Community Health Systems, Inc. (CYH) Q4 2019 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to the Community Health Systems Fourth Quarter and Year-End 2019 Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Mr. Ross Comeaux, Vice President of Investor Relations. Thank you. Please go ahead.

Thank you, Mike. Good morning, and welcome to Community Health Systems' fourth quarter and year-end 2019 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 risks 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 have been posted to our website. We will refer to those slides during this earnings call. All calculations, we will discuss also exclude: 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 employee termination benefits and other restructuring charges; expenses from government and other legal settlements and related costs; expenses from settlement and fair value adjustments; and legal expenses related to cases covered by the CVR; change in valuation allowances recording for promissory notes; change in estimate for professional liability claims accrual; tax effects related to HMA legal settlement and change in tax valuation allowance. With that said, I'd like to turn the call over to Mr. Wayne Smith, Chairman and Chief Executive Officer.

Thank you, Ross. Good morning and welcome to our fourth quarter and year-end 2019 conference call. With us on the call today is Tim Hingtgen, President and Chief Operating Officer, I just gave you a promotion; Kevin Hammons, Executive Vice President and Chief Financial Officer; and Dr. Lynn Simon, President of Clinical Operations and Chief Medical Officer. We're pleased to welcome Kevin to the first CHS earnings call today. Kevin is a 22-year veteran of the company, and we're all excited to have him in the CFO role now, after most recently serving as Assistant CFO and Treasurer. 2019 was a good year for Community Health Systems. We advanced a number of strategic initiatives that are designed to drive long-term growth, and we began to see the kinds of results we've been expecting from our stronger portfolio. We're especially pleased with our strong finish to 2019, and as we enter 2020 with positive momentum and optimism about our future. Looking at the fourth quarter performance, there are a number of items worth highlighting. We saw a continuation of good volume performance. On the top line same-store net revenue growth was 3.7%. Adjusted EBITDA was $447 million, which increased 7% compared to the prior year despite a number of divestitures. Adjusted EBITDA margin of 13.6%, improved 150 basis points year-over-year. And the 13.6% adjusted EBITDA margin marks the highest margin we've achieved since the fourth quarter of 2019. During the quarter, we made progress across SWB supplies and other operating expense categories with most expense savings expected throughout 2020. As we look back at the full year of 2019, the company drove significant progress across multiple areas. In 2019, our executive management team and hospital leadership teams focused on key areas that included: one, advancing the company's strategic imperatives, safety and quality, operational excellence, connected care and competitive position. Major initiatives under each of these imperatives are producing growth increasing efficiencies and improving financial performance. Secondly, making progress toward the completion of our divestiture program, which has improved the company's remaining portfolio in a group of health care systems with higher growth potential. Today, over 80% of our hospitals are in markets with population of 50,000 or more people. Building inpatient/outpatient services to