Ladies and gentlemen, thank you for standing by, and welcome to Community Health Systems Second Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ 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 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’ second 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 risks which are described in the 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: gain or loss from early extinguishment of debt, impairment expense as well as gains or losses on the sale of businesses; expenses from government and other legal settlements and related costs; expenses from settlement, legal expenses related to cases covered by the CVR; expenses related to employee termination benefits and other restructuring charges; change in valuation allowances recorded for promissory notes; change in estimate for professional liability claims accrual; change in tax valuation allowance. With that said, I would like to turn the call over to Wayne Smith, the Chairman and Chief Executive Officer. Mr. Smith?

Thank you, Ross. Good morning, and welcome, everyone, to our second quarter conference call. I’m joined today by Tim Hingtgen, our President and Chief Operating Officer; Dr. Lynn Simon, President of Clinical Operations and Chief Medical Officer; and Kevin Hammons, Executive Vice President and Chief Financial Officer. It goes without saying that the COVID fight is still on, but I think we’re fighting a very good fight as indicated by our second quarter results. We reported our first quarter results at the end of April, and I concluded my remarks by saying that CHS is a strong and resilient organization that has always managed to solve problems, and we remain ready for whatever might come next, and that we would be best – it would – we’d do our best for everyone who counts on us. Three months later, we find ourselves in the position of caring for many more COVID-19 patients now than we were back at that point in April. We’re also balancing the health care needs of non-COVID patients, having successfully reopened substantially all of our services that were suspended in the early stages of this pandemic and ensuring that all who need health care in our communities will continue to have access to quality and safe health care. The credit, of course, goes to every physician, every nurse, every clinician, caregiver, support worker, who shows up every day to serve our patients. Our medical staff and employees have been extraordinary during these extraordinary times. And while you’re not being seeing – while you may not be seeing as many health care hero signs displayed as we saw back in March and April, the heroic work continues, and we’re extremely grateful. We operate in a number of states that have been hit harder by COVID-19 in recent…

Thank you, Wayne. Managing the clinical and operational aspects of a large scale pandemic requires a solid infrastructure for crisis and issues management, high levels of coordination and communication across the team, and as Wayne noted earlier, the ability to make rapid, yet informed and prudent decisions. Our COVID response team continues to collaborate on a daily basis to share key updates in every functional area affected by this pandemic from testing capability to infection control to supply management; from nursing and patient care to employees’ health; from facility planning to marketing and communications; and so many other areas necessary for an effective response. Our goal is proactive and timely information and support for a regional and local hospital leadership teams, especially in light of evolving clinical guidelines, regulatory updates and sometimes an influx of COVID-19 volumes. We use an internally developed COVID-19 tracking dashboard for real-time visibility of COVID-19 cases across all of our hospitals. This enables us to see trends, plan and adjust accordingly and accurately report information to various agencies. Toward the middle of June and into July, we have seen an increase in COVID-19 patients primarily across the southern states. Currently, we are experiencing the highest number of COVID-19 admissions in Texas and Florida while we continue to manage varying degrees of surge in Mississippi and Alabama. We believe we have hit our peak volumes in our Arizona markets at this time with newly diagnosed and inpatient caseloads showing sustained reductions. We have tested over 100,000 patients for a potential COVID-19 diagnosis. We have provided care for approximately 15,000 confirmed COVID-19 patients at our hospitals, EDs and outpatient care settings. This compares to approximately 2,000 cared for at the end of April, 3,000 at the end of May and 7,000 at the end of June, which…

Thank you, Lynn. I join you in expressing my appreciation to the caregivers across our organization and the nation for the sacrifices that they and their families have made and for the high-quality care being provided for all patients. I also want to express my gratitude to our hospital and physician practice leaders who are ensuring operational excellence and execution of our COVID-19 response and recovery strategies. I’ve been incredibly impressed by their organized approach, resourcefulness and continuous commitment to serve their communities during this public health crisis. And of course, I’m thankful for our CHS clinical and operational experts who are providing tremendous levels of support to our markets while keeping all of our other important operational and strategic initiatives on track. As Wayne mentioned, when we were able to restart medical and surgical procedures across our markets in May, we were well prepared to ramp up operations. We had plans in place for patient testing before their elective procedures and had already redesigned spaces inside of our facilities to ensure social distancing and safe workflows. We work closely with our medical staff to ensure appropriate capacity for deferred cases, and we develop processes that allow physicians and patients to return to the hospital setting safely and efficiently. And our teams work to increase communications with patients and their families, proactively inviting them to come in for needed care and reassuring them about what to expect. Early planning and intentional volume rebuilding efforts led to consistent improvements in our admissions, adjusted admissions, surgeries and ER visits during May and throughout June. Specifically, in terms of our key metrics and second quarter performance, our net revenue was negatively impacted in the second quarter as a result of the pandemic. Admissions troughed with a 31% decline in April prior to the…

