Investor Contact:  

Michael J. Culotta

Executive Vice President

and Chief Financial Officer

(615) 221-3502

Three Months Ended September 30,

2016

2015

% of

% of

$  Amount

Revenues

$  Amount

Revenues

Operating revenues, net of contractual allowances and discounts

$

612,551

$

605,886

Provision for bad debts

68,612

62,743

Net operating revenues

543,939

100.0

%

543,143

100.0

%

Operating costs and expenses:

Salaries and benefits

266,812

49.1

%

252,168

46.4

%

Supplies

64,013

11.8

%

63,277

11.7

%

Other operating expenses

154,878

28.3

%

161,186

29.6

%

Depreciation and amortization

28,234

5.2

%

31,488

5.8

%

Rent

12,823

2.4

%

12,338

2.3

%

Electronic health records incentives earned

(1,336

)

-0.2

%

(6,121

)

-1.1

%

Legal and settlement costs

488

0.1

%

—

0.0

%

Impairment of long-lived assets and goodwill

—

0.0

%

—

0.0

%

Transaction costs related to the spin-off

532

0.1

%

9,054

1.7

%

Total operating costs and expenses

526,444

96.8

%

523,390

96.4

%

Income from operations

17,495

3.2

%

19,753

3.6

%

Interest expense, net

28,028

5.1

%

24,549

4.5

%

Loss before income taxes

(10,533

)

-1.9

%

(4,796

)

-0.9

%

Benefit from income taxes

(4,081

)

-0.7

%

(721

)

-0.1

%

Net loss

(6,452

)

-1.2

%

(4,075

)

-0.8

%

Less: Net income attributable to noncontrolling interests

507

0.1

%

1,638

0.3

%

Net loss attributable to Quorum Health Corporation

$

(6,959

)

-1.3

%

$

(5,713

)

-1.1

%

Loss per share attributable to Quorum Health Corporation stockholders:

Basic and diluted

$

(0.24

)

$

(0.20

)

Weighted-average shares outstanding:

Basic and diluted

28,413,532

28,412,054

Nine Months Ended September 30,

2016

2015

% of

% of

$  Amount

Revenues

$  Amount

Revenues

Operating revenues, net of contractual allowances and discounts

$

1,825,198

$

1,820,994

Provision for bad debts

201,971

191,882

Net operating revenues

1,623,227

100.0

%

1,629,112

100.0

%

Operating costs and expenses:

Salaries and benefits

788,560

48.6

%

766,046

47.0

%

Supplies

191,810

11.8

%

189,492

11.6

%

Other operating expenses

482,526

29.8

%

472,237

28.9

%

Depreciation and amortization

90,854

5.6

%

95,327

5.9

%

Rent

37,917

2.3

%

36,840

2.3

%

Electronic health records incentives earned

(9,791

)

-0.6

%

(21,452

)

-1.3

%

Legal and settlement costs

6,176

0.4

%

—

0.0

%

Impairment of long-lived assets and goodwill

250,400

15.4

%

—

0.0

%

Transaction costs related to the spin-off

5,444

0.3

%

9,054

0.6

%

Total operating costs and expenses

1,843,896

113.6

%

1,547,544

95.0

%

Income (loss) from operations

(220,669

)

-13.6

%

81,568

5.0

%

Interest expense, net

84,756

5.2

%

74,179

4.5

%

Income (loss) before income taxes

(305,425

)

-18.8

%

7,389

0.5

%

Provision for (benefit from) income taxes

(50,320

)

-3.1

%

3,435

0.3

%

Net income (loss)

(255,105

)

-15.7

%

3,954

0.2

%

Less: Net income attributable to noncontrolling interests

1,917

0.1

%

2,038

0.1

%

Net income (loss) attributable to Quorum Health Corporation

$

(257,022

)

-15.8

%

$

1,916

0.1

%

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

Basic and diluted

$

(9.05

)

$

0.07

Weighted-average shares outstanding:

Basic and diluted

28,412,552

28,412,054

Three Months Ended September 30,

2016

2015

Variance

% Variance

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

3,578

3,592

(14

)

-0.4

%

Admissions ^(d)

23,503

24,281

(778

)

-3.2

%

Adjusted admissions ^(e)

59,333

61,150

(1,817

)

-3.0

%

Patient days during period ^(f)

92,832

96,448

(3,616

)

-3.7

%

Average length of stay (days) ^(g)

4.0

4.0

Medicare case mix index ^(h)

1.37

1.35

0.02

1.5

%

Nine Months Ended September 30,

2016

2015

Variance

% Variance

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

3,578

3,592

(14

)

-0.4

%

Admissions ^(d)

