美國醫院公司 (HCA) 2010 Q4 法說會逐字稿

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

Today's call is being recorded.

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

Vic Campbell.

Please go ahead, sir.

Cindy, thank you, and good morning to everyone.

Mark Kimbrough, our Chief Investor Relations Officer, and I would like to welcome everyone on today's call.

Also all of you that are listening to the webcast.

With us here this morning is our Chairman and CEO, Richard Bracken, and our CFO, Milton Johnson.

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

But first 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 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.

Also, as all of you know, 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 the registration is pending.

And as we've done in prior quarters, we will not be entertaining questions after our remarks this morning.

As reminder, the call is being recorded and a replay of the call becomes available later today.

With that I'll turn the call over to Richard.

Thank you very much.

All right.

Thank you, Vic.

And thanks to all for joining our call today.

I'm sure that most of you are aware of the information contained in our earnings release that we distributed earlier this morning.

In just a moment Milton will provide details about the quarter, but I thought it might be helpful to start today by sharing a few observations we have about the year in general.

We judge 2010 to be another year of very solid performance for our Company.

For the full year in 2010, the Company reported revenues totaling $30.7 billion, cash revenues, or net revenues less bad debts, were up 4.7%.

Cash operating expenses increased 4.2%, reflecting an effective expense management agenda during a period in which we made substantial investments in technology and physician integration strategies and in quality and service improvement agendas.

Same-facility equivalent admissions increased 1.4%, a strong result in light of a declining birth rate and the challenging comparables caused by the H1N1 pandemic of 2009.

We believe that this growth in equivalent admissions generally reflects stable or improving market share, improved networks in the communities we serve, and an effectively executed growth strategy.

Adjusted EBITDA totaled $5.868 billion, up 7.3% from $5.472 billion in 2009.

Our 2010 adjusted EBITDA margin was 19.1%, up 90 basis points from 18.2% in 2009.

And the Company's net cash provided from operations increased 16% to $3.199 billion.

2010 was also a year when we achieved much progress relative to our clinical performance agenda.

HCA continues to excel on CMS's clinical core measures, with 74% of our measures now exceeding the 90 percentile nationally.

This equates for an industry leading score of 98.4% on measures of performance and caring for patients heart attacks, heart failure, pneumonia, and surgical care.

Additionally, as our industry seeks solutions to improve the efficiency and safety of the system, we are also experiencing much progress.

Consider that in 2010 we achieved reduced infection rates, improved emergency department wait times, instituted industry-leading practices to eliminate C-sections and elective deliveries before 39 weeks gestation, required flu vaccinations or masks for clinical employees, and improved radiation safety protocols to name just a few.

Despite a challenging overall economy, including high unemployment levels and uncertainty regarding health care reform, we performed well in the year.

We believe this performance stems not only from a strong portfolio of hospitals well positioned in good locations with favorable growth dynamics, but also reflects an operating agenda that has effectively created value by leveraging the scale of our operations.

We continue to believe much opportunity remains to improve not only financial performance, but patient care outcomes and service.

Clearly in 2010 we, as the industry overall, saw pressure on cash revenue per equivalent admission from all government payers.

As an offset, we saw solid performances in labor productivity, and strong improvements in our supply chain and shared services operations.

Same-facility supply costs per equivalent admission were up 0.6%, and we continue to believe that there are many opportunities for improved cost management, as a result of our size and scale.

I also think it's important to note that we make -- we continue to make significant investments in those operating action plans, we believe will deliver value in the years ahead.

For example, our substantial investments in developing electronic health records should position us well for improving our efficiency in delivering patient care and improving both patient and physician satisfaction.

Our EHR deployment schedule has been designed to enable us to achieve the full benefits of the high-tech reimbursements from CMS, which we expect the to begin receiving later this year.

From a supply chain perspective, we look forward to gains from our global sourcing initiatives, our clinical pharmacy programs, operating room supply management initiatives, expanded GPO contracts, and division-based contracting to continue to mitigate rising supply costs.

And as I have mentioned in previous calls, we are seeing more activity in the acquisition and development area.

