美國醫院公司 (HCA) 2010 Q3 法說會逐字稿

Welcome to the HCA third quarter 2010 earnings release conference call.

Today's call is being recorded.

At this time for openings remarks and introductions, I would like to turn the call over to the Senior Vice President Mr.

Vic Campbell.

Please go ahead, sir.

Michael, thank you.

Good morning everyone.

Mark Kimbrough our Chief Investor Relations Officer and I would like to welcome all of you on today's call.

Including those of you listening to the web cast.

I hope you have either received or seen the two releases that we issued this morning.

The first, was our third quarter earnings release.

And the second, announces our plans to offer $1.525 billion of senior unsecured notes.

We will discuss both of these on today's call.

With me here this morning, as normal, our Chairman and CEO, Richard Bracken.

Along with our Chief Financial Officer, Milton Johnson.

Both Richard and Milton will provide their thoughts on the third quarter in a few moments.

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

Numerous risks and 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 releases and in our various SEC filings.

Including our third quarter form 10-Q which was filed early this morning.

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 a reminder, this morning's call is being recorded.

And a replay of the call will be available later today.

With that, I will turn the call over to Richard Bracken.

Okay, thank you, Vic.

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

Let me start this morning by reminding all of you that we remain in registration with the Securities and Exchange Commission, with respect to our proposed initial public offering of our common stock.

As a result, we continue to be in a quiet period while that registration is pending.

And as we have done in prior quarters this year, we will not be entertaining questioning after our remarks this morning.

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

With respect to the offering, we will assess the timing of the launch based on overall market conditions, sector performance, and input from our underwriters.

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, and despite the ongoing challenges in our economy, and a difficult employment environment, we are reporting a very solid performance for our third quarter.

Our diversified portfolio of assets and services combined with favorable cost management initiatives, and a persistent focus on improvements in clinical care and patient service, have helped deliver these results.

The way I think about the third quarter, is that it is a continuation of the trends we reported throughout the first half of the year.

Headwinds relative to volume and revenue growth remain.

But we were success NFL increasing our adjusted EBITDA, due to a favorable market share and cost management performance.

Cash flow generation from operations remained strong at $1.26 billion, 21% greater than in the third quarter of the prior year.

As you can see from the information contained in our release this morning, we closed the quarter with cash revenues up 4.6%, cash operating expenses up 4.3%, and adjusted EBITDA up 6.6%.

We also reported an adjusted EBITDA margin expansion of 90 basis points.

A very solid performance on these broad performance indicators.

As we noted in the previous quarter, pressure on our patient volumes remain, even though growth and in-patient admission volumes was unfavorable compared to the prior period.

Same facility equivalent admissions did increase 0.7%, and same facility emergency room visits increased 1.2%.

We're 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 same facility 1.2% growth rate for the quarter, it's important to remember that in the third quarter of 2009, we experienced a large increase in emergency room utilization due to the H1N1 pandemic.

Excluding flu-related diagnoses in both periods, same facility emergency room volumes would have increased 3.9% over the prior year.

A very positive performance and consistent with the favorable trends we have recently reported.

We believe the high number of flu-related admissions in the fourth quarter of 2009 will also burden 2010 fourth quarter comparisons.

We do feel that the economy and resultant high unemployment levels most probably have had some effect on admission and patient volumes.

As we mentioned in our second quarter call, one issue we have identified as a significant factor in volume decline has been the reduction in newborn deliveries.

For the third quarter, same facility deliveries were off 5% from the prior year quarter and 4.4% year-to-date.

Adjusting for this slowdown in deliveries in both periods, I reported same facility numbers improved by 70 basis points.

From a decline of 0.6% to an increase of 0.1% for the quarter.

To be more specific, while some of this reduction is related to market share loss due to competitive factors in some markets.

The significant majority of this reduction we believe was related to a decreasing birth rate trend in markets we serve.

This is consistent with the vital statistic reports we have been able to analyze for our various markets.

Now, before I turn the call over to Milton for a more detailed review of our financial and operating statistics, let me comment on a couple of other issues.

On November 1, in conjunction with our respective partners in each of those markets, we completed the acquisition of the Heart Hospital of Austin.

