munity Health Systems(US:CYH)2025-07-24 20:22Part I. Financial Information Item 1. Financial Statements The unaudited condensed consolidated financial statements present the company's financial position, results of operations, and cash flows Condensed Consolidated Statements of Income (Loss) - Net income attributable to stockholders significantly improved for the three and six months ended June 30, 2025, turning a prior-year loss into a substantial profit9 Key Income Statement Metrics | Metric (in millions) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net operating revenues | $3,133 | $3,140 | $6,292 | $6,279 | | Income from operations | $512 | $238 | $795 | $468 | | Net income | $320 | $26 | $345 | $20 | | Net income (loss) attributable to Community Health Systems, Inc. stockholders | $282 | $(13) | $269 | $(55) | | Basic EPS | $2.11 | $(0.10) | $2.02 | $(0.42) | | Diluted EPS | $2.09 | $(0.10) | $2.01 | $(0.42) | Condensed Consolidated Statements of Comprehensive Income (Loss) - Comprehensive income attributable to stockholders showed a significant turnaround from a loss in 2024 to a substantial gain in 2025 for both reporting periods11 Comprehensive Income Summary | Metric (in millions) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net income | $320 | $26 | $345 | $20 | | Other comprehensive income | $2 | $3 | $5 | $2 | | Comprehensive income | $322 | $29 | $350 | $22 | | Comprehensive income (loss) attributable to Community Health Systems, Inc. stockholders | $284 | $(10) | $274 | $(53) | Condensed Consolidated Balance Sheets - Total assets and liabilities decreased, while cash and cash equivalents increased significantly and the total stockholders' deficit improved14 Balance Sheet Summary | Metric (in millions) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $456 | $37 | | Total current assets | $3,659 | $3,301 | | Property and equipment, net | $4,657 | $4,776 | | Goodwill | $3,604 | $3,789 | | Total assets | $13,641 | $14,054 | | Total current liabilities | $2,295 | $2,345 | | Long-term debt | $10,840 | $11,432 | | Total liabilities | $14,739 | $15,371 | | Total stockholders' deficit | $(1,412) | $(1,676) | Condensed Consolidated Statements of Cash Flows - Cash from investing activities improved substantially due to hospital dispositions, while financing activities reflected significant debt repayments16 Cash Flow Summary | Metric (in millions) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $208 | $197 | | Net cash provided by (used in) investing activities | $786 | $(207) | | Net cash (used in) provided by financing activities | $(575) | $11 | | Net change in cash and cash equivalents | $419 | $1 | | Cash and cash equivalents at end of period | $456 | $39 | Notes to Condensed Consolidated Financial Statements These notes provide detailed explanations for the financial statements, covering accounting policies, divestitures, debt, and other key disclosures Note 1. Basis of Presentation and Significant Accounting Policies - Corporate office costs decreased to $69 million in Q2 2025 and $138 million YTD, primarily due to non-recurring adjustments in 202420 - Charity care services (at standard charges) were estimated at $334 million for Q2 2025 and $642 million YTD, with a net gain of $263 million from divestitures recorded YTD2930 Net Operating Revenues by Payor | Payor (in millions) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Medicare | $542 | $563 | $1,132 | $1,159 | | Medicare Managed Care | $547 | $560 | $1,150 | $1,139 | | Medicaid | $545 | $465 | $1,022 | $906 | | Managed Care and other third-party payors | $1,481 | $1,501 | $2,950 | $2,980 | | Self-pay | $18 | $51 | $38 | $95 | | Total | $3,133 | $3,140 | $6,292 | $6,279 | Note 2. Accounting for Stock-Based Compensation - Total unrecognized stock-based compensation expense was $21 million at June 30, 2025, to be recognized over a weighted-average period of 23 months36 - Stock options outstanding at June 30, 2025, totaled 4,929,000 shares with a weighted-average exercise price of $5.7241 - Unvested restricted stock and RSUs at June 30, 2025, totaled 6,332,081 shares and 2,069,837 shares, respectively4344 Note 3. Acquisitions and Divestitures - Acquired operating assets of physician practices and clinics for less than $1 million during the first half of 202548 - Divested six hospitals or ownership interests in hospitals during the first half of 202549 - Additional cash consideration is contingent upon approval of supplemental reimbursement programs related to a 2024 divestiture49 Note 4. Goodwill - The goodwill balance at June 30, 2025, was $3,604 million, down from $3,789 million at year-end 202450 - Goodwill allocated to divested or held-for-sale hospitals amounted to $(187) million during the first half of 202550 - The last annual goodwill impairment evaluation in Q4 2024 indicated no impairment51 Note 5. Income Taxes - The provision for income taxes increased to $118 million for Q2 2025 and $160 million YTD57 - Effective tax rates were 26.9% for Q2 2025 and 31.7% YTD, influenced by non-deductible goodwill from divestitures57 - Unrecognized tax benefit was $44 million at June 30, 2025, with a newly enacted federal bill's financial impact currently not determinable5458 Note 6. Long-Term Debt - Total