美國醫院公司 (HCA) 2010 Q2 法說會逐字稿

Good day, and welcome to the HCA second-quarter 2010 earnings release conference call.

As a reminder, today's call is being recorded.

At this time for opening remarks and introductions, I would like to turn the call over to Mr.

Vic Campbell.

Please go ahead, sir.

Good morning, everyone.

Mark Kimbrough, our Chief Investor Relations Officer, and I would like to welcome everyone on today's call, as well as all of you who are listening on our webcast.

With me here this morning is our Chairman and CEO, Richard Bracken, along with our Chief Financial Officer, Milton Johnson.

Richard and Milton will provide their thoughts on our second quarter in just a couple moments.

Let me remind everyone that should today's call contain any forward-looking statements, they are based on management's current expectations.

Numerous risks, uncertainties and other factors may cause actual results to differ materially from those that might be expressed today.

Many of these factors are listed in today's press release and in our various SEC filings.

Many of the factors that will determine the Company's future results are beyond the ability of the Company to control or predict.

In light of the significant uncertainties inherent in any forward-looking statements, you should not place undue reliance on these statements.

The Company undertakes no obligation to revise or update any forward-looking statements, whether as a result of new information or future events.

And as you heard, the call is being recorded and a replay will be available later today.

I will now turn the call over to Richard Bracken.

Thanks, Vic.

Good morning and welcome to each of you on our call today.

Let me start this morning by reminding all of you that we are currently in registration with the Securities and Exchange Commission regarding a proposed initial public offering of our common stock.

Accordingly, we are in a quiet period while that registration is pending.

As a result and as we did for our first-quarter call, we will not be entertaining questions after our remarks this morning.

We have tried to anticipate your questions today and include more commentary in our prepared remarks.

With respect to the offering, all that can be said at this time is that we continue to assess the timing of the launch based on overall market conditions, sector performance, input from our underwriters, and any other factors that might be relevant.

We are pleased to announce today a favorable quarter of operating results for our company.

In a moment, Milton will review the quarter in detail, but let me just say from an overall perspective despite the continued challenges in our economy and a difficult employment environment, we are reporting a very solid performance for our second quarter.

Our diversified portfolio of assets and services plus favorable cost management metrics have helped deliver these results.

As you can see from the information contained in our release this morning, we closed the quarter with cash revenues up 5.3%, adjusted EBITDA up 6.5%, and cash operating expenses per adjusted admission up 3.6%, all resulting in cash operating margin expansion of 30 basis points.

We are pleased with these broad performance indicators.

We did, however, have some headwinds on our volume metric for the quarter.

Even though inpatient admission volume was unfavorable compared to the prior period, same facility equivalent admissions increased 1.6% and emergency room visits increased 2.8%.

We remain pleased with our network configurations and our strategic growth agenda, and attribute slower volume growth largely to general economic conditions.

Regarding emergency-room volumes, despite a 2.8% growth rate for the quarter, one factor to remember is that in 2009, we experienced a large increase in emergency-room utilization due to the H1N1 pandemic.

Adjusting for this or excluding two related diagnoses in both periods, same facility emergency-room volumes would have increased 3.8% over the prior year, a very solid performance and consistent with our favorable recent trends.

Please note that we believe the impact on prior-year comparison due to this effect should continue during the third and fourth quarters.

We believe the economy and resultant high employment levels most probably have had some effect on admission and patient volumes.

One issue we have determined to be a significant factor in the decline in volumes has been the reduction in deliveries.

You might recall that last year, we performed slightly over 200,000 deliveries.

For the second quarter, same facility deliveries were [off] 5.2% from the prior quarter and 4.1% year-to-date.

Adjusting for this slowdown in deliveries in both years, the Company would have reported same facility admissions growth of 0.5% for the quarter.

Our thinking regarding this reduced delivery volume is that while some of this is related to market share lost due to competitive factors, the significant majority of this reduction is related to a decreasing birthrate trend in the markets we serve.

This is consistent with the CDC National Vital Statistics reports we've been able to analyze for our various markets.

On a more favorable note, our Behavioral Health Service line, which accounts for approximately 4.5% of our admissions, continued to show excellent performance, with admission growth of 5.1% for the quarter.

We continue to see significant opportunities for growth in the Behavioral Service line.

Before I turn the call over to Milton for a more detailed review, let me comment on a couple other issues.

Earlier in the quarter, we announced our intention to acquire Mercy Hospital in the Coral Gables market.

We believe this excellent community hospital will complement our existing facilities of Kendall and Aventura in our Dade County market.

We are hopeful we will be able to complete this acquisition prior to year's end.

You should know that from an enterprise perspective, we are spending a significant amount of time and resources designing our electronic health record technology and strategy for deployment.

We have a solid plan in place which provides for deployment of this technology in a manner which efficiently aligns with high-tech reimbursement dollars available under federal programs.