72,113

74,271

(2,158

)

-2.9

%

Adjusted admissions ^(e)

178,062

180,888

(2,826

)

-1.6

%

Patient days during period ^(f)

288,432

297,805

(9,373

)

-3.1

%

Average length of stay (days) ^(g)

4.0

4.0

Medicare case mix index ^(h)

1.37

1.34

0.03

2.2

%

September 30,

December 31,

2016

2015

ASSETS

Current assets:

Cash and cash equivalents

$

25,078

$

1,106

Patient accounts receivable, net of allowance for doubtful accounts of $342,263 and $346,507 at September 30, 2016 and December 31, 2015, respectively

407,687

390,890

Inventories

58,045

60,542

Prepaid expenses

25,261

16,030

Due from third-party payors

127,073

110,806

Current assets of hospitals held for sale

4,090

—

Other current assets

65,647

59,011

Total current assets

712,881

638,385

Property and equipment, at cost

1,571,275

1,603,653

Less:  Accumulated depreciation and amortization

(750,932

)

(723,404

)

Total property and equipment, net

820,343

880,249

Goodwill

336,812

541,704

Intangible assets, net

106,306

129,250

Long-term assets of hospitals held for sale

22,230

—

Other long-term assets

100,628

105,268

Total assets

$

2,099,200

$

2,294,856

LIABILITIES AND EQUITY

Current liabilities:

Current maturities of long-term debt

$

10,493

$

7,915

Accounts payable

147,126

138,483

Accrued liabilities:

Accrued salaries and benefits

100,806

82,620

Accrued interest

31,046

—

Due to third-party payors

45,102

30,103

Current liabilities of hospitals held for sale

558

—

Other current liabilities

54,694

45,255

Total current liabilities

389,825

304,376

Long-term debt

1,241,301

15,500

Due to Parent, net

—

1,800,908

Deferred income tax liabilities, net

51,216

41,030

Other long-term liabilities

118,671

108,141

Total liabilities

1,801,013

2,269,955

Redeemable noncontrolling interests

7,754

8,958

Equity:

Quorum Health Corporation stockholders' equity:

Preferred stock, $0.0001 par value per share, 100,000,000 shares authorized, none issued at September 30, 2016

—

—

Common stock, $0.0001 par value per share, 300,000,000 shares authorized; 29,486,215 shares issued and outstanding at September 30, 2016

3

—

Additional paid-in capital

523,168

—

Accumulated other comprehensive loss

(3,710

)

—

Accumulated deficit

(241,910

)

—

Total Quorum Health Corporation stockholders' equity

277,551

—

Parent's equity

—

3,184

Nonredeemable noncontrolling interests

12,882

12,759

Total equity

290,433

15,943

Total liabilities and equity

$

2,099,200

$

2,294,856

Three Months Ended September 30,

Nine Months Ended September 30,

2016

2015

2016

2015

Cash flows from operating activities:

Net income (loss)

$

(6,452

)

$

(4,075

)

$

(255,105

)

$

3,954

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

Depreciation and amortization

28,234

31,488

90,854

95,327

Non-cash interest expense

1,257

—

1,986

—

Benefit from deferred income taxes

(4,081

)

—

(51,532

)

—

Stock-based compensation expense

2,781

—

4,678

—

Impairment of long-lived assets and goodwill

—

—

250,400

—

Other non-cash expense (income), net

54

705

(533

)

(803

)

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

11,208

—

28,099

—

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

—

—

4,642

—

Changes in operating assets and liabilities, net of acquisitions:

Patient accounts receivable, net

(9,586

)

(23,639

)

(16,797

)

(6,809

)

Due from and due to third-party payors, net

(7,528

)

(14,365

)

(2,173

)

(18,295

)

Inventories, prepaid expenses and other current assets

(14,689

)

12,794

(12,412

)

20,379

Accounts payable and accrued liabilities

(2,505

)

(20,540

)

26,624

(88,764

)

Long-term assets and liabilities, net

880

371

(7,965

)

446

Net cash provided by (used in) operating activities

(427

)

(17,261

)

60,766

5,435

Cash flows from investing activities:

Capital expenditures for property and equipment

(23,241

)

(13,351

)

(56,448

)

(33,761

)

Capital expenditures for software

(1,454

)

(2,802

)

(5,258

)

(5,463

)

Acquisitions, net of cash acquired

(26

)

(4,854

)

(26

)

(6,866

)

Proceeds from sale of property and equipment

217

—

1,075

3,014

Other investing activities

(563

)

(70

)

(19

)

(3,359

)

Net cash used in investing activities

(25,067

)

(21,077

)

(60,676

)

(46,435

)

