Community Health Systems Inc (CYH) 2007 Q1 法說會逐字稿

(AUDIO JOINED IN PROGRESS) is Mr. Wayne Smith, Chairman, President and Chief Executive Officer of Community Health Systems. Go ahead, sir.

Thank you very much. Good morning and welcome to the Community Health Systems quarterly prerecorded presentation. With me today is Larry Cash, our Executive Vice President and Chief Financial Officer.

We issued a press release after the market closed yesterday that included our financial statements. At the same time, we also posted a slide presentation that should be reviewed in conjunction with our prepared remarks. First, I would like to begin with some comments about the quarter and then turn the call over to Larry, who will follow with more detailed financial results.

This is a prerecorded conference call for the first quarter 2007 acquisition without a question-ad-answer period due to the pending Triad acquisitions. But before I can begin, I would like to read the following statement. Statements contained in this conference call regarding expected operating results, acquisition transactions or other events are forward-looking statements that involve risk and uncertainties. Actual future events or results may differ materially from these statements. Such forward-looking statements are made pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995, and are made based on the management's current expectations or beliefs, as well as assumptions made by and information currently available to management.

These are summarized under the caption Risk Factors in the documents filed by Community Health Systems Inc. with the Securities and Exchange Commission, including the Company's annual report on Form 10-K and the current report on Form 8-K. These filings identify important risk factors and other uncertainties that could cause actual results to differ from those contained in the forward-looking statements.

We're very pleased with Community Health Systems' solid financial performance for the first quarter. Net operating revenues for the quarter ended March 31, 2007 totaled $1.2 billion, a 17.3% increase over the prior year compared to $1 billion for the same period last year. EBITDA was $170 million, a 7.4% increase over the same period a year ago. Income from operations was $54 million. Earnings per share from continuing operations was flat at $0.58 per share versus $0.58 per share as reported the same period last year.

With that, I would like to review some of the key statistics for the full quarter. First, our same-store admissions increased 1% and our same-store adjusted admissions increased 1.2% for the quarter. Same-store net revenue increased 6.1%. We recruited 156 new physicians for the first quarter compared to 133 physicians recruited in the same period a year ago. Over 60% of those physicians were specialists, and our outlook is very good for 2007.

Community Health Systems' strong leadership in the acquisition arena is reflected by our ability to identify and selectively acquire hospitals that fit our criteria. On April 1, we acquired Northeast Louisiana Medical Center in Ruston, Louisiana, a 157-bed acute general hospital with trailing revenues of approximately $55 million and an EBITDA margin in the mid single digits. This hospital was attractively priced with solid upside potential and is located approximately 70 miles east of Shreveport, Louisiana. With the acquisition and assimilation of Triad hospitals, we have become much more selective in our future acquisitions. We currently have two deals in the process --Spokane, Washingtonian and Valparaiso, Indiana.

Our merger transaction with Triad is proceeding on due course. The SEC staff has advised Triad that they will not comment on the preliminary proxy statement filed on March 30, and Triad is in the process of setting their record and their meeting dates to obtain shareholder approval. On April 23, the 30-day initial waiting period expired on our Hart-Scott-Rodino filing, clearing the way for the transaction to proceed.

Other regulatory approvals and transition plans are being developed, and we are looking towards a closing of this transaction early in the third quarter. Although we have been spirited competitors in the capital and acquisition markets in the past, Triad and CHS share many more similarities than differences. We are looking forward to the future and to capitalizing on the opportunities that this business combination presents.

At this point, I would like to turn the call over to Larry to provide you a summary of our financial results.

Thank you, Wayne. Our consolidated admissions growth in the first quarter increased 12.7% compared to the same period last year. Adjusted admissions, which factors in outpatient business, was up 13.9% over the first quarter of last year. Our same-store admissions increased 1%. Same-store adjusted admissions increased 1.2% for the quarter. Flu and respiratory illness in our markets were basically flat year-over-year.

Net revenues from the first quarter increased 17.3% compared to the same period last year, or $1,204,000,000 versus $1,027,000,000. On a same-store basis, net revenue increased 6.1%, with inpatient revenue up 5.3% and outpatient revenue up a strong 7.2%. Surgery volume declined 2.5% for the period against a tough comp of 5% last year, with most of the decline in outpatient. Part of this decline can be attributed to the New Year holiday falling on Monday and the last day of the quarter ended on Saturday. Additionally, we did lose some minor procedures to other locations. Same-store net revenue per adjusted admission increased 5.1%, and revenue per adjusted admission was impacted by a decline in acuity as our Medicare same-store case base was down approximately 1%.

EBITDA was $170 million versus $158.5 million for last year, or an increase of 7.4%. On a same-store basis, EBITDA increased from $158 million to $161 million for the quarter. Same-store EBITDA would have increased 3.5% excluding additional stock-based compensation in the first quarter of 2007.

