Community Health Systems Inc Q2 FY2022 Earnings Call

Good day, and thank you for standing by. Welcome to Community Health Systems Second Quarter 2022 Earnings Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker for today, Mr. Ross Comeaux, Vice President of Investor Relations.

Thank you, Matt. Good morning, and welcome to Community Health Systems' Second Quarter 2022 Conference Call. Joining me today are Tim Hingtgen, Chief Executive Officer; Kevin Hammons, President and Chief Financial Officer; and Dr. Lynn Simon, President of Clinical Operations and Chief Medical Officer. Before I turn the call over to Tim, I'd like to remind everyone that this conference call may contain certain forward-looking statements, including all statements that do not relate solely to historical or current facts. 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. Yesterday afternoon, we issued a press release with our financial statements and definitions and calculations of adjusted EBITDA and adjusted EPS. For those of you listening to the live broadcast of this conference call, a supplemental slide presentation has been posted to our website. We will refer to those slides during this earnings call. Also, all calculations we will discuss also exclude loss or gain from early extinguishment of debt and impairment expense as well as gains or losses on the sale of businesses. With that said, I'd like to now turn the call over to Tim Hingtgen, Chief Executive Officer.

Great. Thank you, Ross. Good morning everyone, and welcome to our second quarter conference call. The second quarter was challenging in many regards, as we navigated through a particularly complex operating environment, but simply stated, we did not achieve the results we had expected. During this call, we will point to some of the issues affecting our results, along with actions that are underway to improve performance. We will also discuss why we remain confident that our operational priorities and strategic growth initiatives remain the right areas of intense focus to deliver the desired results. Several factors came into play in Q2, resulting in our adjusted EBITDA decline, the most pronounced being lower than forecasted net revenue, continued pressure on the SWB line and contract labor expenses, which improved sequentially and remained well over prior year. And lastly, a disproportionate negative impact from the operating results in two of our markets, which I will quantify later. In terms of net revenue, the decline was due to lower-than-forecasted volumes in a post-COVID surge quarter based upon past history, and lower net revenue per adjusted admission than anticipated due to the continued site-of-care shifts, payor mix and generally lower acuity of our medical conditions. Non-patient revenues also decreased year-over-year. Unfortunately, the lower net revenue had a high flow-through to the EBITDA line in the quarter. Conversely, we expect net revenue to improve in the future and we expect this incremental net revenue to drive a high flow-through back to EBITDA. Switching back to the quarter, on a year-over-year basis same-store admissions were down 3.5%. A main contributor to this decline was a greater migration of higher acuity short-stay surgery cases that were historically inpatient status, being performed as outpatient status, as evidenced by a much smaller decline in adjusted admissions, which were down 50 basis points in a same-store surgery decline of 30 basis points. We made targeted investments to increase surgical service lines, capacity and volumes, and we are pleased to see these strategies producing generally positive results. Our surgical volumes are 1% higher than 2019, while surgical case mix index increased 5% versus the pre-COVID baseline. In terms of the pandemic, we provided care for approximately 2,300 COVID admissions or 2% of total admissions, compared to 3% of admissions during the prior year quarter and 12% last quarter. On average, COVID cases during the second quarter were lower acuity and less resource intensive on a year-over-year basis and sequentially. Shifting to labor. We remain focused on our plans to retain our workforce, recruit new clinical employees and reduce contract labor. The number of nursing hires increased by more than 30% compared to the first quarter and our turnover rate declined 20%. These are clearly favorable trends as we work to reduce contract labor and create sufficient permanent staffing for key services and market share gains as healthcare demand strengthens. Contract labor expense declined each month of the second quarter and we finished June with 30% fewer contract labor FTE compared to the end of March. Still, contract labor remains at very elevated levels versus prior year without the higher acuity inpatient revenues previously seen in the COVID pandemic, which partially offset its EBITDA impact. Already rates for contract labor are going down and we continue to aggressively execute our recruitment and retention initiatives to build and strengthen a stronger core workforce. Through these efforts, we expect sequential quarterly improvement as the year goes on. Earlier I mentioned that negative operating results in two markets had an outsized impact on the overall company performance in the second quarter. First, let me say that the vast majority of our 48 markets have adapted well