A growing number of America's health care institutions are finding it difficult to cope with today's operating environment.

In 2010 we acquired two hospitals in concert with our joint venture partners in Austin and San Antonio.

We presently have agreements to acquire two additional hospitals in our South Florida and Wichita, Kansas, markets.

And not only are we seeing a growing pipeline for potential acquisitions of hospitals, but in physician practices, surgery centers and other ancillary health care providers as well.

So let me just close by taking a minute to recognize all of our management teams for their tremendous work during the year.

The ability to improve financial performance while continuing to invest an important growth initiatives and our quality agenda, all in a tough economic environment, requires a very best in facility leadership.

And we expect to go forward in 2011 with the same degree of focus and determination for performance.

So with that, let me ask Milt to comment with more specifics about the quarter.

Thank you, Richard, and good morning to all.

Hopefully each of you had the opportunity to review the Company's fourth quarter earnings release issued earlier this morning.

Once again 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 believe this is useful due to the effect of our increase in uninsured discounts on our reported revenues and the provision for doubtful accounts.

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

The Company's fourth quarter result, including adjusted EBITDA, patient volumes, payer mix and expense management, all trended generally a little better than our run rate during the first half of 2010.

Cash revenue per equivalent admission was the only key financial measure that trended down compared to the first half of 2010.

Now let me elaborate on each of these measures in more detail.

During the fourth quarter, same-facility admissions increased 0.4%, while same-facility equivalent admissions increased 2.3% compare to the prior year.

This is our thirteenth consecutive quarter reporting growth in same-facility equivalent admissions over the prior year period.

During the fourth quarter, year-over-year admissions, excluding deliveries and flu related admissions, grew 1.7%, or well above the range of growth rates experienced during the past four quarters.

Deliveries have been weak in 2010.

However, in the fourth quarter same-facility deliveries declined only 0.9%, much improved from the decline of 4.4% during the first nine months of 2010.

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

Same-facility Medicare admissions and equivalent admissions increased 3% and 4.7% respectively compared to the fourth quarter of last year.

Our same-facility Medicare admissions include both traditional and managed Medicare.

Managed Medicare admissions increased 7.4% on a same-facility basis and represents approximately 23% of our total Medicare admissions.

Same-facility managed care and other admissions declined 4.6% in the fourth quarter compared to the prior year, while same-facility managed care and other insured equivalent admissions declined only 1.7%, the least declines since the fourth quarter of 2009.

We observed an improving trend in several markets such as Richmond, San Antonio, San Jose, Tampa, El Paso, the Rio Valley -- the Rio Grande Valley, and Northern Virginia.

Same-facility uninsured admissions increased by 2,192 admissions, or 8.9% in the quarter compared to the prior year.

Same-facility uninsured admissions represented 7% of our total admissions in the fourth quarter, compared to 6.5% in the fourth quarter of 2009.

Same-facility surgical volume in the quarter declined a modest 0.3%, driven by reduced elective and C-section related surgical procedures.

Elective surgeries declined 3.9% in the quarter, while C-sections, which make up approximately 15% of our inpatient surgeries, declined 2.2% compared to the prior year on a same-facility basis.

Same-facility inpatient surgeries declined 0.6% in the quarter, while outpatient surgeries declined only 0.1%, compared to the prior year.

Now turning to revenues.

Same-facility cash revenues grew 3.3% during the quarter.

The volume component of this aforementioned was mentioned before, 2.3% increase in equivalent growth.

Our same-facility cash revenue per equivalent admission increased 1% in the fourth quarter over the prior year.

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

UPL revenue declined $26 million, and the unfavorable shift in payer mix during the fourth quarter is offset by acuity, measured by case mix index, which increased 0.9% in the fourth quarter over the fourth quarter of 2009.

In addition to a decline in UPL revenue of $26 million, a significant driver of weak cash revenues per equivalent admission growth was a 0.5% decline in same-facility Medicare revenue per equivalent admission, due to the lack of a rate increase on October 1, and also a 0.8% decline in same-facility Medicare case mix.