Cash flows from financing activities:

Borrowings of long-term debt

36

150

1,255,556

285

Repayments of long-term debt

(3,165

)

(259

)

(7,442

)

(995

)

Increase in Due to Parent, net

—

37,488

25,183

46,749

Increase (decrease) in receivables facility, net

—

951

—

(4,236

)

Payments of debt issuance costs

(1,136

)

—

(29,139

)

—

Cash paid to Parent in Spin-off Transaction

—

—

(1,217,336

)

—

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

(39

)

—

(12

)

—

Cash distributions to noncontrolling investors

(181

)

(100

)

(2,828

)

(1,522

)

Purchases of shares from noncontrolling investors

(88

)

(214

)

(100

)

(936

)

Net cash provided by (used in) financing activities

(4,573

)

38,016

23,882

39,345

Net change in cash and cash equivalents

(30,067

)

(322

)

23,972

(1,655

)

Cash and cash equivalents at beginning of period

55,145

1,226

1,106

2,559

Cash and cash equivalents at end of period

$

25,078

$

904

$

25,078

$

904

Supplemental cash flow information:

Interest payments, net

$

15,432

$

24,549

$

51,779

$

74,179

Income tax payments, net of refunds (after Spin-off Transaction)

—

—

—

—

^(a)

For comparative purposes, the Company used 28,412,054 shares as the weighted-average shares to calculate basic and diluted EPS for periods prior to the spin-off transaction. This number of shares represents the number of shares issued on the spin-off transaction date.  Due to the net loss attributable to Quorum Health Corporation in the three and nine months ended September 30, 2016, no incremental shares are included in diluted earnings per share for these periods, because the effect of the shares would be anti-dilutive. 

^(b)

EBITDA is a non-GAAP financial measure that consists of net income attributable to Quorum Health Corporation before interest, income taxes, depreciation and amortization.  Adjusted EBITDA, also a non-GAAP financial measure, is EBITDA adjusted to exclude the impact of net income attributable to noncontrolling interests, expenses related to certain legal and settlement costs, impairment of long-lived assets and goodwill, and transaction costs related to the spin-off. The Company uses Adjusted EBITDA as a measure of liquidity. The Company has also presented Adjusted EBITDA in this press release because it believes it provides investors with additional information about the Company’s ability to incur and service debt and make capital expenditures.

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended

2016

2015

2016

2015

June 30, 2016 ^(l)

Net income (loss)

$

(6,452

)

$

(4,075

)

$

(255,105

)

$

3,954

$

(243,966

)

Interest expense, net

28,028

24,549

84,756

74,179

29,276

Provision for (benefit from) income taxes

(4,081

)

(721

)

(50,320

)

3,435

(44,565

)

Depreciation and amortization

28,234

31,488

90,854

95,327

31,463

EBITDA

45,729

51,241

(129,815

)

176,895

(227,792

)

Legal and settlement costs

488

—

6,176

—

5,447

Impairment of long-lived assets and goodwill

—

—

250,400

—

250,400

Transaction costs related to the spin-off

532

9,054

5,444

9,054

1,177

Adjusted EBITDA

$

46,749

$

60,295

$

132,205

$

185,949

$

29,232

Adjusted EBITDA:

$

46,749

$

60,295

$

132,205

$

185,949

$

29,232

Stock-based compensation expense ⁽ⁱ⁾

2,781

—

4,678

—

1,897

Changes in reserves for self-insurance claims, net of payments ^(j)

11,208

—

28,099

—

8,901

Legal and settlement costs

(488

)

—

(6,176

)

—

(5,447

)

Changes in reserves for legal and settlement costs, net of payments ^(k)

—

—

4,642

—

4,642

Non-cash interest expense

1,257

—

1,986

—

729

Other non-cash expense (income), net

54

705

(533

)

(803

)

(33

)

Interest settled in Due to Parent, net

—

(24,549

)

(36,716

)

(74,179

)

(9,993

)

Interest expense related to post spin-off activity

(28,028

)

—

(48,040

)

—

(19,283

)

Income taxes settled in Due to Parent, net

—

721

(1,212

)

(3,435

)

(2,886

)

Transaction costs related to the spin-off

(532

)

(9,054

)

(5,444

)

(9,054

)

(1,177

)

Changes in operating assets and liabilities, net of acquisitions

(33,428

)

(45,379

)

(12,723

)

(93,043

)

30,214

Net cash provided by (used in) operating activities

$

(427

)

$

(17,261

)

$

60,766

$

5,435

$

36,796

^(c)

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

^(d)

Admissions represent the number of patients admitted for inpatient services.