And yesterday, signed a definitive agreement to acquire the Texsan Heart Hospital in San Antonio, Texas.

And we look forward to the addition of these clinical services and capacity to our networks in these markets.

I would like to recognize that our clinical quality indicators continue to excel.

If one were to download all of the HCA facilities performance from the HHS Hospital Compare website for the third quarter, and compare these with other nationally recognized health care 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 health care services.

And finally, as you may have read in our release this morning, we announced our intention, subject to certain legal and contractual restrictions, to make a $2 billion distribution in the fourth quarter of 2010, to existing stockholders and holders of vested stock options.

We anticipate that this will be funded using a combination of funds available under the Company's senior secured revolving credit facility.

And the proceeds from a new -- from new indebtedness contemplated to be incurred by a newly created holding company.

The decision to make this distribution reflects the Company's continued positive operating performance, increase in earnings, cash flow, and improvement in debt coverage ratio.

All of which remain ahead of our model.

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

Thank you, Richard.

And good morning to all.

The Company issued its third quarter earnings release earlier this morning.

And hopefully, each of have you had an opportunity to review the results.

Once again, we have included in today's release the 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 believe this is useful due to the effect of our increase in uninsured discounts on our reported revenues and the provision of doubtful accounts.

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

Generally speaking, our third quarter results including adjusted EBITDA, patient volumes, payer mix, revenue rates, and expense management were generally consistent with our run rate during the first half of 2010.

I will now elaborate on each of these measures in more detail.

During the third quarter, same facility admissions declined 0.6%, while same facility equivalent admissions increased 0.7% compared to the prior year.

This is our 12 consecutive quarter reporting a growth in same facility equivalent admissions over the prior year.

And as Richard mentioned, the decline in total admissions is attributable to two factors.

Same facilities levering were down 5%, or about 2,666 deliveries.

In the quarter.

And same facility flu-related admissions declined 8.8%, or about 2,230 admissions.

Recall that it was last year at this time when we experience so much of the H1N1 pandemic effect.

With all of the volatility associated with the deliveries and flu-related admissions, a look at year-over-year admission growth without deliveries, and flu-related admissions for the last four quarters, yields growth of 0.7%, 1%, 0.2%, and 0.8% respectively.

In other words, total admissions have shown just a slight growth for the last four quarters.

In a relatively consistent trend, without the volatility of flu and deliveries.

Consistent with previous quarters, we saw growth in volume from patients covered under governmental programs.

Same facility Medicare admissions and equivalent admissions increased 2.3% and 3.5% respectively.

Compared to the prior year's third quarter.

Our same facility Medicare admissions included both Traditional and Managed Medicare.

Managed Medicare admissions increased 5.6% on the same facility basis, and represent approximately 24% of our total Medicare admissions.

The same facility managed care and other admissions declined 5.8% in the third quarter, compared to the prior year.

While same facility managed care and other insurer equivalent admissions declined 3.5%.

This is generally consistent with the 3.3% rate of decline we experienced in the first quarter.

And the 4.1% rate of decline we experienced in the second quarter related to same facility managed care and other insurer equivalent admissions.

Same facility uninsured admissions increased 1,043 admissions, or 3.9%, in the quarter, compared to the prior year.

Same facility uninsured admissions represent 7.4% of our total admissions in the third quarter.

Compared to 7.1% in the third quarter of 2009.

Same facility surgical volume in the quarter declined 2.1%, driven by reduced elective and C -Section related surgical procedures.

Elective surgeries declined 3.2% in the quarter.

While C-Sections, which make up approximately 15% of our inpatient surgeries on a same facility basis, declined 4.9% compared to the prior year.

Same facility in-patient surgeries declined 2.6%.

While out-patient surgeries declined 1.8% compared to the prior year.

Now, turning to revenue.

Our same facility cash revenue per equivalent admission increased 3.9%, in the third quarter over the prior 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 $35 million more UPL revenue was offset by an unfavorable shift in payer mix during the quarter.

Acuity, measured by case mix index, increased 2.6%, on a same facility basis in the third quarter, over the third quarter of 2009 and same facility Medicare revenue per equivalent admission increased 2.6%.

