Good morning. My name is Mike, and I will be your conference operator today. At this time, I would like to welcome everyone to the Community Health Systems 2018 Q3 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there'll be a question-and-answer session. I will now turn the call over to Mr. Ross Comeaux. You may begin your conference.

Thank you, Mike. Good morning and welcome to Community Health Systems third quarter conference call. Before we begin the call, I'd like to read the following disclosure statement. This conference call may contain certain forward-looking statements, including all statements that do not relate solely to historical or current facts. These forward-looking statements are subject to a number of known and unknown risk, which are described in headings such as Risk Factors in our Annual Report on Form 10-K and other reports filed with or furnished to the Securities and Exchange Commission. As a consequence, actual results may differ significantly from those expressed in any forward-looking statements in today's discussion. We do not intend to update any of these forward-looking statements. Yesterday afternoon, we issued a press release with our financial statements and definitions and calculations of adjusted EBITDA and adjusted EPS. For those of you listening to the live broadcast of this conference call, a supplemental slide presentation has been posted to our website. We will refer to those slides during this earnings call. All calculations we will discuss also exclude discontinued operations, gain or loss from early extinguishment of debt, impairment expense, as well as gains or losses on the sale of businesses, expenses incurred related to divestitures, expenses related to government and other legal settlements and related costs, expenses related to employee termination benefits and other restructuring charges, expense from settlement and fair value adjustments on the CVR agreement liability related to the HMA legal proceedings and related legal expenses. With that said, I'd like to turn the call over to Mr. Wayne Smith, Chairman and Chief Executive Officer. Mr. Smith?

Thank you, Ross. Good morning and welcome to our third quarter conference call. With us on the call today is Tim Hingtgen, our President and Chief Operating Officer; Tom Aaron, our Executive Vice President and Chief Financial Officer; and Dr. Lynn Simon, our President of Clinical Operations and Chief Medical Officer. Similar to the last earnings call, I have some general comments on the company as well as our performance during the quarter. Then I'll turn the call over to Tim, who will discuss our core operations, and Tom will provide more color on our third quarter financial results. Overall, during the past few quarters, we have strengthened our company from a combination of core operational improvements, execution across our strategic imperatives and progress from our divesture program. All these investments are focused on reinforcing our competitive position within the markets, which is positioning the company well for the future sustainable same-store growth. During this time, we have improved our quality and safety through the reduction of our Serious Safety Event rates, invested in service line development across our hospitals, opened a number of new access points with more in the pipeline, built out and expanded our Transfer Center here in Franklin, Tennessee, lost our ACO program in early 2018, implemented centralized and online scheduling across our physician practices, along with other patient engagement technology, to connect patients across a continuum of care, and leveraged our data analytics capabilities to help manage expenses across the organization. We view these investments as meaningful drivers of growth and margin improvement, moving forward. And while we have seen early success, we expect to see additional benefits from our initiatives in the future. Tim will provide more detail on some of the progress later in the call. Now, I'd like to discuss some highlights…

Thank you, Wayne. As Wayne mentioned, we have made a great deal of progress with a number of operational initiatives, which we believe will help pave the way for additional growth moving forward. In terms of volume for the quarter, as Wayne mentioned, the seven hospitals that we expect to exit the portfolio in the fourth quarter of this year have been a drag on our same-store volume performance. During the third quarter, approximately 60% of our same-store admissions decline was due to these seven hospitals. The balance of the decline stemmed from fewer deliveries, mirroring the national trend of lower childbirths, the select service line closures, and select – I'm sorry, and short length of stay, Medicare toe and (8:01) knee replacement cases shifting from inpatient to outpatient status. Overall, we expect our volumes to improve from not only the portfolio rationalization that Wayne mentioned, but also from our core operational strategies. We expect that these strategies, coupled with our continued focus on expense management, will help drive improved same-store net revenue and EBIT growth over the next 6 to 12 months. Switching back to the third quarter, I believe we delivered good results. Our same-store net revenue growth was up 3.2%, which was similar to our performance during the second quarter. Our net revenue per adjusted admission was up 4% as we continue to benefit from our investments in higher-intensity service lines, physician recruitment into surgical and procedural specialties, and from select closure of lower acuity services in some markets that typically had minimal volume and were margin dilutive. Along these lines, our CMI increased across each payer class during the third quarter. It's also worth noting that in contrast to full year 2016 and 2017, the Medicare and Medicaid environment has been more stable and, at this…

