Investor Contact:  

Michael J. Culotta

Executive Vice President

and Chief Financial Officer

(615) 221-3502

Three Months Ended December 31,

2017

2016

% of

% of

Amount

Revenues

Amount

Revenues

Operating revenues, net of contractual allowances and discounts ^(a)

$

596,648

$

593,855

Provision for bad debts

81,566

78,615

Net operating revenues

515,082

100.0

%

515,240

100.0

%

Operating costs and expenses:

Salaries and benefits ^(b)

253,106

49.1

%

268,559

52.1

%

Supplies

63,932

12.4

%

66,829

13.0

%

Other operating expenses ^(a)

156,669

30.5

%

163,276

31.8

%

Depreciation and amortization

18,714

3.6

%

26,434

5.1

%

Rent

13,599

2.6

%

11,966

2.3

%

Electronic health records incentives earned

(229

)

—

%

(1,691

)

(0.3

)%

Legal, professional and settlement costs

(518

)

(0.1

)%

1,166

0.2

%

Impairment of long-lived assets and goodwill

25,820

5.0

%

41,470

8.0

%

Loss (gain) on sale of hospitals, net

(131

)

—

%

2,150

0.4

%

Transaction costs related to the Spin-off

49

—

%

44

—

%

Total operating costs and expenses

531,011

103.1

%

580,203

112.6

%

Income (loss) from operations

(15,929

)

(3.1

)%

(64,963

)

(12.6

)%

Interest expense, net

31,873

6.2

%

28,684

5.6

%

Income (loss) before income taxes

(47,802

)

(9.3

)%

(93,647

)

(18.2

)%

Provision for (benefit from) income taxes

(21,779

)

(4.2

)%

(3,555

)

(0.7

)%

Net income (loss) ^(c)

(26,023

)

(5.1

)%

(90,092

)

(17.5

)%

Less: Net income (loss) attributable to noncontrolling interests

785

0.1

%

574

0.1

%

Net income (loss) attributable to Quorum Health Corporation

$

(26,808

)

(5.2

)%

$

(90,666

)

(17.6

)%

Earnings (loss) per share attributable to Quorum Health Corporation stockholders:

Basic and diluted ^(d)

$

(0.95

)

$

(3.19

)

Weighted-average shares outstanding:

Basic and diluted ^(e)

28,248,527

28,416,801

Year Ended December 31,

2017

2016

% of

% of

Amount

Revenues

Amount

Revenues

Operating revenues, net of contractual allowances and discounts ^(a)

$

2,327,655

$

2,419,053

Provision for bad debts

255,485

280,586

Net operating revenues

2,072,170

100.0

%

2,138,467

100.0

%

Operating costs and expenses:

Salaries and benefits ^(b)

1,034,797

49.9

%

1,057,119

49.4

%

Supplies

250,523

12.1

%

258,639

12.1

%

Other operating expenses ^(a)

623,063

30.1

%

645,802

30.3

%

Depreciation and amortization

82,155

4.0

%

117,288

5.5

%

Rent

50,230

2.4

%

49,883

2.3

%

Electronic health records incentives earned

(4,745

)

(0.2

)%

(11,482

)

(0.5

)%

Legal, professional and settlement costs

6,001

0.3

%

7,342

0.3

%

Impairment of long-lived assets and goodwill

47,281

2.3

%

291,870

13.6

%

Loss (gain) on sale of hospitals, net

(5,243

)

(0.3

)%

2,150

0.1

%

Transaction costs related to the Spin-off

253

—

%

5,488

0.3

%

Total operating costs and expenses

2,084,315

100.6

%

2,424,099

113.4

%

Income (loss) from operations

(12,145

)

(0.6

)%

(285,632

)

(13.4

)%

Interest expense, net

122,077

5.9

%

113,440

5.3

%

Income (loss) before income taxes

(134,222

)

(6.5

)%

(399,072

)

(18.7

)%

Provision for (benefit from) income taxes

(21,865

)

(1.1

)%

(53,875

)

(2.6

)%

Net income (loss) ^(c)

(112,357

)

(5.4

)%

(345,197

)

(16.1

)%

Less: Net income (loss) attributable to noncontrolling interests

1,833

0.1

%

2,491

0.2

%

Net income (loss) attributable to Quorum Health Corporation ^(b)

$

(114,190

)

(5.5

)%

$

(347,688

)

(16.3

)%

Earnings (loss) per share attributable to Quorum Health Corporation stockholders:

Basic and diluted ^(d)

