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Text: These forward looking statements are subject to a number of known and unknown risks, which are described in 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.
We will refer to those slides during this earnings call.
All calculations we will discuss also exclude loss or gain 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 and legal expenses related to cases covered by the CVR expenses related to employee termination benefits and other restructuring charges, change in tax valuation allowance and gain on sale of investments and unconsolidated affiliates.
We are very pleased with our third quarter operational and financial performance, especially as our healthcare teams provided care for a large number of patients with COVID-19.
Despite this challenging environment, we continue to advance key growth strategies and other important operational improvements.
During the third quarter, the Delta variance spread through many of our markets across the Sun Belt space.
As a result, we provided care for approximately 15,000 inpatient COVID admissions or 13% of our total admissions, which was our highest quarterly case count to date.
This compared to more than 3,000 inpatient COVID cases during the second quarter and 9,500 during the first quarter.
And it is also worth noting that non-COVID healthcare demand was higher in the third quarter than in our prior quarters with elevated COVID-19 cases.
Since the onset of the pandemic, the importance of our healthcare team and the critical role they play in the communities we serve has certainly been reinforced.
I am impressed with their professionalism and compassion and remain grateful for their commitment to providing safe, high quality patient care.
Looking at the third quarter, we produced strong results despite the COVID surge.
On a same store and year over year basis, net revenue increased 7.1%.
Same store admissions increased 2.8% and adjusted admissions were up 4.7%.
Surgeries increased 1.5%, while ER visits were up 24.2%.
As a reminder, during the third quarter of 2020, we drove solid volume recovery as industry volumes were returning.
So we were pleased with this year over year volume performance.
Looking at our third quarter volumes compared to the pre-pandemic third quarter of 2019, same store admissions decreased 3%, while surgeries declined 4%.
ER visits further improved and were up 1% versus 2019 due in large part to our freestanding ED expansion strategy as well as elevated levels of COVID visits and testing.
Despite the COVID surge in the third quarter being our largest to date, non-COVID demand was higher than the last significant surge in the first quarter of this year.
As a result, we delivered stronger volumes across all key metrics compared to the first quarter.
That said, deferred care and related procedures have been impacted throughout the pandemic, and we expect healthcare demand to return over the next several quarters.
And our recent investment, which I will cover in more detail shortly, will help meet growing demand for healthcare services in the months and years ahead, and drive market share gains across our portfolio.
Moving now to EBITDA during the third quarter.
On a consolidated basis, adjusted EBITDA was $482 million.
Excluding pandemic relief funds, adjusted EBITDA was $463 million, which was up 7% year over year, with an adjusted EBITDA margin of 14.8%.
Compared to the third quarter of 2019 and excluding release pandemic relief fund, adjusted EBITDA increased 19%, and our adjusted EBITDA margin was up 280 basis points despite operating 19 fewer hospitals, which further validates our underlying confidence in the renewed core portfolio.
In terms of expense management, for more than 1.5 years now, the pandemic has created a continuously changing operating environment, requiring flexibility on a daily basis.
This was certainly the case again during this quarter.
Our hospital leadership teams and providers have adeptly managed the ebbs and flows, utilizing best practices, leveraging organizational resources and operating with agility all while prioritizing safety for their patients and care teams.
They continue to effectively manage their resources and control expenses.
Similar to prior waves of COVID, we experienced increased costs related to staffing, pharmaceuticals and other supplies, such as PPE and COVID testing.
And while the entire country is ready for the impacts of COVID-19 to subside, we remain confident in our ability to manage the dual-track operation strategy for as long as the pandemic continues.
Our portfolio is strong, and it is situated across parts of the country with attractive population trends and favorable economic conditions, which provide a solid foundation for growth over the next several years.
To broadly advance these growth opportunities, we have previously highlighted investments in incremental bed capacity new outpatient access points, higher acuity service lines, physician recruitment, our transfer center service, Telehealth technologies and in care coordination and patient experience.
These investments are working.
They have greatly improved our competitive position and are creating opportunities for incremental market share gains into the future.
Now I would like to share with you some of our recent growth oriented investments.
They include the JV opportunities, we announced last quarter with partnerships across rehab, long term acute care and behavioral health, the opening of new ASCs in the Knoxville, Tennessee and Tucson, Arizona markets.
The recent completion of an OB and neonatal intensive care expansion at Grandview Medical Center in Birmingham, Alabama, where we have now added more than 70 beds over the past three years.
The November opening of a new hospital in Downtown Fort Wayne, as part of Lutheran Health Network, the upcoming opening of our 17th freestanding ED near Bentonville, Arkansas, which is part of our Northwest Arkansas network, and a de novo hospital campus, the fourth in Tucson, Arizona, which is scheduled to open in early 2022.
We are also excited about the recently announced expansion of the physician's regional healthcare system in Naples, Florida.
This includes the construction of 100 new beds at our two existing hospital campuses in that market and the early 2022 addition of a third hospital campus in North Naples, which will specialize primarily in orthopedic surgery and rehabilitation.
Beyond these projects, we have a growing pipeline of both inpatient and outpatient investment opportunities, which we expect to further develop and strengthen our core markets even more.
We have been pleased with our progress this year, and in our overall execution in the midst of a challenging operating environment.