Thank you, Tim. Now, I'll discuss the third quarter on a quarter-over-quarter basis. As a reminder, calculations discussed on this call exclude items Ross mentioned earlier. On a same-store basis for the quarter, we note the following: On a comparative third quarter 2018 versus 2017 basis, net revenues increased 3.2%. This is comprised of a 4% increase in net revenues per adjusted admissions and 0.8% decrease in adjusted admissions. Our in-patient admissions declined 2.3%. Our ER visits decreased 1.7%. Our surgeries increased 0.3%. Similar to the past few quarters, we delivered strong net revenue per adjusted admission performance. On a year-over-year basis, we benefited from improved acuity across all payers, better Medicare rates and a stronger portfolio of hospitals following the close of the number of divestitures. Our net operating revenues after provision for uncollectible revenue was 53% of our revenues, up 50 basis points. On a same store basis, net outpatient revenue was 53% of our revenues and increased 80 basis points. Consolidated revenue payer mix for the third quarter of 2018 compared to the third quarter of 2017 shows managed care and other increase 70 basis points, which includes Medicare Advantage. Medicare fee for service decreased 140 basis points. Medicaid increased 10 basis points. Self-pay increased 60 basis points. Based on our adjusted admissions per payer class, our managed care, Medicare fee for service and Medicaid volumes were down, while Medicare Advantage and self-pay volumes were up. During the third quarter, the sum of consolidated care, self-pay discounts and uncollectible revenue for the three months comparative periods has increased from 30.9% to 32.3% of adjusted net revenue, 140 basis point increase. Same-store uncollectible revenue is up 60 basis points from 31.5% to 32.1%. For the same-store expense items, our salaries and benefits as a percentage of net operating…

Thanks, Tom. At this point, operator, we're ready to open it up for questions. We will limit everyone to one question, so several of you will have time on this call. But as always, we're available to talk to you and you can reach us anytime at 615-465-7000.

Your first question comes from the line of Frank Morgan from RBC Capital Markets.

Good morning. I appreciate the additional color on the volume of the business, excluding the divestitures. But I'm curious, could you also give us a little color on maybe what the revenue run rate or the cash flow EBITDA run rate would be, also adjusted for those divestitures? Thanks.

Yeah. Frank, so on the – historically, we've gone back when we talked about divestiture programs and we've looked at prior years on anticipated divestitures and margin improvement. And I think if you take a look at, broadly, not just the ones that we just described being the announced divestitures, but if you look at the broad divestiture program, we're going to be pretty consistent with what we previously guided on margin improvement. Going forward, we do think that that is starting to pan out when we look at our consolidated results this quarter, up 1.8% EBITDA margin. We think the divestitures had a strong influence on that improvement as well as some of the initiatives we've got on the volume and growth side. So, we'll just guide you to that. One other thing, Frank, I'd point out is we've talked about the divestitures, $2 billion of revenue – at least $2 billion of revenue, $1.3 billion of proceeds. Also, the closures, mentioning those might be helpful. Now, that's about – if you look at 2017 revenue, that's about a run rate of around $300 million in revenue for those closures. That includes the one previously closed in Kennett, Missouri and then the two we just talked about in East Tennessee.

So, Frank, this should take us down the road of mid-teen margins in a year or 18 months or somewhere out in the future, but not-too-distant future. But we're making good progress.

Your next question comes from the line of A.J. Rice from Credit Suisse. Your line is open. A.J. Rice - Credit Suisse Securities (USA) LLC: Hi, everybody. Maybe just sort of a multipart question about your finances. Strong cash flow trends in the quarter, definite improvement obviously over the first half of the year. Is there anything unusual in there? I know you've talked about the divestitures a little bit in your prepared remarks. But I just want to single that out. And then, now you've got the $266 million payment in the fourth quarter, and then you talked about your sources of liquidity to make that payment, and then also whether you have to get the approvals from any of your lenders to do that. And then finally, just where you're at on the covenants, if you don't mind.