effectively deliver patient care across the health care continuum and continuing – extending significant debt maturities, which has provided a runway to execute our strategic growth plans. With the accomplishments made in 2019, debt should not be a burden or a distraction this year. The results are reflected in our 2019 performance. On a full year same-store basis, it was a strong year for the company. In 2019, same-store admissions were up 1.3% and adjusted admissions were up 2.2%, which was our strongest performance since 2008. Full year same-store net revenue growth was 4.2%, which was the company's strongest performance since 2012. As we think about all of the initiatives we've executed, or are still in the process of implementing throughout the organization we're excited about the future. We expect to continue positive trends in 2020 and to deliver incremental EBITDA growth this year and beyond which should lower our leverage and improve our cash flow performance. As I mentioned, the company has made considerable progress on all of our strategic imperatives. Today, I want to highlight our safety and quality imperative. One quality metric that we track is the organizational serious safety event rate which has been monitoring – which we've been monitoring since 2012 as part of our work to deliver high reliability safe patient care. We have seen a significant improvement in this measurement through third quarter 2019. We have reduced our serious safety event rate by 84% and we have sustained a reduction of over 80% since 2017. We're making progress in other areas including improvements in CMS focus areas. In a minute, Tim will provide additional details about our accomplishments and work to advance the other strategic imperatives. Turning to divestitures, as I mentioned early – earlier, we have effectively reshaped our portfolio. And as we shift more of our focus and resources to these stronger health care systems and markets, we're seeing the results. Through the end of the fourth quarter 2019, as part of this plan, we completed divestitures accounting for approximately $2.3 billion of net revenue generating approximately $1 billion in gross proceeds at good transaction multiples of 10 times to 12 times EBITDA. We expect to complete this divestiture plan by the middle of the year generating approximately $300 million of additional gross proceeds. We now have more than nine divestitures behind us, a formidable challenge and complex task to say the least. As much as we work to minimize the disruption of separating assets out of our company the process of divesting hospitals require the attention of our teams. Our approach to managing divestiture activity, while prioritizing ongoing operations has helped to make this program more successful. As divestiture activity comes to a close full attention now can be placed on markets that remain with our organization long term. As we disclosed in January, our full year 2020 guidance includes net operating revenues adjusted for expected divestiture timing are anticipated to be $12.4 billion to $12.8 billion. Adjusted EBITDA is anticipated to be $1.65 billion to $1.8 billion. Kevin will provide more details on this later in the call. In summary, we're pleased with our improvements and the momentum established in 2019 and confident in our ability to continue these positive trends. We expect to make steady progress in 2020 as we advance each of our strategic imperatives continue to channel our energy into growth initiatives and execute our strategic margin improvement program to control cost and improve same-store EBITDA. Now, I'd like to turn the program over to Tim.