given the challenging macro environment. However, on a year-over-year basis these two markets, which have historically had lower than company average EBITDA margins accounted for 20% of the total company EBITDA decline during the second quarter. In a more normal operating environment, the impact of underperforming markets in any given quarter is typically absorbed by stronger growth and performance in other markets. This year, even in higher performing growth markets, elevated labor costs have resulted in lower net revenue conversion rates than we have historically delivered. It is important to reiterate that the majority of our markets are making progress and continue to appropriately adjust their operations and execute strategies designed to achieve long-term volume and earnings growth. Now I'd like to cover four areas of immediate and underlying focus for the company: opportunistic growth, rebuilding our workforce, incremental expense reduction initiatives, and leveraging our CHS centralized resources. First, opportunistic growth. Our management team has undertaken a strategic opportunities assessment to accelerate net revenue and EBITDA growth across several key markets, which include strengthening physician alignment, service line investments, payor strategies, incremental access point expansion and evaluating potential strategic partnerships. We are pursuing newly identified opportunities aggressively. Shifting labor capital and other resources were most advantageous, especially to markets with the highest growth potential. We're optimistic this work can accelerate more growth and earnings improvement. We continue to invest in additional development opportunities. On the inpatient side during the quarter, we opened Northwest Medical Center Houghton, our fourth hospital in Tucson, Arizona. We broke ground on a $66 million tower addition that will add 56 beds and more ER capacity at Sonova, North, a well-situated campus in our Knoxville, Tennessee system. We announced a $30 million investment at our hospital in Warsaw, Indiana, a part of the Lutheran Health Network. Later this year, we will begin to open even more inpatient beds as part of multiple expansion projects in our Naples Florida market. On the ambulatory side of the business, we continue to expand access points in our markets and we are growing our ambulatory surgery center footprint as more surgical care shifts to the outpatient setting. New ASCs opened in Knoxville and Cleveland, Tennessee during the second quarter. We now have 46 ASCs across our portfolio with planned additions before the end of the year and a full pipeline in place for 2023. Second, rebuilding our workforce. As everyone knows, the COVID pandemic created seismic shifts across the industry affecting staff recruitment, compensation and retention. But as I mentioned earlier, we are now seeing sequential improvement that we expect to continue including progress in new hire rates and retention rates. Our centralized nurse recruitment program supports all of our markets and is achieving solid results. We have enhanced our benefits program to provide more tuition reimbursement and loan repayment options, which has received positive feedback from employees. Our work to provide nursing education opportunities and to develop the next generation of nurses continues through our partnership with Jersey College. Four campuses are fully operational, another will open in the third quarter and six more by the end of 2023. Across these programs, we expect to graduate 1,000 new nurses per year. Third, incremental expense reduction initiatives. During the second quarter, non-labor operating expenses were flat to prior year. Our biggest opportunity and focus is further contract labor reduction. In response to the current operating environment, in select markets, we are consolidating some service locations and intentionally reducing capacity and staffing. Of course, we will do this where it makes sense and in ways that balance the labor supply challenges with our focus on growth and expanding market presence in the long term. Fourth, leveraging CHS centralized resources. Our company-wide resource programs are driving improved operational performance. For example, our transfer center achieved a 5% increase in inbound transfers from non-CHS facilities versus prior year quarter and delivered solid gains sequentially as well. Centralized scheduling initiatives, physician and nurse recruitment team, utilization review and capacity optimization resources, accountable care organization, and other centralized programs and expertise continue to support the advancement of operational goals and help enhance competitive position in our markets. I will also note that our managed care contracting team is targeting opportunities to improve rates on agreements coming up for renewal as well as proactively analyzing existing contracts and we see opportunity here. In closing, let me reiterate that we are not satisfied with our overall results in the second quarter. However, we remain steadfast in our commitment to pursue every option and opportunity to improve. And to that end, I want to thank our local health system and company leadership team, who remain optimistic about our future and who share our commitment to achieve the best results possible. With that, Kevin, let me turn the call over to you.