That's more than one question, A.J. A.J. Rice - Credit Suisse Securities (USA) LLC: It's all about finances.

Same category.

I'm still writing those down. Okay, A.J., let me take a swing at this. First of all, the cash flows, we did not have any unusual amounts influencing our cash flows from operations. I think, mostly we spent a lot of time Q2 talking about the impact of divestitures and the acceleration of interest payments and the fact that would not be recurring, and that did, in fact, play out, focused on our receivables and our payables as well. So, no unusual items on that. With respect to the $266 million, looking at this, we have $335 million in cash on the balance sheet. We've got $425 million undrawn on the revolver and about $450 million available on the ABL. We anticipated this settlement, so we made sure we have lots of liquidity for this. We did use about just over $200 million of our ABL. A substantial portion of that has been paid already in October and then the rest with cash. And then, there's some – just final amounts will be paid in the fourth quarter as well. Likely, the small amounts will be paid in cash. Because a lot of this was anticipated and included in the refinancing, we did not have to get approvals from any of our lenders to fund this. And then, with respect to the covenants, where – we have a first lien coverage covenant, we're at 5, is our covenant. We were at 4.6 in Q3. And as you probably know that steps down with first quarter of 2019 to 4.75, and we like the fact that we're already under that with expected improvements.

You next question...

I just want to add real quick that we're very happy to have the HMA matter over with. It's been a long haul, and that has been a little bit of a distraction. But generally speaking, we're very happy and pleased to have that concluded. Thank you.

Your next question comes from Josh Raskin from Nephron Research. Your line is open.

Hi. Thanks. Good morning, guys. Wanted to understand a little bit more around the decision process on closing the facilities and the potential impact there. I assume those are money losers at this point, but I don't want to be presumptuous. I know you gave the revenue number. And how do you think about that factoring into your existing networks in terms of volumes? And is it one of these scenarios where we shut the hospital down, but we don't necessarily lose all of the volumes? And again, this has actually become EBITDA-enhancing as part of that process?

Thank you, Josh. This is Tim. I'll go ahead and give you some updates on those decisions. Overall, first of all, the hospitals that are closing are a drag on the market, on the Knoxville market. So with that being said, we've been investing in some capital expansion projects at some of the remaining facilities in that network to take on the service lines, the capacity, the physicians that we think will strengthen us for the long run. So, for instance, expanding our orthopedics capacity, building out OB capacity, cardiac capacity and some of the stronger network performers that's taking place. And by the first part of next year, those projects will be in a much better space to take on the volumes from the closure of the larger Knoxville hospital. So, it does strengthen us overall. It strengthens our underlying volume trends in the market. It strengthens the EBITDA profile, cash flows from the market. So, we feel real good about that consolidation decision.

Josh, I would just add that as we look longer term, bigger picture, it's been mostly – it's been transaction and divestitures to date, but this is an important part about trying to accelerate and make sure we get down to the right portfolio of hospitals, profitable, strong cash flow that put us in the best position as soon as possible to start looking at our balance sheet options. So, we're happy with the progress we're making on this. And as Tim mentioned, especially in situations like this, where we're able to capture some of those services elsewhere.

And this has no reflection on the employees or the physicians. This is a good group of people. They're well qualified. They do excellent work. It's a market share issue for us and how we can best consolidate in the market. Morristown is particularly sensitive to me since in 1974, I was the first trainee there when I was working at Humana. So I hate to see that one close, but this is the right decision. And these are good people that work in these facilities.

Your next question comes from Brian Tanquilut from Jefferies.

Hi, guys. This is Bryan Ross on for Brian Tanquilut. I just had a question on the rev per adjusted admission, very strong again at 4%. Can you provide any more detail on the moving parts there, I guess, thinking about overall acuity, payer mix, 340B, other factors in terms of the magnitude on that measure? And you spoke about the admissions growth ex the planned divestitures and closures. Is there any difference on the rev per adjusted admission metric for the core facilities?