Thank you, Wayne. Overall, we finished the year strong and we are focused on delivering incremental growth going forward. Looking at 2020, the company is focused on delivering volume and market share gains through continued execution across our growth initiatives. And we expect to continue to execute on our strategic margin expansion programs. Also, as we enter 2020, it's worth noting that the reimbursement environment remains generally stable which positions the company well to deliver future growth. On today's call, I will walk through some highlights from the fourth quarter and share the latest on a few of our strategic priorities. First in terms of the flu, we experienced a ramp-up of flu-related visits late in the quarter. Overall, however, this was lower-acuity flu volume that yielded increased physician clinic urgent care and ER visits. Due to the low-acuity nature of this year's flu, we don't believe that it impacted year-over-year inpatient admissions or EBITDA. On the overall volume side, fourth quarter same-store admissions improved 0.1% while adjusted admissions increased 1.8%. Surgeries grew 3% due to both physician and capital investments and targeted service lines. ER visits were up 3.4%. This growth continues to be driven by our transfer-center model enhanced clinical and EMS outreach programs and freestanding ED growth. Same-store net revenue increased 3.7% in the quarter. During the fourth quarter we were pleased with our volume and net revenue performance. And in terms of full year 2019 as Wayne just mentioned, we experienced our best same-store volume and same-store net revenue performance in roughly a decade. Volume growth is evident in areas where we have focused our energy and investments. During 2019, we delivered strong volumes in cardiology, orthopedics, neuro and trauma as well as other service lines. We have a stronger portfolio today than we did two years ago. On page 7 of our supplemental slide presentation, we show the performance of our core hospitals and markets or those that were same-store at the end of the fourth quarter recast over the past two years. In 2019, we delivered stronger same-store net revenue growth and improved volume performance for admissions, adjusted admissions, surgery and ER visits. While we have been divesting generally underperforming assets, we have been extremely focused on strengthening our core health care system through targeted capital investments, strategic service line development and physician recruitment, as well as driving solid operational executions. We are seeing continued progress across our operating initiatives, which include our accountable care organizations or ACOs, the transfer program, provider base expansion, inpatient investments and outpatient access point developments. Moving into 2020, we remain focused on a variety of opportunities to drive continued growth. Today I'd like to provide you with a progress update on our ACO initiative, which just completed their second full year of operation. Our ACOs have been a very effective strategy, enabling our hospital to better align with independent and employed physicians around quality and innovation and care delivery. After driving increased ACO participation from 2018 to 2019, we continued that trend into 2020. We have added approximately 20,000 Medicare Fee-for-Service lines, more than 150 new independent physicians as well. And for the second straight year we achieved a strong 97% renewal rate of independent primary care physicians engaged in our ACOs. Through this initiative, we're demonstrating that we can be a strong partner to physicians with a shared focus on outcomes and value for our patients. Our in-house transfer program remains a key volume initiative. This service continues to provide valuable operational visibility into our operations and better insights into new service line development and physician hiring opportunities that line up with demonstrated market demand. During 2019, we expanded our transfer center service into 17 additional hospitals with the program now supporting 63 CHS hospitals in 25 markets. By the end of 2020, we expect to complete our planned rollout with the transfer center serving approximately 75% of CHS hospitals. Turning now to primary care development. This strategy has been a targeted key growth driver for the company. Through our multiyear strategic planning process, we are ensuring we have a strong foundation of primary care providers in the right locations and with the right resources to support their practices. Today we have 80 urgent care and walk-in clinics with a good pipeline planned for 2020. We've expanded primary care over the past two years and now have approximately 1,200 employed primary care providers and 400 primary care locations. The benefits have been clear. In 2019 we saw more than four million primary care visits, which was a 20% increase over the prior year. We believe this investment bodes well for the future volume growth moving forward. In terms of capital expenditures, our investments are deployed across strong markets with good growth potential. In 2019, we had new bed additions come online in Birmingham Alabama; Palmer Alaska and Victoria Texas, as well as surgical GI and cardiac capacity expansions in Knoxville Tennessee; Cedar Park Texas and Wilkes-Barre Pennsylvania. While we have additional growth CapEx planned for these markets as we move into 2020, we also have a solid pipeline of outpatient and inpatient investments underway or planned across a number of other key markets within our portfolio. Before I turn the call over to Kevin to walk through our financials, I would like to make a few comments regarding our margin improvement programs. We were pleased to see our adjusted EBITDA margin finish 2019 strong. As we have mentioned in the past, our management team completed a strategic margin improvement program during the third quarter of 2019. The program included a detailed analysis of corporate, shared services and hospital administrative costs. Our management team, regional and hospital leaders are further refining and executing this plan, which also includes revenue cycle enhancements, outpatient operating efficiencies and other new initiatives that are being introduced. We experienced savings from this plan during the fourth quarter and we expect incremental savings to build each quarter as we move through 2020. Kevin?

