Community Health Systems Inc (CYH) 2002 Q3 法說會逐字稿

Good day and welcome to the Community Health Systems conference call. Today's call is being recorded. At this time for opening remarks and introduction I'd like to turn the conference over to the Chairman, President and Chief Executive Officer, Mr. Wayne Smith.

Good morning and welcome to Community Health Systems quarterly conference call. With me on the call is Larry Cash, CFO secretary VP. The purpose is to review the financial and operating results for the quarter ended September 30, 2002. We issued a press release after market close that included our financial statements. For those listening to the live broadcast of this conference call on our web site a slide presentation accompanies our prepared remarks. I'd like to begin the call with comments about the quarter and return the call to Larry who will follow up with a more detailed account of financial results. Before I begin I'd like to read the following statement. Statements contained in this conference call regarding expected operating results acquisition transactions and other events are forward-looking statements that involve risks and uncertainties. Actual events or results may differ materially from these statements. Such forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 are made on based on management current expectation as well as assumptions made by information currently available to management. These are summarized under the option, under the caption risk factors in the documents filed by Community Health Systems for the Securities and Exchange Commission including the company's registration statement on form S1. Registration statement No. 33369064 Form 10-K for the year ended December 31st and Form 10-K for quarters ended March 31st and June 302002. These filings identify forward risk factors and other uncertainties that cause actual results to differ from those contained in the forward-looking statements. We're very pleased to report that we continue to be on track with our business plan and performance for the third quarter. We also exceed the EPS expectations for the tenth consecutive quarter since becoming a public company. We believe we're very well positioned to execute our strategy for future growth for combination of market share opportunity and acquisitions. Revenues for the quarter ended September 30, 2002 totaling 553 million at 33 percent increase over the prior year. EBITDA was 87 million and 18 percent increase over the second period a year ago. Income before extraordinary items for the early extinguishment of debt was 25 million or 25 cents per share diluted or 10 million for 11 cents per share for the same quarter. Same store net revenues Increased by 10.7 percent with admissions up a strong 6.1 percent versus the third quarter last year. The same store adjust (ph) admissions Were up six percent we also improved our same store EBITDA margin ten basis points from 17.Eight percent to 17.9 percent. Net revenues on a year-to-date basis totaled 1.6 billion a 33 percent over the same period a year ago. EBITDA was 267 million, an 18.7 percent increase. Net income before extraordinary item (ph) was 77 million or 77 cents per share diluted compared to 30.5 million or 35 cents per share diluted last year.

Our same store hospitals continue to perform well as our year-to-date financial results demonstrate.

With that I'd like to review some key operating accomplishments for the quarter. First, our same store facilities had excellent performance with admissions and adjusted admissions increasing 6.1 percent and six percent respectively. Same store net revenue also increased 10.7 percent. Increased volume for the quarter reflects the successful execution of our very focused operating strategy. This standardized and centralized operating model increases utilization and reduces the need for patients to travel outside their communities to get health services by adding and enhancing services in our facilities and recruiting qualified physicians. Through September, the company recruited 341 new physicians. That compares to 289 for the same period a year ago. We expect to recruit 400 physicians for 2002.

We continue to be the most active acquirer of new hospitals. We acquired Lock Haven hospital in Lock Haven, Pennsylvania August 1st, 2002. We also acquired memorial hospital of Salem county in Salem New Jersey on September 30th. This being the first hospital, first nonprofit hospital to go through the conversion in the state of New Jersey. Bringing our total hospitals to 62. And the number of states to 22. Our acquisition strategy has been highly successful as our company continues to lead the industry in selectively acquiring nonurban hospitals in attractive growth markets. We've already surprised our goal of acquiring three to four hospitals in the year with five new hospitals added to the portfolio. We also have the definitive agreement on (inaudible) Which is 154 bed facility. We have announced an exclusive agreement with methodist health care in methodist Tennessee to acquire seven hospitals in western Tennessee. While this is the first time that we've entered into the acquisition discussions for multiple nonprofit nonurban hospitals, we believe we had the management strength and depth as well as our centralized and standardizes operating platform to manage this transaction. We also believe that this multiple hospital acquisition from a faith based nonprofit is a good indicator of our ability in the acquisition market. We continue to have a robust pipeline attractive multiples. This is the direct result of our operating platform and our very strong reputation in the marketplace. Keep in mind on these acquisitions, price is not the only consideration. As more communities recognize our commitment to delivering high quality health care in rural America. We also provided guidance for 2003 with an 8-K filing last night with the SEC. Revenue guidance is form 245. 2.45 to 2.5 billion includes three to four acquisitions for 2003, with EPS from a dollar 20 to a dollar 24. With that I'd like to turn the call over to Larry Cash to provide you a summary of our financial results.

Thank you, Wayne. We're very pleased with the financial and operating results for the quarter. We had a very strong consolidated value in the third quarter as evidenced by the 28 percent growth in admissions compared to the same period last year.