Thank you, Tim, and good morning, everyone. As Tim mentioned, our second quarter results came in well below our expectations, as lower than anticipated volume and net revenue per adjusted admission impacted the top line. As the quarter progressed, the return of non-COVID-related patient volumes was lower than we anticipated. Other net revenue, consisting of investment losses and the runoff of transition service revenue from prior divestitures, further reduced our EBITDA. Contract labor and wage inflation also impacted our financial performance. Due to the impact of these factors in the current quarter, along with our updated thoughts for the balance of the year, which includes a more gradual return of deferred care and higher than anticipated inflationary pressures, we have revised our full year 2022 guidance, which I will cover later on the call. Moving to the second quarter results. Net operating revenues came in at $2.934 billion on a consolidated basis. On a same-store basis, net revenue was down 2.6% compared to the second quarter of 2021. This was the net result of a 0.5% decrease in adjusted admissions and a 2.1% decrease in net revenue per adjusted admission, which was negatively impacted by lower non-patient net revenue. Adjusted EBITDA was $253 million. During the second quarter, we recorded $8 million of pandemic relief funds with $1 million recognized in the prior year period. Excluding pandemic relief funds, adjusted EBITDA was $245 million with an adjusted EBITDA margin of 8.4%. Volume improved sequentially, but generally remained suppressed as a result of the residual effects of the pandemic, while higher operating costs also due to the pandemic remained inflated. Switching now to expenses. On the labor expense side, labor cost and contract labor expense remained elevated on a year-over-year basis. We experienced an approximately 8.5% increase in our average hourly rate for employees on a year-over-year basis. However, sequentially we saw average hourly rates decline 40 basis points and expect labor inflation to remain relatively flat in the back half of the year. Our contract labor expense also increased significantly over the prior year. During the second quarter of 2022, contract labor was approximately $150 million compared to $50 million in the prior year quarter. The current quarter, however, showed sequential improvement, down from $190 million in the first quarter of 2022. Moderation of contract labor is slower than we originally expected, and we now anticipate future progress to continue at a pace that is also slower than we previously expected. We continue to effectively manage our non-labor-related expenses. This would include supply costs as well as vendor-related expenses, including insurance, utilities, rent and a number of other fixed costs. Due to benefits from our margin improvement program efforts and focused expense management, we have held absolute dollars relatively consistent over the past six quarters. And we achieved these results while incurring ramp-up costs in opening three new hospitals, a host of new access points and increasing use of software-as-a-service during a time of record high inflation. Turning now to cash flows. Cash flows provided by operations were $154 million in the first six months of 2022, down from $280 million in the prior period. Excluding the repaid Medicare accelerated payments that were made in the first six months of 2021, cash flows provided by operations were $414 million for the first six months of 2021. Lower EBITDA, higher contract labor costs and the timing of interest payments contributed to the lower cash flows in the first half of the year. Moving to CapEx. For the first six months of 2022, our CapEx was $191 million compared to $212 million in 2021. Due to the lower performance in the second quarter, the company's net debt-to-EBITDA increased to 7.1 times. Although interrupted by the current operating environment, we remain focused on our longer-term goals of lowering our leverage and increasing our free cash flow. In terms of liquidity, we have no outstanding borrowings under the ABL with $894 million of borrowing base capacity available to us. Also, at the end of the first quarter, we had $346 million of cash on the balance sheet. As a reminder, we have no debt maturities until 2026. While the company's formalized divestiture program was completed in 2020, we continue to receive interest around other potential divestitures. As we receive this interest we are analyzing the long-term strategic fit of specific assets and we will continue to analyze the impact potential divestitures would have on our future financial leverage and free cash flow generation. Now I will walk you through the updated full year 2022 guidance. Net operating revenues are anticipated to be $12.2 billion to $12.5 billion. Due to the lower net revenue expectation, adjusted EBITDA is now expected to be $1.3 billion to $1.4 billion. Net loss per share is anticipated to be a loss of $2.55 to a loss of $1.65 based on weighted average diluted shares outstanding of 128 million to 129 million shares. Cash flow from operations is now anticipated to be $500 million to $600 million. CapEx has been reduced to $400 million to $450 million to adjust for delays caused by disruptions in the supply chain and to align growth capital with the current labor market. Cash interest is expected to be $820 million to $840 million. As we think about the remainder of the year, we expect adjusted EBITDA to improve sequentially with the fourth quarter of 2022 still being our highest adjusted EBITDA quarter of the year. As Tim highlighted, we have a number of initiatives that are performing quite well. As we work to address the challenges in this current environment we remain committed to executing our strategic initiatives which we believe are positioning the company for future growth and success and which we believe will continue to benefit all of our stakeholders. We do not view 2022 as the new baseline. Rather it is a period of disruption and unusual events. Looking out longer term, we believe the stronger return of deferred care, the execution of our growth and strategic initiatives, our successful expense management and continued focus on cash flow and capital structure management will allow the company to achieve its medium-term financial goals, which includes targets for a 16%-plus EBITDA margin, positive annual free cash flow generation and reducing our leverage below five times. Ross, at this point, I'll turn the call back to you.

