A 8 minute read
Mar 29, 2017 9:49:18 AM

Quorum Health Corporation (NYSE: QHC) (the “Company”) today announced its operating and financial results for the three months and year ended December 31, 2016.

Net operating revenues for the three months ended December 31, 2016 totaled $515.2 million, compared to $558.2 million for the same period in 2015, a 7.7% decrease. Net operating revenues for the two hospitals divested in December 2016 totaled $4.7 million and $12.7 million for the three months ended December 31, 2016 and 2015, respectively. Net loss attributable to Quorum Health Corporation for the three months ended December 31, 2016 was $(90.7) million, or $(3.19) per share, compared to $(0.6) million, or $(0.02) per share, for the same period in 2015. The financial results for the three months ended December 31, 2016 were significantly impacted by $41.5 million, or $1.40 per share, of impairment charges to long-lived assets and goodwill and a $22.8 million, or $0.77 per share, reduction in net operating revenues as a result of a change in estimate reducing the net realizable value of patient accounts receivable at December 31, 2016, which negatively impacted both contractual allowances and the provision for bad debts. The Company’s 2015 results for the same period were impacted by $13.0 million, or $0.37 per share, of impairment charges to long-lived assets and no comparable change in estimate related to the collectability of patient accounts receivable. For additional information on the 2016 charges mentioned above, see footnotes (j) and (k) to the Financial Statements and Selected Operating Data below. The Company’s same-facility operating results for the three months ended December 31, 2016 reflect a 2.8% decrease in admissions and a 3.5% decrease in adjusted admissions compared to the same period in 2015. On a consolidated basis, admissions decreased 3.8% and adjusted admissions decreased 4.6% during the three months ended December 31, 2016 compared to the same period in 2015.

Adjusted EBITDA for the three months ended December 31, 2016 was $30.7 million, compared to $77.7 million for the same period in 2015. The Company divested two hospitals in December 2016 and utilized the combined proceeds of $13.7 million to pay down debt. These two hospitals negatively impacted EBITDA by $9.1 million for the three months ended December 31, 2016 and $1.1 million in the comparable 2015 period. As a result, Adjusted EBITDA, Adjusted for Divestitures, was $39.8 million, compared to $78.8 million for the same period in 2015. For information regarding why the Company believes Adjusted EBITDA and Adjusted EBITDA, Adjusted for Divestitures present useful information to investors and for a reconciliation of Adjusted EBITDA and Adjusted EBITDA, Adjusted for Divestitures to net income (loss) attributable to Quorum Health Corporation, the most directly comparable U.S. GAAP financial measure, see footnote (b) to the Financial Statements and Selected Operating Data below.

Net operating revenues for the year ended December 31, 2016 totaled $2,138.5 million, compared to $2,187.3 million for the year ended December 31, 2015, a 2.2% decrease. Net operating revenues for the two hospitals divested in 2016 totaled $43.6 million and $54.8 million for the twelve months ended December 31, 2016 and 2015, respectively. Net loss attributable to Quorum Health Corporation for the year ended December 31, 2016 was $(347.7) million, or $(12.24) per share, compared to net income attributable to Quorum Health Corporation of $1.3 million, or $0.05 per share, for the year ended December 31, 2015. The financial results for the year ended December 31, 2016 were significantly impacted by $291.9 million, or $8.89 per share, of impairment charges to long-lived assets and goodwill and $22.8 million, or $0.69 per share, related to the change in estimate mentioned above. The Company’s same-facility operating results for the year ended December 31, 2016 reflect a 2.8% decrease in admissions and a 2.0% decrease in adjusted admissions compared to the year ended December 31, 2015. On a consolidated basis, admissions decreased 3.1% and adjusted admissions decreased 2.3% during the year ended December 31, 2016 compared to the year ended December 31, 2015.