Adjusted additions (ph) which factors in outpatient business had had a 27 percent growth rate over the third quarter of last year (inaudible) a same store business both admissions and adjusted admissions were up six percent. Net revenues in the third quarter increased 33 percent compared to the same period last year, or 553 million versus 417 million. On a same store basis, net revenue increased 11 percent for third quarter compared to very strong 11 percent in third quarter 2001. This is a 12th straight quarter that our same store growth has exceeded eight percent. We've continued to deliver strong EBITDA growth of 18 percent increase this quarter compared to last year. 87 million versus 74 million on a same store basis EBITDA increased 11 percent for the quarter. For the third quarter EBITDA margin on a consolidated basis was 15.8 percent down 200 basis points from a year ago due entirely to the low single digit margins of acquiring hospitals. The same store EBITDA margin was 17.9 percent compared to 17.8 percent for the quarter ended September 30, 2001. An increase of ten basis points. That increase is lower than what we had for the first six months of 2002 due to growth in bad debts, malpractice and to a lesser extent marketing expense in the third quarter. In the third quarter, operating expenses as a percentage of net revenues were up 200 basis points from the prior year. Payroll benefits increased 90 basis points, supplies decreased 20 basis points. Bad debts increased 30 basis points. And other operating expenses increase 100 basis points. The other operating expenses increases were in the malpractice and contract labor area. Again, payroll and supplies, they should be reduced in the future for those acquired hospitals as we have accomplished this in the past the. On the same hospital basis, operating expenses improved by ten basis points, with improvements in payroll and supplies. On a year-to-date basis, admissions are up 27 percent, adjusted admissions (ph) were up 28 percent. Same store additions increased 4.6 percent. And adjusted admissions increased 5.6 percent. Net revenues year-to-date increased 33 percent from 1.3 billion to 1.6 billion. On a same store basis, net revenue increased nine percent for the first nine months. We have continued to deliver strong EBITDA growth with a 19 percent increase from the first nine months compared to 2001. 267 million versus 225 million. On a same store basis, EBITDA increased 11 percent.

For the first nine months, consolidated offerings expense as a percentage of net revenues were up 200 basis points from the prior year. Payroll and benefits increase 150 basis points, bad debt increased ten basis points, supplies increased ten basis points, net operating expenses increased 30 basis points. On the same hospital basis, operating expenses improved 20 basis points. Total AR days were 65 at September 30th of 2002, down five days from December 31, 2001. Same store AR days were 64 at the end of the quarter down three days from December 31, 2001. The allowance for (inaudible) accounts was 79.8 million or 17 percent. At September 30th, 2002. Compared to 64 million or 15 percent in December 31, 2001. We have a favorable pair mix for the quarter ended September 30, 2002. Net revenue by paired source was as follows. Medicare 32 percent. Medicaid 11 percent F managed care, 17 percent. Private and other primarily private insurance was 40 percent. Cash flow from operations for the quarter was 60 million versus 18 million last year. On a year-to-date basis, cash flow from operations totaled from a strong 196 million versus 114 million for same period in 2001. A significant increase of 72 percent. Capital expenditures for the quarter just ended were 30.7 million, of which 14.6 million was spent on replacement hospitals. On a year-to-date basis it was spent 90 million dollars of which 31.7 million was for replacement hospitals. As previously announced we completed a refinancing of our credit facility during the third quarter. The old credit agreement had been in place since 1996. With interest rates and historic lows just as a good opportunity to extend maturities as well as negotiate better terms. We have 850 million dollars in term loans for an according future to add another 200 million. Rates on the term loan are LIBOR plus 250 basis points, with nominal repayments until 2008 and the loan matures in September, 2010. Four revolver is 350 million dollars, maturing in July, 2008 as LIBOR plus 225 basis points.

Cash on the balance sheet is over 100 million of September 30th, which is available for acquisitions. Looking at the balance sheet, as of September 30th, 2002, we had 315 million dollars in working capital and approximately 2.8 billion in total assets. Long-term debt now is 1.2 billion. Our debt to capitalization ratio was 50 percent with net debt (ph)being 48 percent. Fixed rate debt is now 53 percent, the debt is fixed. Total stockholders equity was 1.2 billion at the end of the third quarter. We are comfortable with our previous fourth quarter guidance of 25 to 27 cents for the fourth quarter 2002. However, since we've exceeded the high end of our EPS guidance for third quarter 2002, our annual 2002 EPS guidance before extraordinary items, will now be a $1.02 to $1.04. As Wayne mentioned earlier we did provide 2003 guidance in our 8-K filing with the SEC last night. The guidance reflects three to four hospital acquisitions but excludes the seven west Tennessee facilities we're working on today. If this transaction were to close, we'd update the guidance after the fourth quarter. We believe that we are well positioned for continued successful growth. Wayne will now provide a brief recap.

As can you see, with had another excellent quarter with continued growth in volume revenue and improved hospital margins this marks the tenth consecutive quarter we've improved same store statistics for admission and net revenue. We expect our growth to continue as we improve hospital operations add and enhance services and recruit physicians to enhance our operation. With that I'll now open the call for question and answer session. If you'd like to talk to us after the call, you can reach us at area code six one five 615-373-9600.

Denise, we're ready for calls.

This is premiere conferencing. We're having difficulties taking questions at this time. Please stand bias we isolate the problem. We apologize but due to technical difficulties we're unable to take participants questions on this conference. At this time I'd like to turn it ...

Can the participants hear us.

Yes.

Again unfortunately for some technical reason we can't take your questions, but we'd be happy to talk to anyone who wants to call us at area code six 615-373-9600 and answer your questions individually.

Thank you for joining today's conference. You may now disconnect.