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Text: Joining me on the call today are Tim Hingtgen, Chief Executive Officer; Dr. Lynn Simon, President of Clinical Operations and Chief Medical Officer; and Kevin Hammons, President and Chief Financial Officer.
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, expense from government and other legal settlements and related costs, expense from settlement of legal expenses related to cases covered by the CVR and change in tax valuation allowance.
We achieved strong operational and financial results in the first quarter, during what was a milestone period for the healthcare industry as we marked the one-year anniversary of the onset of the COVID pandemic.
A year into this experience, we are still managing through extraordinary circumstances and adapting to constant change.
During the first part of the quarter, especially in January, COVID surges continued to impact volume in many of our markets.
In February, and certainly by March, COVID cases subsided and other volumes began to notably improve.
We provided care for approximately 9,500 inpatient COVID admissions in the first quarter.
This compares to approximately 8,000 COVID admissions during the third quarter and another 14,000 COVID admissions during the fourth quarter of 2020.
We finished the first quarter with good operational momentum, progress in many strategic initiatives which I will discuss in a minute and a sense of optimism that as vaccination rates increase and COVID cases decline, we will continue to move to a more normal operating environment.
In the first quarter on the topline, same-store net revenue growth increased 9.8%.
On a year-over-year basis, net revenue growth was driven by higher acuity and an easier comp, due to COVID related government restrictions on elective procedures that started in March of 2020 which impacted volumes in net revenues last year.
This quarter admissions and surgeries were negatively impacted by the high COVID case counts that we experienced in January as well as severe snow storms that hit much of the South in the middle of February.
During the month of March, we were very pleased with our strong volume recovery, further closing the gap to our pre-pandemic run rates.
We believe the rollout of the COVID vaccine also impacted demand during the quarter, while some patients waited for their turn to receive the vaccine prior to returning for elective scheduled Health Care Services.
Throughout the pandemic period, we have been actively encouraging patients who have been reluctant to seek healthcare, to return for any need to checkup, screening, postponed procedures and other deferred care.
For the fourth quarter year-over-year same-store admissions were down 4.9%, adjusted admissions were down 7.2% and surgeries were essentially flat.
ER visits continue to lag other volume metrics with same-store ER visits down 17%.
Our expense management initiatives remain on track and effective with more progress demonstrated during the first quarter.
Adjusted EBITDA was $495 million which increased 60% compared to the prior year.
Adjusted EBITDA margin of 16.4% improved 620 basis points year-over-year.
During the quarter, $82 million of pandemic relief funds were recognized.
If we exclude the pandemic relief funds from the quarter's results, adjusted EBITDA was $413 million with an adjusted EBITDA margin of 13.7%.
Since comparative results are affected when looking at the first quarter of 2020 because of the government restrictions on elective procedures that took effect then, more helpful perspective can be found in a comparison to the first quarter of 2019.
Excluding pandemic relief funds, first quarter 2021 adjusted EBITDA of $413 million, increased 6% compared to the first quarter of 2019, despite operating 21 fewer hospitals as a result of our portfolio rationalization program.
We believe this clearly demonstrates our progress so far and the underlying strength and growth potential of our go-forward portfolio.
We continue to fuel the portfolio with attractive capital investments based upon defined growth strategies and of course through the determination and hard work of our hospital leadership teams across the country.
The results of the quarter demonstrate that the transformation of the company that started a few years ago is progressing and we are excited about all of the opportunities in front of us as we look toward the future.
In the medium term, we continue to target 15% plus adjusted EBITDA margin, positive annual free cash flow generation and reducing our leverage below 6 times.
During the last quarter, we did lower our leverage and we made a number of other improvements across our capital structure, which, Kevin will highlight later.
Now I'd like to spend a minute on strategic initiatives and the opportunities in front of us, especially as our divestitures have been completed and we are completely focused on our core portfolio.
We have been making investments in these markets over time to enhance our competitive position and to drive long-term growth.
Our company's growth objective is to advance opportunities for both inpatient and outpatient care development, based upon each market's unique characteristics and opportunities.
On the inpatient side, we've recently opened two new hospitals in Indiana and Arizona and both are performing quite well.
Another new hospital will open in Fort Wayne later this year and one addition of de novo campus in Tucson early next year.
And over the past three years, we've added nearly 300 new beds to the core portfolio, along with more than 50 new surgical and procedural suites to meet increased demand and to drive higher acuity.
We have also added several new service lines at hospitals throughout our portfolio.
On the outpatient side.
We recently completed a comprehensive study of several key markets to identify our best investment opportunities and ambulatory access and services, including more primary-care, specialty care and urgent care locations as well as freestanding ERs and ambulatory surgery centers.
In terms of progress, we opened our 14th freestanding ER during the first quarter, with two more locations scheduled to open this year.
We have also added two additional ASCs to the portfolio so far this year and we will add a de novo center in our Knoxville market this summer.
Adding all of this together, we continue to manage a very robust development pipeline of opportunities that we believe align well with our inpatient services, expand our outpatient access more broadly across our markets and then improves our overall market position.
We continue to think strategically about capital investments and how that can drive high impact, high growth returns as we deliberately build out and advance our networks.
We are also investing in what we call connected care strategies.
We have been regularly sharing progress updates on our proprietary transfer center operations, since 2017.
We continue to see impressive results from this initiative and we are leveraging the visibility it provides into areas for facility expansion, physician recruitment or service line enhancements will enable us to provide care for even more patients within a region.
We are also implementing proprietary patient access centers, which initially provide centralized scheduling services for our primary care practices.
