There's nothing like actions to make us all feel a whole lot more comfortable that we understand that, you know what's going on at this company," she told Miller and the other executives during the call.

Miller declined to give much detail, however when Skolnick asked about the status of an internal investigation into one investor's allegation that Community beefed up Quorum's numbers and covered up costs prior to its spin off for the purpose in order to raise as much financing as possible.

Miller did say the investigation will be conducted by independent directors with the assistance of independent counsel. "Counsel has been retained and that investigation is underway," he said. "It would be inappropriate for us to comment further."

Last month accounting concerns were raised by Texas hedge fund Q Investments LP. In a letter to Quorum's board, Q demanded an independent investigation into whether the process for spinning off Quorum was carried out appropriately.

Q Investment officials did not return a call for comment.

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