Yeah. So let me start, Bryan, just talking about that stat you mentioned, our net revenue per adjusted admission was up 3% this quarter. I'm going to back up to the fourth quarter of 2017, that's when we started seeing the benefits of a service line focus going for a higher-acuity service lines that started flowing through our case mix and our net revenue per adjusted admission. For several years before that, we had been around 2% on that statistic. Fourth quarter, that started stepping up to 2.7%. Effective January 1, the Medicare outpatient rates, we got the benefit of the 340B, which gave us about a 4% increase in that area. That translated to maybe 40 basis points or 50 basis points on net revenue per adjusted admission. So, that will carry through the fourth quarter, just that piece will. And then, we might have had a little bit of one-time with respect to the hurricanes last year impacted our payer mix more towards self-pay. We had to cancel surgeries, especially in Florida which was higher payment. So, some of that would have been due to that. But I think where we were, if you look at the fourth quarter of last year, and where we've been in Q1 and Q2 is probably more of a normalized on that stat.

Your next question comes from the line of Ana Gupte from Leerink Partners.

Yeah. Hey. Thanks. Good morning. The question was on the mid-teens margin expansion goal that you're setting for the 12 to 18 months. Can you give us a sense for what portion of that is coming from the markets that you're in and does the contract rates you're likely to get there now on other volume trends, top-line trends versus just OpEx efficiencies and the like and how that plays into your physician strategy, which haven't heard about that for a bit now?

Sure, Ana. So, there's two parts to that. One is when we look at these core markets that we're going to be operating when we're done with the divestiture program, when we look back historically on what they've done from a volume standpoint, much better volume statistics than what we've presented, even same-store more recently, because that still have divestitures to go. They also have a better history of their net revenue per adjusted admission. They have more relevance in their market and they're able to achieve better rates from their payers in those markets. So, they've got a history of that as well. So, we think that's a good indicator of where we're going to be with those hospitals once we've wound down. We know that from our expense management that we've been able to achieve so much on SWB, and we've started on to slide (31:23). Going forward, we have some opportunities with – if we're getting rate and we're getting volume, we're pretty comfortable we can grow EBITDA at those hospitals as we have in the past. And we still have a lot of hospitals that are showing great EBITDA growth and volume growth as well. So, we're going to – that's going to be a bigger portion of our portfolio going forward. The other thing it does is just pulling out the divestiture that's been a drag on our margin, that's been a drag on our free cash flow. And so, we are doing everything we can to expedite that, the newer twist to that with the closures – three hospital closures that we have now announced. So, we are really focused on accelerating that, getting that done, getting the divestitures done at the right price. So, I think those are the two bigger contributors to that. But I want to emphasize, we do believe on our core hospitals, we are going to be growing our EBITDA margin on those, based on history and everything we've seen to-date.

Another contributor would be we're expanding capacity in some of our higher-margin markets. Those projects are underway. We believe we can grow more market share in those markets which will obviously grow the margin for the company in total. In terms of our medical staff development and physician recruitment strategy, we've been very strategic in our focus on this, being very careful not to over-recruit, but to really put in the right physician to drive the right service line strategy in our primarily remaining portfolio markets. We've invested heavily in primary care development. We're up a good number of primary cares in their start-up phase this year. I mentioned earlier, really having strong growth in primary care visits will certainly help us drive our market share, our market performance across the portfolio. And more importantly, it will drive more of the higher-acuity service lines that we're building out in our hospitals. We have a great deal of – a great number of doctors in start-up, as I said, over 200 doctors that are new to the markets that we serve. We are very focused on ramping them up as quickly as possible to improve our competitive position in the market, but also, as I said, to drive those service line strategies. And I also mentioned the ACO. Short of having to recruit every doctor new to our market, we've been very focused on better alignment strategies with the independent physicians in the communities, and a 97% retention rate of the primary cares who've signed on initially, adding another 150 this year, we believe we are building a health care community with providers to drive our core portfolio growth.

Your next question comes from Sarah James from Piper Jaffray. Sarah E. James - Piper Jaffray & Co.: Thank you. Breaking into some of the pieces for the margin expansion, you mentioned that you thought you had additional savings opportunities in 2019 for supply expense. So, can you help us understand the scale of that additional opportunity versus what you've already recognized through your programs? And for the progress this year on both the commodities and the pharmaceutical savings, should we think about that more as related to negotiations with vendors on price point, or is it more of utilization management? Thanks.