While same facility Medicaid revenue per equivalent admission excluding the Texas UPO's revenues declined 2.3%.

Same facility managed care and other insurers revenue per relevant admission increased 6.9%, compared to the prior year third quarter.

Managed care contracting for a 2011 managed care book is 75% complete.

At a rate of approximately 6% excluding the effects of any acuity.

As disclosed in our earnings release this morning, charity care and uninsured discounts increased by $476 million in the third quarter, compared to the prior year.

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 revenue, and a similar reduction in our provision for doubtful accounts or bad debts.

In the third quarter, same facility charity care discounts totaled $585 million, an increase of $48 million from the prior year.

While same facility uninsured discounts totaled $1.17 billion, an increase of $425 million, from the prior year.

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

To compensate for this effect, management also reviews our operating expenses in relation to cash revenues.

Which is reported revenues less bad debt expense.

Therefore, we have included in our release, this morning, a supplemental non-GAAP disclosure schedule entitled Operating Measures on a Cash Revenue Basis for your review.

We were pleased with the expense management in the quarter, as same facility cash operating expense per equivalent admission increased 3.3%, compared to the prior year.

Excluding the $30 million of increased expenses associated with the Texas Indigent Care Program, or UPL, same facility cash operating expense per equivalent admission increased 2.8% in the third quarter.

Consistent with recent trends, we continue to benefit from low inflationary pressure, while effectively managing our cash expenses.

Cash operating expense is a non-GAAP measure and it is comprised of salary and benefit, supplies, and other operating expenses.

As I described each of our expenses, please refer to the aforementioned operating measures on a cash revenue basis schedule, for an analysis of the expenses as a percentage of revenue.

Salary and benefit expense per equivalent admission increased 3.5% in the quarter on a same facility basis.

Productivity performance as measured by man hours per equivalent admission, was unfavorable by 1.2% on a same facility basis compared to the prior year.

And our wage rate increased 3% on a same facility basis, compared to prior year.

Supply costs per equivalent admission increased 1.2% on a same facility basis compared to prior year.

Supply costs continue to benefit from contract pricing established by our GPO, Health Trust Purchasing Group, and numerous supply savings initiatives resulting from our hospital management teams.

Same facility other operating expenses per equivalent admission increased 5.9%.

Primarily reflecting $30 million of increased expenses associated with the Texas Indigent Care, or UPL.

Excluding the increased expenses associated with the Texas Indigent Care program, other facility -- I'm sorry, same facility other operating expenses per equivalent admission increased only 3.6% in the third quarter.

Adjusted EBITDA increased 6.6% to $1.357 billion, reflecting an adjusted EBITDA margin of 17.8%, a 90 basis point improvement from the prior year.

On a cash revenue basis, the adjusted EBITDA margin was 19.6%, a 40 basis points improvement from 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.

Bad debts plus charity and uninsured discounts as a percentage of revenue, plus charity and uninsured discounts, were 26.4%, compared to 24.9% in the previous year's third quarter.

We have 93% of our total stuff pay-book reserve.

Up-front collections for approximately $76 million, up 6.2% from the prior year.

Strong cash flows from operating activities totaled $1.26 billion in the third quarter, compared to $1.041 billion in the previous year.

The increase of $219 million was primarily due to a decline in income tax payments, reduction in working capital items, and an increase in net income.

Days and accounts receivable at the end of the third quarter were 44 days, compared to 43 days in the third quarter of 2009.

Capital expenditures totaled $324 million in the third quarter, compared to $296 million last year.

And during the third quarter, we repaid $785 million of debt.

The Company's debt to adjusted EBITDA ratio was 4.52 times at September 30, 2010.

On a pro-forma basis to reflect a contemplated $2 billion distribution, and related indebtedness, the debt to adjusted EBITDA ratio would be 4.88 times at the same date.

The amount available under our senior secured credit facilities at the end of the third quarter was $2.157 billion.

So Vic, that concludes my remarks and I will turn the call back to you.

Milton, Richard, thank you very much.

Thanks to all of you for being on this morning's call.

Wish you all a good day.

Thank you very much.

And that does conclude today's conference.

We thank you for your participation.