And this appears to be more related to the strong case mix in the fourth quarter of 2009 then in the fourth quarter of 2010.

Same-facility Medicaid revenue per equivalent admission, including -- I'm sorry, excluding [tax issue] UPL revenues, declined 1.5%.

Same-facility managed care and other insurers revenue per equivalent increased 6.7% compared to the prior year's fourth quarter.

We did see a 2.8% increase in the case mixed index for managed care and other insurers in the quarter, and managed care contracting for our 2011 managed care book is 85% complete at a rate approximately 5.6% to 6%.

Same-facility charity care and uninsured discounts increased by $472 million in the fourth quarter compared to the prior year.

In the fourth quarter same-facility charity care discounts totaled $605 million, an increase of $77 million from the prior year, while same-facility uninsured discounts totaled $1.439 billion, an increase of $395 million from the prior year.

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

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 Revenues Basis.

We were very pleased with the expense management in the quarter, as same-facility cash operating expense per equivalent admission increased a modest 0.5% compared to the prior year.

Excluding the $17 million decline of expenses associated with the Texas [uninsured] care program, or UPL, same-facility cash operating expense per equivalent admission increased 0.9% in the fourth quarter.

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

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

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

Salary and benefit expense per equivalent admission increased 2.1% in the quarter on a same-facility is basis.

Driven by the year's best productivity performance and lowest wage rate growth, productivity performance as measured by man-hours per equivalent as mission declined 0.1% on a same-facility basis compared to the prior year, and our wage rate increased 2.2% on a same-facility basis compared to last year.

Supply costs per equivalent admission was flat on a same-facility basis compared to the prior year.

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

For example, we continue to roll out our operating room supply management initiative, which results in improved inventory management and physician satisfaction in the OR.

Same-facility other operating expenses per equivalent admission decreased 2%, primarily reflecting the $17 million less expense associated with the Texas UPL program.

Excluding the expenses associated with the Texas UPL programs, same-facility other operating expenses per equivalent admission declined 0.6% in the fourth quarter.

Adjusted EBITDA during the quarter increased 7.8% to $1.44 billion of -- I'm sorry, $1.447 billion, reflecting an adjusted EBITDA margin of 18.7%, 100 basis points improvement from the prior year.

On a cash revenue basis, the adjusted EBITDA margin was 20.2%, an 80 basis point improvement from the prior-year period.

As a reminder, adjusted EBITDA is the non-GAAP measure and is reconciled to net income attributable to HCA Holdings, 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 26.2%, compared to 24.1% in the previous year's fourth quarter.

We currently have 93% of our total self-paid receivables reserved, upfront collections were approximately $69 million in the quarter, up 2.4% from last year.

Cash lows from operating activities totaled $588 million in the fourth quarter, compared to $432 million in the previous year.

The increase of $156 million was primarily due to the decline in income tax payments.

Days in accounts receivables at the end of the fourth quarter were 46 days, compared to 45 days in the fourth quarter of 2009.

Capital expenditures totaled $465 million in the fourth quarter, compared to $402 million last year.

For the year, capital expenditures totaled $1.325 billion, compared to $1.317 billion last year.

We do project capital expenditures in 2011 in the $1.5 billion to $1.6 billion range.

Acquisitions totaled $233 million during 2010, compared to it $61 million in 2009.

And as Richard mentioned, we expect to close on two additional hospital acquisitions in early 2011, totaling approximately $210 million in purchase price.

We expect to see additional opportunities in 2011 for growth from acquisitions and joint ventures.

The Company's debt to adjusted EBITDA ratio was 4.81 at December 31, 2010, compared to 4.69 at the end of last year -- at the end of 2009, rather.

And the increase is attributable to borrowings to fund the $4.3 billion in distributions to shareholders that we made in 2010.

The amount available under our senior secured credit facility at the end of the fourth quarter was $1.314 billion.

So this, Vic, concludes my comments.

And I'll turn the call back to you.

Milton, thank you.

A lot of good information I hope for all of you.

Richard, thank you.

We thank everyone for being on the call, and look forward to seeing and talking to you again soon.

Have a great day.