CYH

Clinical Quality and Stakeholder Experience Progress

• The company continues to advance core priorities of improving quality, physician experience, patient experience, and employee satisfaction.
• 12 hospitals achieved a Leapfrog Group A safety grade, and approximately 70% achieved an A or B grade; multiple hospitals earned recognition for zero hospital-acquired infections, a top national performance level.
• Lutheran Hospital (Fort Wayne, Indiana) received the American College of Cardiology's Heart Care Center National Distinction of Excellence, one of only 100 U.S. hospitals to earn the designation and the only one in Indiana.
• The company has achieved record improvements in risk-adjusted mortality, sepsis mortality, and hospital-acquired infection rates, with positive movement in patient experience, employee satisfaction, and physician experience metrics.

Operational Activity

• The company completed the divestiture of four Arkansas hospitals for $100 million in cash during the quarter.
• It acquired majority ownership of two outpatient surgery centers (Surgical Institute of Alabama in Birmingham and South Anchorage Surgery Center in Anchorage, Alaska) to strengthen core market positions, which are meeting initial performance expectations.
• The company completed a tender offer to repurchase $368 million of 4.75% senior secured notes due 2031 and $231 million of 10.875% senior secured notes due 2032, using divestiture proceeds. End-of-quarter leverage was 6.7x, with no draws on the company's revolving credit facility and the next significant debt maturity in 2029.
• Operating cash flow for Q2 was $87 million, or $143 million adjusted for cash taxes paid from divestiture proceeds, a significant improvement from the first quarter's $297 million cash use.

• Management revised full-year 2026 guidance downward, now expecting full-year net revenue of $11.4 to $11.6 billion and adjusted EBITDA of $1.3 to $1.375 billion, down from the prior midpoint guidance of $1.4 billion adjusted EBITDA.
• The downward revision reflects first half performance that missed expectations by $60 to $65 million, with management assuming a similar level of headwinds will continue through the second half of the year.
• The guidance incorporates the full-year benefit of newly approved Medicaid state-directed payment programs in Georgia, Indiana, and Florida, which was more than offset by macroeconomic headwinds and higher-than-expected ACA plan disenrollment impacts.
• Guidance includes a range for potential 2026 Florida state-directed payment program recognition: the low end assumes no 2026 benefit is recognized by year-end, while the high end assumes full recognition consistent with the Q2 2026 benefit level, as program submission to CMS is still pending.
• Management assumes the payer and service mix headwinds experienced in the first half of 2026 will continue in the second half, with upside at the top of the guidance range reflecting potential pent-up demand for elective procedures once patients meet annual deductibles, and downside at the low end reflecting continued deferral of procedures into 2027.

Community Health Systems does not break out performance into distinct product segments in this call. All results are reported on a consolidated and same-store basis across the company's hospital and surgical care operations. Consolidated Q2 2026 adjusted EBITDA was $330 million (11.7% margin), compared to $380 million (12.1% margin) in Q2 2025, with a 9.8% consolidated net revenue decline driven by prior year state-directed payment benefits and recent hospital divestitures. Same-store net revenue increased 2.4% year-over-year, while same-store net revenue per adjusted admission declined 0.5% due to unfavorable payer and service mix shifts. Same-store adjusted admissions increased 2.9% (half of this growth came from low-revenue uninsured visits), same-store inpatient surgeries declined 3.8%, and total same-store surgeries declined 0.1% year-over-year. Same-store operating expense per adjusted admission increased 0.3%: labor costs were well-managed, with average hourly rates up 1.1% and contract labor spend down 5.6%, though salaries and benefits as a percentage of net revenue rose 100 bps due to increased physician employment. Medical specialist fees increased 19% year-over-year, rising to 5.6% of net revenue from 4.8% in the prior year, outpacing management forecasts. Supplies expense as a percentage of net revenue declined 70 bps to 14.2% on a same-store basis.

• Continued macroeconomic pressure, including inflation, higher energy and grocery costs, elevated interest rates, and falling consumer confidence, is driving increased consumer insecurity and reduced demand for elective procedures among commercially insured patients.
• Disenrollment from ACA exchange plans following the expiration of enhanced premium tax credits has resulted in higher uninsured volumes that generate minimal net revenue, with a larger share of disenrolled patients continuing to seek care than initially projected, leading to higher uncompensated care costs.
• Payer behavior has shifted to more pre-payment claim audits and extended payment timelines, leading to growing accounts receivable balances and extended days sales outstanding, creating near-term cash flow pressure (though management notes this is a timing issue rather than a collection issue).
• Medical specialist fees (particularly for anesthesiology and radiology) are growing faster than forecast, with guaranteed minimum income contracts for anesthesiologists leading to higher subsidy costs when surgical volumes are low.
• Pending CMS approval of the 2026 Florida Medicaid state-directed payment program creates uncertainty around the timing and amount of future revenue recognition for this program.

Q: Analysts asks why EPTC expiry headwinds will not worsen in the back half, especially with 4Q typically being high-margin and a shift to higher-deductible bronze plans. / A: Management initially projected a $20-$30 million full-year adjusted EBITDA impact from ACA disenrollment. Through the first half of 2026, the impact is $25 million, with a $20 million negative impact in Q2 alone. Management now projects a full-year impact of $50-$75 million, with back half impacts running at a similar Q2 run rate. Management notes that patients who downgrade to lower-tier plans behave similarly to other higher-deductible commercial patients, and the current projection accounts for this trend, so the headwind is not expected to worsen beyond the updated guidance range.

Q: An analyst asks what is driving cash flow underperformance relative to EBITDA headwinds, and what cash flow challenges the company is facing. / A: CEO Kevin Hammons explains that the primary issue is slower payer payments, as payers now conduct more audits and record requests prior to payment rather than after payment, which slows collections and increases accounts receivable days. Management notes this is a timing issue, not a long-term collection problem, and expects payment timelines to return to normal once the shift in payer behavior is fully reflected in AR balances.

Q: An analyst asks to confirm that softness is concentrated in elective postponable procedures, if softness is broader than just ACA exchanges, and if there are differences between freestanding ASCs and hospital-based surgeries. / A: CEO Kevin Hammons confirms softness is concentrated in elective procedures, with the largest declines in orthopedic hip/knee/shoulder replacements, which patients can easily delay. Softness is also seen in cardiac procedures, as patients defer primary care and screening that leads to surgery. Inpatient surgeries have seen larger declines than outpatient, and freestanding ASCs have seen growth in lower-acuity procedures but not in the deferred high-acuity orthopedic and cardiac cases. Management notes that clinic visits and diagnostic screenings are still growing, so patients are still entering the system but delaying procedures for economic reasons.

Q: An analyst asks what the biggest driver of delayed elective procedures is, between macro factors like gas prices and high deductibles. / A: CEO Kevin Hammons explains that falling consumer confidence, which is near COVID-era 12-month lows, is the primary overarching factor. Rising gas prices have an outsize impact because the median household income in the communities CHS serves is well below the national average, leaving less disposable income for discretionary healthcare after higher energy and grocery costs. Geopolitical escalation in the Middle East and higher-than-expected persistent inflation have also worsened consumer insecurity, leading to delayed procedures.