Thanks, Tim and good morning, everyone. Similar to last quarter, I will not cover all of the typical financial metrics today. Instead, I would point you to the 8-K and our slide deck for additional details. As a reminder, we previously withdrew our 2020 financial guidance and we are not providing guidance due to the ongoing impact of COVID-19 pandemic, the recent surge in new cases, the ongoing uncertainties around the timing of a recovery and other factors that we have discussed. During the second quarter, on a consolidated basis, net operating revenues came in at $2,519 million, down 23.7% from the prior year, while adjusted EBITDA was $454 million, up 12.9%. On a same-store basis, net revenues decreased 18.4%. This was comprised of a 24.2% decrease in adjusted admissions and a 7.6% increase in net revenues per adjusted admission. As Wayne mentioned, COVID-19 has had a negative impact on our financial performance during the first half of 2020. Year-to-date through June 30, we estimate that COVID-19 has negatively impacted our net revenue by over $1 billion. During the quarter, our hospital leadership teams did an outstanding job managing variable costs and expenses. And as Tim mentioned, our strategic margin improvement program helped to deliver further on expense reductions. On a same-store basis, our salaries, wages and benefits expense decreased 9%. Supplies expense was reduced by 18% and other operating expenses decreased 1%. Switching to cash flows, cash flow provided by operations were $1.65 billion for the second quarter of 2020. This compares to cash flows from operations of $132 million during the second quarter of 2019. For the first six months of 2020, our cash flows provided by operations were $1.71 billion. This compares to cash flows from operations of $265 million during the first six months of 2019.…

Thank you, Kevin. At this point, operator, we’re ready to open it up for questions. We will limit everyone to one question, so several of you have time on the call - for this call. And as always, we’re available to talk to you, and you can reach us at area code of 615-465-7000.

[Operator Instructions] Your first question comes from Josh Raskin from Nephron Research.

Hi, thanks. Good morning. Question about the Telehealth comments, and I’m curious in terms of just the workflow and the impact on the referral process and procedures downstream. I’m curious, how you make sure you’re included in that process and what sort of investments you’re making? And is there an opportunity actually for committee to take share? Can you sort of invest a little bit more than maybe some of the not-for-profits in your markets and things like that?

Hey, this is Lynn. I can answer from the practice side.

Josh, I think your question is in terms of market share. How is it affecting? Has Telehealth affect that. And I think it’s a very positive – I think we have a very positive position in terms, but I’ll let Lynn give it specifically, but I think we’ve done really well.

I can start and then Tim may have additional comments. From the practice side, as Tim said, the Telehealth, we are positioned, I think to get it started and it really accelerated. And we continue to see obviously higher use of telemedicine than before the pandemic. What we’re doing strategically is really looking to hardwire that in our clinic operations along with integrating our Telehealth platform with into our electronic medical record. That’s it, help us with that referral process that you mentioned and making sure that we link up our primary care physicians with our specialists and then eventually downstream to provide their procedures. So, Tim, if you have more comments.

Yes, thanks for the question, Josh. Again, we’re very pleased with the fact that we’ve had such strong growth in June for those practices, partly due to the launch of Telehealth, as we said, but also the return of our walk-in visits, it’s been very reassuring for us that we have the right doctors in the right place. I mean, the patients are indeed requiring and desiring to have their healthcare services met by our practices again. From a Telehealth perspective, the integration that Lynn mentioned is pivotal. But in terms of the competitive edge that it provides to us, and it depends on the market, in some of our markets that we have competitors that have also launched or embellished their Telehealth platforms as well through the impact of the pandemic. But in many of our markets, it is a new advent for us in terms of opportunities for patients to participate in their care with their provider. So at this point, it’s kind of too early to tell. We did see some tapering off of the Telehealth visits. Some patients did prefer to come back to in-person visits, in terms of the integration with our referral systems. We do like the fact we monitored internally, we do like the fact that we do see those connections being made from our primary cares to our specialists, hence, our belief that it does give us some good insights into what we can expect in procedural volumes in the months to come.

Net-net, it’s helpful in terms of volume.

Absolutely.

Your next question comes from Frank Morgan from RBC Capital Markets.

Good morning. Appreciate the comments about recent volume surgical trends in the month of July, down about 10%. And I’m just curious, how much variation is there in that number, if you could maybe give us a range between some of those hotspot markets that you talked about in Texas and Florida. How much more, are they impacted and then say markets that you wouldn’t consider the hotspot markets?

Yeah, Frank, this is Tim. It’s a clear correlation that our biggest impacts are in those markets that are experiencing surge conditions. We have very few of state mandates as you know that are limiting our ability to provide elective or scheduled care to our patients. But in those hotspot markets, in Texas and Mississippi for instance, we do have certain capacity threshold that we have to maintain which does require us to throttle back. But even without those requirements, I think it’s important to emphasize across our portfolio, we are doing, I think, a really good job of doing what’s right for each of our communities. Dialing back some of the elective or scheduled procedures deferring them, so that we ensure we have ample capacity for an influx of COVID-19 care. And so for this particular juncture of time through July, definitely seeing a decrease in surgeries in our most impacted market, keeping close tabs on those patients, so that when we do see some of those COVID volumes as relief in those markets. We can reconnect with those physicians and patients and bring those services back into our hospitals.