Thank you, Kevin and thank you, Tim. At this point, Matt, we're ready to open up the call for questions. We will limit everyone to one question this morning but as always you can reach us at 615-465-7000.

Thank you. We will now begin the question-and-answer session. Our first question will come from Jason Cassorla with Citi. Please go ahead.

Great. Thanks. Good morning. Thanks for taking my question. So there were two markets out of the 48 total that had a disproportionate impact on results. I guess, first, can you give us a sense of what the typical revenue and EBITDA contribution of those two markets are as a percent of the total company operations just so we have an idea? And then second, does the second quarter's performance for those two lagging markets change how you're thinking about both the underlying demand and your competitive positioning within those markets specifically? Thanks.

Thank you for the question, Jason. To address your concern, the performance in those two markets has not changed our perspective on the overall portfolio. We believe the circumstances were specific to those areas and we are adjusting our plans to reflect that uniqueness. In relation to the overall company impact, the decrease in net revenue and EBITDA from those markets accounted for about 20% of the total EBITDA decline for the quarter. It's important to note that neither of these markets are among our largest five states.

Yes, Jason, this is Tim. And I'll add on to Kevin's comments regarding the positioning of these markets for the long-term. As we said, certainly, we see them as outliers, the performance of these markets as outliers. A big portion of that was on the SWB and contract labor side of the equation where the market dynamics really just skyrocketed at levels that do not typically happen in a normal operating environment. So these are some of the markets where we're being very focused on consolidating services across multiple campuses to take out some of the cost, the variable labor costs in particular, which we believe was just a large drag on the margin. Also in terms of that monitoring, which services to perhaps exit permanently, but our goal is to position all of our markets in the short term in particular very well to do a better job of managing the operating expenses just to make sure it matches the revenues that we're generating.

Our next question will come from A.J. Rice with Credit Suisse. Please go ahead.

Hi, everybody. It's Nick Giovacchini on for A.J. today. I appreciate you taking the question. With the volumes down so much, can you kind of give us an idea of how on both the inpatient and outpatient side the volumes exited the quarter? And can you also kind of give us an idea of how you're thinking about how they trend in the back half? Thanks.

