Quorum Health Corporation Announces Third Quarter 2017 Operating Results

Quorum Health Corporation (NYSE: QHC) (the “Company”) today announced its operating and financial results for the three and nine months ended September 30, 2017.

Net operating revenues for the three months ended September 30, 2017 decreased $44.6 million to $499.3 million, compared to $543.9 million for the same period in 2016. Net operating revenues for the quarter decreased $32.5 million from the two hospitals divested in December 2016 and the four hospitals divested in the first nine months of 2017, and decreased $11.5 million resulting from the Company’s inability to accrue in the 2017 period for the California Hospital Quality Assurance Fee (“HQAF”) program revenues for the 2017-2019 program period pending approval by Centers for Medicare & Medicaid Services (“CMS”). Excluding these amounts, net operating revenues decreased $0.6 million for the three months ended September 30, 2017 compared to the same period in 2016. Net loss attributable to Quorum Health Corporation for the three months ended September 30, 2017 was $(29.2) million, or $(1.03) per share, compared to $(7.0) million, or $(0.24) per share, for the same period in 2016. The net loss for the three months ended September 30, 2017 was impacted by an $8.8 million decrease, net of provider taxes, related to the California HQAF program and $5.3 million of impairment charges related to certain hospitals intended for divestiture. On a same-facility basis, as defined in footnote (k), the Company’s operating results for the three months ended September 30, 2017 reflect a 0.2% decrease in admissions and a 0.5% increase in adjusted admissions compared to the same period in 2016. Excluding the six divested hospitals and the eight hospitals intended for divestiture as of September 30, 2017, admissions and adjusted admissions increased 1.3% and 3.2%, respectively, for these same periods.

Adjusted EBITDA for the three months ended September 30, 2017 was $32.3 million, compared to $46.7 million for the same period in 2016. Adjusted EBITDA was negatively impacted by the Company’s inability to accrue for the California HQAF program in the 2017 period, as stated above. Adjusted EBITDA for the three months ended September 30, 2016 included $8.8 million related to this program. The divested hospitals negatively impacted EBITDA by $4.7 million and $7.0 million for the three months ended September 30, 2017 and 2016, respectively. As a result, Adjusted EBITDA, Adjusted for Divestitures, was $36.9 million and $53.8 million for the three months ended September 30, 2017 and 2016, respectively.

Net operating revenues for the nine months ended September 30, 2017 decreased $66.1 million to $1,557.1 million, compared to $1,623.2 million for the same period in 2016. Net operating revenues decreased $63.6 million related to the two hospitals divested in December 2016 and the four hospitals divested in the first nine months of 2017, and decreased $33.9 million due to the inability to accrue revenues related to the California HQAF program. Excluding these amounts, net operating revenues increased $31.4 million for the nine months ended September 30, 2017 compared to the same period in 2016, primarily due to favorable volume and payor rate variances. Net loss attributable to Quorum Health Corporation for the nine months ended September 30, 2017 was $(87.4) million, or $(3.11) per share, compared to $(257.0) million, or $(9.05) per share, for the same period in 2016. The 2017 period included impairment charges of $21.5 million related to hospitals held for sale or identified for potential divestiture and a net gain of $5.1 million on the sale of hospitals. The 2016 period included $250.4 million of impairment charges, $5.4 million of transaction costs related to the Spin-off and $25.7 million in revenues, net of provider taxes, related to the California HQAF program. On a same-facility basis, the Company’s operating results for the nine months ended September 30, 2017 reflect a 0.9% decrease in admissions and a 0.2% increase in adjusted admissions compared to the same period in 2016. Excluding divested hospitals and hospitals intended for divestiture, admissions and adjusted admissions increased 0.7% and 2.0%, respectively, for these same periods.

Adjusted EBITDA for the nine months ended September 30, 2017 was $92.8 million, compared to $132.2 million for the same period in 2016. Adjusted EBITDA was negatively impacted by the Company’s inability to accrue for the California HQAF program in the 2017 period, as stated above. Adjusted EBITDA for the nine months ended September 30, 2016 included $25.7 million related to the California HQAF program. The divested hospitals negatively impacted EBITDA by $13.6 million and $18.5 million for the nine months ended September 30, 2017 and 2016, respectively. As a result, Adjusted EBITDA, Adjusted for Divestitures, was $106.4 million and $150.7 million for the nine months ended September 30, 2017 and 2016, respectively.

The Company had combined proceeds from these six divestitures of $43.1 million, of which $40.4 million was utilized to pay down the Company’s term loan under its credit facility. In addition, in October 2017, the Company received $30.9 million from the State of California related to the 2015-2016 HQAF Program, a portion of which was utilized to pay down additional principal on the Company’s secured debt.

On October 31, 2017, the Company completed the divestiture of L.V. Stabler Memorial Hospital, located in Greenville, Alabama, and received proceeds of $2.8 million. The Company paid down an additional $18.2 million of secured debt in October and November of 2017.

