Good day, and welcome to the Community Health Systems First Quarter 2026 Earnings Conference Call. Please note, this event is being recorded. I would now like to turn the conference over to Anton Hie, Vice President of Investor Relations. Please go ahead.

Thank you, Bailey. Good morning, everyone, and thank you, and welcome to Community Health Systems' First Quarter 2026 Conference Call. Joining me on today's call are Kevin Hammons, Chief Executive Officer; and Jason Johnson, Executive Vice President and Chief Financial Officer. Before we begin, I'll 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 SEC. 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. We've also posted a supplemental slide presentation on our website. All calculations we discuss today will exclude gains or losses from early extinguishment of debt, impairment gains or losses on the sale of businesses and expense from business transformation costs. With that said, I will turn the call over to Kevin Hammons, Chief Executive Officer.

Thank you, Anton. Good morning, everyone, and thank you for joining our first quarter 2026 conference call and for your continued interest in CHS. Before we begin, I want to acknowledge our employees, physicians and all of our teammates who have embraced our vision to make the health care experience exceptional for our patients, our communities and each other. As people across our organization share in this commitment, I am confident we will see the benefits of making that health care experience exceptional. And as we do, more patients will choose our health systems and will create an even stronger company. Earlier this week, we announced some significant investments in ambulatory surgery centers in our core markets including the pending acquisition of a majority ownership interest in the Surgical Institute of Alabama, our largest acquisition since 2016. This surgery center performs more than 8,000 cases annually, and is the largest multi-specialty surgery center in Alabama. We expect to close this transaction during the second quarter. During the first quarter, we also purchased a majority interest in South Anchorage Surgery Center in Alaska and opened two de novo ASCs in Birmingham and Foley, Alabama. These targeted investments extend CHS' ability to provide outpatient surgical care in the most advantageous way for our patients while delivering excellent outcomes, optimizing the surgical experience for our physician partners and driving future growth for our health systems. Turning to our operating performance for the first quarter of 2026, adjusted EBITDA was on the low end of our internal expectations, declining 17.8% from the prior year period, reflecting our strategic transactions to reduce our debt, macroeconomic disruptions across the country, as well as the investment CHS is making in our future. The quarter's results include an approximate $50 million year-over-year EBITDA drag from recently completed divestitures that went from being positive contributors in the prior year period to negative in the first quarter of 2026. Closing these divestitures will remove the negative EBITDA drag from future quarters. Additionally, while we benefited from some out-of-period revenue related to the Georgia State Directed Payment Program, this tailwind was partially offset by out-of-period provider tax increases related to the Indiana program. Same-store net revenue increased 3.1% year-over-year, driven by 3.7% growth in net revenue per adjusted admission, partly offset by a 0.5% decline in same-store adjusted admissions. We believe volume and payer mix challenges in the first quarter reflect a temporary disruption in demand for health care services in our markets. Largely driven by consumer fears related to geopolitical instability and increased cost of living as well as ongoing aggressive practices used by the managed care companies that drive inefficiency, unnecessarily delayed payment and interfere with the delivery of medical care. I'd like to spend a minute on our top priorities this year as we work to enhance quality, patient experience, physician experience and employee satisfaction. We are realizing operational improvements at an accelerating pace, and our ability to advance in each of these areas will also ultimately drive enhanced financial performance and long-term value creation for our organization and shareholders. For example, in the area of quality, when the spring 2026 Leapfrog safety grades are released next month, we expect as many as 80% of CHS' hospitals to receive a Leapfrog A or B grade, up significantly from just 48% this time a year ago. We also expect 56% of our hospitals to receive a CMS rating of three or more stars when those metrics are published next month, up from 45% in the 2025 ratings. These achievements demonstrate our commitment to continuous improvement and our ability to drive stronger performance in this area. We are hyper-focused on improving the experiences of the people working in our organization, especially our physicians and employees, and we have numerous initiatives underway to increase patient satisfaction as well. On the physician experience front, we are currently deploying an ambient listening technology in our clinics and hospitals which will help reduce administrative burdens and optimize the time physicians and other providers spend face-to-face with their patients. Investments CHS has made to expand service lines, add new access points, recruit positions to our markets and improve our quality and experience have us better positioned and prepared to accommodate demand as soon as it returns to normal levels. Before I pass the call over to Jason, I'd also like to discuss the policy backdrop. Similar to our hospital peers and others in the health care industry, we continue to monitor developments related to Medicaid supplemental payment programs in the Rural Health Transformation Fund as well as ACA enhanced premium tax credit expiration and Medicaid work requirements and redeterminations among other changes. It is still very early to gauge the impact of these external factors, while there are a lot of moving pieces, unknown variables and potential consequences. Given CHS' historical and current presence in many rural and underserved markets, we remain actively engaged with policymakers across each of our states to help ensure that programs under the rural health fund are directed towards hospitals and other providers delivering care in these communities, which we believe was the original intent of the fund. We've set up a formal structure with dedicated internal and external resources working to evaluate each state's various programs as details emerge and to apply for any and all funding available to us in order to ensure continued access to quality care in our rural communities. At this point, I will turn the call over to our Chief Financial Officer, Jason Johnson, to review financial results and other information in greater detail. Jason?