$

(4.06

)

$

(12.24

)

Weighted-average shares outstanding:

Basic and diluted ^(e)

28,113,566

28,413,247

Three Months Ended December 31,

2017

2016

$ Variance

% Variance

Consolidated and combined:

Number of licensed beds at end of period ^(f)

2,979

3,459

(480

)

(13.9

)%

Admissions ^(g)

20,932

23,200

(2,268

)

(9.8

)%

Adjusted admissions ^(h)

50,788

57,202

(6,414

)

(11.2

)%

Emergency room visits ⁽ⁱ⁾

155,746

174,754

(19,008

)

(10.9

)%

Medicare case mix ^(j)

1.45

1.41

0.04

2.8

%

Same-facility: ^(k)

Number of licensed beds at end of period ^(f)

2,979

2,979

—

—

%

Admissions ^(g)

20,864

20,788

76

0.4

%

Adjusted admissions ^(h)

50,583

50,290

293

0.6

%

Emergency room visits ⁽ⁱ⁾

154,874

152,620

2,254

1.5

%

Medicare case mix ^(j)

1.45

1.39

0.06

4.3

%

Year Ended December 31,

2017

2016

$ Variance

% Variance

Consolidated and combined:

Number of licensed beds at end of period ^(f)

2,979

3,459

(480

)

(13.9

)%

Admissions ^(g)

88,504

95,313

(6,809

)

(7.1

)%

Adjusted admissions ^(h)

217,583

235,263

(17,680

)

(7.5

)%

Emergency room visits ⁽ⁱ⁾

660,246

726,155

(65,909

)

(9.1

)%

Medicare case mix ^(j)

1.43

1.38

0.05

3.6

%

Same-facility: ^(k)

Number of licensed beds at end of period ^(f)

2,979

2,979

—

—

%

Admissions ^(g)

84,459

84,905

(446

)

(0.5

)%

Adjusted admissions ^(h)

205,905

205,110

795

0.4

%

Emergency room visits ⁽ⁱ⁾

622,049

631,346

(9,297

)

(1.5

)%

Medicare case mix ^(j)

1.43

1.39

0.04

2.9

%

December 31,

2017

2016

ASSETS

Current assets:

Cash and cash equivalents

$

5,617

$

25,455

Patient accounts receivable, net of allowance for doubtful accounts of $352,509 and $360,796 at December 31, 2017 and 2016, respectively

343,145

380,685

Inventories

53,459

58,124

Prepaid expenses

21,167

23,028

Due from third-party payors

97,202

116,235

Current assets of hospitals held for sale

8,112

1,502

Other current assets

47,440

57,942

Total current assets

576,142

662,971

Property and equipment, at cost

1,405,184

1,519,975

Less:  Accumulated depreciation and amortization

(729,905

)

(786,075

)

Total property and equipment, net

675,279

733,900

Goodwill

409,229

416,833

Intangible assets, net

64,850

84,982

Long-term assets of hospitals held for sale

7,734

6,851

Other long-term assets

95,607

88,833

Total assets

$

1,828,841

$

1,994,370

LIABILITIES AND EQUITY

Current liabilities:

Current maturities of long-term debt

$

1,855

$

5,683

Accounts payable

171,250

169,684

Accrued liabilities:

Accrued salaries and benefits

77,803

98,803

Accrued interest

10,466

19,915

Due to third-party payors

47,705

42,537

Current liabilities of hospitals held for sale

2,577

492

Other current liabilities

43,687

53,268

Total current liabilities

355,343

390,382

Long-term debt

1,212,035

1,241,142

Deferred income tax liabilities, net

7,774

31,474

Other long-term liabilities

137,954

108,996

Total liabilities

1,713,106

1,771,994

Redeemable noncontrolling interests

2,325

6,807

Equity:

Quorum Health Corporation stockholders' equity:

Preferred stock, $0.0001 par value per share; 100,000,000 shares authorized; none issued

—

—

Common stock, $0.0001 par value per share; 300,000,000 shares authorized; 30,294,895 shares issued and outstanding at December 31, 2017 and 29,482,050 shares issued and outstanding at December 31, 2016

3

3

Additional paid-in capital

549,610

537,911

Accumulated other comprehensive income (loss)

(1,956

)

(2,760

)

Accumulated deficit

(448,216

)

(334,026

)