Commenting on the results, Thomas D. Miller, President and Chief Executive Officer of Quorum Health Corporation, said, “We continue our efforts to improve our core operations as we restructure our hospital portfolio. As we execute our strategy to divest underperforming hospitals, we have completed six transactions through the third quarter with another already completed in the fourth quarter. We expect more divestiture completions in 2018 as we remain dedicated to reducing our debt, managing our costs and increasing our profitability.”

Financial Outlook

The Company’s updated financial outlook for the year ending December 31, 2017 is discussed below. These projections update selected guidance issued on August 9, 2017 and are based on the Company’s historical operating performance, current economic, demographic and regulatory trends and other assumptions that the Company believes are reasonable at this time. The 2017 guidance should be considered in conjunction with the assumptions included herein. See “Forward-Looking Statements” below for a list of factors that could affect the future results of the Company or the healthcare industry generally.

The Company expects net operating revenues for the year ending December 31, 2017 to range from $2.055 billion to $2.065 billion. The Company expects Adjusted EBITDA for the year ending December 31, 2017 to range from $140 million to $150 million and Adjusted EBITDA, Adjusted for Divestitures through December 31, 2017 to range from $160 million to $170 million. The guidance for Adjusted EBITDA gives effect to: (i) the approval of the California Department of Health Care Services’ HQAF Program by CMS, which we estimate to be approved in the fourth quarter of 2017 at approximately $22 million, approximately $13 million less than 2016, (ii) the reduction of approximately $7 million in electronic health records incentives earned in 2017 compared to the 2016 amounts, (iii) the inclusion of approximately $11 million to $13 million of non-cash stock-based compensation and other non-cash benefits expense and approximately $20 million to $25 million of non-cash insurance expense, and (iv) no estimate for the effects of any changes to the Affordable Care Act, its interpretation or its implementation. The guidance for Adjusted EBITDA, Adjusted for Divestitures through December 31, 2017 includes the same assumptions above, in addition to excluding the negative EBITDA of hospitals divested and expected to be divested through December 31, 2017, including the completed divestiture of L.V. Stabler Memorial Hospital on October 31, 2017.

A reconciliation of the Company’s projected 2017 Adjusted EBITDA, and Adjusted EBITDA, Adjusted for Divestitures, each a forward-looking non-GAAP financial measure, to net income (loss), the most directly comparable U.S. GAAP financial measure, is omitted from this press release because the Company is unable to provide such reconciliation without unreasonable effort. This inability results from the inherent difficulty in forecasting generally and in quantifying certain projected amounts that are necessary for such reconciliation. In particular, sufficient information is not available to calculate certain adjustments required for such reconciliation without unreasonable effort, including interest expense, provision for (benefit from) income taxes and other adjustments that would be necessary to prepare a forward-looking statement of net income (loss) in accordance with U.S. GAAP. For the same reasons, the Company is unable to address the probable significance of the unavailable information.

About Quorum Health Corporation

The principal business of Quorum Health Corporation is to provide hospital and outpatient healthcare services in its markets across the United States. As of September 30, 2017, the Company owned or leased 32 hospitals in rural and mid-sized markets located across 15 states and licensed for 3,051 beds. Through Quorum Health Resources LLC, a wholly-owned subsidiary, the Company provides hospital management advisory and healthcare consulting services to non-affiliated hospitals across the country. Over 95% of the Company’s net operating revenues are attributable to its hospital operations business.

The Company’s headquarters are located in Brentwood, Tennessee, a suburb south of Nashville. Shares in Quorum Health Corporation are traded on the NYSE under the symbol “QHC.” More information about the Company can be found on its website at www.quorumhealth.com.

Quorum Health Corporation will hold a conference call on Thursday, November 9, 2017, at 10:00 a.m. Central time, 11:00 a.m. Eastern, to review operating and financial results for the three and nine months ended September 30, 2017. Investors will have the opportunity to listen to a live internet broadcast of the conference call by clicking on the Investor Relations link of the Company’s website at www.quorumhealth.com. To listen to the live call, please go to the website at least 15 minutes early to register, download and install any necessary audio software. For those who cannot listen to the live broadcast, a replay will be available shortly after the call and will continue to be available for approximately 30 days. Copies of this press release and the Company’s Current Report on Form 8-K (including this press release) are available on the Company’s website at www.quorumhealth.com.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995 that involve risk and uncertainties. All statements in this press release other than statements of historical fact, including statements regarding projections, expected operating results, and other events that depend upon or refer to future events or conditions or that include words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” “thinks,” and similar expressions, are forward-looking statements. Although the Company believes that these forward-looking statements are based on reasonable assumptions, these assumptions are inherently subject to significant economic and competitive uncertainties and contingencies, which are difficult or impossible to predict accurately and may be beyond the control of the Company. Accordingly, the Company cannot give any assurance that its expectations will in fact occur and cautions that actual results may differ materially from those in the forward-looking statements. A number of factors could affect the future results of the Company or the healthcare industry generally and could cause the Company’s expected results to differ materially from those expressed in this press release.