Thank you, Kevin, and good morning, everyone. For the first quarter, CHS delivered financial results toward the low end of expectations. The company continued to execute well on the controllable aspects of our business, demonstrate significant progress on our top priorities and further deleverage the balance sheet. However, volumes and payer mix were below expectations, including noteworthy softness in elective procedures such as hips and knees, which along with negative contribution from recently divested operations led to margin compression. Adjusted EBITDA for the first quarter was $309 million with margin of 10.4%. Recently divested hospitals produced approximately $25 million of negative adjusted EBITDA in the first quarter compared to positive $25 million in the prior year period. A portion of the negative results from the hospitals divested in the first quarter was attributable to impact from winter storm events. Results included approximately $25 million in contribution from Georgia state directed payment program that was approved in mid-March, approximately two-thirds of which related to prior periods since the program was retroactive to July 1, 2025. As Kevin previously noted, half of this out-of-period benefit was offset by higher operating expense related to out-of-period Indiana provider taxes. Same-store net revenue for the first quarter increased 3.1% year-over-year, again, driven primarily by rate growth as net revenue per adjusted admission was up 3.7% year-over-year, including the benefit from new state-directed payment programs, partly offset by unfavorable payer mix shift. Same-store inpatient admissions declined 1.3% and adjusted admissions were down 0.5% year-over-year. Same-store surgeries declined 2.2% and ED visits were down 2.8%. Labor cost was well managed overall with approximately 2% year-over-year growth in average hourly rate and same-store contract labor spend down 11% from the prior year period. However, salaries and benefits expressed as a percentage of revenue increased 50 basis points year-over-year on a same-store basis due partly to increased physician employment consistent with the investments Kevin highlighted as well as continued in-sourcing, which we believe positions the company well to capture share of patients as they return to the health care system. Supplies expense remained well controlled, declining 60 basis points year-over-year to 14.9% of net revenue, which largely reflected the decline in surgical volumes along with better procurement and inventory management under our ERP. Medical specialist fees were up approximately 11% year-over-year on a same-store basis, slightly ahead of our forecast for 5% to 8% growth, but were generally consistent as a percentage of net revenue at 5.5%. Cash flows from operations were a use of $297 million for the first quarter versus positive $120 million in the prior year period. Approximately one-quarter of the year-over-year decline was due to core operating performance, but the remainder primarily attributed to timing of certain items such as Medicaid supplemental payments and provider tax payments that should reverse in future quarters. We also experienced a large buildup of AR related to Medicare Advantage accounts due to delayed payments, which we expect to collect throughout the remainder of the year. As expected, during the quarter, we completed the Clarksville, Tennessee, Pennsylvania and Huntsville, Alabama divestitures, generating more than $1.1 billion in gross proceeds and in early February, used a portion of the proceeds to redeem $223 million of the 2032 notes at 103 via a special call provision. As Kevin previously noted, the company's leverage was down slightly at quarter end to 6.5x versus 6.6x at year-end 2025 and down from 7.4x at year-end 2024. Our next significant maturity is in 2029, and at quarter end, we had no amounts drawn on our ABL. In early March, we announced a definitive agreement to divest four hospitals in Arkansas to Freeman Health Systems for $112 million in cash and the assumption by the buyer of certain real estate leases. The transaction is expected to close in the second quarter of 2026, further enhancing liquidity to continue to reduce net debt and leverage or to fund growth investments. Following the completion of the Arkansas divestiture, our net debt will be approximately $9.3 billion, down from $10.1 billion at year-end 2025 and $11.4 billion at year-end 2024. As Kevin previously noted, earlier this week, we announced several ASC investments in Alabama and Arkansas that are either pending or recently completed with a combined price tag of approximately $85 million. We will continue to evaluate opportunities for growth investments across each of our core markets. Our financial guidance for 2026 remains unchanged. While new developments have emerged relative to the outlook that we provided in February, including the approval of Georgia's state directed payment program, the pending divestiture of our Arkansas operations and the ASC investment, we believe these are captured within the initial range for adjusted EBITDA of $1.34 billion to $1.49 billion. There are multiple items on the horizon that could affect guidance in the future, most notably the potential approval of new or enhanced state directed payment programs and potential tailwinds from the Rural Health Transformation Program. We don't have sufficient data to adjust the outlook at this early stage in the year. This concludes our prepared remarks. So at this time, we'll turn the call back over to the operator for Q&A.