long-term debt decreased from $11,432 million at year-end 2024 to $10,840 million at June 30, 202560 - Issued $700 million of 10.750% Senior Secured Notes due 2033 and completed a tender offer for $584 million of 6⅞% Senior Unsecured Notes due 2028, resulting in a $138 million gain6064 - The ABL Facility has $305 million outstanding and $483 million of additional borrowing capacity at June 30, 20256566 Note 7. Fair Value of Financial Instruments Fair Value of Debt Instruments | Debt Instrument (in millions) | Carrying Amount (June 30, 2025) | Estimated Fair Value (June 30, 2025) | Carrying Amount (Dec 31, 2024) | Estimated Fair Value (Dec 31, 2024) | | :--- | :--- | :--- | :--- | :--- | | 8% Senior Secured Notes due 2027 | $— | $— | $696 | $700 | | 5⅝% Senior Secured Notes due 2027 | $1,730 | $1,731 | $1,722 | $1,686 | | 6⅞% Senior Notes due 2028 | $42 | $35 | $622 | $457 | | 6% Senior Secured Notes due 2029 | $628 | $620 | $626 | $577 | | 5¼% Senior Secured Notes due 2030 | $1,473 | $1,361 | $1,468 | $1,261 | | 4¾% Senior Secured Notes due 2031 | $1,055 | $901 | $1,054 | $822 | | 10⅞% Senior Secured Notes due 2032 | $2,212 | $2,359 | $2,212 | $2,299 | | 10¾% Senior Secured Notes due 2033 | $698 | $721 | $— | $— | | 6⅞% Junior-Priority Secured Notes due 2029 | $1,182 | $993 | $1,175 | $940 | | 6⅛% Junior-Priority Secured Notes due 2030 | $1,179 | $909 | $1,175 | $842 | | ABL Facility and other debt | $325 | $325 | $359 | $359 | Note 8. Fair Value Fair Value Hierarchy for Assets (June 30, 2025) | Asset (in millions) | June 30, 2025 Total | Level 1 | Level 2 | Level 3 | | :--- | :--- | :--- | :--- | :--- | | Investments in equity securities | $79 | $79 | $— | $— | | Available-for-sale debt securities | $215 | $— | $215 | $— | | Trading securities | $5 | $— | $5 | $— | | Total assets | $299 | $79 | $220 | $— | Fair Value Hierarchy for Assets (December 31, 2024) | Asset (in millions) | December 31, 2024 Total | Level 1 | Level 2 | Level 3 | | :--- | :--- | :--- | :--- | :--- | | Investments in equity securities | $69 | $69 | $— | $— | | Available-for-sale debt securities | $192 | $— | $192 | $— | | Trading securities | $5 | $— | $5 | $— | | Total assets | $266 | $69 | $197 | $— | Note 9. Leases - Total operating lease cost was $74 million for Q2 2025 and $142 million YTD81 - Operating lease right-of-use assets were $599 million at June 30, 2025, down from $623 million at year-end 202481 - Cash paid for operating leases was $82 million YTD, down from $91 million in the prior-year period82 Note 10. Stockholders' Deficit - Total stockholders' deficit improved from $(1,676) million at year-end 2024 to $(1,412) million at June 30, 202587 - The Company has approximately $300 million of capacity for permitted dividends and/or share repurchases as of June 30, 202585227 Note 11. Earnings Per Share - Weighted-average basic shares outstanding for Q2 2025 were 133,763,73389 - Dilutive securities added 1,119,248 shares for Q2 2025 and 852,131 shares YTD to the diluted share count89 - Dilutive securities were not considered for prior-year periods due to a net loss, making their effect antidilutive89 Note 12. Segment Information - The Company operates as a single reportable segment: hospital operations92 - Net income for the segment was $320 million for Q2 2025 and $345 million YTD95 Note 13. Contingencies - Liability for probable contingencies was $17 million at June 30, 202599 - Management does not believe that loss contingencies will have a material adverse effect on the consolidated financial position or liquidity96 Note 14. Subsequent Events - On July 22, 2025, the Company agreed to sell select ambulatory outreach laboratory services to Labcorp for $195 million101108 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, condition, and future outlook, highlighting key operational and strategic developments Acquisition and Divestiture Activity - Acquired operating assets of certain physician practices and clinics for less than $1 million in the first half of 2025105 - Divested six hospitals or ownership interests, generating approximately $1.0 billion in net proceeds106108 - Agreed to sell ambulatory outreach laboratory services to Labcorp for $195 million subsequent to the quarter end108 Overview of Operating Results - Net operating revenues decreased slightly, but increased 6.5% on a same-store basis for Q2 2025110138 - Net income was $320 million for Q2 2025, driven by gains from early debt extinguishment and hospital divestitures111112113 - Consolidated inpatient admissions decreased, but same-store inpatient admissions increased 0.3% in Q2 2025111115135 Overview of Legislative and Other Governmental Developments - U.S. Supreme Court decisions and federal elections increase regulatory uncertainty and legal challenges to healthcare regulations116 - The 2025 Reconciliation Bill is expected to decrease access to health insurance and result in significant cuts to federal healthcare spending, particularly Medicaid117119120 - Changes to Medicaid financing, mandated Medicare spending reductions, and 340B program adjustments are expected to adversely impact results120122123124 Sources of Revenue - CMS increased Medicare inpatient payment rates by approximately 2.9% for federal fiscal year 2025130 - The 2025 