Thank you, Tim and good morning everyone. I will provide additional commentary on the results from the fourth quarter and walk through our 2020 guidance. As a reminder, calculations discussed on this call, exclude items Ross mentioned earlier. On a same-store and quarter-over-quarter basis, during the fourth quarter, net revenues increased 3.7%. This was comprised of a 1.8% increase in adjusted admissions and a 1.9% increase in net revenue per adjusted admission. During the fourth quarter, our consolidated net outpatient revenues increased to 54% of our net operating revenues. Consolidated revenue payer mix for the fourth quarter of 2019 compared to the fourth quarter of 2018 shows managed care and other which includes Medicare Advantage increased 200 basis points; Medicare Fee-for-Service decreased 70 basis points; Medicaid decreased 80 basis points; and self-pay decreased 50 basis points. Looking at our adjusted admissions by payer, our managed care, Medicare Advantage, and Medicaid volumes were all up, while our Medicare Fee-for-Service and self-pay volumes each declined. During the fourth quarter of 2019, the sum of consolidated charity care, self-pay discounts, and uncollectible revenue was 31.1% of adjusted net revenue which was flat year-over-year. Turning to same-store expense items, our salaries and benefits as a percent of net operating revenue decreased 10 basis points driven by productivity management which allowed us to step over wage inflation. Supplies expense as a percent of net operating revenue for our same stores decreased 60 basis points as we have realized some of the benefits from the supply chain initiatives we've undertaken which have resulted in decreases in implant and pharmaceutical expenses. Other operating expenses as a percent of net operating revenues for our same stores increased 10 basis points due to higher IT and insurance costs, offset by decreases in purchased services. Moving on to cash flows, for the fourth quarter of 2019, our cash flows provided by operations were $194 million. This compares to cash flow from operations of negative $165 million during the prior year quarter. Looking at the quarter-over-quarter increase, first as a reminder, the 2018 period included the payment for the HMA legal settlement of $266 million. Secondly, cash interest payments during the fourth quarter of 2019 were approximately $98 million lower in part due to the timing of interest payments affected by our refinancing activities. And lastly, other increases and decreases including EBITDA year-over-year growth were offsets to cash flows during the quarter. There were a couple of headwinds worth noting during the fourth quarter of 2019. In the fourth quarter the refinancing activity accelerated approximately $50 million of cash interest payments into the quarter. The company had approximately $30 million of legal and -- legal settlement payments during the fourth quarter and higher malpractice payments that were approximately $20 million. For the full year of 2019, our cash flows provided by operations were $385 million compared to $274 million for the full year of 2018. Looking at the year-over-year increase, again, the 2018 period included the $266 million payment for the HMA legal settlement, higher interest payments of approximately $75 million in part due to timing of refinancing activity, and higher cash outflow from malpractice claim payments of approximately $90 million. As we think about recent cash flow performance, we expect improved free cash flow performance in 2020. Turning to CapEx, our CapEx for the full year of 2019 was $438 million or 3.3% of net revenue. In 2018, our CapEx was $527 million or 3.7% of net revenue. We continue to allocate capital towards high-growth opportunities in a number of key markets with growth potential. Moving on to the balance sheet, at the end of the fourth quarter, we had approximately $13.4 billion of long-term debt with current maturities of $20 million. At the end of the fourth quarter, we had approximately $216 million of cash on hand on the balance sheet. In terms of the capital structure, in 2019, we completed several transactions which strengthened our liquidity and improved the company's maturity profile. Most recently, in early 2020, we completed the transaction which extended $1 billion of our 2021 notes and $425 million of our 2023 notes into 2025. After this transaction, the company has no near-term maturities with its next maturity of $231 million due in February of 2022. We expect to fund this with cash at a future date. Moving forward, we are focused on the execution of our strategic initiatives, which we expect will drive improved same-store EBITDA growth allowing the company to deleverage and drive better cash flow. Now I will walk through our full year guidance. Net operating revenues are anticipated to be $12.4 billion to $12.8 billion. Same-store adjusted admissions growth is anticipated to be 1.5% to 2.5%. Adjusted EBITDA is anticipated to be $1.65 billion to $1.8 billion. Net income per share is anticipated to be a loss of $1.30 to a loss of $0.60 per share based on weighted average diluted shares outstanding of 115 million to 115.5 million. Cash flow from operations are forecasted to be $600 million to $700 million and CapEx is expected to be $400 million to $500 million. In terms of 2020 as we've mentioned in the past, we expect expense savings from our strategic margin initiative program to build sequentially throughout the year. As such in terms of EBITDA performance for the year, we expect the cadence to be somewhat similar to 2019 with our fourth quarter being our strongest EBITDA quarter of the year. Wayne, I'll now turn the call back to you.

