Community Health Systems, Inc. Q4 FY2025 earnings call

• Kevin Hammons started by expressing honor as CEO, reflecting on past feedback, and highlighting operating performance highlights like ER visits up in Knoxville, births up at Grandview Medical Center, inbound transfers up in Carlsbad, and heart surgeries up in Longview. He also mentioned divestitures, capital structure improvements, and CHS's vision with 5 priorities.
• Jason Johnson reviewed financial results, talked about adjusted EBITDA, same-store net revenue, cost controls, cash flows, capital structure changes, and the initial 2026 guidance including the impact of divestitures and other factors.

The fourth quarter was in line with updated expectations, showing sequential margin expansion. Same-store net revenue for the fourth quarter increased 2.1% year-over-year, with a 2.4% increase in net revenue per adjusted admission. Adjusted EBITDA for the fourth quarter was $395 million with a margin of 12.7%. Cash flows from operations for the fourth quarter were $266 million, and the full year 2025 cash flows from operations were $543 million. Leverage decreased from 7.4x at year-end 2024 to 6.6x at year-end 2025. For 2026, the initial guidance is net revenue of $11.6 billion to $12.0 billion, adjusted EBITDA of $1.34 billion to $1.49 billion, cash flows from operations of $600 million to $700 million, and capital expenditures of $350 million to $400 million.

• Community Health Systems anticipates net revenue between $11.6 billion and $12.0 billion, adjusted EBITDA between $1.34 billion and $1.49 billion, cash flows from operations between $600 million and $700 million, and capital expenditures between $350 million and $400 million for 2026. The guidance takes into account the impact of divestitures completed in 2025 and announced for 2026, excludes one-time items, and factors in a $140 million headwind to cash flows from operations due to an extra pay period in 2026.

• In 2025, there were disruptions from economic and regulatory aspects affecting patient behavior, reimbursement, and insurance coverage, creating uncertainty. Also, there is uncertainty in predicting the ultimate outcome of health insurance exchange enrollment reductions and their impact on volume trends and payer mix.

• Q: Thoughts on further divestitures and the philosophy regarding the remaining hospital base.

A: Kevin Hammons stated that they are getting close to the end of programmatic divestitures, there is still some inbound interest, but the interest in selling is decreasing, and they are comfortable with the current portfolio and will be opportunistic.

• Q: Assumptions on the HICS adjustment.

A: Jason Johnson said health care exchanges represent less than 5% of total adjusted admissions and net revenue, and the guidance accounts for the potential impact of enrollment reductions, though the ultimate outcome is hard to predict. A 20% reduction in fixed volumes could lead to a $100 million to $120 million reduction in net revenue and a $20 million to $30 million reduction in EBITDA.

• Q: Difference in the performance of assets in the portfolio.

A: Kevin Hammons said there is a wide range of performance in the portfolio, but smaller hospitals fit into networks with larger hospitals and serve as access/transfer points for higher acuity services.

• Q: Impact of free cash flow positive on capital spending and AI focus.

A: Kevin Hammons said capital spending levels won't change much in absolute dollar amount but they will spend more per hospital now, and CHS is investing in AI in various areas like administrative, revenue cycle, and clinical.

• Q: Revenue bridge and core growth projection.

A: Jason Johnson walked through the impact of divestitures on net revenue, and Kevin Hammons said there was a dip in consumer confidence at the end of 2025 and expects the back half of 2026 to be stronger in EBITDA production.

• Q: EBITDA growth after excluding the exchange headwind.

A: Jason Johnson said the pure rate increase assumption is about 2.5% to 3.5% of growth, and Kevin Hammons added that Medicare rates are expected to increase by about 4% in 2026 which will help.

• Q: Fixed cost leverage leakage as the facility base gets smaller.

A: Kevin Hammons said they keep a close eye on overhead costs, centralized services are volume-related and can be flexed, and even with fewer facilities, net revenues and EBITDA are relatively close to 2019 levels.

• Q: ERP implementation and revenue optimization tech.

A: Kevin Hammons said the ERP implementation went well, saved about $50 million in 2025, and on the revenue side, they are using AI in appeals process and autonomous coding.

• Q: Offset factors for the ACA headwind and cash flow guidance.

A: Jason Johnson said the $20 million to $30 million EBITDA hit considers low collection of co-pays and deductibles from exchange patients, and on cash flow, there are multiple factors contributing to the favorable contribution.

• Q: Decremental margins and exchange enrollment loss impact.

A: Jason Johnson said it's too early to accurately predict, but CHS thinks the margin on exchange business is relatively low and some loss may move to other coverage sources.

• Q: Same-store volume growth assumption and payer classes driving improvement.

A: Jason Johnson said the same-store volume growth expectation for 2026 is low single-digit, and Kevin Hammons said the commercial payer class is expected to drive improvement.