Our first question comes from Brian Tanquilut from Jefferies.

This is Meghan Holtz on for Brian Tanquilut. I guess it would be helpful if we could start on the payer mix and volume pressures that you saw in the quarter. Is it due to the macro environment? Or are you seeing particular pressures in your markets, particularly as you start to see some green shoots in Q4 around your commercial book? And then how should we be just thinking about volume for the full year as you had been originally guiding to 1.5% to 2.5% of that 5% revenue growth? Should we still be thinking about that as comps get easier in the second half and you guys hopefully recover some volume.

Sure, I'll start off and then Jason, feel free to jump in. The volume pressures we saw were across the board. I wouldn't call out any specific markets that were worse than others. So we really do believe that it was a broad pressure on volume. It was also concentrated more so in individuals with commercial and health exchange coverage. So that leads us to believe a couple of things. One, it's macroeconomic issues because those are the individuals with high deductibles, and the more aggressive behavior by the managed care companies is, anecdotally, that they've turned the dial up on denying preauthorizations in more cases. So often, those patients are not even getting to us because of that.

Yes. Maybe I would just add as it relates to our guidance, we're assuming low single-digit volume growth for the year. So we're at negative 0.5% adjusted admission for the first quarter. We do think that should recover. And I think payer mix was the other piece that came in less than our expectations for the full year. And similar, we think that comes back as the economy continues to improve.

Okay. And then as a quick follow-up, operating cash flow looked a little weak in the quarter. We assume it's working capital timing-related headwinds that you'll ultimately recapture. But can you just kind of give us the moving pieces on what was going on in the operating cash flow line in the quarter?

Sure. I'll take that one. This is Jason. Yes, there are several items that are timing related that we expect to flip through the rest of the year. I'll name a few here. There's about $90 million of Medicaid supplemental payments and provider tax payments timing. In other words, timing difference between when we either recognize the revenue or the expense of the provider taxes versus when we receive those payments or make the tax payments. There's about $50 million to $60 million related to a buildup of Medicare Advantage accounts receivable due to delayed payments, and we do expect to collect that throughout the remainder of the year. We make our bonus payments annually in the first quarter every year; that's about $50 million. So that will continue to flip back the other way as the accrual for this year builds up. There's $25 million to $50 million of accounts payable timing that occurs and usually does kind of happen at year-end versus the first quarter. And then the final thing I'll mention is about a $15 million initial interest payment on the 2034 notes that were deferred from September 2025 and made this quarter. Those notes were issued in August of last year, and rather than make the initial payment a month or so later, it was deferred until the first quarter.

Our next question comes from Ben Hendrix with RBC.

Great. I appreciate that it's early in the quarter, but just wanted to talk about kind of the HIX exchange headwind from the ETC expiry that we assumed in your guidance. I think in the bridge that we have here, we had about $110 million of revenue, about $25 million of EBITDA assumed. I just wanted to see, based on some of the reports that have come out intra-quarter and your experience, if there's any kind of change to that progression and if you're seeing any kind of regional variation.

Yes. So we haven't made any changes to our assumptions yet. We really don't have a lot more data than we had in February. I do know that our exchange revenue and adjusted admissions remained between 4% and 5%, both the first quarter of this year and last year. Our revenue actually went up, but we did see about a 3.9% drop in adjusted admissions amongst the exchange plan patients. That's similar to what we see with a lot of plans that have high deductibles at the beginning of the year where members stay out of the system. Certainly, there's some portion of those people that may have dropped the coverage or moved to another plan or self-pay; we don't really have any new information yet. I think it's still going to be second or third quarter before we get a better feel for that.

And then just on the core growth that you're anticipating, obviously coming a little bit softer than expected in the first quarter, but how do we think about that phasing through the rest of the year? And I know that you've kind of mentioned some consumer confidence and how do you see that developing as we get closer to the end of the year?