Thanks, Kevin. At this point, operator we're ready to open it up for questions. [Operator Instructions] But as always, if we're not able to talk to you, you can reach us at area code 615-465-7000.

[Operator Instructions] Your first question comes from Brian Tanquilut from Jefferies.

Hey good morning guys. Congratulations. And Kevin welcome to the new role. So I guess since we're allowed one question I'll just ask it to Kevin. As I look at CapEx your guidance for the year versus what you did in 2019, is that the right level of CapEx you think going forward that we should be thinking about for you to be able to drive growth? And then I guess a follow-up to that is, as I think about your debt maturities -- you've had some success refinancing recently at pretty compelling rates. Should I be thinking about some refinancings coming up as well in 2023 to take advantage of the current rate environment? Thank you.

Thanks, Brian. I'm glad to be here. In terms of CapEx, we do think that's the right amount of CapEx going forward. Keep in mind that we've had -- we're coming off kind of the best revenue growth that we've had in a number of years. And our CapEx as a percent of net revenue is pretty similar to what it's been in the past. We're investing in high-growth opportunities as well as making other investments maintenance, capital investments and we think that we're making the right level of investments. We also have a number of growth areas like our transfer center, our primary care development, which are less capital intensive. And so we'll continue to be able to drive growth from those. Related to our debt, we'll continue to be opportunistic and look forward to opportunities to refinance the 2023 debt at some point in the future. But right now, we have a clear runway. And our focus is on continuing to improve our EBITDA margins and lower our debt leverage.

Brian this is Tim. I'll add on to that. I do believe we have more than sufficient CapEx committed to our highest growth markets. Always looking for opportunities to expand service lines as Kevin said with the right physician recruitment. That's obviously something we manage through our operating expenses. We also have moved a lot of our capital spend that was traditionally on the IT side to a purchased service spend. So again getting margin improvement with some of our decisions in terms of how we capitalize or how we purchase certain services, I think bodes well for us in terms of how we deploy more of our general CapEx into growth-related projects.

Your next question comes from Josh Raskin from Nephron Research.

Hi, thanks. Good morning and welcome as well Kevin. So question just around the guidance. If you look at the implied EBITDA margins of say 13.5% to 14% or so roughly, I'm curious what's the broad spread of margins across your existing 101 hospital portfolio, maybe exclude some of the outliers there. I'm just sort of thinking of what is the broad range of those? And then, how should we think about the long-term EBITDA margin for this existing portfolio?

So, just in terms of -- I'll save Kevin from this from the first. We don't really give out individual hospital margins. But as you can expect, you can figure this out pretty quickly. Our margins are -- we have substantial margins in some markets and not so substantial in some markets and that's part of our objective. But if you look at our guidance for 2020, if you get out to about the fourth quarter, so we should be in the mid-teens in terms of kind of the fourth quarter, so -- and kind of going forward. We were very pleased that we're moving up and the 13.6% for the fourth quarter of 2019 was a good performance.

Your next question comes from Frank Morgan from RBC.

Good morning. Its Anton Hie on for Frank. I just want to ask about the Medicare inpatient update that you got for the full fourth quarter. I believe also had some changes to the wage index methodology. Just how did that affect your pricing and your yield in the fourth quarter? And kind of what's the benefit of that over the full year of 2020 baked into the guidance? Thanks.

We certainly saw some benefit from that in the fourth quarter, although some of that was muted by the loss of some supplemental payment in the fourth quarter. As we look forward to 2020, we have approximately $80 million of benefit from the Medicare inpatient update that we'll get throughout the first three quarters until it anniversaries. And then effective 1/1 was the outpatient Medicare update and that increase is about $30 million in our guidance.

Your next question comes from A.J. Rice from Credit Suisse.

Hi everybody. Maybe just to drill down a little bit more on the EBITDA margin and your expectations, I guess your full year number for 2019 was 12.3% EBITDA margin and you got it growing 140 basis points. Now, I recognize you ended the year in the fourth quarter at 13.6%, but there is seasonality. So, I'm just trying to figure probably 140 basis points step-up, looks like a lot and that's probably not really fair. Do you sort of have a sense of how much incremental margin gain you really need from what you exited the year at? And then as you think about where that margin gain is going to come from in '20, is -- I guess you're forecasting mid-single-digit revenue growth. That probably gives you some leverage. But is there expense items, where there's a particular opportunity where some of that's going to come from?