Total Quorum Health Corporation stockholders' equity

99,441

201,128

Nonredeemable noncontrolling interests

13,969

14,441

Total equity

113,410

215,569

Total liabilities and equity

$

1,828,841

$

1,994,370

Year Ended December 31,

2017

2016

2015

Cash flows from operating activities:

Net income (loss)

$

(112,357

)

$

(345,197

)

$

4,735

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Depreciation and amortization

82,155

117,288

128,001

Non-cash interest expense

5,770

2,496

—

Provision for (benefit from) deferred income taxes

(22,137

)

(56,339

)

2,542

Stock-based compensation expense

9,952

7,441

—

Impairment of long-lived assets and goodwill

47,281

291,870

13,000

Loss (gain) on sale of hospitals, net

(5,243

)

2,150

—

Changes in reserves for self-insurance claims, net of payments

22,519

27,994

—

Changes in reserves for legal, professional and settlement costs, net of payments

(3,651

)

3,651

—

Other non-cash expense (income), net

190

(575

)

380

Changes in operating assets and liabilities, net of acquisitions and divestitures:

Patient accounts receivable, net

29,091

10,205

(16,639

)

Due from and due to third-party payors, net

24,201

7,005

(18,198

)

Inventories, prepaid expenses and other current assets

673

1,457

8,000

Accounts payable and accrued liabilities

(14,743

)

20,760

(78,944

)

Long-term assets and liabilities, net

3,269

(9,120

)

12

Net cash provided by (used in) operating activities

66,970

81,086

42,889

Cash flows from investing activities:

Capital expenditures for property and equipment

(61,530

)

(79,920

)

(59,455

)

Capital expenditures for software

(6,898

)

(7,269

)

(8,845

)

Acquisitions, net of cash acquired

(1,920

)

(785

)

(8,019

)

Proceeds from the sale of hospitals

32,081

13,746

—

Proceeds from asset sales

—

1,082

3,114

Other investing activities

—

—

(5,387

)

Net cash provided by (used in) investing activities

(38,267

)

(73,146

)

(78,592

)

Cash flows from financing activities:

Borrowings under revolving credit facilities

508,000

50,000

—

Repayments under revolving credit facilities

(508,000

)

(50,000

)

—

Borrowings of long-term debt

376

1,256,281

372

Repayments of long-term debt

(39,195

)

(15,222

)

(1,563

)

Increase in Due to Parent, net

—

24,796

262,775

Increase (decrease) in receivables facility, net

—

—

(224,774

)

Payments of debt issuance costs

(3,119

)

(29,146

)

—

Cash paid to Parent related to the Spin-off

—

(1,217,336

)

—

Cancellation of restricted stock awards for payroll tax withholdings on vested shares

(1,508

)

(13

)

—

Cash distributions to noncontrolling investors

(3,851

)

(2,850

)

(1,623

)

Purchases of shares from noncontrolling investors

(1,244

)

(101

)

(937

)

Net cash provided by (used in) financing activities

(48,541

)

16,409

34,250

Net change in cash and cash equivalents

(19,838

)

24,349

(1,453

)

Cash and cash equivalents at beginning of period

25,455

1,106

2,559

Cash and cash equivalents at end of period

$

5,617

$

25,455

$

1,106

(a)

The California Department of Health Care Services implemented the HQAF program, imposing a fee on certain general and acute care California hospitals. Revenues generated from these fees provide funding for the non-federal supplemental payments to California hospitals that serve California’s Medicaid (“Medi-Cal”) and uninsured patients. Under Phase IV of the program, covering the period January 2014 through December 2016, the Company recognized $11.5 million of net operating revenues less $2.7 million of provider taxes for the three months ended December 31, 2016. The Company recognized $45.4 million of net operating revenues less $11.0 million of provider taxes for the year ended December 31, 2016.

(b)

Salaries and benefits were impacted by a net decrease in discretionary employee benefits as the Company continues to implement cost savings plans.

(c)