Sure. As we moved out of the first quarter in March, we experienced a significant increase in volumes as we began to recover from the early surge of COVID in that quarter. This trend aligned with our observations following previous surges and continued into April. However, in the latter half of the quarter, we noticed a decline; the return of non-COVID business decreased and did not carry on as we had seen in prior waves where deferred business continued to arrive. I would say that the second half of the quarter was weaker in this regard compared to the first half. Tim, do you want to add?

Yes, I would say that the volumes throughout the quarter were somewhat unpredictable. There were varying levels of performance across different regions, which is unusual for us. Some markets did show nice and consistent growth, but as I mentioned earlier, this came with a lower net revenue conversion rate that affected our overall results and made it harder to overlook the underperformance in the two markets we highlighted today. Additionally, we faced disruptions to our unification schedules due to quarantine circumstances related to COVID. It’s been challenging to pinpoint the specific impacts in different areas, but we are closely monitoring these trends on a daily basis and adjusting our operating expenses in real-time to adapt to the changing environment.

Our next question will come from Ben Hendrix with RBC. Please go ahead.

Thank you very much guys. Just a couple of staffing stats here. Where does your agency labor stand currently as a percent of total nursing hours? And how has that progressed year-over-year and sequentially? And then among the employed staff side, what's your turnover rate now versus pre-COVID? Thank you.

Sure. I'll start that off here. So our contract labor for the quarter represented about 10% of our total labor cost. That compares to 13% in the first quarter. So we did bring it down. Pre-pandemic, contract labor represented about 2% of our labor costs. So we're still at a very elevated percentage of our total cost as contract labor.

Yes, Ben, this is Tim. I'll expand on that. Regarding turnover, we're seeing sequential improvement in both our retention and hiring rates. We track everything daily with a net RN gain to be aware of these two distinct factors. We're very pleased with our progress. Given the impact of COVID and the necessary staff quarantines, the orientation process for new hires takes between four to 12 weeks, depending on their experience. Therefore, we likely haven't fully realized the benefits of the hiring I mentioned for the second quarter. We expect these benefits to manifest in the third quarter as new caregivers assume permanent roles and we reduce our reliance on contract labor. Although the nursing turnover rate is still higher than pre-pandemic levels, we've managed to reduce it by approximately half from last year's peak when we experienced a significant number of staff leaving for travel assignments or due to burnout. I noted in the last call that we are committed to bringing back nurses who left in 2021 and throughout 2022. We have achieved some success in this area but still have work to do. I believe that once children return to school, we might see more of these individuals reentering the workforce. Our focus remains on maintaining strong relationships with our care team members who exited the organization during the pandemic.

Our next question will come from Brian Tanquilut with Jefferies. Please go ahead.

Hi, good morning. This is Taji Phillips on for Brian. So my question today is actually about leverage. Can you provide some detail on the status of your covenants and maybe discuss your outlook on cash generation in the near term? And altogether, how does that factor into your approach to deleveraging? Thanks.

Sure. So we are covenant light. So we do not have any covenants to speak of and no concerns around that at this point. We do expect to generate positive free cash flow in the back half of the year. And for the full year, we expect to be able to be back to free cash flow neutral. So again, it's a much better position than we had been for several years historically. We've made a lot of progress in that area and believe that we can continue to grow that free cash flow into future periods. That certainly does then give us some comfort along with the recovery and execution of a number of the growth initiatives that we've been talking about this morning that will allow us to get back to our medium term targets of being below five times levered here within four years. We reiterated those medium-term targets and still feel very comfortable that we can get those.

Our next question will come from Kevin Fischbeck with Bank of America. Please go ahead.

Hi, great. Thanks. I guess, obviously, good to see that you're still looking at those medium-term targets on margin. But obviously given the magnitude of the decline in margin this year, would love to get a little bit of color if you could kind of help bridge us from here to there? The decline was very rapid. Would you expect a rapid increase or will we be expecting a meaningful improvement on that trajectory in the next year or two, and then more modest, or is it kind of a slow steady rebuild over the next four years? It's just interesting to me, I guess, if you also within that answer kind of comment on the improvement in labor that you're expecting against the improvement in volume that you're expecting. It seems to be difficult to show improvement on both at the same time. I feel like there's a push and pull there. So any color on that? Thanks.