Adjusted EBITDA for the year ended December 31, 2016 was $162.9 million, compared to $263.7 million for the year ended December 31, 2015. The two hospitals divested in December 2016 negatively impacted EBITDA by $18.9 million and $5.4 million during the year ended December 31, 2016 and 2015, respectively. As a result, Adjusted EBITDA, Adjusted for Divestitures, was $181.9 million, compared to $269.0 million for the year ended December 31, 2015.

Adjusted EBITDA, a non-GAAP financial measure, is EBITDA adjusted to add back the effect of certain legal, professional and settlement costs, impairment of long-lived assets and goodwill, net loss on the sale of hospitals, transaction costs related to the Company’s spin-off from Community Health Systems, Inc. (the “Spin-off”), severance costs for post-spin headcount reductions and a change in estimate related to the collectability of patient accounts receivable. Adjusted EBITDA, Adjusted for Divestitures further excludes the effect of negative EBITDA of hospitals divested. For information regarding why the Company believes Adjusted EBITDA and Adjusted EBITDA, Adjusted for Divestitures present useful information to investors and for a reconciliation of Adjusted EBITDA and Adjusted EBITDA, Adjusted for Divestitures to net income (loss) attributable to Quorum Health Corporation, the most directly comparable U.S. GAAP financial measure, see footnote (b) to the Financial Statements and Selected Operating Data below.

Commenting on the results, Thomas D. Miller, president and chief executive officer of Quorum Health Corporation, said, “These results are not what we hoped for; however, we have made significant progress towards restructuring our hospital portfolio, refining our operations, and adding access to care in our communities since our spin-off from Community Health Systems, Inc. in April 2016. “On the restructuring front, of the hospitals we initially targeted for divestiture, we sold two in the fourth quarter of 2016. These two hospitals represented almost $19 million of negative EBITDA during 2016. We have executed a definitive agreement for the sale of one hospital that we expect to close by the end of the first quarter of 2017, and we expect to execute a definitive agreement on another hospital also before the end of the first quarter of 2017. Further, we have signed letters of intent covering four additional hospitals with expected divestiture completions in the second and third quarters of 2017. We are also evaluating potential divestitures of additional hospitals with negative and low single digit EBITDA margins. We expect to complete the resulting transactions from this group over the next twelve months, and we estimate cash proceeds from these transactions to be approximately $200 million, all of which will be used to reduce our secured debt.

“On the operations front, we implemented substantial cost-reducing initiatives in the first quarter of 2017 to better align our expenses to our volumes. A special initiative to improve our collection cycle is underway, beginning in Illinois, with respect to our business office collections. As to increasing local access to care, our physician recruitment team has made a major impact on meeting the medically underserved needs in our markets so that we can take care of the patients in our communities. We commenced 43 physician practices in the fourth quarter of 2016 and added another 32 practices in the first quarter of 2017. We continue to position our hospitals for additional outpatient growth and to expand needed services. With these efforts, as well as other earnings driving initiatives, we remain focused on improving operations, reducing leverage and increasing access and the quality of care we provide in our hospitals.”

Financial Outlook

Set forth below is selected information concerning the Company’s financial outlook for the year ending December 31, 2017. These projections are based on the Company’s historical operating performance, current economic, demographic and regulatory trends and other assumptions that the Company believes are reasonable at this time. The 2017 guidance should be considered in conjunction with the assumptions included herein. See “Forward-Looking Statements” below for a list of factors that could affect the future results of the Company or the healthcare industry generally.