^(e)

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

^(f)

A patient day represents the total count of admitted inpatients as of midnight.

^(g)

Average length of stay in days is calculated by dividing the number of patient days, as defined above, by the number of admissions in the period.

^(h)

Medicare case mix index is a relative value assigned to a diagnosis-related group of inpatients 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.

⁽ⁱ⁾

Following the spin-off transaction, the Company began recording stock-based compensation expense related to the vesting of QHC restricted stock awards issued to QHC employees on the spin-off transaction date, CHS restricted stock awards held by QHC employees on the spin-off transaction date and QHC restricted stock awards granted by the Company on May 3, 2016.  Prior to the spin-off transaction, an estimated portion of CHS’ stock-based compensation expense was allocated to QHC through the corporate management fee from CHS and was not included as a non-cash add-back to net cash provided by operating activities.  The estimated portions of stock-based compensation expense included in corporate management fees charged by CHS were $1.8 million for the three months ended September 30, 2015 and $2.3 million and $5.6 million for the nine months ended September 30, 2016 and 2015, respectively.  

^(j)

Changes in reserves for self-insurance claims, net of payments, relates to the self-insurance reserves for professional and general liability, workers’ compensation and employee health insurance plans.  It does not include the portion of the Company’s insurance reserves that were indemnified by CHS in connection with the spin-off transaction.   The payment activity related to these insurance reserves is presented in the consolidated and combined statements of cash flows as a component of the changes in operating assets and liabilities. 

^(k)

Changes in reserves for legal and settlement costs, net of payments, relates to newly accrued reserves or changes in estimates of existing reserves for legal and settlement costs. It is presented net of changes in estimates of corresponding insurance receivables, if any.  It does not include the portion of legal and settlement costs related to legal fees or expenses that are ultimately paid through accounts payable.  The payment activity related to all legal and settlement costs is presented in the consolidated and combined statements of cash flows as a component of the changes in operating assets and liabilities. 

^(l)

The reconciliation of Adjusted EBITDA to net cash provided by operating activities for the three months ended June 30, 2016 incorporates certain reclassification adjustments the Company made to its statements of cash flows beginning in the third quarter of 2016.

•

general economic and business conditions, both nationally and in the regions in which the Company operates;

•

implementation, effect of and changes to adopted and potential federal and state healthcare reform legislation and other federal, state or local laws or regulations affecting the healthcare industry;

•

the extent to which states support increases, decreases or other changes in Medicaid programs, implement healthcare exchanges or alter the provision of healthcare to state residents through regulation or otherwise;

•

the success and long-term viability of health insurance exchanges, which may be impacted by whether a sufficient number of payors participate;

•

risks associated with the Company’s substantial indebtedness, leverage and debt service obligations;

•

demographic changes;

•

changes in, or the failure to comply with, governmental regulations;

•

potential adverse impact of known and unknown government investigations, internal investigations, investor demands for investigation, audits, and federal and state false claims act litigation and other legal proceedings, including the recent shareholder litigation 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 and maintain 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, or the failure to comply with contract terms with payors and changes in reimbursement rates paid by federal or state healthcare programs or commercial payors;

•

any potential impairments in the carrying value of goodwill, other intangible assets, other long-lived assets, or changes in the useful lives of other intangible assets;

•

changes in inpatient or outpatient Medicare and Medicaid payment levels;

•

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 the impact of the implementation of ICD-10 and decreases in collectability 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 value-based purchasing;

•

the ongoing ability to demonstrate meaningful use of certified electronic health record technology and recognize income for the related Medicare or Medicaid incentive payments;

•

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 us, 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;

•

trends toward treatment of patients in less acute or specialty healthcare settings, including surgery centers or specialty hospitals;

•

changes in medical or other technology;

•

changes in U.S. generally accepted accounting principles (“U.S. GAAP”);

•

the availability and terms of capital to fund additional acquisitions or 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 ability to successfully integrate any acquired hospitals, or to recognize expected synergies from acquisitions;

•

the impact of seasonal or severe weather conditions;

•

the ability to obtain adequate levels of professional and general liability insurance;

•

timeliness of reimbursement payments received under governmental programs;

•

effects related to outbreaks of infectious diseases;

•

the impact of external, criminal cyber-attacks or security breaches;

•

the anticipated and unanticipated ongoing effects that the completion of the spin-off transaction on April 29, 2016 had on the Company’s business and the ability to achieve the anticipated benefits of the spin-off;

•

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;

•

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;

•

an increase in costs associated with the increase in the number of employed physicians;

•

the impact of the results of the recent United States presidential and other state and federal elections; and

•

the risk factors included in the Company’s other public filings with the SEC, including the most recent Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2016.