This year has been somewhat unique, and we don’t see 2022 as a new baseline. The decline in revenue significantly impacted EBITDA. Similarly, we anticipate that as revenue recovers, it will also greatly enhance EBITDA. We believe there is still a good amount of deferred business available. If we consider our position before the pandemic in 2019, we've made substantial progress by adding several service lines and access points, and we've gained market share in various areas. We expect to capture the deferred care coming back into the system, leading to a strong flow-through into EBITDA. We're focused on staffing to handle this returning volume and have invested in several growth areas, while also evaluating certain service lines in specific markets for potential adjustments. Generally, we are preparing for the upcoming demand. Regarding expenses, we believe that contract labor will stabilize as traveling nurses shift back to more stable employee roles, easing the pressure on the contract labor costs. We're seeing gradual improvements in this area, although the pace has been slower than anticipated due to macroeconomic factors. However, it is still moving in a positive direction. As for other expenses, measuring them strictly as a percentage of net revenue might not be accurate. Instead, looking at our operating expenses per adjusted admission based on our volume offers a clearer perspective. We have successfully kept our non-labor expenses flat over several quarters, despite an increase in admissions. We believe there are still opportunities to manage these expenses effectively, allowing us to navigate ongoing inflation. Thus, as revenues return, we expect to leverage our expenses and continue to grow margins.

Our next question will come from Josh Raskin with Nephron Research. Please go ahead.

Thanks. Good morning. Could you provide more details on the monthly progression of EBITDA throughout the quarter? I'm not looking for specific monthly numbers, but rather an overall sense of how it was improving. Also, does June set you on a path to meet the guidance for the second half, or are you still expecting significant improvement? Lastly, regarding the intermediate-term margins, what occupancy level do you need to reach to achieve those margins? Given that occupancy dropped nearly 600 basis points sequentially this quarter, how much does it need to recover to meet margin goals, considering your fixed cost leverage?

Sure. Let me begin. EBITDA for the second quarter was somewhat inconsistent throughout the period. However, we are optimistic about our position as we finish the quarter and our opportunities ahead in Q3 and Q4 to achieve our targets. We have lowered our guidance from previous expectations mainly due to uncertainty regarding the economic effects on patient behavior, which we cannot fully predict. Considering where we ended Q2 and the recent 75 basis point interest rate increase, along with today’s announcement of a second quarter GDP decline, we are uncertain about the broader impacts on patient behavior during a recession, especially as patients face higher copays and deductibles. Nonetheless, we believe in our initiatives and are confident that some of this care will return. Ultimately, it will come back, and we will be ready to capture it.

Hi, Josh, it's Tim. I'll answer the occupancy question or at least touch on the occupancy question. A couple of points on this one. Obviously, we're always looking to better utilize our fixed capacity, our fixed operations. And we know whatever incremental case or volume that comes in, we do a better job of covering that fixed cost. I do want to point out that throughout the quarter, variable labor spend, variable labor staffing was very well managed. But I think we found out on this new higher cost structure on that variable labor, the negative impact on flow through net revenue conversion to EBITDA. That's where it really hampered our ability to drive through the earnings in the quarter. But in terms of occupancy rates, the reason we have a difficult time just saying we want to be at 55% by this period. We have some markets that are at 100% and we're adding more beds. I mentioned the Naples market we'll be opening up over 100 beds over the next couple of quarters out of that market, because they run at high occupancy rates. We have other markets that just have a larger physical footprint, where it dilutes the overall occupancy performance in our strongest market. What I would also share with you, even though occupancy percentage is publicly reported, it's a little bit more difficult to assess the full use of our fixed capacity with such site of care shifts. As we mentioned, we had a large movement of inpatient surgery to outpatient classification in the quarter. It's a continuing trend and that's something that's unique to us. But those patients, by and large, are still occupying our fixed inpatient beds. They're just not captured in that occupancy calculation, so just to clarify that. In terms of that site of care movement, those types of things, we're plenty happy to have that in an ASC setting, which we're expanding rapidly as well. The vast majority of our most competitive markets do have an ambulatory surgery asset located within them. So we certainly are positioned well in that regard. But we also have no problems with that care taking place within our hospital setting to help us drive that better fixed cost leverage throughout the margin profile for that market.