And finally, I'd like to finish this morning by recognizing that in spite of a challenging operating environment, our quality indicators continue to excel.

If one were to download all of the HCA facilities performance from the HHS Hospital compare website for the second quarter, and compare these with other nationally recognized healthcare provider results, I'm pleased to say that HCA would be among the best.

My thanks to all of our clinical teams and facility executives for providing both efficient and quality healthcare services.

So with that, let me turn the call to Milton.

Thank you, Richard, and good morning.

Each of you should have received our earnings release for the Company's second-quarter 2010 results issued this morning.

Again, this quarter we have included in today's release a supplemental schedule which provides a comparative view of our GAAP revenues and non-GAAP cash revenues in relation to the Company's expense items.

We felt this would be useful due to the effect of our increase in uninsured discounts on our reported revenue.

Now let me provide some general comments and highlights surrounding the quarter.

Second-quarter results were driven by soft revenue trend and a focus on management of cash expenses.

Same facility admissions declined 0.3%, while same facility equivalent admissions increased 1.6% over the second quarter of 2009.

This is the 11th consecutive quarter we have experienced same facility equivalent admission growth over the prior year.

Consistent with recent trends, we continue to see growth in volumes and patients covered by governmental programs.

Same facility Medicare admissions and equivalent admissions increased 2% and 4.9% respectively.

Compared to the second quarter of 2009, our same facility Medicare admissions include both traditional and managed Medicare.

Managed Medicare admissions increased 6.7% on a same facility basis.

This represents approximately 23% of our total Medicare admissions.

Same facility Medicaid admissions grew 2.2% over last year's second quarter, and same facility Medicaid equivalent admissions grew 4.9%.

Same facility managed care and other admissions declined 5.3% in the second quarter compared to the prior year, while same facility managed care and other equivalent admissions declined 4.1%.

Recently, there has been a discussion about how much the hospital industry benefited from the COBRA health insurance subsidy provided for under the American Recovery and Reinvestment Act of 2009.

Our sizing of this indicates the impact on managed care and other equivalent admissions as immaterial.

Same facility uninsured admissions increased only 2.1% in the second quarter compared to last year.

Same facility uninsured admissions represented 6.8% of the Company's total admissions in the quarter compared to 6.6% in 2009.

Surgical trends in the second quarter were soft as elective surgeries declined by 2.1%.

Overall, same facility surgeries declined about 1.4%, comprised of reduction in inpatient surgeries of 2.1% and outpatient surgeries up 0.9% compared to the prior year.

Related to the decline in deliveries, we saw a similar decline in the number of C-sections.

C-sections make up about 14% of our inpatient surgeries, and same facility C-sections were down 4.9% during the quarter.

Same facility inpatient surgeries excluding C-sections declined only 1.6% during the quarter.

Now focusing on revenues.

Our same facility cash revenue per equivalent admission increased 3.7% in the second quarter over the same period last year.

As a reminder, cash revenues is a non-GAAP financial measure and represents reported revenues less the provision for doubtful accounts.

The benefit of $69 million more UPL revenue was offset by an unfavorable shift in payer mix during the quarter.

Acuity, measured by case mix index, increased 2.3% in the second quarter over the second quarter of 2009.

Per equivalent admission -- on a per equivalent admission basis, our rates of increase from Medicare, Medicaid and our managed care payers reflect reasonable growth over last year's second quarter.

Same facility Medicare and Medicaid revenue per equivalent admission increased 2.5% and 8.3% respectively.

Medicaid revenue per equivalent admission excludes Texas UPL revenues.

Same facility managed care and other revenue per equivalent admission increased 6.6% in the second quarter compared to the prior year.

In addition to managed care revenue, this includes revenues from workers' compensation coverage and CHAMPUS/TRICARE coverage.

In May 2009, we experienced a reduction in TRICARE outpatient reimbursement, which adversely affects our revenue growth compared to the second quarter of 2009.

Growth in revenue per equivalent admission for managed care only was 7.5%.

We currently have 97% of our 2010 managed care revenue under contract, and 78% of our 2011 managed care revenue under contract at a rate of increase in the 5.7% to 6% range, excluding any effects from acuity.

Looking at expenses, same facility cash operating expense per equivalent admission increased 3.3% in the second quarter compared to the prior year.

Excluding the increased expenses associated with the Texas indigent-care program or UPL, cash operating expense per equivalent admission increased only 2.5% in the second quarter compared to the prior year.

Sequentially, an improvement from the increase of 3.7% in the first quarter of this year.

Consistent with recent trends, our management teams continued to effectively manage cash expenses and we also continue to benefit from the low inflationary pressure on our cash expenses.

Cash operating expenses is a non-GAAP measure and is comprised of salaries, benefits, supplies, and other operating expenses.