EBITDA is a non-GAAP financial measure that consists of net income (loss) before interest, income taxes, depreciation and amortization. Adjusted EBITDA, also a non-GAAP financial measure, is EBITDA adjusted to add back the effect of certain legal, professional and settlement costs, impairment of long-lived assets and goodwill, net loss (gain) on sale of hospitals, transaction costs related to the Spin-off, post-spin headcount reductions and change in estimate related to the collectability of patient accounts receivable. The Company uses Adjusted EBITDA as a measure of financial performance. Adjusted EBITDA is a key measure used by the Company’s management to assess the operating performance of its hospital operations business and to make decisions on the allocation of resources. Additionally, management utilizes Adjusted EBITDA in assessing the Company’s results of operations and in comparing the Company’s results of operations between periods. Adjusted EBITDA, Adjusted for Divestitures, also a non-GAAP financial measure, is further retrospectively adjusted to exclude the effect of EBITDA of hospitals divested in 2016 and 2017. Adjusted EBITDA, Adjusted for Potential Divestitures, also a non-GAAP financial measure, is further retrospectively adjusted to exclude the effect of EBITDA of seven hospitals that management has identified for potential divestiture over the next twelve to twenty four month period as of December 31, 2017. The Company continually evaluates other hospitals for potential divestiture, which could result in changes to the hospitals included in this group in future periods. The Company has presented Adjusted EBITDA and Adjusted EBITDA, Adjusted for Divestitures and Adjusted EBITDA, Adjusted for Potential Divestitures in this press release because it believes these measures provide investors and other users of the Company’s financial statements with additional information about how the Company’s management assesses its results of operations.

Three Months Ended December 31,

Year Ended December 31,

2017

2016

2017

2016

Net income (loss)

$

(26,023

)

$

(90,092

)

$

(112,357

)

$

(345,197

)

Interest expense, net

31,873

28,684

122,077

113,440

Provision for (benefit from) income taxes

(21,779

)

(3,555

)

(21,865

)

(53,875

)

Depreciation and amortization

18,714

26,434

82,155

117,288

EBITDA

2,785

(38,529

)

70,010

(168,344

)

Legal, professional and settlement costs

(518

)

1,166

6,001

7,342

Impairment of long-lived assets and goodwill

25,820

41,470

47,281

291,870

Loss (gain) on sale of hospitals, net

(131

)

2,150

(5,243

)

2,150

Transaction costs related to the Spin-off

49

44

253

5,488

Post-spin headcount reductions

—

1,617

2,543

1,617

Change in estimate related to collectability of patient accounts receivable ^(l)

21,000

22,799

21,000

22,799

Adjusted EBITDA

49,005

30,717

141,845

162,922

Negative EBITDA of divested hospitals

5,144

13,140

20,637

33,107

Adjusted EBITDA, Adjusted for Divestitures

54,149

43,857

162,482

196,029

Negative (Positive) EBITDA of potential divestitures

3,114

2,102

8,337

(8,232

)

Adjusted EBITDA, Adjusted for Potential Divestitures

$

57,263

$

45,959

$

170,819

$

187,797

(d)

The following table reconciles net income (loss) attributable to Quorum Health Corporation, as reported and on a per share basis, with the adjustments described herein:

Three Months Ended December 31,

Year Ended December 31,

2017

2016

2017

2016

(per share - basic and diluted)

(per share - basic and diluted)

Earnings (loss) per share attributable to Quorum Health Corporation stockholders, as reported

$

(0.95

)

$

(3.19

)

$

(4.06

)

$

(12.24

)

Adjustments:

Legal, professional and settlement costs

(0.01

)

0.04

0.18

0.22

Impairment of long-lived assets and goodwill

0.50

1.40

1.41

8.89

Loss (gain) on sale of hospitals, net

—

0.07

(0.16

)

0.07

Transaction costs related to the Spin-off

—

—

0.01

0.17

Post-spin headcount reductions

—

0.05

0.08

0.05

Change in estimate related to collectability of patient accounts receivable

0.40

0.77

0.63

0.69

Net operating losses of divested hospitals

0.10

0.44

0.61

1.01

Earnings (loss) per share attributable to Quorum Health Corporation stockholders, excluding adjustments

$

0.04

$

(0.42

)

$

(1.30

)

$

(1.14

)

(e)

For comparative purposes, the Company used 28,412,054 shares as the number of weighted-average shares to calculate basic and diluted earnings per share for periods prior to the Spin-off. This number represents the number of shares issued on the Spin-off date. Due to the net loss attributable to Quorum Health Corporation in the three months and year ended December 31, 2017, no incremental shares are included in diluted earnings per share for these periods because the effect of the incremental shares would be anti-dilutive. No incremental shares were considered for any periods prior to the Spin-off.

(f)

Licensed beds are the number of beds for which the appropriate state agency licenses a hospital, regardless of whether the beds are actually available for patient use.

(g)

Admissions represent the number of patients admitted for inpatient services.

(h)

Adjusted admissions are computed by multiplying admissions by gross patient revenues and then dividing that number by gross inpatient revenues.

(i)

Emergency room visits represent the number of patients registered and treated in the Company’s emergency rooms.