Sure. I think we indicated even at the fourth quarter earnings release, we expected this year to be more heavily weighted in the back half. We had anticipated starting off the year a little softer given consumer confidence coming out of December was muted and low. Throughout the first quarter, we saw a jobs report come out that was much worse than expected, and then the conflict in the Middle East that transpired in March and the rise in the price of oil and gas. We do believe that we'll see some economic recovery in the back half of the year. Second quarter will be a little bit of an easier comp for us as well. We think that with the work that we're doing on improving quality and patient experience, as that gets more traction we'll really be positioned well to capture deferred business as people ultimately come back and have these procedures done. We believe we'll be positioned well to capture that business in our markets, and that should serve us well. But that is likely not to happen until the back half of the year.

Our next question comes from A.J. Rice with UBS.

Maybe first on these acquisitions, the Surgical Institute of Alabama and the Alaska one. I know traditionally I've tended to think of you guys as doing ASCs within your existing markets. Are these adjacent to existing hospitals? Or are you pivoting to now maybe looking more at freestanding ASCs as an investment opportunity? And should we think that there'll be some incremental capital devoted to that going forward?

Thanks, A.J. Great question. These acquisitions, we would still characterize as being part of our networks of care, extending the care area that we're treating patients from those hospitals but still connected within our markets and just an extension of those networks. So not going into what I would call new markets with just an ASC strategy.

Okay. All right. And just maybe some — any update on what you're seeing with labor, hourly wages, contract labor and then professional fees as well?

Yes. The average hourly rate increase was 2.3% during the first quarter versus the prior year. We did make an investment in physicians. We have 30 net physicians added in the first quarter. That's probably about $5 million of salaries, wages and benefits. And we in-sourced an anesthesia program in November of 2025, and that's about $2 million to $2.5 million of additional expenses this quarter. Contract labor came down 11%. I think we're continuing to see a return to rate and usage that are more consistent with pre-pandemic levels.

And maybe if I could add a little more color. I think Jason absolutely got that right. But as I think about Jason's comments that we added some additional positions during the quarter, part of what we experienced and as we're being intentional about working on physician experience, our physician turnover decreased during the quarter. We were able to continue to hire new positions at the previous pace we have been hiring, which has allowed us to add net new physicians. That positions us well. It comes at a little bit of a cost right now without the volume, but adding new physicians to the labor cost will position us well in the future as this business comes back, we'll have more capacity to take on additional patients with the additional physicians. So we view that as a net positive for us, even though it was a bit of an extra cost this quarter.

Our next question comes from Stephen Baxter with Wells Fargo.

This is Mitchell on for Steve. Can you give us a sense of the financial profile of the four Arkansas hospitals you announced are going to be divested as well as the large ASC investment? Just trying to better understand how that fits into the guidance.

Yes, Mitchell, thanks for the question. The $112 million proceeds from the Arkansas transaction, that's about a 10 to 12 multiple. That was not reflected in our initial guidance in February. So that will come out for about half a year. But the ASC investments are largely going to offset that; they're just about a wash. So no effect on our guidance between netting those.

Our next question comes from Andrew Mok with Barclays.

This is Thomas Walsh on for Andrew. Can you help us better understand the uncompensated care and self-pay mix shifts in the quarter as ACA exchange disenrollment picked up? What's the most direct driver of higher uncompensated care — higher uninsurance or worsening collections from the insured population?

Over time, the collections experience does continue to drive a natural trend that we see. I don't think there was anything outsized this quarter. There was an increase in self-pay volumes this quarter. So relative to the overall net revenue, it increased as a percentage of total. I don't know that there's any one thing that we can point to, except that part of this could be the behavior of folks without insurance if they continue to come into the health systems regardless of what's happening in the broader macro environment.

I do think it's a fair point, and we've taken into consideration the additional risk of collectibility of co-pays and deductibles in that amount and have adjusted accordingly.

Great. And following up, there are a number of moving parts inside the pricing — 3.7% in the quarter. Could you help us understand the contribution of normal course rate increases, incremental state directed payments and then the payer mix or acuity headwinds?

Yes. The normal rate increases are, I think, consistent with our guide around 3% of the impact. The Medicaid supplemental payments from Georgia, which I mentioned was approved this quarter, was about $30 million of revenue and about $25 million of EBITDA. That's nine months' worth or three quarters, so that's worth about $10 million a quarter on revenue and $8 million to $9 million on EBITDA. The rest of the change was netted against those benefits, probably evenly between slight drop in acuity as well, but it's more about payer mix and volume offsetting those total rate increases.

This concludes our question-and-answer session. I would like to turn the conference back over to Kevin Hammons, Chief Executive Officer, for any closing remarks.

Thank you, everyone, for joining the call today. If you have any additional questions, you can always reach us at (615) 465-7000. Have a good day, everyone.

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