The Company expects net operating revenues for the year ending December 31, 2017 to range from $2.050 billion to $2.100 billion. The Company expects Adjusted EBITDA for the year ending December 31, 2017 to range from $150 million to $170 million and Adjusted EBITDA, Adjusted for Potential Divestitures to range from $170 million to $200 million. The guidance gives effect to: (i) divestitures and potential divestitures stated above, (ii) the approval of the California Department of Health Care Services’ Hospital Quality Fee (“HQAF”) Program by The Centers for Medicare & Medicaid Services (“CMS”), which we estimate to be approved in the fourth quarter of 2017 at approximately $13 million less than 2016, (iii) the reduction in electronic health records incentives earned in 2017 of approximately $7 million dollars from the 2016 amounts, (iv) including approximately $10 million to $13 million of non-cash stock-based compensation and other non-cash benefits expense and approximately $25 million to $26 million of non-cash insurance expense, and (v) no estimate for the effects of any changes to the Affordable Care Act. Adjusted EBITDA, Adjusted for Potential Divestitures includes the same assumptions above, in addition to excluding the negative EBITDA of the potential divestitures from the beginning of the year. A reconciliation of the Company’s projected 2017 Adjusted EBITDA, and Adjusted EBITDA, Adjusted for Potential Divestitures, each a forward-looking non-GAAP financial measure, to net income (loss) attributable to Quorum Health Corporation, the most directly comparable U.S. GAAP financial measure, is omitted from this press release because the Company is unable to provide such reconciliation without unreasonable effort. This inability results from the inherent difficulty in forecasting generally and in quantifying certain projected amounts that are necessary for such reconciliation.

In particular, sufficient information is not available to calculate certain adjustments required for such reconciliation without unreasonable effort, including interest expense, income tax expense (benefit) and other adjustments that would be necessary to prepare a forward-looking statement of net income (loss) attributable to Quorum Health Corporation in accordance with U.S. GAAP. For the same reasons, the Company is unable to address the probable significance of the unavailable information.

Update on Form 10-K Filing Date and Announcement of Date for 2017 Annual Meeting of Stockholders

The Company has filed today with the Securities and Exchange Commission a notification on Form 12b-25 that the Company is not, without unreasonable effort and expense, able to file its Annual Report on Form 10-K for the fiscal year ended December 31, 2016 within the prescribed time period due to efforts by the Company to work with its lenders to amend certain provisions of the Company’s existing senior credit facility (the “Credit Facility Amendment”). (The delay is not related to the Company’s previously announced investigation.) On December 31, 2016, the Company adopted FASB Accounting Standards Update (“ASU”) No. 2014-15, Presentation of Financial Statements-Going Concern, which requires management to evaluate if there may be conditions or events that raise substantial doubt about an entity’s ability to continue as a going concern. As a result of adopting ASU No. 2014-15, management was required to evaluate the Company’s ability to comply with the Secured Net Leverage Ratio under its senior credit facility for one year following the issuance of its financial statements for the year ended December 31, 2016 (“2016 Financial Statements”). Although the Company was in compliance with its financial covenants as of December 31, 2016, the new standard requires management to base its evaluation of the Company’s ability to continue to comply with those covenants on results and events considered “probable” of occurring considering historical results, implemented plans, and executed agreements as of the date the Company issues its 2016 Financial Statements. Therefore, given (i) the Company’s historical operating results, (ii) delays in the approval of the California Department of Health Care Services’ HQAF Program for the 2017 to 2019 program period as the Company cannot recognize any earned revenues until CMS approval of the program has been issued, and (iii) the amount of net operating losses from hospitals the Company intends to divest, management plans to amend certain provisions of its senior credit facility to provide greater confidence in the Company’s ability to comply with the Secured Net Leverage Ratio for the one year period following the issuance of its 2016 Financial Statements. See footnotes (a) and (l) to the Financial Statements and Selected Operating Data below which provide additional information on the California program and the Company’s debt covenant compliance.

The Company is actively working with its lenders to finalize the Credit Facility Amendment and believes that, if it is able to successfully negotiate and consummate the Credit Facility Amendment by the time it files its Annual Report on Form 10-K, the Company will be able to conclude that management’s plans alleviate any substantial doubt about its ability to continue as a going concern. The Company intends to file its Annual Report on Form 10-K within the grace period prescribed in Rule 12b-25 under the Securities Exchange Act of 1934, as amendment.

Not a Definitive Healthcare newsletter subscriber?

Sign up to receive our latest news and blogs right in your inbox

Sign up for our newsletter

Continue Reading