Due to our strong performance, we are raising our adjusted EBITDA guidance again this quarter.
And looking forward, we remain extremely optimistic about our portfolio and markets as well as the opportunities ahead of us to drive long term incremental EBITDA and cash flow growth.
As Tim highlighted, it was another strong quarter for the company.
as we delivered solid financial performance and further advanced a number of our strategic initiatives.
Through the recent transformation we've undertaken to reposition the company, we introduced strategies to drive net revenue growth and improve efficiency throughout the organization as well as to strengthen our balance sheet.
We completed our divestiture program, which allowed for debt paydown and additional focus in our core markets.
We made improvements to the capital structure, extending maturities and reducing annual cash interest.
And we've made operational improvements, which have improved our margins.
We are pleased with all of this recent progress and excited about the opportunities in front of us.
Switching back to the third quarter performance.
Net operating revenues came in at $3.115 billion on a consolidated basis.
On a same store basis, net revenue was up 7.1% from the prior year.
This was the net result of a 4.7% increase in adjusted admissions and a 2.3% increase in net revenue per adjusted admission, which faced a difficult comp from the prior year.
Excluding nonpatient revenue, which was lower year over year, net patient revenue per adjusted admission was up 3% compared to the prior year.
Adjusted EBITDA was $482 million.
During the third quarter, we recorded approximately $19 million of pandemic relief funds with no relief funds recognized in the prior year period.
Excluding those pandemic relief funds, adjusted EBITDA was $463 million, with an adjusted EBITDA margin of 14.8%.
In terms of expenses, supply cost increased in the third quarter, a result of higher pharmaceutical and other costs associated with caring for additional COVID patients.
Contract labor expenses increased in the third quarter similar to prior COVID waves during which COVID case counts were elevated.
As a reminder, our contract labor expense is recorded in the other operating expense line.
It's worth noting that our strategic margin improvement program has remained on plan during the year.
The formalized program continues to drive efficiency across the organization.
and the execution helped to offset cost pressure across all three expense lines during the quarter.
We expect this plan will drive incremental savings over the next several years.
Turning to cash flow.
Cash flows provided by operations were $400 million for the first nine months of 2021.
This compares to cash flows from operations of $2.1 billion during the first nine months of 2020.
The comparison versus the prior year is difficult as the $2.1 billion in cash flow from operations during the first nine months of 2020 included $1.159 billion of accelerated Medicare payments received and $715 million of pandemic relief funds received.
Declining net revenue during the first three quarters of 2020 resulted in declining accounts receivable which was, therefore, a benefit to working capital cash flows last year.
Conversely, with strong net revenue growth in the current year, we have a net working capital drag as accounts receivables have increased.
We expect this net working capital headwind to ease in future quarters.
Excluding repaid Medicare payments, cash flows provided by operations were $667 million for the first nine months of 2020.
For the first nine months of 2021, our capex was $334 million compared to $317 million in the prior period.
Our capex was up 5% in the first nine months of this year despite operating fewer hospitals than a year ago.
Our core markets have benefited from the rollout of our strategic initiatives, along with high return capital to fuel additional growth.
And as Tim mentioned, we have a strong pipeline of opportunities that we expect will drive incremental EBITDA as well as increased cash flow performance going forward.
In terms of liquidity, we continue to have no outstanding borrowings and approximately $728 million of borrowing base capacity under the ABL with the ability for that to increase up to $1 billion.
Also at the end of the quarter, we had $1.3 billion of cash on the balance sheet.
As of September 30, 2021, the company had $814 million of Medicare accelerated payments remaining to be repaid, which were recorded as a current liability on the balance sheet.
Rather than repay these remaining Medicare Accelerated payments over the next several quarters through the regularly scheduled recruitment process by CMS, the company has elected to repay the remaining outstanding balance of Medicare accelerated payments to CMS with cash on hand, which it has now completed during the month of October.
Moving forward, the company will begin receiving the full amount of cash reimbursement on future Medicare claims.
Due to our strong performance during the quarter, we have raised our guidance.
The updated full year 2021 guidance for net revenues is now anticipated to be $12.150 billion to $12.350 billion.
And adjusted EBITDA is anticipated to be $1.780 billion to $1.820 billion as we've increased our full year range.
As a reminder, our 2021 adjusted EBITDA guidance does not include any previously recorded pandemic relief funds or any pandemic relief funds that may be recorded in the future.
Cash flow from operations is anticipated to be $800 million to $900 million, an increase of $75 million at the midpoint.
Our cash flow from operations guidance excludes the repayment of Medicare accelerated payments that have occurred throughout the year.
capex is now expected to be $450 million to $500 million, and net income per share is anticipated to be $1 to $1.20 based on a weighted average diluted shares outstanding of 129 million to 131 million shares.
Lastly, at the beginning of this year, we introduced our medium term financial goals, which included achieving 15% plus adjusted EBITDA margins, delivering positive free cash flow annually and reducing financial leverage below six times.
Looking at the past three quarters, we've made significant progress on these goals as we've expanded our EBITDA margin, driven strong positive free cash flow year to date and further reduced our leverage, which is 5.9 times as of September 30.
We look forward to delivering additional progress across all these metrics as we move forward.

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q3 revenue fell 0.4 percent to $3.115 billion.

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