Our next question will come from Stephen Baxter with Wells Fargo. Please, go ahead.

Hi, thanks for taking my question. I wanted to understand the outlook for contract labor. It seems to be decreasing a bit more slowly than expected. How does this relate to the possibly slower return of demand? I would have thought that contract labor would be one of the first things to adjust given lower revenue. Additionally, with your hiring significantly increased, I was surprised to hear that the hourly wage decreased slightly from the first to the second quarter. How should we interpret this? As hiring continues to rise, should we expect some sequential increases in those wage numbers? Thank you.

Sure. On the contract labor, we were at $190 million in the first quarter of contract labor, $150 million in the second quarter. We had previously indicated, we expected to exit the year at approximately $70 million for the fourth quarter. I would say, our updated guidance considers us now exiting the year closer to $100 million in the fourth quarter of contract labor. And so, it's sequentially kind of lowering from where we are now to get into that $100 million in the fourth quarter. In terms of our expectation on the labor cost, we had initially projected our labor inflation to be about 4% for the year. I think we're close to being on track for that. We've seen about 8.5% growth in this last quarter, similar 7% to 8% in the first quarter. However, we've anniversary or believe we're going to anniversary most of those increases that were put in place in the third and fourth quarter of last year, which is why we're seeing sequentially no further growth. We think that will continue on into the back half of the year. For the year, those will average up to about 4%.

Our next question will come from Andrew Mok with UBS. Please go ahead.

Hi. This is Robin on for Andrew. Average length of stay was down 10% sequentially. Can you help us understand the drivers of that, specifically how did that trend between COVID and non-COVID volumes? Thanks.

Sure. I'll take that one, Robin. Thanks. In terms of length of stay improvement, we've mentioned previously in prior quarters and at a few investor conferences our focused on improving our capacity optimization. We've stood up a centralized utilization review program, standard case management protocols have been rolling out throughout the first half of the year. So I believe we're getting really solid traction on those initiatives. As you pointed out, it frees up certainly some critical capacity, helps us take out some of those variable expenses on staffing, if we're more efficient with how we're operating on the length of stay. In terms of the breakdown between COVID and non-COVID, we obviously saw a nice decline in the COVID length of stay because the acuity was so much lower for the most recent admissions versus what we saw previously, fewer critical care fewer vented patients, and so on. But we saw relatively the same improvement across both COVID and non-COVID care. We also saw some easing of placement of patients into post-acute settings that were upon us in the first quarter. So I think that really helped us again drive better placement but even on discharge to home; every indicator we look at, we by and large set and made some good progress because of our focused efforts and initiatives.

We'll now turn the conference over to Mr. Hingtgen for any closing comments.

Thanks, Matt, and thanks everyone for spending time with us today. Though the second quarter was challenging, we remain focused on the opportunities we have across our portfolio to improve results and to achieve long-term stability and growth that benefit all of our stakeholders. I would like to once again thank all of our caregivers and leadership team for their ongoing commitment to help people get well and live healthier, and to ensure that we continue to provide high-quality health care services in the markets we serve. We look forward to updating you on our progress as we move forward and continue to work diligently to achieve our results. As always, if you have additional questions, you can reach us at (615) 465-7000. Thank you and have a great day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.