Sure A.J. let me start on this. So, you're right, as we're exiting 2019, our fourth quarter is at 13.6%. We saw -- we see nice growth in our EBITDA margin going back from 2017 through 2019. Certainly, our operating initiatives with our primary care development transfer centers, many of the growth opportunities that we've been chasing as they take hold will continue to add to that margin improvement. The Medicare rate update will certainly be a benefit to us in terms of margin. And then we've been working on a number of margin improvement initiatives across various expense categories, primarily in supply chain, which we've talked about for several quarters with the new supply chain management team in place and new technology and we're getting traction on those that will also help us reduce expenses and improve our margin.

I just want to add to that that as you look at 2020 and we get out towards the fourth quarter, our margin gets into a range in terms of the mid-teens. It substantially changes. Our debt to cap and our liquidity and helps us tremendously in terms of the equity.

Your next question comes from Ralph Giacobbe from Citi.

Thanks. Good morning. Can you just give us a sense of same facility revenue or revenue per adjusted admission that's embedded in the guidance? And then, just the inpatient admission stat that sort of accelerated a bit the last couple of quarters was sort of flattish in the fourth quarter. So just anything you can call out there would be helpful. Thanks.

I would -- we had 3.7% same-store net revenue growth in the fourth quarter of 4.2% for the full year 2019. I would expect something going forward in a similar range to that into 2020. We've given the guidance on same-store volumes at 1.5% to 2.5%, which are similar same-store volumes that we experienced in the current year. So I would expect similar same-store net revenue growth.

And, Ralph, in terms of the admissions just a quick recap of what we looked into on that. Obviously, we were pleased with our overall revenue growth of 3.7%. So trying to see where was the movement from inpatient to outpatient. We were tracking that throughout the fourth quarter. The biggest shift that we saw in terms of -- from a revenue side was, the shift to more knees, total knee arthroplasties, TKAs going to outpatient, if they stay less than two midnights, which I think is reflective of our focus on that service line development in terms of advancing the quality. And with that, the lower length of stay, just seem to be growing with the better care of the patients. So that does flip it to outpatient. That was a pretty meaningful shift for us year-over-year in the fourth quarter. We also saw some shifts from inpatient to observation. Kind of correlates to our growth in terms of the Medicare Advantage population that we referenced in our commercial -- or, I'm sorry, commercial volume increases. The other item on there, which I'd like to call out, were some elective service line closures. Again, a pretty big impact for us in terms of stats, but not so much in terms of actual margin or earnings. We said that we'll always take a look at what makes sense for us as we build out our markets across the portfolio. And where we have service lines that perhaps have lower volumes or may struggle in terms of their ability to drive margin, we'll make the decision to discontinue those services if there's other options in the community and help us improve our EBITDA margin profile. And, I believe, that did shine through in the fourth quarter as well. On those elective service line closures, primarily in the post-acute space, very few of them were in the more, I guess, I'll say, general acute space.

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

Great. Thanks. I wanted to ask about cash flow. I guess, a couple of things if I could. The numbers you're talking about for next year, I guess, there is that other investment line item that doesn't fall into the CapEx number. Just wanted to see what that number is. And if you're going to be generating free cash flow after that. And then, you made a comment about how you moved purchased services. And, I guess, I want to more fully understand that, and how that either impacts the income statement or the CapEx number, so we can kind of level set that. Thanks.

Sure. In terms of other investments, we, I think, spent approximately $170 million in the current year. Included in that, this year, was about $30 million of equity investments. We would not expect those to recur next year. The other spending in that is around technology software and we've made some investments in clinical systems this year. And that's been a pretty good run rate for us over the past several years and would expect that to be relatively similar. The cash flows for next year stepped up a little bit. As we also mentioned earlier, in 2019 we had a headwind of approximately $90 million of malpractice payment -- increase in malpractice settlement payments, which we would not expect to recur next year as well. So with that, we were able to kind of step up the cash flow from operations over what we experienced in 2019, along with the improved EBITDA performance that we're expecting.

Your next question comes from Andrew Mok from Barclays.