Reconciliation Bill is expected to decrease access to health insurance and result in significant cuts to federal healthcare spending, impacting revenues128 Revenue by Payor Source | Payor | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Medicare | 17.3% | 17.9% | 18.0% | 18.5% | | Medicare Managed Care | 17.4% | 17.8% | 18.3% | 18.1% | | Medicaid | 17.4% | 14.8% | 16.2% | 14.4% | | Managed Care and other third-party payors | 47.3% | 47.9% | 46.9% | 47.5% | | Self-pay | 0.6% | 1.6% | 0.6% | 1.5% | | Total | 100.0% | 100.0% | 100.0% | 100.0% | Results of Operations - For Q2 2025, net income attributable to stockholders was $282 million, a significant improvement from a $(13) million loss, driven by a $239 million net gain on business sales and a $138 million gain on debt extinguishment9135138141143146 - For the six months ended June 30, 2025, net income attributable to stockholders was $269 million, compared to a $(55) million loss, with same-store net operating revenues increasing by 5.0%9135147150152156 Liquidity and Capital Resources - Net cash from operating activities increased to $208 million YTD, while investing activities provided $786 million, primarily from $1.0 billion in proceeds from hospital dispositions157158159 - Net working capital increased by $408 million to $1.4 billion at June 30, 2025160 - The Company had $483 million of borrowing capacity under its ABL Facility and expects total capital expenditures of $350 million to $400 million in 2025162163164173 Critical Accounting Policies - A 1% difference in estimated reimbursement could change net income by $98 million and net accounts receivable by $126 million for the first half of 2025178179 - A 1% difference in estimated patient accounts receivable collection could change net income by $36 million and net accounts receivable by $47 million for the first half of 2025183186 - Goodwill of $3.6 billion is evaluated annually for impairment, and a 1% change in professional liability claim assumptions could impact reserves by $5 million to $10 million190191193197199 Recent Accounting Pronouncements - The Company is evaluating the impact of ASU 2023-09, which improves income tax disclosures, effective for annual periods after December 15, 2024206207 Forward-Looking Statements - Key risks include economic conditions, healthcare policy changes, substantial indebtedness, legal proceedings, and payor reimbursement policies209 Item 3. Quantitative and Qualitative Disclosures about Market Risk No material changes in market risk disclosures occurred during the quarter compared to the 2024 Form 10-K - There were no material changes in market risk disclosures during the three months ended June 30, 2025, compared to the 2024 Form 10-K212 Item 4. Controls and Procedures Disclosure controls and procedures were deemed effective, with no material changes in internal control over financial reporting - Disclosure controls and procedures were effective as of June 30, 2025213 - There were no material changes in internal control over financial reporting during the three months ended June 30, 2025214 Part II. Other Information Item 1. Legal Proceedings The company discloses ongoing legal, regulatory, and governmental proceedings and their potential financial impact - The Company is subject to inquiries from various government entities regarding Medicare/Medicaid issues216 - The Department of Justice is conducting a criminal investigation into a former medical director at a subsidiary hospital219 - The Company received favorable rulings in the Tower Health v. CHS case, while a motion to dismiss was partially granted in the Golden v. CHS case related to the Quorum Health spin-off220221222 Item 1A. Risk Factors No material changes were reported to the risk factors previously disclosed in the 2024 Form 10-K - There were no material changes to risk factors previously disclosed in the 2024 Form 10-K223 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company withheld shares for tax obligations and has capacity for stock repurchases under debt covenants - 9,716 shares of common stock were withheld to satisfy tax obligations related to restricted stock awards during Q2 2025225 - There were no publicly announced share repurchase programs during Q2 2025226 - The Company has approximately $300 million capacity for permitted dividends and/or stock repurchases as of June 30, 2025227 Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities during the period - There were no defaults upon senior securities228 Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable229 Item 5. Other Information No other material information was reported during the quarter, including any new trading arrangements by directors or officers - No other material information was reported230 - No director or officer adopted or terminated any "Rule 10b5-1 trading arrangement" or "non-Rule 10b-5 trading arrangement"230 Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q - Various exhibits were filed, including purchase agreements, indentures for senior secured notes, and required certifications233 Signatures The report is duly signed by the company's executive officers - The report was signed by the CEO, President & CFO, and SVP & Chief Accounting Officer on July 24, 2025235236