We are seeing good initial results, including volume improvement with nearly 600 providers not being served by the centralized scheduling centers.
Over time, our goal is to use these scheduling hubs to enable outbound patient outreach to close gaps in care and to provide other services to ensure that patients can more easily navigate the healthcare system and receive the services they need.
We believe all of our investments are generating the intended results and positioning us for greater success in the long run.
I'm extremely proud of the progress we've made in so many areas.
They continue to earn our respect and admiration every single day.
As Tim just mentioned, it was a strong start to the year.
We delivered good financial performance, continued meaningful improvements across our capital structure and made additional strategic progress during the first quarter.
Net operating revenues came in at $3,013 million on a consolidated basis, down 0.4% from the prior year due to divestitures.
On a same-store basis, net revenues increased 9.8%.
This was the net result of a 7.2% decrease in adjusted admissions and an 18.3% increase in net revenue per adjusted admission.
Similar to the back half of 2020, our net revenue per adjusted admission benefited from increased acuity, higher rates and better payor mix.
Adjusted EBITDA was $495 million, up 60.2%.
This included $82 million of pandemic relief funds.
Adjusted EBITDA, excluding the pandemic relief funds was $413 million, an improvement of 34% over the prior year and an improvement of 6% over the first quarter of 2019.
Our adjusted EBITDA margin was 13.7% versus 10.2% in the prior year and 11.6% in the first quarter of 2019.
We continue to make progress toward improving adjusted EBITDA margins.
During COVID, we experienced various ways of new COVID cases from month-to-month, which has impacted our volumes and increased our operating expenses.
Our hospital leadership teams have continued to adjust extremely well to the changing business environment and that was evident again this quarter, while effectively executing our cost reduction programs, we have seen increased expense related to certain supply cost, contract labor and other expenses related to COVID.
With COVID cases declining we expect these additional costs to decrease.
Switching to cash flow.
Cash flows provided by operations were $101 million for the first quarter of 2021.
This compares to cash flows from operations of $57 million during the first quarter of 2020.
Looking at the quarter-over-quarter increase, cash interest payments were approximately $60 million lower in the first quarter of 2021.
The company repaid approximately $18 million during the quarter related to Medicare accelerated payments due to divestitures and other increases and decreases including improved EBITDA and working capital changes were offset.
As we look at the rest of the year, we expect our cash flow from operations to improve.
During the first quarter, in addition to the first quarter being a historically lighter cash flow quarter due largely to the resetting of co-pays and deductibles and the timing of certain payments, our cash flow from operations is also negatively impacted by the COVID peak in January and the weather-related disruptions during February.
As such our strongest net revenue month during the quarter was March, and as a result, we expect our cash collections to improve moving forward into the second quarter.
Turning to capex for the quarter.
Our capex was $105 million compared to $99 million in the prior year, keeping in mind that we are operating fewer hospitals than a year ago.
We continue to invest capital into our core portfolio to strengthen our existing markets and we are excited about a number of our recent investments along with a number of future opportunities that are in the pipeline.
We are pleased to have completed our formal divestiture plan and we continue to receive inbound interest regarding potential transactions and we will continue to assess the benefits of any future deals.
But as we move forward, we are focused -- we are most focused on driving growth across our stronger portfolio, which we believe will continue to benefit from our targeted investment focus strategies in improving economic and population demographics within our markets.
In terms of liquidity.
At the end of the first quarter, the company had $1.3 billion of cash on the balance sheet.
At March 31, the company had no outstanding borrowings and approximately $633 million of borrowing base capacity under its ABL with the ability for that to increase up to $1 billion.
Switching to the CARES Act and the pandemic relief funds.
At the end of 2020, we had $104 million of unrecognized pandemic relief funds of which we recognized approximately $82 million during the first quarter of 2021.
As a reminder, we have not included the pandemic relief funds in our full-year 2021 guidance.
Moving to the balance sheet and capital structure.
We've made significant improvements.
At the end of the first quarter we had approximately $11.9 billion of total debt, which was approximately $300 million lower compared to the prior quarter.
On the capital structure side, as a reminder, through 2020 and the first quarter of 2021, we lowered our debt by over $1.3 billion, reduced our leverage ratio by over 2 turns down to 6 times levered compared to over 8 times last year and lowered our annual cash interest by approximately $190 million.
In the first quarter, we completed a number of capital market transactions that further lowered annual cash interest and removed near term maturities.
In January, we extended $1.8 billion second lien notes to 2029 and $1.1 billion first lien notes to 2031.
Following these transactions, we call the remaining $126 million of 2022 unsecured notes paying that with cash on hand.
During the past few quarters, we have significantly extended debt maturities, paid down debt and lowered our annual cash interest.
Our next maturity is now not due until June of 2024.
Now I'd like to quickly comment on our full-year 2021 guidance.
Net operating revenues are anticipated to be $11.7 billion to $12.5 billion, unchanged from our previous guidance and adjusted EBITDA is anticipated to be $1.65 billion to $1.8 billion, which does not include pandemic relief funds.
Overall, the first quarter was a good start to the year and as a result, we have tightened our adjusted EBITDA range by raising the low end of our EBITDA guidance.
As we look forward, we continue to expect our expense savings from our strategic margin program to build throughout the year with more significant cost reduction in the back half of 2021.
We also expect this program to drive incremental savings into 2022 and beyond, due to this program along with the net revenue initiatives that Tim mentioned, we expect to achieve our medium-term financial goals over the next several years, which will benefit all of our stakeholders.

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q1 revenue fell 0.4 percent to $3.013 billion.

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