(j)

Medicare case mix index is a relative value assigned to a diagnosis-related group of patients that is used in determining the allocation of resources necessary to treat the patients in that group. Medicare case mix index is calculated as the average case mix index for all Medicare admissions during the period.

(k)

Same-facility financial and operating data excludes hospitals that were sold prior to and as of the end of the current reporting period. Same-facility operating results have been adjusted to exclude the operating results of Sandhills Regional Medical Center, Barrow Regional Medical Center, Cherokee Medical Center, Trinity Hospital of Augusta, Lock Haven Hospital, Sunbury Community Hospital and L.V. Stabler Memorial Hospital, which were sold on December 1, 2016, December 31, 2016, March 31, 2017, June 30, 2017, September 30, 2017, September 30, 2017 and October 31, 2017, respectively.

(l)

As of December 31, 2017, the Company recorded a change in estimate of $21.0 million to reduce the net realizable value of its patient accounts receivable. During the fourth quarter of 2017, the Company analyzed its self-pay patient accounts receivable at a more comprehensive and disaggregated level and refined its estimate of the collectability of the portion of self-pay accounts receivable related to insured patients, primarily co-pays and deductibles. The Company’s analysis also included an evaluation of patient accounts receivable retained in the divestitures of six of the Company’s seven divested hospitals. This adjustment negatively impacted the provision for bad debts in the net operating revenues component of the statements of income for both the three months and year ended December 31, 2017.

•

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 Company’s ability to successfully make acquisitions or complete divestitures and the timing thereof, its ability to complete any such acquisitions or divestitures on desired terms or at all, and its ability to realize the intended benefits from any such acquisitions or divestitures;

•

changes in reimbursement methodologies and rates paid by federal or state healthcare programs, including Medicare and Medicaid, or commercial payors, and the timeliness of reimbursement payments, including delays in certain states in which the Company operates;

•

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 impact of changes made to the Affordable Care Act, the potential for repeal or additional changes to the Affordable Care Act, its implementation or its interpretation, as well as changes in other federal, state or local laws or regulations affecting the healthcare industry;

•

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 and difficulties in collecting payments for which patients are responsible, including co-pays and deductibles;

•

competition;

•

changes in medical or other technology;

•

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 impact of certain outsourcing functions, and the ability of CHS, as provider of the Company’s billing and collection services pursuant to the transition services agreements, to timely and appropriately bill and collect;

•

the Company’s ability to manage effectively its arrangements with third-party vendors for key non-clinical business functions and services;

•

the ability to achieve operating and financial targets and to control the costs of providing services if patient volumes are lower than expected;

•

the effects related to outbreaks of infectious diseases;

•

the Company’s ability to attract and retain, at reasonable employment costs, qualified personnel, key management, physicians, nurses and other healthcare workers;

•

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;

•

the impact of seasonal or severe weather conditions or earthquakes;

•

the Company’s ongoing ability to demonstrate meaningful use of certified EHR technology and recognize income for the related Medicare or Medicaid incentive payments, to the extent such payments have not expired;

•

the efforts of healthcare insurers, providers, large employer groups 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 failure to comply with governmental regulations;

•

the Company’s ability, where appropriate, to enter into, maintain and comply with provider arrangements with payors and the terms of these arrangements, which may be impacted by the increasing consolidation of health insurers and managed care companies and vertical integration efforts involving payors and healthcare providers;

•

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;

•

liabilities and other claims asserted against the Company, including self-insured malpractice claims;

•

the impact of cyber-attacks or security breaches;

•

the Company’s ability to utilize its income tax loss carryforwards and risks associated with the Tax Cuts and Jobs Act of 2017;

•

the Company’s ability to maintain certain accreditations at its existing facilities and any future facilities it may acquire;

•

the success and long-term viability of healthcare insurance exchanges and potential changes to the beneficiary enrollment process;

•

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 timing and amount of cash flows related to the California HQAF Program, as well as the potential for retroactive adjustments for prior year payments;

•

the effects related to the continued implementation of the sequestration spending reductions and the potential for future deficit reduction legislation;

•

changes in U.S. generally accepted accounting principles, including the impacts of adopting newly issued accounting standards;

•

the availability and terms of capital to fund acquisitions, replacement facilities or other capital expenditures;

•

the Company’s ability to obtain adequate levels of professional and general liability and workers’ compensation liability insurance; and

•

the other risk factors set forth in the Company’s other public filings with the Securities and Exchange Commission.