LPNT

LifePoint Hospitals, Inc. (LPNT)

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Lifepoint Hospitals Inc. (LPNT)

Q3 2012 Results Earnings Call

October 26, 2012 10:00 AM ET

Executives

Bill Carpenter - Chairman and CEO

Jeff Sherman - Chief Financial Officer

David Dill - President and COO

Analysts

Josh Raskin -Barclays

A.J. Rice -UBS

Tom Gallucci - Lazard Capital Markets

Darren Lehrich - Deutsche Bank

Ralph Giacobbe - Credit Suisse

Whit Mayo - Robert W. Baird

Frank Morgan - RBC Capital

Jake Hindelong - Imperial Capital

Presentation

Operator

Before we begin on today’s call LifePoint will be making forward-looking statements based upon management's current expectations. Numerous factors could cause LifePoint's results to differ from these expectations and LifePoint has outlined these factors in its filings with the SEC. The company encourages you to review these filings.

LifePoint also asks that you please review the cautionary language under the caption Important Legal Information in the company's press release issued this morning. The company undertakes no obligation to update or make any other forward-looking statements, whether as a result of new information, future events or otherwise. Also, please visit LifePoint's website for links to various information and filings.

Ladies and gentlemen thank you for standing by. And welcome to the LifePoint Hospitals’ Third Quarter 2012 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operator Instructions)

As a reminder, this conference is being recorded, Friday, October 26, 2012. I would now like to turn the conference over to Mr. Bill Carpenter, Chairman and Chief Executive Officer with LifePoint Hospitals. Please go ahead, sir.

Bill Carpenter

Thank you. Welcome everyone to LifePoint Hospitals' third quarter 2012 earnings call. We hope you've had a chance to review the press release we issued earlier this morning. After my initial remarks, Jeff Sherman, our Chief Financial Officer will discuss in detail LifePoint's results for the third quarter. After our prepared remarks, Jeff and I, as well as David Dill, our President and Chief Operating Officer, will be available to answer your questions.

Let me start out by saying that this was challenging quarter. On today’s call, I’d like to discuss what happened in the quarter, highlighting certain costs which were related to investments we’ve made for the future, as well as some changes we experienced in our business. All these impacted our results. Then I’d like to review the actions we are taking to address these challenges and the progress we are making to best position the company heading into 2013.

We’ve made a number of investments that while critical to the company’s future growth and success impacted the bottom line this quarter. We recorded $6.2 million in transaction-related costs associated with the closing of the Marquette General Health System transaction.

Marquette is the only tertiary care provider serving 300,000 residents in the upper Peninsula of Michigan and has leading programs in specialties such as cardiology and oncology.

In addition to having a new established revenue stream, it presents opportunities for growth in a very attractive market. We recorded $4.4 million in debt retirement costs associated with our new credit facility and term loan.

This allowed us to extend the maturity of this debt and lower our borrowing costs. The strength of our balance sheet is a differentiator for Lifepoint and will allow us to continue to invest in our hospitals, acquire new hospitals and buyback stock.

We also recorded $1.8 million in retention costs related to our recently announced shared services agreement with Parallon. By outsourcing accounts payable, supply procurement and revenue cycle operations over the next two years. We expect to achieve greater operating efficiencies, improve our performance and generate incremental earnings. Jeff will discuss these and other items in more detail shortly.

There have also been some changes in our operations. These items are having an impact on our business and we expect them to continue going forward. In the third quarter, we experienced a reduction in revenue of $4 million related to recovery audit contractors or RAC take backs.

In addition, reimbursement from indigent funding programs in New Mexico declined by $2.8 million in the quarter. We’re committed to our strategy of delivering high quality care and service, growing in each market and through acquisitions, improving operating efficiency and developing talent.

A cornerstone of our strategy continues to be moving into faster growing markets with a more diversified employer base. Over the last year, we’ve acquired hospitals with $500 million in annualized revenues or approximately 15% of our total revenues.

We’re confident in the potential of our recent acquisitions, while each of these acquisitions will ramp up at a different pace. We expect all of them to meet our expectations within three to four years.

Our recent acquisition of Marquette is an excellent example of the kind of growth opportunities we’re seeking. It also highlights the evolution of our unique partnership with Duke and demonstrates our focus on pursing hospitals that we believe will become centers of a regional integrated health system.

We will invest in physician recruitment and capital improvement projects at Marquette. And believe that over time, we will create a successful network to meet the demands of the future in that region.

Importantly, Marquette represents over $300 million of the $500 million in acquired revenue over last year, and we've only operated the hospital for a month. We’re excited about our ability to develop an integrated healthcare delivery system in the region.

With that, I’d now like to turn the call over to Jeff to discuss our financial results for the third quarter in more detail. Jeff?

Jeff Sherman

Thank you, Bill and good morning everyone. The third quarter results were below our plan. We performed at our expected level in July, but did not meet our plan in the months of August and September. With many moving parts in the quarter, I want to provide a perspective on the third quarter results as detailed in our press release this morning.

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