Hi good morning. A question on the divestiture portfolio. Now that that program is winding down in 2020 and the results have already yielded some pretty nice results, can you give us a sense for some of the growth characteristics in the current portfolio versus the 2016 portfolio? How much of the volume improvement would you attribute to exiting less-attractive markets versus the team implementing programs to drive market share gains in continuing markets?

If you go -- this is Tim. If you go to slide 7 in the deck, it does do a pretty good job of calling that out for you as we recast the portfolio with an eight quarter look back. So obviously, we demonstrated that there was a stronger core with some of it sequential or historical volume improvements being muted by perhaps some of the markets that we divested. But in terms of our forward look on those markets as we pointed out, investments in the infrastructure around the ACOs, the transfer centers, the medical staff development, the physician practices, our service line focus, all those things we believe we have a stronger core portfolio to invest in which will help us deliver incremental, adjusted initial growth as we provided throughout our guidance. We're really pleased with the high-growth rates in some very competitive markets that we're seeing. In other markets where we still have opportunity to invest more develop more that's where we see growth opportunity for several years to come.

Your next question comes from Gary Taylor from JPMorgan.

Hi, good morning. I guess if I'm limited to one question, I just want to ask a little bit sort of about margin expectations in the range of EBITDA growth next year. I mean the stock has tripled in a month since you put out your 2020 guidance. But the range in that guidance is for 1% to 11% EBITDA growth. And I think given your objectives and where you are in the turnaround 1% EBITDA growth would be pretty disappointing and 11% would obviously be really exciting. So maybe just sort of help us think about why that range of guidance is so wide? And is there anything just outside of pure volume trajectory against these tougher comps that would be sort of the key variable on that range?

So let me start this one off. So we're coming out of fourth quarter with really good momentum. And we're very optimistic about 2020 as we move into the New Year getting traction on many of our growth initiatives as we've talked about. Certainly volume is going to be a key contributor to our EBITDA growth as we go into 2020 and -- as well as kind of the speed at which we're able to execute on our margin improvement initiatives. We're getting traction on them. We have a lot more initiatives in the hopper and the speed at which those kind of come to fruition will largely depend on where we fall within the range as well as I mentioned the volume improvements between the 1.5%, 2.5% growth that we're expecting.

And our last question is from Sarah James from Piper Sandler.

Thank you. Maybe I can just follow-up on that last point. So you talked about having a lot of initiatives that could drive this broad variability in where margins end up. Could you help us delineate between these which are the ones that are the biggest swing factors? And how is the rollout stage? So when will you know how successful they are?

We have initiatives kind of across all of our functional areas both here at the corporate office, as well as in our facilities that cover any number of administrative tasks as well as supply chain. We've talked about previously as we build out a new supply chain organization and changing, how we go about purchasing. how we go about contracting with many of our vendors. We've been getting good traction on the – particularly in some supply expenses around implants, pharmaceuticals. Those were the ones that started to take hold in the back half of 2019. We have a continued benefit since those took hold starting really in the third quarter and the fourth quarter, if you think about an annual benefit. We'll continue to get benefit through the first half of 2020 on those. And then as we add new initiatives to the program and execute on those we'll continue to have a pipeline of EBITDA growth and margin improvement from those initiatives.

And I will now turn the call back over to Mr. Smith for closing comments.

Thank you, Mike and thank you again for your time this morning. As we outlined today we're encouraged by all the company's achievements in 2019, as well as our strong finish to the year. We will continue to move ahead on our strategies to: one, provide outstanding care for our patients; two, earn the trust and partnership of our physicians and employees; three, to demonstrate our value to the communities we serve; and four, to reward the company's shareholders and debt holders for their confidence and investment in our organization. We're deeply grateful to our management team and staff hospital Chief Executive Officer's, hospital, Chief Financial Officer's and Chief Nursing Officer's and division operators for their continued focus on operations and performance. We're also grateful to our medical staffs and our community boards for their continued support. This concludes our call today. We look forward to updating you on our progress later in the year. Once again if you have any questions you can always reach us at area code 615-465-7000. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.