For the first quarter, EBITDA margin on a consolidated basis was 14.1%, a decrease of 130 basis points from a year ago, due to the single-digit margins of acquired hospitals, as well as an increased bad debt expense and an increase in stock-based compensation. Same-store EBITDA margin declined 60 basis points to 14.9% compared to the quarter ended March 31, 2006. Additional stock-based compensation reduced margin by 20 basis points. For the first quarter, our non-same-store margin was 7.7%, so there are significant improvement opportunities. The trailing margin before acquisition in the non-same-store hospitals is approximately 3%.

In the first quarter, consolidated operating expenses as a percentage of net revenue were up 130 basis points due to non-same-store acquisitions, increased bad debt, the increased stock-based compensation and the cost of employee positions. Consolidated payroll and benefits were up 70 basis points to 40.4%. We've had a continued growth in employed positions. Bad debt increased 11.3%, up 80 basis points, while supplies decreased 30 basis points and other operating expense increased 10 basis points.

On a same-store basis, total operating expenses increased 60 basis points, due to about 40 basis points increase in payroll and benefits. While we've seen an increase in employed positions and associated payroll, the first quarter growth of 2007 over the last 12 months has slowed versus the prior year. There was a 70 basis point deterioration in bad debt same-store, offset by a 50 basis point improvement in same-store supplies.

Each hospital has a charity policy that generally provides free care for those patients whose household income ranges from 150% to 200% of the federal poverty level. An administrative discount may also be provided on a selective basis. Consolidated self-pay revenue increased 90 basis points for the quarter and same-store self-pay increased approximately 30 basis points. For the quarter, same-store self-pay admissions decreased to 30 basis points of the percentage of total admissions, and decreased 2.6% compared to the same period a year ago. Sequentially, self-pay admissions decreased 40 basis points as a percent of admissions.

Consolidated bad debt is 11.3% for the quarter, up 80 basis points from a year ago. Our combined consolidated bad debt, charity and administrative self-pay discounts divided by the adjusted net revenue is down 60 basis points for the quarter of 17.6% versus 18.2% sequentially, and up 80 basis points quarter-over-quarter 2007 versus 2006. Consolidated cash receipts were 103% of collectible net revenue for the last 12 months ended March 31, 2007. Point-of-service collections improved over 10% for this first quarter.

Total AR days were 61 at March 31, 2007, down 1 day from December 31, 2006. Same-store AR days were 58. The allowance for doubtful accounts was $497 million, or 37.8% of receivables at March 31, 2007, and the allowance was 65% of self-pay receivables.

Community Health Systems continues to have a favorable payer mix for the quarter ending March 31, 2007. Consolidated net revenue by payer source is broken down as follows. Medicare, 31.2%; Medicaid, 10.2%; managed care, 23.9%; self-pay, 12.6%; and private and other, 22.1% of net revenues.

Our cash flow from operations for the quarter was a strong $120 million versus $91 million for the first quarter of 2006, an increase of $29 million. One-day improvement in accounts receivable days represents approximately $10 million. We also had a reduction in cash payments for income taxes of approximately $8 million and the balance, approximately $11 million, represents the increased net revenues that were not reflected in income as a result of the increase in non-cash expenses, primarily depreciation. Our percentage of cash from operating activities to EBITDA was approximately 70% for the quarter of 2007 versus 57% for the first quarter of 2006.

Total capital expenditures for the quarter just ended were $53 million, or 4.4% of revenue, and approximately $18 million represents amounts for replacement hospitals. Capital expenditures in the first quarter of 2006 were 5.8% of revenue and 6.2% for all of 2006.

The balance sheet cash at March 31, 2007 was approximately $63 million. At the end of the quarter, the Company had available credit of approximately $400 million. In addition, we had a $400 million [recording] feature within our term loans. During 2006, the Company repurchased 5 million shares at a cost of about $176 million, and most of these shares were purchased during the second and fourth quarter of 2006. And comparing the first quarter of 2007 versus 2006, interest expense is up approximately $3 million due to the interest cost of the stock buyback. From an EPS perspective, additional stock-based compensation expense was approximately $2.7 million, or $0.02 per diluted share, for the first quarter of 2007.

Looking at the balance sheet as of March 31, 2007 we had $501 million in working capital and approximately $4.6 billion in total assets. Our fixed-rate of debt is approximately 78% of our total outstanding debt, and our debt to capitalization at quarter end was 52%. And debt to EBITDA on the last 12 months' trailing basis was 3.3 times.

Wayne will now provide a brief recap.

The first quarter marks a good start to 2007, with quarterly revenues up 17% to $1.2 billion. We expect our growth to continue as we improve hospital operations, add and enhance services, and recruit physicians to stem out migration. I would like to point out that this is the first year that Community Health Systems has been included in the Fortune 500, and we are very proud of this accomplishment.

While we anticipate the full integration of Triad to take 12 to 18 months, we will continue to be more selective with our acquisition strategy. We're looking forward to growing our operating base and extending services into new communities.

We thank you for listening this morning, and if you have any questions, you can reach us at 615-465-7000. Again, thank you for your interest and support.