Your next question comes from Ralph Giacobbe from Citi.

Thanks. Good morning. The pricing mix, up 7.6%, obviously, a strong result. Can you just give us a little bit more on sort of the acuity what CMI was up, and then payer mix, not only hung in, but look like it actually improved within commercial, which I guess was a little surprising, maybe any thoughts there and whether you expect that, potentially sort of fall off in the - in the second half. Thanks.

Sure, Ralph, this is Kevin. I can give you a little color on that. So from a demographic standpoint, I think the group of patients have probably stayed away from our hospitals, the most during the quarter were Medicare patients, those being at the highest risk and probably stayed away from the healthcare environment. So that certainly contributed to a payer mix improvement. I would say our pricing was split pretty evenly between acuity in payer mix is the best way to look at that.

Your next question comes from Brian Tanquilut from Jefferies.

Hi, good morning, this is Jack Slevin on for Brian. Thanks for taking my questions. I just wanted to touch on margins and how you’re thinking about margin profile moving forward? And then kind of how sustainable the current cost structure is and at what point you might need to ramp up staffing and comp?

We’re actually feeling pretty good about margins. And we think there is a lot of visibility into the future in terms of our 2.0 program, in terms of expense management, all those things are positive for us. Kevin, you want to…

Sure. So we had started back in the third quarter, some margin improvement initiatives. We continue to work on those throughout this pandemic period. They continue to get traction and we think there is continued opportunity. So in addition to flexing some of our variable costs as a result of declining volumes during the pandemic, we also continue to progress on other margin improvement initiatives. So as we come out of the quarter, certainly with the decline in volume and revenue, we did not generate the EBITDA for the quarter. But as we return to normal, we believe that we’ll continue to improve our margin profile from the pre-COVID levels.

Your next question comes from Andrew Mok from Barclays.

Hi, good morning, thanks for the question. The CapEx in the quarter came in around $93 million, which held up relatively well to the prior quarter and initial guidance. Can you give us a sense for what you have budgeted in the back half of the year and where you might be pulling back on investment spend? Thanks.

Sure. So we’ve – as you know, we’ve pulled guidance for the rest of the year. So we don’t - not giving kind of a target on our capital spend. But as I’ve indicated, we are continuing to invest in what we believe to be our growth opportunities. So that as we recover and things return to normal, we’re going to be well positioned to continue to grow, take market share and improve our margins. Where we have some opportunity and where some of the spend did just pulled back a little bit with some of our IT spending, where we did not have people, our IT employees going into the hospitals to do deployment of IT networks and so forth. Certainly wanted to protect both our employees and patients from that standpoint. And also some medical equipment where the providers of the medical equipment and us included did not want those people in our hospital facilities. So that spending as things return to normal, that will come back a little bit, but we did continue to invest in some construction projects, Tim, mentioned, we opened a freestanding ED in AFC, and we have a new facility in Tucson that will be opening later this year that are all growth projects.

And our last question comes from Kevin Fischbeck from Bank of America.

Hi, there. Yes. So I with you and the peers, it seems like the industry has gotten pretty solid, done pretty well dealing with COVID and maintaining some pretty semi-normal operations. So I’m trying to understand where, if you’re managing this well during Q2, what scenarios might exist where there would be some downside in the back half of the year. Thanks.

I’m not sure that it gets any more complicated than this right now, Kevin. I think this is bad, most difficult, I’ve seen in the last number of years. And I think the great thing in terms of this organization is the ability to adapt. We have seen a remarkable change in terms of the way we provide cared. We have people that have been doing this now for last two months. And I think they’ve gotten increasingly better. You can see it in the results of our patients are doing well. I think the downside is here. The upside is the last, latter part of the year, but again I can’t being - I’m extremely impressed with the ability, this organization that people within in terms of providing care for all this. And you know the government restrictions have created some of those issues, and they might create more kind of going forward. But on the other hand, the government has been very helpful in terms of the CARES Act. So anyway, we are very hopeful that we’re on the right track and the countries on the right track and the latter part of the year will be very solid.

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

Thanks, again, just for being with us this morning. I want to once again express how deeply grateful we are to all of our employees, physicians, medical staff, regional presidents, hospital leadership teams, hospital support teams and corporate office support teams. We continue to move ahead with our strategies. One, to provide outstanding care for our patients; two, to maintain the trust and partnership of our physicians and employees; three, to demonstrate our value, it is we serve; and fourth, to reward the Company’s shareholders and debt holders for their confidence in investment in our organization. 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, always reach us area code 615-465-7000. Thanks again for joining the call.

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