COMMUNITY HEALTH SYSTEMS INC Q4 FY2024 earnings call

• CHS-affiliated health systems had strong growth in 2024, with record same-store volume levels, including 3.2% same-store increase, 2.7% same-store adjusted admissions increase, and 1.3% same-store surgeries increase. - Capital investments, strong capacity management, and strategic value-generating opportunities contributed to growth, including expansion in outpatient access, acquisition of urgent care clinics, opening of free-standing emergency rooms, and completion of campus expansion projects. - Completed divestitures in 2024 and planned to finalize more in Q1 2025, with anticipation of generating proceeds and de-leveraging value. - Clinical achievements in 2024 included reductions in risk-adjusted mortality rates, hospital-acquired infections, and serious safety event rate, as well as improvements in patient experience measures. - Workforce recruitment and retention efforts yielded high overall employee retention and best retention rate for registered nurses in past five years. - Implemented Enterprise Resource Planning platform, providing more insights and data to drive efficiencies, streamline workflows, and reduce costs.

For the full year 2024, same-store volume levels were record, with same-store increasing 3.2%, same-store adjusted admissions increasing 2.7% and same-store surgeries increasing 1.3%. Same-store net operating revenues for the year increased 5.5% and adjusted EBITDA for the year improved 6%. In the fourth quarter, same-store revenue growth was 6.5% on a 3.4% increase in inpatient admissions and 3.1% growth in adjusted admissions. Adjusted EBITDA for the fourth quarter was $428 million, compared with $386 million in the prior year period. Labor costs: average hourly rate up approximately 4.7% in Q4 2024 and 4% for full-year 2024. Contract labor spend was $36 million in Q4 2024, down $5 million sequentially, and full-year 2024 totaled $170 million, down 36% from 2023. Supplies expense declined 50 basis points year-over-year to 15.5% of net revenues in Q4 2024 and 60 basis points to 15.4% for full-year 2024.

• Anticipate net revenue of $12.2 billion to $12.6 billion, adjusted EBITDA of $1.450 billion to $1.6 billion, cash flow from operations of $600 million to $700 million, and capital expenditures of $350 million to $400 million in 2025. - Guidance does not include directed payment program reimbursement for New Mexico or Tennessee as not yet approved by CMS for 2025; if approved, would add $100 million to $125 million to annual EBITDA run rate. - Guidance does not include additional divestitures beyond announced ones; completed divestitures would reduce net revenues and EBITDA in 2025 but lower leverage.

• Continued impact of downgrades and denials of payments, though some stabilization since third quarter. - Medical specialist fees and subsidies, particularly in anesthesia services, remain a pressure point. - Hurricane impacts in Q4, with one hospital shut down for entire quarter and into Q1, though assets impacted were part of announced divestitures.

Q: Brian Tanquilut asked about bridging 2024 to 2025 and strategic moves, and mid-teens EBITDA margin target.

A: Kevin Hammons said guidance excludes Tennessee and New Mexico DPP and announced divestitures, with bridge including taking out DPP and divestiture impacts, adding organic growth. Tim Hingtgen added on margin expansion opportunities.

Q: Ben Hendrix asked about DPP, including $40 million New Mexico DPP recognition and assessment of risk under new administration.

A: Kevin Hammons said New Mexico DPP not in 2024 guidance due to timing, still expect programs to get approved, and Tim Hingtgen added on importance of DPP for Medicaid population and lobbying efforts.

Q: A.J. Rice asked about organic growth metrics and DPP program status.

A: Kevin Hammons said 2-3% volume growth, mid-single-digit net revenue growth, 3.75% salary/wage inflation, 8-12% medical specialist fees increase, and update on Tennessee, Indiana, Alabama, Arkansas DPP status.

Q: Andrew Mok asked about operating cash flow drivers and state-directed payments.

A: Kevin Hammons said ERP implementation, tax refund, and cash interest payments as drivers, and state-directed payments of $100 million to $125 million in incremental annual benefit not including retro Tennessee piece.

Q: Stephen Baxter related question (Mitchell on for Steve) asked about quantifying hurricane impacts in Q4 and recovery in 2025.

A: Kevin Hammons said $10 million impact from hurricane, one hospital shut down for quarter and into Q1, assets impacted were part of announced divestitures and expected to fully recover in 2025