Okay. Sarah, thanks for the question. There's probably, on the supply side, and I want to hit on purchase services as well, but the supply side, there's probably two components of that. One is, we buy a lot of our supplies through HPG or GPO. And if you look at it this way, for any item, there might be 20 to 40 items under contract. Using our data analytics, we want to put the person who is requesting the item, we want to put information in front of them. So instead of looking at the 20 to 40, picking from those, we point them to the maybe the two best items, highest quality, lowest-priced items on that list so that, upfront, they make the right choice on that select item. So, that's one piece. And you might want to look at that as non-physician preference items, but just being better with that. And then we can do that with data similar to what we've been able to do with labor. The second piece of that is when we're looking at implants, it's been a one item that we've called out quite a bit. We do have the ability getting better information on prices at our hospital, who's using which vendors and so forth, to better organize our consumption and the market share by certain vendors, and to negotiate off of that. And you could even have some negotiation without that, but we think that's where you really optimize that and that's what we're looking to do. With the help of Cardinal Health, we've been able to do this on drug spend and point towards better purchasing decisions on the drug side that's helped quite a bit with our supplies to-date. But we – again, leveraging data on both of those areas of supplies, we think we have a significant improvement there. I think we had 30 basis points for the quarter. That's coming off another quarter where we had some improvement and we still think that the most is still to come on the supply side. Using purchase services and procurement strategy, we think we can improve in that area as well. So you think about maybe dietary, security, maintenance in our facilities, we do have the ability to better contract those and get more competitive bidding going on, better national contracts. And we think, there's some opportunity in that space in the procurement area as well.

Your next question comes from Ralph Giacobbe from Citigroup.

Thanks. Good morning. Can you maybe give us a sense of why you think or what's driving the push-out of the timing of some of the divestitures? Is it just a slimmer number of buyers than what you thought or are you far apart in negotiation? And I guess, are you still confident that all the identified divestitures will happen and maybe should expectations for proceeds change? Thanks.

All right, Ralph. So, we're still very confident in the at least $2 billion, and want to point out we're still getting significant inbound interest in the proceed amount there. When we look at especially compared to last year when we divested 30 hospitals; one, we had two very large individual transactions. Steward was 8 hospitals and then in Pennsylvania, 5 hospitals last year in single transaction. We're not dealing with transactions of that size with so many hospitals. We still have very strong strategic buyers that are involved. In most cases, we've got two options at least with the strategic buyers of some of the bigger hospitals in the bigger marketplace. And we see those – some of those, it's just a newer transaction. For some of those buyers, they're hiring new counsel. They're getting advisors involved with that. So, that is just taking a little more time. We've got one transaction that's structured slightly differently so that we're working a little bit longer on those. And I would say there are some smaller hospitals involved in this. And you can tell the ones we closed earlier were smaller transactions. The hospitals that we have closed so far, we talked about being mid-single digit as a portfolio of this year's divestitures. The ones we closed on so far are the lower performers in that. And so, if you looked at the proceeds relative to revenues, those aren't very high. However, the proceeds relative to the EBITDA are extremely high on those. So, I think, going forward, you're going to see higher proceeds to revenue numbers, and on the EBITDA multiples, maybe slightly low. But we're confident we're going to get those done. Those will pushback, we'll get those done in the fourth quarter of 2018 and then into 2019.

The only thing I would add to that is that most of these acquisitions are geographic-specific and that there is someone in that area that has an interest to add to their portfolio or to their network. So, we don't really – even though there are a number of people selling hospitals today, there's not any competition around this, except for the fact that there are a lot of not-for-profits and other people that are interested in our property. So, it's still going well.

From everything we're hearing, the kind of broad provider strategy about having better market share helps them with their rate and other operational areas, that's still true. And so, that's still going to drive demand for our hospitals.

Your next question comes from the line of Kevin Fischbeck from Bank of America.

Great. Thanks. Can you talk a little bit about what you see as kind of the core growth of demand for services in your markets? I think over the last five-plus years, it really seems like the urban-focused hospitals have been seeing a lot stronger core demand in their markets than the non-urban companies. I just want to get your sense of kind of what you think the core growth is there and how much of that is going to be based upon you just getting your fair share of that core growth versus maybe the growth being a little bit lower and you have to gain market share to be growing volumes organically?

