CHS turns a profit in Q1 as it nears end of hospital divestiture spree

Franklin, Tenn.-based Community Health Systems, which operates 99 hospitals across 17 states, saw revenue decline in the first quarter of 2020 but ended the period in the black. 

In financial documents released April 28, CHS said revenues and admissions dropped in the first quarter of this year. Admissions decreased 13.3 percent year over year and operating revenues dipped 10.4 percent. The decline was largely due to CHS owning fewer hospitals. On a same-facility basis, revenues and admissions were down 3.5 percent and 5.2 percent, respectively, in the first quarter of 2020. The decline in patient volumes and revenues was also partially attributable to the COVID-19 pandemic, CHS said. 

The pandemic also caused the company's supply chain expenses to increase year over year. However, CHS' total operating costs and expenses were down in the first quarter compared to a year earlier. 

CHS ended the first quarter of 2020 with operating income of $110 million. Including one-time charges and nonoperating items, CHS ended the first quarter of this year with net income attributable to stockholders of $18 million. In the first quarter of last year, CHS reported operating income of $189 million and a net loss of $118 million. 

In the three months ended March 31, the company posted net income when accounting for "adjusting items," including a $240 million boost from a change in tax valuation allowance that resulted from an increase to CHS' deductible interest expense for 2019 and 2020 under the Coronavirus Aid, Relief and Economic Security Act. When excluding adjusting items, the company recorded a net loss of $1.59 per diluted share in the first quarter of this year, compared to a $0.53 net loss a year earlier.  

Though CHS expects the COVID-19 pandemic to materially affect its financial performance this year, the company said it's unable to fully quantify the impact the pandemic will have on its financial results. As a result, CHS pulled its 2020 financial guidance earlier this month and did not provide further guidance in its first-quarter earnings release. 

"Our organization has leveraged its resources to provide a rapid, coordinated and effective response to the pandemic," CHS Chairman and CEO Wayne T. Smith said. "Now, we are also focused on reopening services where we can, especially for patients who have deferred important surgeries, procedures and other appointments." 

The company said it received federal grants and loans to help offset the expected financial damage caused by COVID-19. In April, CHS received $245 million in grants made available through the CARES Act and about $1.2 billion in advance Medicare payments, which must be repaid. Those payments were not recognized in the company's results for the first quarter.

CHS released its financial results the day after announcing definitive agreements to sell two Texas hospitals and divest its majority interest in a Florida hospital. The company has inked agreements to sell four other hospitals and has completed the divestiture of three hospitals since Jan. 1. The deals that are in the works are expected to close during the second and third quarters of this year, and will mark the end of a portfolio rationalization strategy the company began nearly three years earlier. 

The hospital divestitures have helped CHS reduce its debt load. The company carried nearly $13.9 billion in long-term debt when it announced its divestiture plan at the end of 2017. CHS' long-term debt totaled $13.5 billion as of March 31. 

Shares of CHS traded between $3.45 and $3.77 on April 28 and were up 1.4 percent from the day prior at market close. 

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