As noted in the earnings release this morning, charity care and uninsured discounts increased by $480 million, due primarily to the Company's revised uninsured discount policy which became effective in August of 2009.

The resulting effect is a reduction in reported revenues from uninsured patients and a similar reduction in our provision for doubtful accounts or bad debt.

As a result of higher uninsured discounts and the corresponding reduction in revenues, salaries and benefits, supplies and other operating expenses will reflect as a higher percentage of reported revenues than in the comparable prior-year period.

To compensate for this effect, management also analyzes our operating expenses in relationship to cash revenue, which is reported revenues less bad debt expense.

I would direct your attention to our release which contains a supplemental non-GAAP disclosure schedule titled Operating Measures on a Cash Revenues Basis.

Salaries and benefits were 39.6% of revenue in the second quarter compared to 39.3% last year.

However, on a percent of cash revenues, salaries were 44.1% versus 44.5% in the prior-year second quarter.

Salary and benefit expense per equivalent admission increased 2.3% in the second quarter on a same facilities basis.

Productivity performance as measured by man hours per equivalent admission was unfavorable, 0.6% on a same facility basis compared to the prior year, an improving trend from the first quarter of this year when we saw a decline of 1.6%.

Same facility wage growth was 3.1% in the second quarter compared to last year.

Supply expense in the second quarter declined to 16.1% of revenues from 16.2% last year.

Supply expense as a percent of cash revenues declined to 17.9% from 18.3% in the second quarter of 2009.

In the second quarter, other operating expenses were 15.9% of revenues compared to 15% in the same period last year.

On a cash revenues basis, other operating expense increased 70 basis points from the prior year to 17.7%, primarily reflecting $42 million of increased expenses associated with the Texas indigent-care program, or UPL.

For the second quarter, same facility charity care discounts totaled $596 million, an increase of $14 million from the prior year, while same facility uninsured discounts totaled $1.065 billion.

Bad debts plus charity and uninsured discounts as a percentage of revenue plus charity and uninsured discounts were at 26.1% in the second quarter compared to 23.7% last year.

We currently have 94% of our total self-paid book reserved.

Upfront collections were approximately $79 million, up 1.8% from the second quarter of 2009.

Adjusted EBITDA increased 6.5% to $1.49 billion in the second quarter compared to $1.399 billion in the second quarter of last year.

Adjusted EBITDA margin improved to 19.2% as a percentage of revenues in the second quarter compared to 18.7% in the prior year.

As a reminder, adjusted EBITDA is a non-GAAP measure and is reconciled to net income attributable to HCA Inc.

in the Company's earnings release.

Net income attributable to HCA Inc.

increased 3.4% to $293 million in the second quarter compared to $282 million last year.

2010 second-quarter results include impairments of long-lived assets of $91 million, while 2009 second-quarter results include losses on the sale of facilities of $3 million and impairments of long-lived assets of $4 million.

The $91 million impairment in the quarter reflects two items, the write-down of a hospital facility in our central group, and a write-off of engineering and design costs associated with revisions to the California seismic legislation.

The requirements related to the revised legislation have significantly lowered our anticipated capital requirements through 2015 for seismic retrofits, from $1.2 billion to approximately $350 million.

The effective tax rate was favorably impacted during the quarter by a completion of audits and certain appeals.

These events resulted in a reduction to tax-exempt interest of $59 million pretax and reduced income tax expense for the second quarter by $37 million.

Our top-performing markets measured by EBITDA growth in the quarter on a year-over-year basis were Las Vegas, Miami, Fort Lauderdale, and San Antonio.

The Company's cash flow from operations in the second quarter decreased by $209 million, to $450 million from $659 million in 2009.

As noted in the release this morning, the decrease was due primarily to changes in operating assets and liabilities of $317 million, reflecting increases in accounts receivable, other receivables and marketable securities, and declines in accounts payable and accrued interest.

Days in accounts receivable at the and of the quarter were 44 days compared to 45 days at the end of the second quarter of 2009.

Capital expenditures totaled $322 million in the second quarter compared to $282 million last year.

We have increased our routine capital spending over 2009, as we maintain our facilities in a well-capitalized position.

During the second quarter, the Company made a $500 million distribution to shareholders funded by borrowings on the cash flow revolver.

Our debt to adjusted EBITDA ratio was 4.7 at June 30, 2010, and the amount available under our senior secured credit facilities at June 30, 2010 was $1.876 billion.

So, Vic, this concludes my comments, and I will turn the call back to you.

All right.

Milton, Richard, thank both of you for your comments.

Hopefully, all of you found them helpful.

We do want to thank each of you who are on the call for the time and interest that you are showing in HCA.

Mark Kimbrough and I will be here in the office if we can be of further assistance to you, and wish you a good balance of the summer.

Thanks for joining us.

This concludes today's conference.

Thank you for your participation.