Sure, Kevin. This is Tim. I'll kick off the answer to that. Overall, with the portfolio rationalization that's been underway, we have seen a shift in our market profile to more of the, I'll say, suburban or smaller urban markets. As a matter of fact, our average population has grown and we've kind of shared this with some folks who visited us in the last couple of months, some of the road shows that are mid-tier market, if you will, is about 180,000 – our 50th largest market has a population of 180,000. So, getting larger helps us drive those service lines, development strategies, faster growing. We see improved dynamics across employment indicators and population growth indicators and overall demographics in those markets. So when you look at what's left in the portfolio when we're through the rationalization, we do believe we have a group of assets in markets that we can really deploy the strategic initiatives I've been walking through in terms of service line development, transfer centers, primary care development, access points. All those things will grow and drive the market shares to drive the margins and the earnings going forward.

Yeah. Just one other piece I would add to Tim's point about our 50th largest market. When we are looking at post these planned divestitures, we're only going to have six hospitals that are going to be in combined service areas of 50,000 or less. So, very few hospitals that are in rural. We do have some very successful rural hospitals, by the way, that we intend on keeping and operating. But we're going to be less in that area and more in the markets Tim mentioned.

Your next question comes from the line of Patrick Feeley from Barclays.

Thanks. Good morning. In the past, you've talked about the total pool of assets slated for divestitures having negative free cash flow. Is there any way to quantify the free cash flow from these assets year to date? Or alternatively, what do you think the free cash flow profile of the company is once these sales are fully done? Thanks.

Patrick, we called out the 2017 divestitures, and this is divested in 2017. So, we're looking at free cash flow from those hospitals in 2016. And those were negative $250 million that we've talked about. The portfolio we're talking about for the 2018, the $2 billion in revenue and $1.3 billion of proceeds, those hospitals are going to be less than that. This is not from a negative free cash flow. It is the same level. Plus, it's going to be fewer – it's only $2 billion of revenue versus $3.4 billion. So, it's going to be less than that. But it is a meaningful number for us. We are already starting to see the impact on our free cash flow as we project out our free cash flow. We like what we're seeing, as that has come out to operate those hospitals, some of these had very old campuses that were requiring a lot of CapEx. So, we're seeing that improvement. And we would anticipate that we'd continue to benefit from that, from the divestitures and the closures.

Our last question comes from Steve Tanal from Goldman Sachs. Stephen Tanal - Goldman Sachs & Co. LLC: Good morning, guys. Thanks for the question. I guess I just wanted to ask one about the working capital improvement, good outcome this quarter. Was there anything unusual that helped the performance there or can you all run the business at these levels going forward?

Well, so on the working capital, there were no real unusual items in there. We do have some things like interest payments that will be – it's a little heavier in the second and fourth quarter than we do have in the third. We are going to have, as we discussed already, the CVR settlement that's going to be in the fourth quarter. And the other thing that played out that we called, Steve, out in the second quarter, we had some divestitures that closed just one month before the quarter end. And compared to the prior year, we had the Steward transaction, eight hospitals closed, two months prior to quarter end. When it's closing a month before quarter end, we pay all the payables immediately and it takes time to collect the receivables and we retain working capital. And so, that influenced the second quarter as well as, we mentioned, the acceleration of the interest payments. Going forward, though, as I mentioned on Patrick's call, free cash flow does improve quite a bit once we complete divestitures and closures. We're already seeing the impact of that. We continue to project that. So, we do think that we're going to get an improvement in our core hospital free cash flow. And the only other thing I would say going forward is just the timing of the divestitures and when those fall. Just like they did in the second quarter, those could impact it, one direction or the other, going forward. But from the core, we do like our trajectory for free cash flow.

I'll now turn the call back over to Mr. Smith for closing comments.

Thank you, again, for spending time with us today. We're focused on the strategies that we've outlined. We want to specifically thank our management team and staff, hospital chief executive officers, hospital chief financial officers and chief nursing officers, and division operators for their continued focus on operational performance and quality. This concludes our call for today. We look forward to updating you on our progress throughout the year. Once again, if you have any questions, you can always get and reach us at area code 615-465-7000. Thank you.

This concludes today's conference call. You may now disconnect.