These factors include, but are not limited to, the following:

• general economic and business conditions, both nationally and in the regions in which the Company operates;
• risks associated with the Company’s substantial indebtedness, leverage and debt service obligations, including its ability to comply with its debt covenants, including its senior credit facility, as amended;
• the ability to achieve operating and financial targets and to control the costs of providing services if patient volumes are lower than expected;
• the impact of significant changes to the Affordable Care Act, its implementation or its interpretation, efforts to repeal the Affordable Care Act, as well as changes in other federal, state or local laws or regulations affecting the healthcare industry;
• the success and long-term viability of healthcare insurance exchanges, which may be impacted by whether a sufficient number of payors participate, the availability of cost-sharing subsidies and actions taken by the current administration and Congress affecting the Affordable Care Act;
• the extent to which states support or implement changes to Medicaid programs, utilize healthcare insurance exchanges or alter the provision of healthcare to state residents through regulation or otherwise;
• the extent to which regulatory and economic changes occur in Illinois, where a material portion of the Company’s revenues are concentrated;
• demographic changes;
• the failure to comply with governmental regulations;
• the impact of certain outsourcing functions, and the ability of Community Health Systems, Inc., as provider of the Company’s billing and collection services pursuant to the transition services agreements, to timely and appropriately bill and collect;
• the potential adverse impact of known and unknown government investigations, internal investigations, audits, and federal and state false claims act litigation and other legal proceedings, including the shareholder and creditor litigations against the Company and certain of its officers and threats of litigation, as well as the significant costs and attention from management required to address such matters;
• the ability, where appropriate, to enter into, maintain and comply with provider arrangements with payors and the terms of these arrangements, which may be further impacted by the increasing consolidation of health insurers and managed care companies;
• changes in reimbursement rates paid by federal or state healthcare programs, including Medicare and Medicaid, or commercial payors, and the timeliness of reimbursement payments;
• the timing of any approval by CMS of Phase V of the California HQAF Program, the recognition of any revenues from the California program, and the timing and amount of any related cash flows, as well as the potential for retroactive adjustments for prior year payments;
• any potential impairments in the carrying values of long-lived assets and goodwill or the shortening of the useful lives of long-lived assets;
• the effects related to the continued implementation of the sequestration spending reductions and the potential for future deficit reduction legislation;
• increases in the amount and risk of collectability of patient accounts receivable, including lower collectability levels which may result from, among other things, self-pay growth in states that have not expanded Medicaid and difficulties in collecting payments for which patients are responsible, including co-pays and deductibles;
• the efforts of healthcare insurers, providers and others to contain healthcare costs, including the trend toward treatment of patients in less acute or specialty healthcare settings and the increased emphasis on value-based purchasing;
• the Company’s ongoing ability to demonstrate meaningful use of certified electronic health records technology and recognize income for the related Medicare or Medicaid incentive payments, to the extent such payments have not expired;
• increases in wages as a result of inflation or competition for highly technical positions and rising medical supply and drug costs due to market pressure from pharmaceutical companies and new product releases;
• liabilities and other claims asserted against the Company, including self-insured malpractice claims;
• competition;
• the ability to attract and retain, at reasonable employment costs, qualified personnel, key management, physicians, nurses and other healthcare workers;
• changes in medical or other technology;
• changes in U.S. generally accepted accounting principles, including the impact of adopting newly issued accounting standards;
• the availability and terms of capital to fund acquisitions, replacement facilities or other capital expenditures;
• the ability to successfully make acquisitions or complete divestitures and the timing thereof, the ability to complete any such acquisitions or divestitures on desired terms or at all, and the ability to realize the intended benefits from any such acquisitions or divestitures;
• the impact of seasonal or severe weather conditions or earthquakes;
• the ability to obtain adequate levels of professional and general liability and workers’ compensation liability insurance;
• the effects related to outbreaks of infectious diseases;
• the impact of cyber-attacks or security breaches;
• the ability to manage effectively the Company’s arrangements with third-party vendors for key non-clinical business functions and services;
• the ability to maintain certain accreditations at the Company’s existing facilities and any future facilities the Company may acquire; and
• the other risk factors set forth in the Company’s other public filings with the Securities and Exchange Commission.

Although the Company believes that these forward-looking statements are based on reasonable assumptions, these assumptions are inherently subject to significant regulatory, economic and competitive uncertainties and contingencies, which are difficult or impossible to predict accurately and may be beyond its control. Accordingly, the Company cannot give any assurance that its expectations will in fact occur and cautions that actual results may differ materially from those in the forward-looking statements. Given these uncertainties, prospective investors are cautioned not to place undue reliance on these forward-looking statements. These forward-looking statements are made as of the date of this filing. The Company undertakes no obligation to revise or update any forward-looking statements, or to make any other forward-looking statements, whether as a result of new information, future events or otherwise.

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